Regal Petroleum is expected to face shareholder challenges this week over its management rewards scheme. Several investors told The Independent on Sunday that they will question the "Long-term incentive plan" (Ltip), which led to a paper gain last week of close to £600,000 forDavid Greer, the chief executive of the London-listed oil and gas explorer.
Regal became mired in controversy in 2005 when Frank Timis, the founder, stepped down as boss after a heavily promoted Greek oil field turned out to be dry. In 2007, the next chief executive, Neil Ritson, and his team left after a boardroom coup which led to the collapse of a lucrative deal with Royal Dutch Shell.
Mr Greer and his team, who followed Mr Ritson's crew, were supposed to benefit from share options that would reward them for raising the company's stock performance. But the collapse in commodity prices last year led to a fall in the firm's shares so that they were worth less than the exercise price of the options. These "sunk" options offered management no reward for any operational successes.
The company's remuneration committee agreed in July to swap senior managers' options for Ltip rewards. It was felt that the terms of this arrangement would help ensure that Mr Greer's team remained in place for three years. Under the new scheme, up to 3.4 million shares could be bought by management for 5p each on three occasions until 2012. Although the bosses had to meet certain operational criteria to qualify, share price performance was not one of them.
Incentive schemes are supposed to align the interests of managers and owners. The shares awarded to managers are normally priced quite high, encouraging them to raise the stock still higher, thus helping both themselves and investors.
But Regal stock has not fallen below 26.5p in the past year, and topped 120p in September. Some shareholders argue that offering management shares at just 5p, a fraction of the 12-month low, gave them no incentive; they could sell their shares at a profit no matter what the company's performance.
On Friday, the beneficiaries, including Mr Greer, sold enough shares to cover their initial investment, interest, tax and expenses on the 5p Ltip shares. Most of the remaining shares – about 510,000 in Mr Greer's case – can now be sold at a profit even if the stock slips to just a penny.
A spokesman for Regal said that the details of the scheme had been presented to the market last summer. "These terms have been in the public domain for some time," he said.
A press release in July said that the plans had been "discussed with, and endorsed by, a number of the company's shareholders". It is believed that about half of the company's stock was represented in these agreements.
Some of the shareholders who argue that the Ltip was wrong have admitted not paying close enough attention to the awarding of shares to management at so low a price.Reuse content