The publication of the first annual report from Parthus plc has highlighted the existence of two subsidiaries: Parthus Research and Skelbrook. These firms own the patents on technology used by the micro-chip design company and are, in turn, 95 per cent owned by Parthus and 5 per cent owned by the company's executive directors and other chosen staff members.
Parthus pays undisclosed royalties to these companies each year which are then distributed to shareholders. Under legislation to encourage research and development by Irish companies the dividends are tax exempt.
Parthus claims, correctly, that it is as entitled to avail of the scheme as any other company, but that does not get away from the fact that the use of patent companies can obscure the true level of remuneration of senior executives.
All four executive directors of Parthus are shareholders in Parthus Research. They are Mr Kevin Fielding, the president; Mr Brian Long, the chief executive officer; Mr Peter McManamon, executive vice-president; and Dr Michael Peirce, chairman. Mr Fielding, Mr Long and Mr McManamon are also shareholders in Skelbrook.
According to documents filed in the companies office Parthus Research paid out £255,387 (€324,275) in dividends in the year to December 1999 with another £42,000 in dividends proposed.
The figure for 2000 is not available but according to Parthus the figure is of the same magnitude.
The recipients of the payments are not obvious. Parthus Research has 56 different classes of ordinary shares in issue ranging from "A" to "III". Different individuals hold different shares or combinations of shares.
Mr Long for example has "W" shares while Mr McManamon has "Y" shares.
The dividend policy, according to the company's articles of association, is that the first £100 of profits available for distribution is split across all shareholders in proportion to their shareholding.
Once this criteria has been met then different dividends can be declared on the various classes.
These dividends are set by the directors who are Mr Long, Mr McManamon, Dr Peirce and Mr Giuseppe Mariani.
Skelbrook is similarly structured. It paid out £183,250 in dividends in the year to December 1999 and another £54,000 in dividends was proposed. It has 27 classes of share in issue and the directors are Mr Long and Mr McManamon.
The dividends received by the four executive directors of Parthus from these companies is lumped in with their salaries and fees in the section of the annual report that deals with executive remuneration.
In the case of Mr Long and Mr McManamon this was $220,000 (€246,416) each in 2000. Some $18,000 was disclosed in the case of Mr Fielding in respect of one month as an executive director last year. Mr Fielding has been with the company for more than three years and earns $180,000 a year.
Dr Peirce received no remuneration from the company in 2000.
Parthus says its reporting arrangement is in keeping with the UK's Turnbull guidelines on corporate governance. The Irish Association of Investment Managers has no guidelines on the issue but has made it clear that it would rather see the payments from patent companies broken out and/or a specific assertion from the company that the salaries and fees figure includes income from patent companies.
The reason why income from patent companies should be broken out is that £1 paid via a patent company is worth more than £1 paid directly as salary. Assuming the recipient is paying the current top tax rate of 42 per cent, it is worth 42p more.
A salary that looks reasonable, can start seeming excessive if a substantial portion of it is paid via a patent company.
Even assuming that none of the Parthus executive directors' remuneration came by way of patent company, they are still well looked after.
Mr Long's total package was $324,000 while Mr McManamon took home $324,000. Mr Fielding's full package was not disclosed as he was only on the board for one month.
In addition, the company paid rent of £300,000 to a company called Veton Properties in which Mr Long and Mr McManamon are minority shareholders.
The men also have attractive share options. Mr Fielding has options over 2.7 million shares at $1.08 while Mr Long and Mr McManamon have options over two million shares each at $0.165 million. The cost to the company of Mr Long and Mr Manamon's share options at the time of the initial public offering last May was $4.38 million.
Parthus floated at 85p sterling and is now trading at 74.5p sterling having weathered the recent storms on Nasdaq better than most. It is also one of the handful of young quoted companies that has the potential to become a truly international player in the way of Jefferson Smurfit in the 1980s.
It is unfortunate it should already have mimicked Smurfit's policy of rubbing shareholders' noses in it when it comes to disclosing fully executive remuneration.
jmcmanus@irish-times.ie
