By Adam Schwab
The previous decade has visible a interval of exceptional progress in govt remuneration. yet whereas CEO pay exploded, shareholders regarded on helplessly as a few of Australia's best-known businesses self-destructed. while the autumn finally got here, executives have been good secure. Shareholders and collectors weren't so fortunate.
From Telstra's enriching of Sol Trujillo to the toppling of Eddy Groves's ABC studying Centres and the untold money owed of the billions misplaced through the collapsed Babcock & Brown, Allco Finance team and MFS, Pigs on the Trough tells the tale of ways a new release of executives, less than the supervision of recognized and revered non-executive administrators, driven the entire obstacles and occasionally sailed correct over them ... and obtained away with it.
A pacey, irreverent learn yet with a devastatingly severe message, Pigs on the Trough offers traders important insights into tips on how to spot the telltale symptoms of forthcoming company cave in, and the way to prevent being one other victim.
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Extra info for Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed
While the company was prospering, the licences had some value, however were ABC to ever fall into ﬁnancial diﬃculties or cease to operate as a going concern, the value of those ‘intangible assets’ would drop to almost nothing. The other beneﬁt of ABC ‘writing up’ the value of its childcare licences was that it would make ABC look like a ‘safer’ company, because its gearing (which is a company’s ratio of assets compared with liabilities) would be lower. This would allow ABC to raise a further $1 billion in capital from naive investors in the coming year.
While his ﬁxed pay remained steady, Trujillo was eligible to receive far higher bonus payments in 2007. In 2006, Trujillo’s ﬁxed pay was 30 per cent of his maximum remuneration — in 2007 Sol’s ﬁxed pay was only 14 per cent of his total salary. This in itself is not a negative, as shareholders tend to favour executives’ salaries being closely linked to performance. However, in Telstra’s case, the company didn’t reduce Trujillo’s ﬁxed remuneration at all (which remained at $3 million per year) — rather, it simply gave him the opportunity to receive a far higher short-term bonus of $6 million, compared with $3 million the previous year.
Following Trujillo’s comments, Telstra’s share price slumped by 4 per cent. Not only was the hurdle for executives’ options calculated from a low point in Telstra’s share price, Trujillo’s long-term options weren’t really very long term. In fact, all going well, the ﬁrst tranche would be able to vest as soon as 30 June 2008 — less than two years from their grant. Investors prefer long-term bonus payments be deferred for at least three years. This is to ensure executives are creating long-term wealth for shareholders, rather than indulging in short-term, extreme capitalist behaviour.