Diligent's chief gets more than bargained

WILLIAM MACE
Last updated 05:00 21/01/2013

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Diligent Board Member Services chief executive and director Alex Sodi was granted 4.1 million more stock options by his fellow directors than he should have.

The NZX-listed company has revealed it awarded the millions of stock options to Sodi, and another 250,000 to an unnamed executive, in a move that did not comply with its own incentive plans.

Sodi was to receive a maximum of 500,000 options in 2011 but received 3 million that year, and had already been awarded 1.6 million share options over what he was allowed in the 2009 year.

It is not known how many shares have been vested by the employees nor what the full value of the options could be because the incentive guidelines were not released by Diligent.

In a statement to the market, Diligent explained the non-compliant rewards were "inadvertent and attributable in part to the constrained resources of Diligent in a period of financial difficulty in the years following its listing".

The United States and New Zealand-based company said it faced complex regulatory and compliance obligations across multiple jurisdictions with differing regulations and requirements.

But the president of the New Zealand Shareholders' Association, John Hawkins, said the company's explanation did not excuse the error and it reflected poorly on the company's audit committee.

The committee has included Rick Bettle, Mark Russell and Peter Huljich until his resignation in 2011 when he was convicted of misleading investors in his own fund management business.

Hawkins believed more specific reporting of share option allocations in the company's annual reports, as is done in many other companies' reports, could have prevented the problem from arising or made the errors more noticeable. The annual reports show maximum amounts of options to be issued overall but does not specify how many can be allocated to individual staff such as the chief executive.

However the reports do record that Sodi's stock option income for 2009 was $73,545, for 2010 was $161,051, and for 2011 was $392,657 - not all of which was derived from non-compliant options.

Diligent has said the option awards that exceeded the caps would be cancelled and the special committee was working on alternative compensation packages for the executives involved.

"These awards were determined to be reasonable compensation at the time and were an important incentive component of the employees' compensation packages."

Hawkins said any alternative compensation being offered to the affected employees would likely need shareholder approval which, he said, would be a chance for investors to ask further questions.

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Brian Gaynor, whose Milford Asset Management funds own 9 per cent of Diligent's shares, said he did not consider the error as major and understood the difficult period the company went through post-IPO when the share price reached a low of 13 cents.

Gaynor said he only hoped Sodi could now be remunerated properly so Diligent would not lose him to another company.

Meanwhile, Diligent has said there could be more instances of non-compliance, particularly because no prospectus was issued when offering smaller lots of stock options to employees. The Financial Markets Authority said it was working with Diligent to identify whether a breach of securities law had occurred.

- BusinessDay.co.nz

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