Paid in solid gold brickbats
MARTIN VAN BEYNEN
Martin van Beynen
The top executives of a failing corporate have decided to take a 50 per cent pay cut. Yeah right.
That could be Tui's next ad if it wants to sum up the current zeitgeist about corporate salaries and excess. The latest company in the stocks is, of course, Solid Energy.
I'm reluctant to jump on the bandwagon and give the management and board of Solid Energy another, perhaps deserved, kicking. Solid Energy, for whatever reason, embarked on an optimistic expansion which it had to fund from borrowed money.
Although, this is probably an oversimplification, the loans had to be funded from cash coming in and when the price of coal crashed, the inevitable shortfall occurred and suddenly a once exemplary business was on the rocks with nearly $400 million of debt.
Excrement happens and Solid Energy is not the only commercial state company to have lost big recently. Mighty River Power, for instance, ploughed $300m into geothermal investments in Chile and California and now appears to be expecting a $70m loss. Each year the taxpayer has to rescue KiwiRail to the tune of about $80m.
We all make mistakes but the thing that sticks in the craw about the whole Solid Energy saga is the fact its top people, at a time when the company was on its slippery slope into its black hole, continued to receive not only their very generous salaries, but a bonus as well.
Solid Energy doesn't call it that. It calls what we might think of as a discretionary payment "a variable remuneration component". This, it says, is not a bonus because the payment is an "at risk" part of total remuneration.
Follow so far? The system looks so horrendously complicated and open to manipulation that you wonder if anybody can be bothered applying it.
In both the years to June 2011 and 2012, the company paid $11-12m in, well, let's call them rewards, to its pool of 750 staff on individual contracts. That amounts (assuming everyone got a bonus) to an average payment of $14,550 each. Not a bad little cheque to be getting in your Christmas stocking each year, you might think.
It also goes some way to explaining why in the year to June 2012, 472 Solid Energy employees earned over $100,000. The top earner, chief executive Don Elder, trousered between $1.340m and $1.349m, while the financial performance of the company was tanking. This is not entirely out of the corporate ballpark however. Ngai Tahu's trading arm, which earns a fifth of Solid Energy's revenue, has 67 staff earning over $100,000.
Of course we mustn't forget the board of Solid Energy. Let's take board member Michelle Smith, who comes to the board with 20 years' experience in the financial services industry in London. Smith attended 13 of the 16 meetings or teleconferences during the 2012 financial year for which she earned $40,000. Not a princely sum you might think, although it does work out to $3076 per meeting.
Well, who would be director these days with all those potential liabilities? Except Solid Energy itself arranges insurance to ensure the directors "incur no monetary loss" as a result of their actions.
Other expenses willingly incurred by the company during its time of hardship also make you wonder. For instance, here is a company experiencing a 40 per cent drop in the price of its main product. You might think it would cut costs where possible. Not likely. It instead spends $1.8m on overseas travel, considerably more than it did during its better years.
Solid Energy says: We expect our people at all levels down to mine supervisor to travel regularly to visit major mining operations internationally to benchmark and improve our understanding of mining operations, including management practices, productivity and safety.
What a shame all the overseas benchmarking did not teach management a few tricks about how to stop a company going down the proverbial mine shaft.
Another thing the company did not skimp on was communications which we all know is a vital part of digging coal out of the ground. In its annus mirabilis, the company spent more on communications staff than ever before, paying its nine communications staff just short of $1m. Despite having such high powered communicators, the company still had to spend another $170,000 on external public relations advice.
Now all this may be a bit unfair to the employees. After all they don't make the decisions and it's not their fault the price of coal collapsed and the NZ dollar refused to go with it. If you were, for example, in charge of production at the Stockton mine, you could justifiably argue all targets were met and you deserve your bonus. Sorry that word again. In fact coal production for the 2012 financial year was up 3 per cent on the previous year.
Still, how much better it would have looked if top management had taken a pay cut to reflect some remorse and contrition.
Another thing. Isn't the debacle of Solid Energy a salutary lesson about the taxpayer owning commercial companies? If you want to own state assets, you have to accept the risks as well as the benefits.
- © Fairfax NZ News