From the Australian 27/04/17
Bonus for turning up
The big executive salary push is to cut long-term bonuses in favour of bigger short-term bonuses paid in stock and it is a total nonsense.
Look no further than fallen mining services star Boart Longyear, which last year paid its new chief Jeffrey Olsen $US554,400 in short-term bonuses. That came on top of a base pay of $US536,154 and in total pay reached $US1.9 million.
So uncertain were the company’s finances that auditors at Deloitte declined to given an opinion on whether the company would last 12 months.
Yet the board, under former BHP executive Marcus Randolph, was happy enough to pay Olsen the bonus even before unveiling plans to talk with debt holders about recapitalising the company — let alone knowing the outcome of those reports.
The bottom line is these bonuses should be paid for extraordinary work, not simply turning up and hitting the pay clock.
Companies treat executive bonuses as essentially fixed pay but it looks better to split the fixed component.
CEOs don’t like long-term bonuses much because they are risky, and who wants to take risks when you can avoid them?
The auditor’s report released in the company’s annual report yesterday was dated February 27, ahead of an announced recapitalisation plan unveiled on April 3 in which debt holders including private equity firms Ares Management, Centrebridge and Ascribe would reduce debt and interest costs. When a company’s auditor declines to give an opinion on the accounts, few would say the company’s performance is good.
In its report Deloitte noted that “we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on this financial report”.
It noted last year the company incurred a net loss of $156.8m and as of December 31 its liabilities exceeded assets by $337.5m.
Deloitte noted the private equity talks, but said “we have been unable to obtain sufficient evidence as to the likelihood that a successful conclusion to the restructuring discussions will be achieved”.
Management, however, still received its bonus.
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