The remuneration section of the Transurban annual report is an eyeopener. The very first paragraph states the following:
Toll road concessions are an asset class characterised by defensive, predictable cash flows, which grow over the life of long dated concession agreements. There is high upfront capital expenditure during the construction phase of a project, which shifts to a low cost, high margin cash generative business for the remainder of the concession life. The investment proposition for high quality toll road assets lies in providing investors with access to long dated, predictable, growing cash flows generated by the assets over the life of the concessions.
Doesn’t seem too complicated, does it? Yet Transurban CEO Chris Lynch received a package totalling $6.02m last financial year. Six million bucks for running a few toll roads.
No doubt he’s a very capable executive and he may even be worth this sort of money in a different organisation, but Transurban doesn’t need a high flying CEO. It just needs someone to collect the tolls, make a few sensible capital expenditure decisions and hand the cash over to securityholders.
In the name of ‘good corporate governance’, the group is seeking securityholder approval for the long-term incentive proportion of Lynch’s package for 2011. However, ‘in the event that security holders do not approve the proposed grant, a cash payment equivalent to the remuneration value of the LTI awards will be made to Mr Lynch’. The emphasis is mine. Seriously, why bother?
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.