Stepping down lucrative work for Tower's top brass

Tower's poor handling of its top executives' remuneration this week came home to roost.

The fund manager and insurer's long-serving managing director, Keith Taylor, who is stepping down at the end of the month, is set to pocket a $1.5 million termination payment.

Alone, the reward, although rich, can just be stomached. Taylor took the helm in 2002 of a very troubled company so the risks of failure deserved to be offset with some measure of compensation.

But the payment, equal to two years' salary, is just one part of the deal. Taylor also gets the 1.5 million share options he was granted last year.

The exact number of options changes after the group spins off its Australian Wealth Management business over the next few weeks but, at yesterday's share price, they were worth another $1.1 million.

Moreover, Taylor said the 40 other Tower executives in the option scheme were in line for similar grants when they left.

Well-run companies grant options to retain key employees. Upon departure, they require employees to cash in those options to which they are entitled. Options with an exercise date beyond the day of departure are forfeited.

Well-run companies also grant options to encourage excellence, handing them to key employees when they hit performance targets.

Tower's scheme, approved by shareholders last year, threw this out the window. Taylor has no obligation to meet the performance conditions.

The rewards, are reminiscent of the same poor decisions that saw the company advancing interest-free loans for executives to buy shares in the group. It later erased those loans after the shares went south.

Tower's disclosure of directors' pay in its annual report and other documents is ahead of most New Zealand companies, but owning up to bad behaviour does not make it right.

Taylor's departure also reeks of being less than amicable. He told this column: "If they wanted me to stay on I would have considered it. There was an expectation that it would conclude [ in 2005]."

Taylor says he has few plans other than spend some more time at his holiday house in the Marlborough Sounds. However, pondering what to do with a cool $2.6 million is sure to kill a few hours.

TEST COMING

The newest contributor to the nation's policy debate, the New Zealand Institute, is fast approaching its day of reckoning.

This week, in its third paper, the institute finished its dissertation on the savings problem. To recap: growing wealthy is healthy, but our savings rate is appalling. We draw on foreign capital, which is advanced to us at great cost. But instead of investing this in productive assets, it supports our profligate spending habits and pays for our houses.

The institute has not said anything new. I remember a lunch at the Reserve Bank in the mid 90s when the then governor, Don Brash, said the very same.

This is not a criticism of the institute. As its chief executive, David Skilling, notes, it had to clearly and concisely set out how it saw the problem before it set out its view on the solution. Otherwise, debate over the nature of problem could have diluted discussion on the merits of the solution.

The institute is promising to disclose all with its still unfinished paper due out at the end of next month or early April.

But just as the problem has been well described, so has the solution - the need for a shift in the nation's attitude to saving and tax breaks.

These breaks are likely to include scrapping capital gains tax on managed funds as advocated last year by the Government's adviser, Craig Stobo.

Alternatively, it may advocate a regime similar to the UK's, where income channelled into savings schemes is exempt from tax.

It may also suggest compulsory saving, a subsidy for first-home buyers and breaks on student loans.

Some of these measures have merits.

* Richard Inder is editor of the Business Herald.