Mining executives Bill Beament and Raleigh Finlayson have highlighted the way in which equity incentives can deliver big returns.
Mining executives Bill Beament and Raleigh Finlayson have highlighted the way in which equity incentives can deliver big returns.
Under the leadership of executive chairman Bill Beament, Northern Star Resources has become one of Western Australia’s most successful companies.
With a market capitalisation in excess of $6 billion, the gold miner is the fifth most valuable company headquartered in the state.
In light of this success, the company’s board announced two months ago that Mr Beament had earned a big pay rise.
His base salary will nearly double, from $725,000 to $1.4 million per year. Only five other chief executives in WA will have a higher base salary.
(click to view a PDF version of the full special report, including a list of the top paid 100 WA executives)
Mr Beament also has the potential to earn annual bonuses and long-term equity incentives.
That explains why his total remuneration last financial year was $3.1 million.
Most of this – $2.2 million – was the valuation attributed to performance rights granted to Mr Beament.
Under his new remuneration package, Mr Beament has the potential to earn up to $7.2 million via cash incentives and performance rights.
The real value of equity incentives, whether they are share options or performance rights, is only known when they vest and are exercised by the holder.
In Mr Beament’s case, three million of his performance rights proved to be worth $28.7 million.
The rights vested in mid-October, following the achievement of defined performance hurdles over a period of three years.
By exercising the performance rights, Mr Beament received three million fully paid ordinary shares at zero cost.
With Northern Star shares trading at around $9.58 when the rights were exercised, this equated to a benefit of $28.7 million.
Voting at this year’s Northern Star annual meeting suggests there is some sensitivity around this matter.
While only 2 per cent of shareholder votes were cast against the company’s remuneration report, there was a 41 per cent vote against the granting of a further 535,000 performance rights to Mr Beament.
A final note on Mr Beament – the conversion of his 2016 performance rights meant he incurred a $6.4 million tax liability.
To help fund the tax liability, he raised $4.5 million by selling just over 500,000 Northern Star shares last month.
His timing was not ideal – the taxable value regarding the performance rights was set when the shares were trading at $9.58.
His subsequent share sale was at $8.99 per share.
The discrepancy between statutory pay, as published in annual reports in accord with current accounting standards, and realised pay, is the subject of an annual review by consulting group Ownership Matters for the Australian Council of Superannuation Investors
The consulting group calculates realised pay by adjusting reported pay but then adding the value of any equity incentives that vest during the year.
On this basis, it found Qantas chief executive Alan Joyce was Australia’s highest-paid chief executive last year.
It estimated Mr Joyce’s total pay in FY19 was $23.8 million, as he reaped the rewards of a long-term incentive plan.
By comparison, Mr Joyce’s reported pay in Qantas’ annual report was much lower at $10 million.
Mr Joyce had been granted millions of shares in 2014 when they were worth $1.26 each and they vested in 2018 at $5.66, the report said.
A surprise inclusion in its top 10 listing was Saracen Mineral Holdings chief executive Raleigh Finlayson.
The review said Mr Finlayson’s realised pay was $11.3 million after adding the value of performance shares that vested during the year.
By comparison, Saracen’s annual report stated that Mr Finlayson had total remuneration of $1.9 million.
Business News has reported on many other chief executives and company directors who have benefited from the vesting and conversion of performance rights.
South32’s Graham Kerr received $8.1 million worth of ordinary shares following the vesting of rights in August.
He sold around $4.8 million worth of shares on the same day to cover his tax liability.
Austal managing director David Singleton received ordinary shares worth $4.98 million following the vesting of 1.19 million performance shares on September 9.
Westgold Resources managing director Peter Cook received ordinary shares worth $4.55 million, following the vesting of 2.25 million performance shares on September 4.
NRW chief executive Jules Pemberton converted 625,000 performance rights worth $1.5 million into ordinary shares on August 30.
