EXECUTIVE COMPENSATION: Gold company stock options lose their glitter – by David Milstead (Globe and Mail – May 22, 2015)

The Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

Canada’s gold companies are notorious, to use a loaded word, for the millions of dollars they’ve paid their executives in the past several years even as the price of gold, and the companies’ share prices, have tumbled.

But there’s one place in the summaries of executive pay where gold chief executive officers are racking up zeros: The current profits of the stock options they hold.

A look at the options held by the top executives at five major TSX-listed gold companies – Goldcorp Inc., Barrick Gold Corp., Agnico Eagle Mines Ltd., Yamana Gold Inc. and Eldorado Gold Corp. – shows none of the five men held any stock options at the end of 2014 that were “in the money,” or exercisable for any profits.

That certainly could change if the mining industry’s fortunes improve, because many of the options don’t expire for two to five more years. On the flip side, however, a number of the options the executives held at the end of 2014 have since expired, useless.

A prolonged slump, then, could mean that what has been a key compensation tool will turn out very different than expected. We calculate that the miners originally valued the options granted from 2010 to 2014 at $37.3-million. Right now, it’s quite possible they won’t yield a single dollar of profit for the executives.

Stock options allow the holder to buy shares in a company at a set price, presumably the price the stock traded at the day the options were issued. As the stock rises, the options became more valuable – a feature that has made them a key component of compensation, all in the name of aligning executive pay with shareholders’ interests.

The problem with options, however, is that if the market as a whole is posting consistent gains – as it did in the late 1990s, and has in recent years – the rising tide lifts all executives’ boats. It can be a particular issue in the resources industries, where a spike in the price of the underlying commodity can drive all the share prices in the sector higher, regardless of how well the companies are managed.

For the rest of this article, click here: http://www.theglobeandmail.com/globe-investor/investment-ideas/gold-stock-options-point-to-shifting-value-of-pay-tool/article24576523/

Comments are closed.