KEY POINTS:
The New Zealand Exchange launched a charm offensive yesterday to sell chief executive Mark Weldon's controversial bonus scheme, but appears to have so far met continued resistance from shareholders.
NZX chairman Simon Allen has spoken to major shareholders to explain the scheme, which could see Weldon increase his 5.3 per cent stake in the company to 9.9 per cent, worth around $20 million at the current market capitalisation.
And Geoff Brown, NZX markets development manager, is also understood to have sounded out institutional shareholders about the scheme.
"We do believe that the features of this scheme are very clean for shareholders and they do totally align the incentives of the CEO with shareholders' interests," Allen told the Business Herald.
"By their nature these schemes are complicated and I think over the next week or so we'll have the opportunity of talking through the scheme with people.
"People do want to see things done correctly. We think we've got it right."
The scheme needs approval from shareholders at the NZX annual meeting at the end of the month, but resistance remains.
Tony Gibbs, a director of 2.3 per cent shareholder GPG, has had talks about the scheme with two NZX directors but remains unimpressed.
"I don't like the scheme and I'm asking the directors to reconsider the scheme and preferably drop it," Gibbs said.
Some major NZX shareholders have complained that the performance targets are too low and that Weldon could end up with too much control of the company.
Under the scheme, Weldon would receive the shares in three allotments if the NZX achieved a compounding total shareholder return - dividends plus share price gains - of 10.5 per cent a year for three years.
He would have to pay for the shares, at their average price in the days leading up to June 4 this year, when the scheme starts.
Deloitte Corporate Finance has valued Weldon's option of buying NZX shares in the future at current prices as worth $500,000 per year.
Allen, who is also head of the New Zealand arm of investment bank ABN AMRO, denied criticism that the hurdle was too low.
He said this reflected the fact that the NZX had made a compound return of around 50 per cent per annum for five years. "The current market price reflects the past performance and expected future performance, and an important part of the scheme is the full market price issuance of these shares."
NZX shares have been strong performers since listing in 2003.
The shares were sold to investors at $3.60 each, but have split two-for-one since then, giving an effective float price of $1.80.
They closed up 10c yesterday at $9.20, equal to last week's record high.
Allen said a performance scheme that measured share price gains and dividends was appropriate because "unless shareholders are absolutely making money then it shouldn't occur".
A relative scheme - which compared the NZX's performance to other listed companies' performance - could see the bonus achieved while shareholders lost money.
"If the rest of the market goes down 20 per cent and you only go down 15 is that a good thing for shareholders?"
Allen said the board had put measures in place to ensure that Weldon would not have too much control of the company, even with a near 10 per cent shareholding.
While Weldon is able to vote at company meetings with his 5.3 per cent stake, he would need the prior written approval of the board if he wanted to vote with the extra shares.
"We responded to feedback that you don't want the CEO to have too much voting control," said Allen.
However, this has not appeased Warren Couillault, chief investment officer of Fisher Funds, which with 9.7 per cent is the largest shareholder.
"The issue of a voting cap is not a component of the package that would ease our concerns," said Couillault, who said he would meet members of the board later this week.
Shareholders Association chairman Bruce Sheppard said the NZX "sits as effectively a lightening rod that other companies watch in terms of leadership, and executive reward and governance. It should be a best practice operator."
The controversy has prompted GPG's Gibbs to call for the NZX to give up its role as a market regulator and abolish the 10 per cent shareholding cap.
How it works
* The NZX issues shares and sells them to a holding company known as Tane Nominees Limited.
* The NZX lends interest-free money to Tane Nominees to pay for the shares.
* If Mark Weldon has met his performance targets he can buy the shares in the next two to three years.
* The price Weldon pays would be the average price in the 20 working days to June 4 this year - the day the scheme starts.
* Should Weldon meet all of his targets and take up all the shares, his total shareholding will rise to 9.9 per cent, from 5.3 per cent now.
