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Directors of listed companies are incentivised to deliver by generous salaries and share option schemes. These are often structured to reward those that hit pre-agreed growth targets. But some seem to reap rewards even before they deliver. And some whether they deliver or not

Summer is traditionally a period of respite from the hectic cut and thrust of City life. Rather surprisingly though, smallcap directors have not taken the conventional break, preferring instead to deal in the shares of their companies at levels not seen since the busy months of February and March. In the four weeks to mid-July, directors purchased a healthy £36.4 million shares and others sold equity worth over £135.7 million.

While these figures grabbed the attention of most observers, my mind was distracted by those directors who seem to have been generously rewarded – or received generous incentivising packages – despite the poor showing of the ventures which they lead.

Fat cats, poor results

Take luxury china maker Royal Doulton. Under chief executive Wayne Nutbeen, the company has failed to lift itself out of the doldrums and has remained unprofitable for over four years (between 1999 and 2003 losses of £60.9 million were racked up and this year, a further £4 million loss is anticipated).

In April, Nutbeen's restructuring programme saw the closure of Doulton's last UK factory with the loss of 525 jobs. In fairness, the closure was a painful but necessary measure as it is obviously cheaper to produce in the Far East. But Nutbeen effectively slapped both soon-to-be ex-workers and shareholders in the face by immediately popping off to Zanzibar for a holiday while simultaneously receiving a grant of 1,000,000 share options. The price at which he may exercise these options is 9.1p. The current share price is 7.5p.

Fast Learners

It's not only directors from established companies in 'traditional' industries that are guilty of over-rewarding themselves. Often those at the helm of start-up companies will engage in extracting value for themselves before their product has gained significant sales or profits.

Over at pumping technology firm Pursuit Dynamics there has been a significant bout of value extraction by a wide range of directors despite the fact that Pursuit's products have not gained widespread market penetration.

After a placing in March, which raised £2.4 million, Pursuit's chairman Ronald Trenter exercised 688,079 shares at 50p and 245,873 shares at 24.5p and promptly sold the shares to institutional investors for £1.24 per share, netting a £753,818 profit. Amazingly, at the interim to March, the company announced its first turnover of a mere £108,746 while pre-tax losses were virtually flat at £817,952. This year it is expected to make a loss of £0.4 million. The market cap of this venture is £55.3 million, which hardly looks justified to me. I suggest you follow Trenter's lead and off-load your shares.

Super share options

3D graphics specialist Superscape has continued to promise much but has delivered little to its shareholders over the years. Despite announcing countless licencing and distribution agreements this year, not to mention serious sounding partnerships (16 at the last count), its swerve technology has yet to bring in any profits.

For the year to January, turnover was a meagre £1.1 million and pre-tax losses a hefty £7m. On top of this, in the last 20 months alone, it has tapped the market for almost £16 million for working capital.

Interestingly, chief executive Kevin Roberts has accumulated an impressive 3.1 million share options in the past 14 months with exercise prices between 10p and 33p. He is very much in the money at present as the shares are priced at 35.5p. It will be interesting watching the timing of his future trades.