Portfolio
Unlisted infrastructure business
How can a major, privately held infrastructure business get the most from its LTI program, especially when its shares are not listed?
Background
Our client, the holding company of a major Australian infrastructure asset, has a clear focus on providing a great customer experience, growing the regional economy and creating wealth for its ultimate owners, tens of thousands of small investors through a syndicate of local and foreign superannuation trusts.
The Board recognises that attracting and retaining senior executives with highly specialised and sort-after skills is vital to the execution of the company’s strategy.
The problem
But as the newly appointed CEO set about building his team, his initial concerns regarding the Long Term Incentive Plan (LTIP) were confirmed: potential hires applied little value to it and existing executives paid it little heed.
In discussing the LTIP’s shortcomings with the Board, the directors could see this created a number of issues. Not only was the LTIP ineffective in attracting and retaining staff, but it also failed to focus the attention of managers on the long term implications of their decisions – absolutely vital in an infrastructure business.
The solution
Juno Partners was engaged by the Remuneration Committee to conduct a more detailed review of the issues and make recommendations for change.
Drawing on a series of interviews with directors and senior executives and deep experience in incentive plan design and implementation, we recommended substantial changes to the design of the LTI, the calculation of performance, target setting and reporting.
A vital part of the solution devised was a cash based reward plan that took into account the growth in the value of the business, without recourse to share transactions or independent valuations.
Importantly a detailed education plan was also developed to bring the plan to life for participants, showing how their actions directly connected to LTI outcomes.
Following approval from the Board, these recommendations were implemented with the assistance of Juno Partners. Management and the Board are now far more confident in the return being achieved on the substantial investment in incentive payments made each year, proving that with care, a very effective and competitive LTIP can be put in place in an unlisted environment.