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South Africa: JSE Bosses Get Hefty 'Cap Plan' Payouts
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Business Day (Johannesburg)
13 May 2008
Posted to the web 13 May 2008
Renée Bonorchis
Johannesburg
JSE CEO Russell Loubser's remuneration package grew 119% in the previous financial year to R13,1m, under an accelerated payout of the JSE's long-term incentive scheme.
The JSE was one of the first companies to cap the sum a director can make from a long-term incentive scheme. It said this was to bring certainty to its income statement, but analysts say it benefits executives more.
As a quid pro quo for the cap, the scheme's vesting times were accelerated, with 50% of the shares vesting last year . The first tranche was granted in January 2006 before the JSE listed at a base price of R8,31. It was capped at R100 and in November, when calculations for remuneration were made, the share was at R85.
This meant the long-term executive scheme appreciated more than 10 times. Loubser received R5,78m last year from the scheme, while most executive directors got about R3,5m in addition to pay and bonuses.
Nicky Newton-King, deputy CE of the JSE, said the company had capped the scheme to bring certainty to its income statement. Share-related payouts are now expensed through the income statement, but to cap the scheme JSE staff had to agree.
Nick Icely, an independent remuneration consultant, said he had never seen capping of a vesting price in schemes he had reviewed. But he said it could not have been a hard negotiation, as half the scheme culminated in a vesting period of less than two years.
" The effect of the acceleration has led to maximising of executive return rather than the capping of company expense. There is a very good chance the December share price will be below R100 per share," Icely said.
The JSE's share price has averaged R69,60 this year and it fell sharply off its R92 high last December . But, as Newton-King pointed out, the trend at the time of capping was up.
Analysts even now have said the JSE's share price is undervalued, but with the subprime crisis starting in August and interest rates rising, by October one could have taken the view that many equity counters were going to fall.
Icely said shareholders may feel the accelerated vesting was opportunistic: "One could say the JSE should be operating not only as custodian of shareholder value and good governance, but as a practitioner of such."
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The second tranche of the JSE's scheme might not, however, present the same problem. Newton-King said that to offset its cost the JSE had hedged the scheme at a cost of R32m.
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