During the share-market boom of the past two decades, shareholders and workers have witnessed an almighty increase in executive remuneration. That rise was vindicated by so-called independent directors on the grounds that executives need to be rewarded due to their extraordinary skills and ability to create shareholder wealth. Despite the global financial crisis exposing many executives for being fast-talking charlatans, remuneration has certainly not deflated with the vigor it increased. In some cases, it has continued to rise despite appalling shareholder returns and financial losses. No better example is the case of the embattled Asciano and its CEO, Mark Rowsthorn.

Rowsthorn’s journey to the executive boardroom occurred in the more traditional way, by getting a job at his father’s business. Rowsthorn’s father, Peter Rowsthorn together with Paul Little, conducted the management buy-out of Toll Holdings from mining company, Peko-Wallsend in 1986. The Little-Peter Rowsthorn partnership was one of the finest in Australian corporate history – since listing in 1993, Toll grew to be one of Australia’s largest logistics companies with revenues exceeding $4 billion – eventually acquiring stevedoring company Patrick (and its significant holding in Virgin Blue) as well as the Pacific National rail network.

It is widely believed that a conflict between Little and Peter Rowsthorn’s son, Mark, led to the eventual split of Toll (Mark Rowsthorn was an executive director of Toll and is listed as a ‘co-founder of Toll’ despite being only 31 at the time of the LBO). Toll’s infrastructure assets would be spun-off into a separate company called Asciano, led by Mark Rowsthorn. Unfortunately, for Mark Rowsthorn, and Asciano shareholders, the company received not only valuable infrastructure assets, but also around $5 billion debt.

Since being spun off in June 2007, Asciano has managed to lose $181 million in 2008, followed by a $244 million loss this year. The excessive debt load necessitated an emergency $2.4 billion capital raising in June 2009 at the price of $1.10. The capital raising came after the company unsuccessfully tried to sell assets to reduce leverage through a long-running and fruitless ‘monetisation process’.

However, it was not merely the external factors which caused Asciano shareholders to witness the company’s share price slump from $11.64 in June 2007 to $0.50 in November 2008. Rather, it was old fashioned hubris, through the botched takeover of Brambles (which ended up costing shareholders more than $100 million) and the foolhardy rejection of a $4.40 takeover bid from private equity firm, TPG.

Despite those decisions and Asciano’s share price currently sitting at $1.50, almost 90% below its listing price, the Asciano board felt it apt to pay Mark Rowsthorn a performance bonus of $741,678 in 2009. Given the share price performance of Asciano, and the significant amount of money lost, shareholders would be justified in questioning exactly what Rowsthorn has done to earn his bonus.

Asciano’s Remuneration Report noted that Rowsthorn’s short-term cash bonus was based upon ‘achievement of target EBITA’, safety improvements and debt reduction. The use of EBITDA, rather than net profit was especially convenient for Rowsthorn given Asciano (which is debt laden) incurred substantial interest payments, depreciation, write-downs and restructuring costs in 2009 – all of which are not considered in EBITDA. Those pesky items are of great relevance to shareholders, who aren’t paid dividends based on an accounting make-believe world where interest payments and asset write-downs apparently don’t exist.

What made the payment of Rowsthorn’s 2009 bonus all the more surprising was that in August last year, in order to appease shareholder unrest, Rowsthorn agreed to reduce his 2009 bonus by $750,000 (even with the bonus reduction, almost a third of Asciano shareholders voted against the company’s 2008 Remuneration Report). At that time, it was reported that “the $750,000 will be deducted from a $1.26 million package of cash incentives that Mr Rowsthorn was to receive if various business targets are reached.”

However, Rowsthorn’s short-term bonus in 2009 fell by only $522,945 compared with 2008. That means either one of two things, either: Asciano and Rowsthorn misled shareholders last year when it was stated that he would reduce his bonus by $750,000; or the Asciano board actually paid Rowsthorn a higher bonus in 2009, despite the company losing several hundred million dollars and encountering a further share price slump of 61 percent. (It appears that the Asciano board did an old retail trick, doubling the price of an item and then claiming that ‘everything is 50 percent off’). Perhaps the Asciano board felt sorry for Rowsthorn – according to BRW, Rowsthorn’s wealth slipped from $1.09 billion to $572 million in the past year.

Asciano shareholders will be able to vote on Rowsthorn’s remuneration in a non-binding resolution at the company’s Annual General Meeting later this tear – rarely would a rejection be more timely.

Disclosure: The writer has a ‘short’ economic interest in AIO securities.

Peter Fray

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