Just whose snouts were in the trough at B&B?

Redolent of the Big Dipper ride at Luna Park in its home town of Sydney, B&B listed in October 2004, flashed through $33 a share in mid-2007 and rattled back down to a shuddering halt last month.

It was a four-year round-trip. Fortunes were won by executives and savings lost by investors. And ironically, not $1 of executive performance stock was ever properly vested.

The white-knuckle ride ended before the four-year vesting period was up. Maiden bonuses to the executive high-flyers were doled out six months after the float in March 2005 and they were due to vest next month. That equity is now worthless.

It can be said then that at Babcock & Brown, in contrast to many other schemes, the system worked. No performance, no pay.

And neither are things as they seem when it comes to former chief executive Phil Green and his coterie of rainmakers.

Thanks to executive options, hedging arrangements and investments in the far-flung constellation of Babcock satellites, it is hard to tell with precision who got what. Still, it appears that at least 10, perhaps 15, executives did better than Green.

Infrastructure head Peter Hofbauer and corporate and structured finance boss Rob Topfer, for instance, seem to have pulled out more cash than their CEO. All three left last year. With the exception of property chief Eric Lucas, the really big B&B earners are gone.

The likes of new CEO Michael Larkin, asset sales chief Trevor Loewensohn, CFO John Fanning and COO David Ross are left to clean up the mess alongside the banks. Their performance stock is worthless. But old habits apparently die hard as the new CEO of B&B Power, Rolf Ross, has just won a $2 million salary despite the market cap of the entire company being just $42million.

It's a far cry from the old days, though. At the $33 peak in the B&B share price in 2007, Jim Babcock was worth almost $700 million, Phil Green $400million, Hofbauer $260million, Topfer $120million and Lucas $180million. And that is just counting their shares in the parent company.

Of these big hitters, Babcock appears to have done best, pulling out about $100million. Green seems to have fared worst. Not only did Green leave the building with his IPO stock mostly intact, he ploughed a good deal into the foundering satellites.

The paradox is that the entire group revolved around the affable deal-maker. He had been there almost 20 years before it spun out of control and he was the highest paid in salary terms. But most of it was in shares.

After Babcock, Green was the largest shareholder at the IPO in late 2004. Yet he had sold almost none of the 12.6million shares by the time he departed last year. He left with 12.4 million shares, worth nothing now.

Although he did sell some at $16 a share to raise $4 million, he also bought some at $23 a share, roughly cancelling out any gain. And he spent quite a bit buying shares in the satellite stocks. He turns up as a top-20 shareholder in almost all the satellites.

Still, Green has little reason to cry poor since he raked in millions on the salary front and was already wealthy before the float. Again, though, it is the breakdown of cash and shares in the salary that counts. Of his $22 million headline remuneration figure in 2007, he took 80per cent in shares. In 2005, his cash component was $11.1 million, in 2006 it was $14.3 million and in 2007 a mere $5 million.

The original 75:25per cent split between cash and shares had been reversed by 2007 after pressure from governance advisers and shareholders. Across the executive top tier, the same mix was evident and while Green got the most, the others were not far behind.

Nonetheless, it seems that Green may have taken only $30million out of B&B in its four years as a listed entity (in salary and fees). He put quite a bit back into the satellite trusts, which are now worth two-fifths of not a lot. And these were probably leveraged to boot.

Market sources told BusinessDay that at least three of the B&B top tier, and this does not include Green, took out "caps" and "collars" around their executive bonus stock. As long as company policy deems this to be kosher, there is nothing untoward in such hedging mechanisms.

In fact, executives in half Australia's top-50 companies have engaged in options hedging over the past five years, meaning they have been able effectively to sell their performance stock without needing to disclose the sale to the ASX as legal title is maintained via a fancy structuring.

Sources said Topfer, Hofbauer and Lucas used "caps" and "collars" in arrangements struck with other investment banks to hedge their executive options.

On the public figures, Hofbauer was paid $19.9 million in 2007, of which $3.9million was cash. Lucas picked up $15.6 million, of which $2.9 million was in cash and Topfer $12 million, of which $3.4 million was cash. All up, Hofbauer appears to have taken out about $50 million, and Lucas and Topfer about $30 million apiece.

There were two main windows for sales and hedging of company shares: March 2006 (when the stock was about $15) and March 2007 (about $23), although there was also selling in March 2008 (about $12) just before the ship started taking on water.

The B&B executives in the US who were the original partners before the float also did well. Leasing boss Jim Fantaci, structured finance boss Dan Brickman (about $50 million), head of aircraft leasing Stephen Zissis ($35 million) and a handful of others cleaned up, too.

While there was more substance to Babcock & Brown than to its financial engineering peers such as Allco, Rubicon and MFS, the model was essentially flawed and quickly failed when credit dried up and asset prices went south.

Apart from the obvious conflict of interest in a model whose centrepiece, B&B, relied on screwing its myriad satellites for fees, there is the matter of whether investment banks should be listed anyway.

Deal flow is lumpy and cyclical in investment banking, yet the market for B&B was conditioned to expect regular and stable dividends and earnings increases. Even after the subprime crisis took hold, B&B management was focused on earnings when it should have turned its gaze to the balance sheet and debt.