At least someone had a great time while the global financial system teetered on the edge of collapse. The Commonwealth Bank's outgoing chief executive, Sir Ralph Norris, in his parting message to shareholders yesterday, did not express too much concern about the turmoil that has led to the collapse of several Wall Street investment banks and brought several countries to their knees.
"I have enjoyed the many challenges we have faced over the past six years, many that were unanticipated, such as the global financial crisis," explained Sir Ralph, who last financial year had $7.72 million worth of "previous years' awards" vest on top of his $4.76 million in cash payments.
HONESTY PAYS
Honesty is one key performance indicator that appears to have performed well at the letterbox leaflet and magazine printing business PMP Limited.
After a bumper 2010 in the honesty arena, PMP has had another stellar year of being honest despite reporting a $11.3 million full-year loss and seeing its shares fall more than 30 per cent since December.
So seriously does PMP treat the issue of honesty that it even notes in its annual report (in bold) that its success depends "on honesty, responsibility and integrity". "We do not compromise our high ethical standards, mislead others or hide from our responsibilities". Phew.
To drive home the importance of being honest, PMP disclosed in its annual report that its chief executive, Richard Allely, pocketed a $401,185 short-term incentive (STI) on top of his $855,750 base wage last financial year. Allely received 31 per cent of his maximum STI. But given he failed to get the 70 per cent of the STI that is linked to profits, it seems Allely cleaned up on the parts of his bonus linked to "personal objectives" and "improved safety".
PMP did not specify what the "personal objectives" related to. CBD can only assume they might be linked with what Allely highlighted in last year's annual report: "Honesty, reliability, teamwork, leadership and professionalism". One wonders how you measure honesty. A polygraph?
Let's just hope the 48 per cent of PMP shareholders who voted against last year's remuneration report have calmed down.
The company has popped a resolution for its annual meeting for Allely to be awarded 2.1 million share rights - half of which will vest based on earnings before interest, tax, depreciation and amortisation profits and the other half on shareholder returns over the next three years. PMP has declined to specify what the EBITDA hurdles actually are, arguing they are "commercially sensitive".
EARLY BIRD
Virgin Australia was happy to let Qantas be the first airline yesterday to trumpet its signing of a long-term commercial deal with Rio Tinto.
The former Rio Tinto CEO Leigh Clifford, now chairman of Qantas, blurted in a press release in the morning that its "long standing partnership" with Rio would continue.
Then after lunchtime came the belated announcement from Virgin that it had "won part of Rio Tinto's global contract for air services".
Virgin Australia declared it as "an outstanding achievement" and that it looked "forward to providing Rio Tinto with the best possible service".
The Qantas press release also referred to the miner as Rio Tino.
READ THE LINES
Yesterday's "Elephant in the Room Announcement Award" goes to the manager of the MFS-founded Premium Income Fund, Wellington Capital.
The Wellington founder, Jenny Hutson, in an investor update yesterday noted how she was committed to "no further capital raising" and "limiting fees to 0.7 per cent of funds under management for two years".
Hutson also noted how the annual financial report "has been completed". She just failed to mention that the fund's auditor PricewaterhouseCoopers declined to provide an opinion on the accounts.
PwC partner Timothy Allman said in the PIF accounts he was unable to attain appropriate evidence on the $135.7 million valuation on the loans made by the mortgage fund to various developers - loans that make up 60 per cent of the fund's net assets.
"At the date of issue of this report, we were unable to obtain access to the external advisers and their supporting work papers and, as a result, were unable to evaluate the appropriateness of the advisers' work and obtain sufficient appropriate audit evidence in relation to the recoverable amount of the mortgage loans."
PIF unitholders might be wondering whether it would be appropriate for Wellington to base its management fees on a valuation that was not signed off by an auditor.
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Frequently Asked Questions about this Article…
What did Commonwealth Bank’s outgoing CEO Sir Ralph Norris say about the financial crisis and his pay?
In his parting message Sir Ralph Norris said he’d “enjoyed the many challenges” including the global financial crisis and did not sound overly worried about recent turmoil. The article notes that in the last financial year he had $7.72 million of prior awards vest plus $4.76 million in cash payments, which the company disclosed to shareholders.
Why did PMP Limited make headlines and what should investors know about PMP’s recent performance?
PMP reported an $11.3 million full-year loss and its shares fell more than 30% since December. The company emphasised honesty in its annual report, but investors should note the profit shortfall, the share price fall and governance questions raised by executive pay disclosures.
How was PMP’s CEO Richard Allely paid and why could that matter to investors?
PMP disclosed that CEO Richard Allely received a $401,185 short-term incentive (STI) on top of an $855,750 base salary, representing 31% of his maximum STI. He didn’t receive the 70% of STI linked to profits, instead earning parts linked to “personal objectives” and “improved safety,” which the company did not fully specify—details investors may scrutinise when assessing board remuneration and alignment with company performance.
What are the details of PMP’s proposed 2.1 million share rights and what transparency issues arose?
PMP proposed awarding 2.1 million share rights to the CEO, with half vesting based on EBITDA performance and half on shareholder returns over the next three years. The company declined to disclose the specific EBITDA hurdles, calling them “commercially sensitive,” which leaves investors with limited visibility into the targets that must be met for those rights to vest.
What airline contract news involved Qantas, Virgin Australia and Rio Tinto, and why might investors care?
Qantas announced it would continue its long-standing commercial relationship with Rio Tinto, while Virgin Australia said it had won part of Rio Tinto’s global contract for air services. For airline investors, these announcements highlight competition for corporate contracts and potential commercial wins that can affect future revenues and contract exposure for the carriers.
What audit issue did Wellington Capital’s Premium Income Fund (PIF) face and how could that affect unitholders?
PricewaterhouseCoopers (PwC) declined to provide an audit opinion on PIF’s accounts because it could not obtain appropriate evidence on a $135.7 million valuation of loans made by the mortgage fund—loans that comprise about 60% of the fund’s net assets. PwC said it could not access external advisers and their work papers, so it couldn’t evaluate the recoverable amount of those loans, creating uncertainty for unitholders.
Should investors be concerned if a fund’s valuations used to calculate management fees aren’t audited?
Yes. The article flags that Wellington promised to limit fees but did not disclose that PwC had not signed off on the underlying loan valuations. Investors may reasonably question whether it’s appropriate to base management fees on valuations that lack an auditor’s opinion and should seek clarity from fund managers and trustees.
What governance signal came from shareholders about executive pay at PMP and why does it matter to everyday investors?
Nearly 48% of PMP shareholders voted against the company’s remuneration report last year, signalling significant investor dissatisfaction with executive pay. For everyday investors, such shareholder votes are a useful governance indicator and a prompt to review management incentives, remuneration disclosure and whether pay aligns with company performance.
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