After copping
the second biggest protest vote against its remuneration report over
the past year, booming miner Oxiana Resources has finally come out and
done this mea culpa two months after the AGM took place.

However,
chairman Barry Cusack and CEO Owen Hegarty have focused on issues which
were not the point of the protest, and both Andrew Trounson in The Australian
and Michael Pascoe in Crikey yesterday have missed the point. The issue
had nothing to do with option valuations and the involvement of
non-executive directors in incentive schemes.

The scandal involved changing the performance period on Hegarty’s
options. Hegarty was issued four million options to buy shares at $1.20
apiece at the 2004 AGM, but the notice of meeting only stated that “the
options will vest on 1 June 2006, subject to the satisfaction of
performance hurdles”.

The subsequent 2004 annual report, released in March 2005, clarified that the hurdles were as follows:

  • 50% will vest on 1 June 2006 if the total shareholder return of Oxiana for the year ended June 30, 2005 exceeds the median of the total shareholder return of competitor companies.
  • a further 50% will vest on 1 June 2006 if the total shareholder return of Oxiana for the year ended 30 June 2005 is in the top quartile of the total shareholder return of competitor companies.

Fast forward to the 2005 annual report and suddenly we’re told the hurdles are as follows for these same 4 million options:

  • 50% will vest on 1 June 2006 if the total shareholder return of Oxiana for the two years ended 31 December 2005 exceeds the median of the total shareholder return of comparator companies;
  • a further 50% will vest on 1 June 2006 if the total shareholder return of Oxiana for the two years ended 31 December 2005 is in the top quartile of the total shareholder return of comparator companies.

Oxiana has gone into orbit over the past year but, sadly for Hegarty,
it under-performed in the broader market and its comparator companies over
the 2004-05 financial year. Therefore, the four million options should
have lapsed. Lo and behold, the 2005 annual report changed the hurdle
time frame to two years, so next week Hegarty will be able to write out
a cheque for $4.8 million to buy stock worth $11.84 million based on
this morning’s share price of $2.96.

That’s a paper profit of $7 million for Hegarty at the expense of all
other shareholders who will be diluted. Why the hell can’t the company
just confess that this is the issue rather than putting out complete
smokescreens?

Peter Fray

Get your first 12 weeks of Crikey for $12.

Without subscribers, Crikey can’t do what it does. Fortunately, our support base is growing.

Every day, Crikey aims to bring new and challenging insights into politics, business, national affairs, media and society. We lift up the rocks that other news media largely ignore. Without your support, more of those rocks – and the secrets beneath them — will remain lodged in the dirt.

Join today and get your first 12 weeks of Crikey for just $12.

 

Peter Fray
Editor-in-chief of Crikey

JOIN NOW