Executive ‘pay’ brouhaha misses the point

[miningmx.com] – THE last time Chris Griffith, CEO of Anglo American Platinum (Amplats), made national headlines it was for being branded “arrogant’ by the country’s mines minister, Susan Shabangu.

That was in the teeth of the planned restructuring of Amplats’ Rustenburg mines which was followed by the accusation that Griffith and his team hadn’t properly consulted the South African government on its proposals to cut several thousand jobs.

Of course, it’s a moot point just how much the private sector ought to be consulting governments on price sensitive operational and strategic plans, and how exhaustively.

Similarly, the question of executive remuneration – which has brought Griffith to prominence for a second time in 18 months – is just as moot.

Miningmx first reported on an Amplats announcement on May 5 in which it detailed executive remuneration plans, including a R4m payment to Griffith in shares in terms of the company’s bonus share plan, and a further R11m over three years if performance targets were met in terms of the firm’s long-term incentive plan.

Asked by BDLive to comment on the share incentives, which were announced on the same day that talks with union the Association of Mineworkers & Construction Union (AMCU) over a basic R12,500/month wage deal for workers failed, Griffith said he was worth the money.

Arrogant? Perhaps. Ill-timed? Certainly. Yet if the share payments are the decision of the company’s remuneration committee, then his comments are a statement of simple fact.

Ironically, the whole issue of executive incentivisation is being missed through the brouhaha that duly followed Griffith’s ill-judged comments and his public apology which, in retrospect, was a noble tactic that stoked the fire, rather than extinguished it.

The fact of the matter is that in re-balancing executive payments towards performance – for that is what share incentives are – the Amplats remuneration committee is, in fact, working in complete harmony with modern-day corporate governance standards.

Rewarding executives for achievement, which is normally gauged through company share price performance, in theory aligns leaders with the interests of all company shareholders and stakeholders. It is very common.

In July last year, Lonmin CEO, Ben Magara, was awarded R11m worth of company shares to compensate him for the loss of financial incentives that were intended to have him stay at previous employer, Amplats.

Elsewhere, Aquarius Platinum CEO, Jean Nel, in September agreed to take up to 70% of his salary and relevant bonuses over the three years in shares in an effort to conserve cash. The company’s non-executive directors also took a 10% haircut on their fees.

The issue has become emotionally loaded, however. At a recent annual general meeting of Gold Fields shareholders, a whopping 30.2% of those who attended voted down the company’s remuneration plan.

Last year, Government’s Public Investment Corporation attended a host of company AGMs to vote down pay proposals including Amplats, Gold Fields, Sasol, Sibanye Gold and AngloGold Ashanti. In November, AngloGold Ashanti CEO, Srinivasan Venkatakrishnan, agreed to freeze his salary and took no bonus.

At Impala Platinum, meanwhile, CEO Terence Goodlace has not accepted any bonuses or any share options since joining the company in July 2012 whist no salary increases were granted to management at all.

Executive wages are ultimately a question of competitiveness.

The worth of an executive, especially in the context of the mining sector, is set by the global market. Shareholders putting money into a company want to know the person appointed to spend it is the safest pair of hands that can be reasonably afforded.

Amplats is 80% owned by Anglo American which moves in the same universe as global giants BHP Billiton, Rio Tinto and Glencore Xstrata.

By way of context, Glencore Xstrata’s temporary CEO, Mick Davis, reportedly took some some £75m or R1.3bn in cash payments and share options of various descriptions when he quit the company in March 2013. Perspective.