12/11/2008 - 22:00

What price an executive decision?

12/11/2008 - 22:00

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HOW many dollars and how many share options does it take to motivate a chief executive? Judging by recent experience with engineering and contracting companies in the Perth market, it could be anything from $350,000 up to nearly $3 million.

What price an executive decision?

HOW many dollars and how many share options does it take to motivate a chief executive?

Judging by recent experience with engineering and contracting companies in the Perth market, it could be anything from $350,000 up to nearly $3 million.

The appointment of six new chief executives in this sector over the past year has highlighted wide variations in remuneration packages.

It has also highlighted a trend for executives to jump out of second-rank positions at large companies to take the top job at smaller companies.

This sample also indicates that companies with financial and operational problems need to offer more generous remuneration packages to lure new chief executives.

The most recent move in the engineering and contracting sector involved United Group executive Paul Dalgleish, who has agreed to move to engineering company RCR Tomlinson, starting early next year.

Another United Group executive, Stuart Crofts, will start next week as chief executive of civil contracting company Brierty.

The two United executives are taking on the management of companies that have failed to live up to shareholder expectations.

RCR has failed to convert a series of acquisitions into strong earnings growth, while Brierty was forced to announce profit downgrades earlier this year, just a few months after its stock market listing.

Southern Cross Electrical Engineering and Lycopodium, by contrast, have managed very smooth succession plans.

Earlier this year, former Alinta chief financial officer Stephen Pearce moved to Southern Cross. His move allowed Southern Cross founder Frank Tomasi to become non-executive chairman.

Kellogg Brown & Root executive Mark Ward has taken the reins at East Perth engineering company Lycopodium, succeeding Laurie Marshall.

RCR, which has 2,300 staff and contractors in workshops and project sites across Australia, lured Mr Dalgleish with what is potentially a highly lucrative remuneration package.

It starts with an $800,000 salary and a sign-on incentive comprising 400,000 RCR shares currently worth about $320,000.

Mr Dalgeish can boost his annual income by up to 150 per cent, or $1.2 million, if RCR lifts net profit after tax by 60 per cent and improves workplace safety.

The potential size of the annual bonus is noticeable higher than for most other chief executives.

Mr Dalgleish will also be granted up to 8 million options, which will vest if RCR achieves specified earnings per share and total shareholder return targets.

His total package could rival that of John Smith, who took the reins last August at engineering and construction company Clough.

Mr Smith earned $2.9 million last financial year, helped by a base salary of $1.3 million and 'other' benefits worth nearly $480,000. These included payments to cover relocation costs and business class flights to Norway every year for Mr Smith and his family.

Incoming Brierty chief Mr Crofts has less upside in his package. It comprises a $575,000 salary, an annual bonus of up to 50 per cent and 5 million options.

The most unusual aspect of Mr Crofts' package is the detailed disclosure of his key performance indicators.

The main KPI, with a 50 per cent weighting, is the company's net profit after tax.

Staff safety, staff retention and professional development warrant only a 5 per cent weighting.

Other KPIs include having an effective working relationship with the board and the chairman, and managing a smooth succession with company founder Alan Brierty.

Southern Cross and Lycopodium have negotiated relatively modest remuneration packages.

Mr Pearce's package comprises a $500,000 salary, an annual bonus of up to $200,000 and 1.5 million options currently valued at $570,000.

Lycopodium has an unusual policy of not paying short-term incentives to its senior executives.

Mr Ward has to date been paid just his salary, which currently stands at $650,000.

The company is also proposing a performance rights plan, which works in a similar way to share options.

Rather than disclosing the estimated value of Mr Ward's performance rights, Lycopodium said their maximum was $1.12 million.

The Southern Cross and Lycopodium equity incentive schemes are subject to shareholder approval at meetings planned for later this month.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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