Mining executives’ pay packets questioned by funds
Mining executives’ pay is out of kilter with their companies’ performance and a review of the way packages are structured should take place.
By Allan Seccombe
Mining executives’ pay is out of kilter with their companies’ performance and a review of the way packages are structured should take place‚ a mining conference heard this week.
Speakers at the three-day inaugural Investing in Resources and Mining in Africa conference in Johannesburg tore into executives’ remuneration‚ with fund managers in particular scathing about the way CEOs are rewarded.
Black economic empowerment (BEE) was also criticised for the cost to shareholders in putting deals in place for companies to meet their obligations under mining laws. These dictate that miners have at least 26% black ownership by the end of next year.
During a spirited investment session at the conference‚ fund managers overseeing billions of rand in investments criticised CEOs’ pay. Gold Fields CEO Nick Holland’s R45m pay packet last year was a case in point.
"The mining industry is heading in the wrong direction and very rapidly I shall say‚" said Mike Schroder‚ portfolio manager of Old Mutual’s gold fund. "My advice to the CEOs: julle bly fokken lekker. R45m? Bliksem! (You’re sitting f*** pretty. Damn!) Your personal greed is the biggest obstacle for the turning of this trend. Come down with the pay packages or get out."
The state-owned Public Investment Corporation (PIC)‚ which has more than R1.4-trillion in assets‚ had repeatedly raised the issue of executive pay. "We have been very vocal about executive pay‚" PIC head of resources and portfolio manager Fidelis Madavo said.
"South Africa’s mining industry is going through a very‚ very hard period. Costs are going up at double-digit rates‚ margins are not coming in yet‚ we are seeing big‚ big rises in executive pay at a time when trade unions are asking for a lot of money. In the gold industry it is surprising that some CEOs are getting huge salaries in bonuses when there is no free cash flow‚" Mr Madavo said.
Bobby Godsell‚ chairman of Business Leadership South Africa and former AngloGold Ashanti CEO‚ said the basic portion of salaries was out of proportion to the variable portion‚ which is the performance bonus. "It’s interesting to ask how closely does a company’s budget coincide with the remuneration committee’s formula for long-term and short-term incentives and what is the relationship between those two."
Noah Greenhill‚ head of corporate finance at Sasfin‚ said just looking at what CEOs took home was sometimes misleading. This was because there were sometimes large share options that had been agreed to years in advance as a way to incentivise management.
Mr Holland’s basic salary last year of R9.3m was boosted by an R8.5m bonus‚ and share proceeds of R25m. "We have to start looking at the roles of independent chairmen and independent nonexecutive directors on remuneration committees. Those guys need to stand up and be counted a bit more."
Harmony CEO Graham Briggs took home 20% less in the year ended June because of a 53% drop in the company’s shares.
He earned R11m against R14m a year earlier‚ but his basic salary rose about a third to R9.24m.
Bernard Swanepoel‚ chairman of the conference and former Harmony CEO‚ said pay packets were "exorbitant and over the top". A new pay determination forum was needed. "The credibility of executive management gets undermined by pay which is disproportionate to performance of companies‚" Mr Swanepoel said.
Mr Schroder said investors wanted to deal with items in mining companies that could be measured and charted. "One cost that I can’t chart is BEE. It doesn’t affect the bottom line or the EPS (earnings per share) or PE (price:earnings) ratios‚ but every time a BEE deal is done our pension funds‚ our provident funds‚ our unit trusts have to chip in."
Rob Still‚ the chairman of the privately held Pangea Group‚ said the government had to consider the once empowered‚ always empowered concept to prevent miners from having to chase after fresh black investors if their empowerment partners sell out. "L et’s draw a line at the end of BEE at the end of next year or the year after.
" The uncertainty that BEE again and again creates in our society is unacceptable."
Michael Spicer of Business Leadership South Africa said BEE was "incentivising all the wrong behaviours". It was not productive‚ sucked investment out of the rest of the economy and it was becoming corrupted.
"BEE deals must include employees who are productive (and) generating wealth‚" Mr Spicer said