The aim of remuneration packages is to align the interests of the shareholders with those of the directors this is known as goal congruence. In order to analyse if this is taking place I have created a graph representing the % changes in these 3 variables year on year. What this graph does not tell us though and that Appendix 2 does is that in 1999 the share value was high for the majority of the year (inline with the high profits) but then in the last quarter of the year and into the next half of 2000 the share value plummeted considerably (inline with the profits) until the second half of 2001 where it began to pick up again (the profits did not begin to increase again but this could be to do with the companies expansion programme).
Therefore because of this you would expect the director’s salaries be high in 1999 and then during 2000 not to increase at all due to the poor performance; instead what happened is that even when the businesses financial situation was decreasing the directors were still given larger remuneration packages. This shows that during this time at Hanson PLC goal congruence was not being achieved.
After reviewing the annual report there do not appear to be any differences in the types of share available on the market – however because the Hanson PLC shares are on 3 different stock markets across the globe’ depending on which market you are trading in will decide what you are entitled to. Therefore Hanson PLC shares on the American Stock Market are equivalent to 5 ordinary shares as found in the Australian and UK stock markets. As the table in Appendix 6 illustrates the total number of Hanson PLC shares in circulation comes to 735,162,855. Therefore at the current market price of 265p the Total Market Capitalisation of the company comes to ,948,181,566.
As detailed in the annual report there are several shareholders who hold more than 3% of the shares in the company and therefore are classed as being significant shareholders within the company. A detailed summary of exactly how many shares are held by each of these institutions is shown in Appendix 6. A summary of this information and the % held by each of these groups in comparison with the total number of share holders is illustrated below.
Image 4 – Pie Chart representing the breakdown of shares within Hanson PLC Source Data in Appendix 6 A breakdown of the amount of shares held by the directors within Hanson PLC is detailed in Appendix 5, none of the directors are classed as significant shareholders as even when placed together their total power over the business only comes to 0.08%. The following three graphs represent changes in the business over the past 5 years from which I hope to identify if the directors of Hanson PLC have met their objective and ‘maximised the wealth of the shareholders’ as described by A Berle and G Means.
The first of these represents the dividends paid over the 5 years. If we look at this graph we can see that these have risen steadily over the 5 year period and so as increased dividends are one of the sources of increased profits to the shareholder this graph would point to the idea that the directors have maximised the profits of the shareholder over that time. The question is if these amounts of dividends are in line with the profits, how much money has been put back into the business etc? This is something I will look at in Image 7.
Image 5 – A Graph Representing the Change in Dividend Value’s over the period 1997 – 2001 The second graph represents how the share has performed in line with the FTSE 100 as the second source of shareholder profit is through the increase in share value to later be sold on to other shareholders at a profit. The graph shows us that over the 5 year period the share has moved up and down in line with the FTSE 100 which shows us that the company is Market Specific and will be effected by changes in the market rather than just the companies own decisions.
Therefore as the FTSE 100 will represent changes in inflation in order for the share value of Hanson to be classed as profitable it has to be higher that that of the FTSE 100 average, and it is. As the graph shows the share has risen significantly in price over the past 5 years above the level which the FTSE 100 has and therefore this points towards the fact that the directors have maximised the shareholders wealth as they have increased the share value.
Image 6 – Graph Representing the Change of Hanson PLC’s Share Value over the past 5 years in comparison with the FTSE 100. Finally the third graph will tell us if increases in the dividend value are in line with the profits. As if the increase in profits is larger than the increase in dividends then the share holder might begin to ask why they haven’t seen a larger proportion of the profits. Instead after reviewing this graph it shows us that profits in the company have been reduced significantly (this could be to do with the companies recent expansion programme which would result in increased share value’s which I identified previously); and yet the dividend value’s have still risen by 2p per share over the 5 years.
This may not seem much but with 735,162,855 shares in circulation this is the equivalent to 14,703,257. Image 7 – A Graph Representing the Change in Hanson PLC’s Profit Before Tax over the period 1997 – 2001 Therefore in conclusion it can be seen that over the last 5 years the directors have increased dividends even though profits are reduced, and have increased share value and therefore have met all criteria in their aim of ‘maximising the wealth of the shareholders’.