Contact Plan To Abolish Board Retirement Payments
16 December 2003
Contact Energy Plan To Abolish Board Retirement Payments
Contact Energy today announced a proposal to abolish retirement benefits to directors and alter directors’ remuneration so payments better align the interests of shareholders and directors.
The proposal, to be voted on at the company’s annual meeting next year, has been developed in consultation with Contact shareholders. It has been endorsed by the New Zealand Shareholders’ Association.
Contact chairman Phil Pryke said the proposal responded to calls by shareholders for a closer alignment of the interests of directors and shareholders.
proposal provides for:
- An increase in director remuneration to bring payments into line with similar Australasian companies.
- A restructuring of directors’ payments so that around half of independent directors’ post tax remuneration is paid in the form of restricted shares.
- An abolition of future entitlements to retirement benefits for directors.
Under the proposal, directors’ (non-Edison Mission Energy affiliated) base remuneration would increase from the current $45,000 to $60,000 in fees and $30,000 in restricted shares. The Chair would receive $120,000 in fees and $60,000 in restricted shares, up from the current $80,000.
Directors will need to meet their tax liability from the cash component of their remuneration. Accordingly, the after-tax cash component of fees would be largely unchanged, with most of the increase taking the form of restricted shares.
Mr Pryke said the Board recognised that the changes represented a substantial increase in remuneration, however, the Board was confident that the increase was warranted.
An opinion from the international advisory firm, John V. Egan Associates, had determined that remuneration of Contact directors was well below the market norm applying in New Zealand and Australia for similar local companies. Egan Associates had actually recommended a higher level of fees than that proposed.
Further, Contact was one of the strongest performing listed companies in New Zealand.
“For every $1.00 invested at the time of Contact’s listing in 1999, an investor who consistently reinvested all dividends would today have $2.00 in pre-tax terms – a return of more than 100 per cent in less than five years,” said Mr Pryke.
“Strong leadership has been a key factor in Contact’s success and the proposed level of remuneration is necessary to ensure Contact continues to attract high calibre directors with the capability to lead the company successfully.”
Egan Associates had reviewed the proposal and concluded that the remuneration level was appropriate. It said the introduction of a restricted shares component was in line with international standards and regional best practice.
Mr Pryke said the proposal to close off entitlements to future retirement benefits for directors had been refined after feedback from the New Zealand Shareholders’ Association.
“The Association had raised this issue previously so we were keen to gain their views. As a result of that discussion, we refined the proposal to ensure that entitlements to retirement fees were closed off on a once-and-for-all basis,” said Mr Pryke.
Given that three of Contact’s directors had more than 20 years of combined service, the Board determined it would be unfair to simply abolish retirement allowances without recognising this service.
Accordingly, it has proposed that their service to 30 September 2003 be recognised in a lump sum payment which would be used to purchase Contact Energy shares that would be held by a trustee until the directors retire. In this way, the value of the allowance for past service is directly linked to the fortunes of the Company between now and the retirement of the directors.
The five Contact directors who do not qualify for retirement payments oversaw the determination of proposed entitlements, which are lower than the potential maximum level.
These directors have recommended that the following amounts be allocated for the purchase of restricted shares: Chairman Phil Pryke $141,197, Director John Milne $84,453 and Director Tim Saunders $68,403. Additional sums have been proposed to cover the directors’ tax liabilities for these payments.
The New Zealand Shareholders’ Association has said the proposal balances directors’ reasonable expectations with the benefits to shareholders of removing future entitlements to retirement payments.
The Association also observed that the Contact directors had historically been underpaid, while the company had relatively over-performed.
“I know the subject of directors’ remuneration is always a thorny subject but we believe the extensive consultation with our shareholder base means we have developed a proposal that is fair and reasonable,” Mr Pryke said.
“I look forward to discussing the matter further with shareholders at our annual meeting in Dunedin in February.”