The payment arose after an attempt to `incentivise'' Andrew Duncan to work hard for the company's benefit.
Mr Duncan, who was hired in 1999-2000 and left in early 2012, was sold a 10% stake in a Hamilton subdivision development for $403,000 in March 2007. The development was part of a wider 50:50 joint venture with Port Otago and a private North Island company.
At the time, it was reported as an ''unprecedented'' offer by Port Otago and then chairman John Gilks, called it a ''one-off''. He rejected suggestions Mr Duncan could become compromised.
The original contract was not completed and, in the meantime, land values increased substantially.
In the end, Mr Duncan paid $2.8 million instead of $403,000 for his 10%, thus missing out on a huge capital gain.
After negotiations, it was agreed Port Otago will pay $1.25 million in compensation.
Port Otago's current chairman, Dave Faulkner, yesterday told the Otago Regional Council (Port Otago's owner) that Mr Duncan had, during the financial year to June, been compensated $991,000, and a further $263,000 would come later.
On that basis, Port Otago pays Mr Duncan $1.25 million. However, Port Otago will reap more than $1 million from huge gains in land value from the 10% holding.
In a statement following the regional council meeting, Mr Faulkner said when Mr Duncan became manager of the Hamilton joint venture, it was decided to ''incentivise the position'', by giving him a 10% interest.
''At the time of purchase, this interest required the chief executive officer [Mr Duncan] to pay $403,000 as his share of the purchase price.
''Unfortunately, the details of this arrangement were not finalised either by the Hamilton joint venture or the Chalmers Properties board,'' Mr Faulkner said.
Port Otago's board had become involved in 2006 when ''it became apparent'' that after ''many attempts'' to finalise the agreement, that had not been achieved.
In the interim, a plan change in Hamilton meant land values had risen from (rural) at $9 per sq m to (newly industrially zoned) $80 per sq m.
Mr Duncan's purchase price of $403,000 for 10% of the project had risen to $2.8 million.
Mr Faulkner said following an ''extended period of negotiations'', an agreement was finalised with Mr Duncan, who would be ''partially compensated'' for the increased purchase price by paying 75% of the development costs, including tax, totalling $1.254 million.
Chalmers Properties was restructured in 2011 and the Wellington office closed and relocated to Dunedin. Mr Duncan left in early 2012.
At the time of the relocation to Dunedin from Wellington, in January 2012, Port Company chief executive Geoff Plunket was asked if Mr Duncan was receiving a severance package, but declined to give details.
He reiterated yesterday employment obligations had been met, but would not disclose the amount of any severance package.
