Pricing performance rights in a long term incentive grant

One issue to be aware of with LTI grants of performance rights (a performance right is a zero exercise price option entitling the executive to receive one fully paid share) is that performance rights always have value on vesting. Significant differences can arise if a company uses a fair valuation methodology to price the performance right or a VWAP price method. Resolution 3 on Qantas Airways 2015 AGM on 23 October 2015 seeks shareholder approval for a grant of 947,000 performance rights to the MD/CEO Alan Joyce. This is based on the ‘target value’ of the grant being 80% of his base salary of $2.125 million and the fair valuation of the right on 30 June 2015 of $1.75. Using the CSP of $3.16 on 30 June 2015 rather than the fair value, the number of rights granted would be 538,000.