Orane
Dennise Williams, Staff reporter
DOUGLAS ORANE, Chairman and chief executive officer of Grace, Kennedy & Company (Grace) spoke once again to the Financial Gleaner about the stock option saga swirling around Grace executives.
The saga began when Mr. Orane sent out a letter in December to the Jamaica Stock Exchange alerting them of his decision to exercise his stock options. "Section 54 of the Securities Act requires directors to declare all their dealings within 14 days of those dealings. We abided by that law. Our actions was not voluntary; it was what the law stated."
He continues, "Perhaps this disclosure has caused so much interest in Jamaica because we are one of the first companies to pattern our stock option scheme after leading companies in the developed world."
Maybe.
Despite the reason or reasons for the intense public interest in the recent disclosure of the stock option exercised by key Grace executives, Mr. Orane tells us that this is nothing new for the company. "The company was founded in 1922 and by 1928 began giving employees shareholding in the firm. We have always given stock options; Grace has a history of inclusiveness."
That said, it is probably safe to say that it is not really the fact that the company gives stock options but the fact that the terms could be deemed generous.
But Mr. Orane sees no problem with generosity, as organisations must properly compensate their staff.
CONDITIONS ATTACHED
"First understand what a stock option is. It is granted and gives the holder the right to buy at the market price of a specific period. And this can then be exercised three to five years in the future. But there are conditions attached to the stock option."
Mr. Orane says that in order to benefit from the stock option one "needs to stay at the company for an extended period of time and pay with their own money to buy the shares. The company is not giving shares away for free."
Indeed, Mr. Orane made it clear that the current stock option was set in 2002 when the market price of Grace shares was $32. "What makes a stock option valuable is that the share price must go up or the option is worthless. Remember, this is not a guarantee but an incentive."
SOLID COMPANY
And what an incentive. The current share price of Grace is in the region of $121 and has been driven by the market's perception that Grace is a solid company with continued growth prospects. Mr. Orane believes this is just the result stock options are designed to achieve. When employees know that beyond salaries there is the prospect of wealth creation within their own company, they work harder.
Mr. Orane explains it in this manner.
"Stock options ensure the continuity of key staff members. Out of 1,900 permanent staff, 200 persons have stock options. And so it causes people to stay at Grace rather than go out on their own, migrate to Canada or work for the competition."
With the retention of key staff members, then shareholders also benefit through the growth of the value of their investment. Mr. Orane continues, "For example, the lady who formulated Grace Tropical Rhythms, one of our best selling products is a stock option holder.
So isn't it in the best interest of our shareholders for her to stay on at Grace and build up the business? It is a tremendous benefit to existing shareholders to retain good staff. From 2002, existing shareholders have become four times wealthier."
But then what about the call from others for Grace to do a rights issue or a bonus share offer? Mr. Orane, relies, "That is an interesting idea. We will have to do additional research to see if it will create wealth for existing shareholders."
And beyond meeting the needs of Caribbean people wherever they are - an important Grace mantra - Mr. Orane and his managers are very keen about creating wealth for shareholders and employees. This is evidenced by Mr. Orane's statement, "Each year in recent memory we have paid more dividends than the previous year before."
