Last week saw West Africa-based exploration business Oriole Resources (LSE:ORR) announce that its executive directors had agreed to be paid in options in lieu of contractual salary payments for a limited time. Non-executive chairman John McGloin and independent non-executive David Pelham also followed suit, making Oriole one of the few companies on AIM whose board's financial interests are directly aligned with those of shareholders. We can think of a number of mining companies that would do well to learn from this example.
The move – full details of which can be found here – forms part of wider efforts at Oriole to maximise cash available for ongoing exploration across the firm's assets in Cameroon and Senegal. However, the board's decision to be remunerated with skin in the game rather than cash – even if on a temporary basis – also sends out a great message to investors. Crucially, what it indicates is that Oriole's management team genuinely believes in the story the company is communicating to the market – something many of its peers on AIM could learn from.
Executive compensation, a hot topic in public markets
Executive compensation was a hot topic at the recent Mello event in London, with many private investors expressing dismay at the money being paid to the boards of many of their held stocks.
Many of you will remember Jeff Fairburn, who was awarded a £75 million bonus last year and was promptly ‘forced to leave’ (or left voluntarily, depending on which newspaper you read). We doubt he will have been too bothered, as £75 million should surely see him through to the end of his days.
The bonus was awarded for “outstanding performance” – which is at odds with the many complaints of “shoddy building work” from Persimmon house buyers. But executive pay is not only an issue at the very top of the market (Persimmon is a FTSE 100 company) but also at the junior end too.
Many small companies have small boards, sometimes just two or three directors. These directors then sit on the remuneration committee, which is in charge of what to pay the directors (themselves!). Unsurprisingly, remuneration committees rarely vote to decrease their salaries.
One issue is that many of the smaller companies are not owned by institutions, and instead the majority of shares are in retail hands. Most retail investors are one-man bands; they can’t muster up enough of a holding in order to force change. The shareholder register is littered with private investors, who have punted a few hundred pounds or a few grand, only to hold onto the stock (and rather than sell they hold onto it forever as it goes down).
Once a director is a plum position at a company, where he/she can pay himself/herself whatever they feel like, there is often very little to challenge them. This is why we see share prices decline year-on-year, only for director remuneration to steadily increase.
Some directors take home packages of over £250,000 – despite not having delivered a shred of value and only failing at their jobs. There are very few industries where one can achieve such a high salary for doing very little/nothing, but the UK listed small and micro-cap space is one of them.
It's also why many of these directors rarely leave the businesses. It’s a lifestyle, and a gravy train. It’s why everyone wants to become a non-executive director. Turn up to two meetings a year, earn a decent packet, smash the expenses card, and impress your mates down the pub. Turkeys never vote for Christmas, and so as long as this goes unchallenged – it will only be set to continue.
This is why it is so refreshing to see Oriole's board increase their holdings at a time when the company needs cash to fund its growth. By being paid in options, they actually need to deliver something operationally, reaping the rewards alongside investors in the process.
The move was clearly appreciated by investors, as well – with shares rising 14.1pc to 0.3p on the news. This strength has continued and, at writing on Tuesday, the stock was trading up a further 38.2pc at 0.47p following the release of another positive update. However, the directors' remuneration options are yet to be issued and will not be until between 1 November and 31 January 2020.
Perhaps the appreciation showed by Oriole's investors might catch the eye of some of the AIM executive teams whose pay would unlikely change until the day their company closed and they are forced to move on to the next lifestyle vehicle. More likely, this is wishful thinking!
Author: Ben Turney
The Author does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the piece.
MiningMaven Ltd, the owner of MiningMaven.com, does not own a position in the stock(s) and/or financial instrument(s) mentioned in the piece.
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