Options boost returns to CEOs

Share option schemes made a big difference to the total remuneration of more than 20 chief executives last year.

Minara Resources managing director Peter Johnston, who has revived the nickel miner’s fortunes since joining the company three years ago, was by far the biggest winner.

He was granted share options worth $1.3 million, lifting his total remuneration to $2.9 million.

The value of options depends on several variables, including their maturity and their ‘exercise’ price relative to the current share price.

The biggest winners from share options have been chief executives who have presided over a period of strong share price growth, which boosts the value of their options.

The winners included Gallery Gold managing director Hadley Bohannan (options worth $383,000), Amity Oil managing director Howard McLaughlin ($349,050) and Dragon Mining’s James Searle ($336,374).

In each case, the options granted to these chief executives were worth more than their base salary.

Another big winner was former managing director at Hardman Resources, Ted Ellyard.

Last week he exercised two million options to buy Hardman shares at a price of $1.10.

He then sold the shares on market at $1.92, yielding an instant profit of 82 cents per share.

The same strategy has been employed by many other chief executives, delivering handsome returns but in the process diluting the stake of other shareholders.

Listed companies are required to seek shareholder approval for their share option schemes, in contrast to cash salaries and bonuses which do not require shareholder approval.

While there is often debate over the terms of share options schemes, they are normally approved by shareholders.

A rare exception occurred in May, when Alinta shareholders rejected a proposal to issue 200,000 options to managing director Bob Browning.

The value of the options was assessed by PricewaterhouseCoopers to be between 35 cents and 70 cents, based on the prevailing share price of $6.09.

Had the options been approved, their value would have risen substantially, since the share price is now about $7.60.

Alinta chairman Tony Howarth said at the time the board would seek alternative ways of remunerating Mr Browning, who has led Alinta through a period of national expansion and higher profits.