Companies: ERT    LDC    MAO    OKR   

Share option schemes are not renowned for having aggressive targets for directors to hit. However, a number of companies are now demanding dramatically improved results before they dish out rewards

Shareholder tempers have flared on a number of occasions this year on the news that certain directors were able to reap the benefits of their 'incentivisation' schemes despite the fact that improved profits, sales and/or share prices had not improved during the period under review (the likes of Sainsbury's, Superscape and Royal Doulton come to mind).

In a welcome antidote to this, I'm pleased to report that I have identified a number of companies whose directors will have to deliver serious earnings enhancing performances before they are able to enjoy the spoils of their corporate positions.

Hard targets

One stand-out stock is London Asia Capital (LAC), the venture that invests in companies in greater China. It recently allocated options to its directors Simon Littlewood and Victor Ng that are staggered in exercise price to ensure that they only benefit when they deliver for their shareholders.

Just recently, this duo announced interim profits of £418,000 (against losses last time of £133,000), a pleasing set of figures that was announced just before details of their share option scheme. Under this scheme, both will receive two million options exerciseable at 16p per share, a further two million at 20p a share and one million at 25p a share. With LAC's shares currently trading at 10.75p, they have a lot to aim for.

Entertaining targets

Alongside LAC, the directors at media concern Entertainment Rights will also have to pull their socks up to benefit from their index–linked performance.

The company – which has just acquired Tell-Tale Productions, the creators and producers of children's TV smash hit The Tweenies for £3.1 million – has made solid improvements this year. It hoisted EBITDA 85 per cent to £2.4 million in the six months to June and produced an underlying profit of £400,000.

Under the terms of the management deal here, chief executive Mike Heap and finance director Elizabeth Gaines will both only enjoy 2.5 million share options each, deliverable in three separate tranches (and exercisable at 10.75p) if the average annual growth in the company's EPS over the next three years is equal to the average annual performance of the Retail Price Index plus five, 7.5 and ten per cent, respectively.

Super-quick returns

If the aforementioned directors need encouragement, they need look no further than the performance of those at the helm of software and document management solutions provider Macro 4.

For chief executive Ronnie Wilson and finance director Graeme Gordon to take receipt of 196,000 and 70,000 share options they had to fulfil conditions linked to earnings performance (70 per cent of the allocation) and total shareholder return (30 per cent).

For the year to June, Wilson and Gordon managed to turn a pre-tax loss of £5.2 million into a £1 million pre-tax profit and even boosted cash balances more than 100 per cent to £8.4 million. They not only duly received their options, but did so two years ahead of time.

So long, fared-well

Ottakar's recently announced the resignation of its finance director Edward Knighton. Alongside managing director James Heneage, he is credited with improving Ottakar's business fortunes – the shares rose from 45p to the current 363.5p during his five-year tenure.

As he made his exit, Knighton hinted he may take a break before securing a new position and judging by his recent dealings – he exercised 73,077 shares at 39p per share and sold a further 117,990 shares at 363p each to bank a cool £665,072 – he has the resources to relax during his well-earned sabbatical.