When the 2006 BRW
Rich List arrives on 18 May, at least half a dozen Babcock & Brown
executives should feature for the first time, assuming last year’s $110
million threshold isn’t dramatically increased.

It is worth dwelling on the announced pay packets in this morning’s annual report
and then contemplating how these have been dramatically under-stated
over the past two years. Let’s rank the top 10 from 2005, but include
the comparisons from 2004.

Name Position 2005 pay 2004 pay
Phil Green CEO $12.18m $10.32m
Michael Maxwell property boss $10.06m $3.77m
Peter Hofbauer infrastructure boss $9.44m $4.65m
Martin Rey Europe boss $7.03m $3.54m
Steven Zissis aircraft leasing boss $5.73m $10.26m
David Ross chief operating officer $5.64m $2.02m
Robert Topfer corporate finance boss $5.09m $4.67m
James Babcock executive chairman $4.62m $4.97m
Daniel Brickman structured finance boss $4.47m $4.09m
James Fantaci US and leasing boss $4.41m $2.4m

While it looks like most have
had a decent pay rise, the only problem with this is that the 2004
figures are grossly understated because a slew of options that were
issued the day before the October 2004 float, at just $5 a share, were
only valued at $1.27 each.

Take CEO Phil Green. He was issued
800,000 options exercisable at $5 each on 5 October, 2004, but this was
only valued at $1.016 million in the 2004 pay tables. Given the stock
opened at $7.98 on 6 October, 2004, they were actually worth $2.4
million one day after they were issued – more than double the valuation
used in the annual report which came out six months later.

you take the current market price of $17.95, Green’s pre-float options
grant are $10.36 million in the money. This increases the value of his
2004 pay packet to almost $20 million and means he has actually taken a
substantial pay cut in 2005.

Therefore, the above chart, derived
from the 2005 Babcock annual report, is completely misleading because
of the ridiculously low options valuations. This is a rort that is rife
right across the listed company sector, although today’s example is one
of the worst we’ve seen.

It’s time to put an end to this and
have the value of earlier option grants adjusted to reflect the market
price each year. Let’s hope today’s Babcock annual report will finally
bell the toll and prompt a decent debate among regulators, institutions
and shareholder groups about how equity grants are valued because at
the moment they are being systematically under-stated.