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By John Helmer, Moscow

What is a bonus worth if it’s a promissory note for a value that is sinking towards zero in the short term, and cannot be converted to cash or dividends for years? How much loyalty would a zero-value note be expected to attract?

On July 4, Rusal disclosed to the Hong Kong Stock Exchange that it has devised a plan to give shares to company employees for the purpose, the company release claims, “of increasing the employees’ commitment to achievement of the Group’s strategic goals in implementing of the production system.” The plan is for Rusal to buy 0.05% of the 15.2 billion Rusal shares outstanding; that’s 76 million. As Rusal’s share price slips below the HK$3 level, and its market capitalization falls below US$6 billion, it would cost the company US$29 million in cash to fill the employee stock fund to its maximum authorized number. But Rusal says Oleg Deripaska, the chief executive, is going to start the fund off himself at something less than the maximum “The Company currently intends to finance the Plan by applying the internal funding which is available after the CEO voluntarily declined his bonus for the year 2012.” According to Rusal’s financial report for 2012 (page 42), Deripaska’s salary, allowances, benefits in kind, and “discretionary bonuses” came to US$5.536 million. The financial report doesn’t indicate precisely how much of this was in the form of cash, how much in airplane flights to non-business destinations, and how much in bonus cash. The report does claim that Deripaska received 417,266 bonus shares worth at vesting (November 21, 2012) just $274,000.

Not many loyal employees can be rewarded with that lot. But Rusal is telling Moscow reporters that Deripaska is intending to contribute $3 million in cash to the loyalty fund. That should leave the CEO with $2.26 million in pocket money, or the equivalent in holiday airplane trips.

The rules of the loyalty plan have a catch which allows Rusal to prevent the new shareholders from receiving their bonus shares or cashing out. “No grant of Award,” says Rusal, “will be made to a Selected Employee, no payment will be made to the Trustee and no instructions may be given to the Trustee during Black-Out Periods.” These BOPs are defined as “a period throughout which any Director or any relevant officer is, or deemed to be, in possession of unpublished inside information in relation to the Group or the securities of the Company.” Who exactly is a “relevant officer” isn’t defined by the Rusal rules; it seems to include the “selected employees” who ought to be on the receiving end. So it turns out that the shares are hush money of a special sort – entitlement is withheld, and thus conversion into cash, whenever Deripaska decides.

The one chance the Rusal loyals have of getting their shares, and then of selling them, is if Deripaska is fired by the Kremlin or ousted by the minority shareholder litigation in London. That’s what the Rusal plan calls a “change of control.” According to the plan, “in the event of a Change of Control, the Award shall vest immediately on the date when such Change of Control becomes or is declared unconditional, and the Trustee shall transfer the Award to the Selected Employee pursuant to the Rules.”

It’s difficult to imagine how the designers of a loyalty plan could come up with such a strong motive for eliminating the boss. There is an equally strong motive among Rusal employees who have lost their jobs as the company has cut back on production of aluminium, alumina and bauxite. According to the Rusal announcement, the “one-off employee incentive plan” is a reward “for achievements in implementation of the production system principles and techniques by the employees.” That these principles and techniques are for cutting output and jobs, as the global aluminium market is threatened with the release of over-filled warehouse stocks, is all too obvious. The latest Rusal report for the March 2013 quarter reveals “a decrease of 4.0% (or by 42 thousand tonnes) compared to 1,049 thousand tonnes for the first quarter of 2012. This dynamics reflects the launch of capacity curtailments program and was mostly attributable to the decreased production at certain smelters located in European part of Russia and Urals, in particular, Bogoslovsk Aluminium Smelter.”

Job cuts at Bogoslovsk are at least 450. The Krasnoturyinsk City Duma deputy, Ildus Khakimov, who joined a hunger strike early this year to protest the threatened closure of Bogoslovsk, says some of those laid off have been offered transfers to other jobs; others have been given early retirement; yet others have been obliged to take redundancy payouts; he doesn’t know the exact numbers. Valeriy Zolotarev, the leader of the Independent Trade Union of Miners Russia, who had been an organizer of a union cell at Bogoslovsk, believes the number of job cuts is significantly larger than 450.

There have been much larger losses of jobs in Guinea, where the Friguia alumina refinery has been stopped since April 2012. Company-wide, alumina output in the March quarter has been cut 11%; bauxite mine production is down 22%, also because of the turmoil of Rusal’s operations in Guinea.

In Nigeria, job losses caused by the shutdown of Rusal’s Aluminium Smelter Company of Nigeria (Alscon) have run into several hundreds, as the plant records dwindling production and no sales revenue. On June 19, Rusal was ordered by the Nigerian High Court in Abuja to face trial on civil claims it corruptly and fraudulently acquired Alscon, erased hundreds of millions of dollars of its capital value, and deprived Bancorp Financial Investment Group Divino Corporation (BFIG), the lawful winner of the 2004 privatization of the plant, of the 9-year income to which it is now entitled. Justice Jude Okeke rejected Rusal’s attempt to dismiss BFIG’s claim for $2.8 billion in recovery. Rusal has countered that it has invested more than $330 million at Alscon, and is defending its legal title to the plant in the London Court of International Arbitration.

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