Executive payouts criticised by gold investors as metal price hastens M&A activity

COMPENSATION packages that pay gold mining executives large bonuses in the event of merger and acquisition activity have been criticised by investors who intend to vote against them at company meetings.

Reuters cited prominent gold industry investors such as Van Eck Associates Corporation and Equinox Partners as critical of the schemes which have drawn increased attention as the high gold price spurs deal-making.

“It’s excessive and it’s something that we don’t like to see as shareholders,” said portfolio manager Joe Foster at Van Eck Associates. “These CEOs, they all have nice pay packages as it is,” he said, adding that he plans to use “say on pay” proxy votes, and meetings with management, to express his view.

Equinox portfolio manager Coille van Alphen said that executives who liquidated stock options following the creation of a newly merged company suggested that executives were not interested in the company’s long-term future. “The whole point of a no-premium deal is they create value in the new company,” she said. “But if you really believe that, wouldn’t you want the upside? Why would you take the cash?”

Equinox identified the proposed takeover of Teranga Gold by Endeavour Mining as indicative of investor concerns on the matter of executive payouts.

Teranga Gold executives collectively will receive $10m in severance pay plus $20.9m for accelerated vesting of options after agreeing to a $2bn takeover by Endeavour Mining. The payout was “egregious” given Teranga’s relatively small market capitalisation, Van Alphen told Reuters.

Teranga said the change of control severance payment – two times annual salary and bonus – aligned with the industry standard.

“Each of the executive officers have been with the company for the better part of the last decade, and the experience of the senior group has played a significant part in our success,” said Teranga President and CEO Richard Young.

Endeavour Mining’s change-of-control rules provide for each of its five executives to receive two years’ worth of salary and bonus upon termination.

“The Endeavour board continually reviews its remuneration policy and takes external advice to ensure that it is appropriate to the size and complexity of the business, while being aligned with shareholder interests,” said an Endeavour spokesperson. “We are in regular dialogue with investors who have consistently approved the policy.”

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