Valuing the long term incentive (LTI) grant

Kym Sheehan

The Executive Remuneration Reporter

LTI grants are often expressed as a percentage of fixed remuneration: the actual value can differ considerably from this formula. Resolution 3 on Orora's 2015 AGM agenda for Thursday 15 October proposes a LTI grant to the MD/CEO. The value is said to be 100% of his fixed remuneration of $1.273 million, split 75% into performance rights, 25% as options. Given the proposed grant is 459,000 performance rights (zero exercise price options) priced using VWAP, and 1,383,500 options ($2.08 exercise price) priced using Black Scholes, you immediately intuit the impact of fair valuation: it results in a high number of options being awarded. If I use the same 5-day VWAP used to determine the exercise price of $2.08 to value the performance rights and deduct that from the $1.273 million, I value the options at $318,280 or around 23 cents/option. If instead I use $2.08 and multiply by the total number of units being awarded, I get a value of $3.83 million or 300% of fixed remuneration. I use this latter value to compare Orora's remuneration with the market.


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The Executive Remuneration Reporter

With a background in human resources, executive search and corporate law, Kym Sheehan brings unique perspectives on corporate governance and meeting resolutions to her work for The Executive Remuneration Reporter. The Executive Remuneration...

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