BJM defends stock grants

Johannesburg - Executives at stock-brokerage Barnard Jacobs Mellet (BJM) continue to see share grants as a way to retain quality staff and has handed out R4.8m in stock options despite a bleak outlook for the business.

With US insurance giant AIG being heavily criticised for dishing out major bonuses using tax-payers' money - while other investors have seen their share prices decline on the back of the financial crisis - much attention is being focused on bonuses and share grants.

Since Wednesday, Fin24.com has received queries from readers to investigate both BJM and Madison Property Fund Managers. THe property fund on Friday said it had sold R17m in shares in JSE-listed property unit trust ApexHi to "fund incentivisation commitments to Madison staff seconded to ApexHi".

Cobus Human, the CEO of Barnard Jacobs Mellet Corporate Finance, told Fin24.com: "BJM encourages share ownership amongst its employees, inter alia, to align the interests of employees with those of shareholders."

Stock grants were issued to the executive directors of the group including CEO Andile Mazwai (R593 400), Private Client Services CEO Jan van Staden (R480 125), chief investment officer Mark Appleton (R560 050) and Andrew McNulty, the CEO of BJM Securities, who received R840 075.

McNulty was appointed CEO of the securities operations in September 2008 after joining the group in 2006 to head up the BJM research team.

Human added: "It is especially important to have these interests aligned during difficult economic conditions. BJM is therefore supportive of its executives having received shares that vested after a two-year period, even though these shares are now vesting at a price that is far out of the money."

The stock grants were issued around April 2006 at a price of 575c a share and Human pointed out that the price had not been adjusted downward despite the fall in the BJM price which is now trading around 270c.

He said: "Furthermore, these shares were granted in lieu of a cash sacrifice on executive bonuses at the time of the granting of the shares, which means the executives in favour of whom these shares now vested, effectively already incurred an opportunity cost some two years ago and the BJM group had the benefit of a cash and capital saving [by granting shares, as opposed to paying a cash bonus]."

BJM clients enjoyed the services of these staff for the full two-year "vesting" period which was part of their employment contracts according to Human.

When BJM reported its interim results in November 2008, the company said: "Management has taken measured action with regard to, inter alia, cost containment and capital management and is determined to ensure that the Group`s major divisions retain their competitive market positions while operating profitably and generating cash.

While there is no certainty with regard to the outcome of the global credit crisis, it is envisaged that basic earnings will remain under pressure for as long as market conditions remain unchanged."

Profit for the six months to end-September declined year-on-year from R27m to R7.6m.

Since May 2007, shares in BJM have declined from a five-year high of 690c to touch a low of 206c before rebounding to around 270c.

* Ashton is a client of Barnard Jacobs Mellet.

- Fin24.com