Correspondence
Back to Correspondence[copy typed of letter received from Nuplex Indusries Limited]
Nuplex Industries Limited
49-61 Stephen Road
Botany NSW 2019
Locked Bag 6, Botany 1455
22 September 2009
Mr Des Hunt
New Zealand Shareholders Association Inc
PO Box 631
Auckland City
New Zealand
Dear Des
Thank you for your enquiry about the cancellation of the Nuplex long term incentive share schemes.
As advised to shareholders, the 2004 Senior Manager Performance Rights Incentive Scheme (PSR Scheme) and the 2007 Senior Manager Incentive Scheme (Loan Scheme) were cancelled. This involved a write-back of a provision raised to fund a payout under the PSR Scheme and the forgiveness of the outstanding loans under the Loan Scheme. The net impact was a small positive impact on the P&L account at 30 June 2009 of $69,000.
In deciding this action, especially forgiveness of the outstanding loans, the Board was aware that this could be contentious. The Board is firmly of the view that employees participating in incentive schemes should take “the good with the bad”. However, on this occasion they took the following factors into account in arriving at the decision taken:
- As a consequence of the capital raising it was considered that the Loan Scheme would not deliver an outcome that would allow participants to pay off their outstanding loan. So rather than act as an incentive and motivational tool it would have the opposite effect.
- Normally executives would receive some form of long term incentive issue each year so the negative impact of a drop in share price, as was experienced earlier this year, would be followed by an issue of new shares at a much lower starting price. As the share price had fallen to such an extent, the Board decided that any further share issue under the scheme (i.e. at 23 cents) would be highly dilutive to shareholders and declined to make an issue. This was a sensible step for shareholders but unfair to executives as it did not allow them the opportunity to “average down”.
Due to these factors the Board considered that the Loan Scheme was “broken” and that it was in the interests of shareholders to cancel the scheme and release executives from any outstanding liability under the scheme.
The Board also took in to account the very small benefit that executives have received from long term incentives over the last five years despite shareholders having seen strong growth in share price (until earlier this year) and almost $125m in dividends over this period.
I can assure you that I was not looking forward to the inevitable questioning of our action by the NZSA, so I’m sure you appreciate that we deliberated at length on how to address the situation. At the end of the day we have taken a course of action that we believe is right for executives and shareholders.
Kind regards
Rob Aitken