My attention this morning was drawn by an RNS from TrakM8, a company I used to own shares in but, thankfully have not since 2017.
TrakM8 has proved a pretty awful investment for its shareholders, with its share price declining by some 70% in the last year alone and by more than 90% since its peak in late 2015. This is on the back of disappointing revenue growth, declining profits and weak cashflow, ultimately necessitating placings at 65p in 2017 and at 22p last year.
Whilst shareholders have taken a battering, today’s announcement shows that the directors responsible for this underperformance are not to suffer a similar fate. To ensure that directors still “win” options that were previously exerciseable at an average price of 144.6p have now been reissued with an exercise price of 33.5p – and new options awarded with the same exercise price. Overall, the directors and staff will take an additional 8.2% of the company if the options are exercised
What is the purpose of awarding options to staff and directors? It is surely to align their interests with those of shareholders and reward them for good performance. Repricing options (and/or issuing fresh lower priced options) completely defeats this purpose, ensuring rewards can be obtained even if performance is poor. A real case of “heads I win, tails you lose”.
Shareholders should object to these unacceptable option awards in the strongest possible terms.
Mark Bentley
Director, ShareSoc
I’m not keen on share options in any case, but if they are too be used, I wonder if it should be good practice to have a high watermark for pricing, and any reduction below that (to allow for recovery from a major setback, new management, etc) would need a special resolution. At present management can do fairly much as they please.
Another related gripe is that listing regulations (I believe) specifically permit directors who are shareholders to vote on LTIPs and other pay arrangements. That means in cases where directors own say 25%+, the passing of such schemes is pretty much guaranteed.
Brian, it’s worse than that: no vote at all is required on remuneration at AIM companies, only for fully listed ones which must have a binding vote (at least every 3 years) on pay policy and an advisory vote on the policy implementation annually.
I wrote to the Chairman the day after the announcement voicing my displeasure, as follows:
“Dear Mr Watkins,
I am a shareholder in Trakm8 Holdings plc and write to express anger and disappointment at the announcement made yesterday regarding the new and re-issued share options to the directors of the company at 33.5p (with a 50p pre-condition).
Unlike you and your colleagues I don’t have the luxury of share options and paid cash from my pension plan for my shares in the company, as follows:
… based on your announcements through 2018 about new contracts, contract extensions, expansion of the office and factory etc. Then, you reported an atrocious set of financial results and the share price has collapsed to 27p.
Now, you lower the bar to enable you to be rewarded whilst private investors and others have suffered significant financial loss as a direct result of your actions.
I would like you to explain why you feel you should be rewarded, at our expense, for your dismal performance to-date.
Yours sincerely,
Michael Jones”
I sold my shares the same day and subsequently received a reply from the Chairman in which he makes no apology and only justifies the action on the basis of
“… without doing this the Company ran the risk of losing key staff to the detriment of all shareholders.”
Well done on taking action, Mike.
“… without doing this the Company ran the risk of losing key staff to the detriment of all shareholders.”
Maybe that would be for the good of the company and its shareholders. The key staff haven’t performed adequately, hence shareholder disappointment. Often “key staff” are much less likely to leave than is assumed, more self-interested, and easier to replace.