Tower's executive share offer comes under fire

By PAULA OLIVER

Tower's use of share options as an incentive for senior staff has again come under fire after it offered its top 40 executives a deal well below the present share price.

The insurer and financial services group yesterday revealed its plan to offer senior executives a total of up to 12.1 million options at an exercise price of $1.53 each.

Tower's shares have traded above that for two weeks, peaking at $1.76.

The fact that the options were already "in the money" caused Shareholders Association chairman Bruce Sheppard to chuckle.

"It's nice that they're sharing the spoils with their executives, but it would be better if it was more sensibly based," he said.

The exercise price was too low, the number of options too high, and the performance hurdles attached were not appropriate, said Sheppard.

Tower has run into trouble before over share option deals.

Its annual meeting in February lit up with argument over an offer of options to group managing director Keith Taylor at an exercise price of $1.39.

That scheme was criticised for lacking any performance-related component.

The latest offer, done as part of the Senior Executive Share Option Scheme, carries a performance hurdle - Tower's share price must increase 10 per cent a year for the options to be live.

Sheppard said that was inappropriate.

"It's basically saying that we've all become lenders to the company at a 10 per cent return. That's not what you buy equities for."

He said options should never be "in the money", and a rise in corporate earnings would be a better target than an increase in share price.

"Any incentive programme based on share price puts management and shareholders in conflict with each other. Why? Because one party has got information and one hasn't. The party with information has an interest in releasing it selectively to crank the share price."

But Tower's boss said the scheme would instil commitment to the company and drive top staff to perform.

Taylor said the exercise price was set at a board meeting on April 6, and was calculated as the average weighted share price for the five trading days from March 30 to April 5.

"The share price had been fairly stable around then, and it flipped up and down a bit since then.

"Whenever you set an option price, with hindsight it's either going to look too high or too low, isn't it?"

Taylor said many executives were new staff who could argue that their efforts had helped the share price to rise over the past six months.

"Some of them might think they should have got the options at $1.20 or $1.30 - the price when they came on."

The deal

* 40 of Tower's top executives get up to 12.1 million share options.

* Each option gives the right to buy one Tower share from April 1, 2007.

* Each share would cost $1.53.

* Tower shares yesterday closed at $1.68.

* A performance hurdle is attached - Tower's share price must increase 10pc a year.