[miningmx.com] – IT’S no coincidence that when it comes to forming a euphemism, more has been done to parlay wages than in most other areas of human experience. After all, what you earn is the most brutal, boiled down, descriptor of worth, or so it has become.
More so in the corporate world where “remuneration’, “emoluments’, “compensation’, “director’s fees’, and “stipend’ are employed to delicately describe to investors the rather indelicate fact that some people get paid a heap-load.
In the mining sector, the lens through which South Africa’s profound economic inequalities are frequently viewed, the fact that workers get paid peanuts compared to the executive class has become the number one chestnut for union bosses and government officials alike.
The CEO of Gold Fields, Nick Holland, was recently the focus on repeated attacks for having collected R45m in salary and shares. (He now faces uncomfortable questions regarding the probity of an empowerment deal at the group’s South Deep mine where a recent investigation found the company guilty of bribery of an ANC official. He has offered to sacrifice his bonus for the misjudgement.)
It’s because the issue of executive pay has become so hotly discussed that corporates are finding new ways to re-align the interests of highly paid executives with shareholders, and stakeholders in general.
In the case of two junior mining companies, Continental Coal, a company listed in Australia but which operates in Mpumalanga province, and Mwana Africa which operates in Zimbabwe and South Africa, the respective boards have just cut salaries and fees.
For Mwana Africa, the CEO Kalaa Mpinga, formerly of Anglo American, waived his £330,000 bonus and cut his salary 25% while director’s fees were slashed 50%. Some $2.6m was saved.
This didn’t stop UK broker SP Angel from observing caustically that the appointment of former DRDGold CEO and executive chairperson, Mark Wellesley-Wood, to the chair of Mwana Africa undid the firm’s governance efforts, and was a rip-off of shareholders to boot.
“Why would a company take on a character who previously presided over a failing high cost African gold miner while enjoying the benefits of an excessive salary at the vast expense of shareholders and the company,’ said SP Angel’s John Meyer.
SP Angel later modified its view. Wellesley-Wood was “the right man for the job’ for when you had “a blockage in the drain’ as Mwana Africa is reputed to be suffering in Zimbabwe. It also helped that Wellesley-Wood’s stipend, emolument, remuneration is a modest £60,000 a year, a “far cry from the R13m drawn from Durban Deeps back in 2003,’ said Meyer.
It seems as if the economic reality is that you have to pay for the things you want. Mpinga said in an interview with Miningmx that: “He’s someone we needed; he’s a specialist who can help us a lot in streamlining the business”.
Executive salary sensitivity is hardly an issue restricted to the the cash-strapped junior sector, however.
More recently, Jean Nel, CEO of Aquarius Platinum, proposed taking up to 70% of his salary and relevant bonuses over the next three years in shares starting from July in an effort to conserve the company’s cash resources.
In addition, the company’s non-executive directors will take a 10% haircut on their fees and receive 25% of the balance of their fees in shares. The proposals are due for shareholder approval at the company’s annual general meeting in November.
Piet Viljoen of asset management firm Re:CM, he says it makes sense for a CEO to opt for shares but it was a moot debate whether the board should accept such a proposal if they are acting in the interests of shareholders. “It’s a bit of a debate, but what about the dilutionary effect or issuing shares? I can see why the CEO would want to do it, but not the board necessarily. It’s a bit of a debate,” he said.
Newly appointed BHP Billiton CEO, Andrew Mackenzie, elected to relinquish 50,000 shares due to him after the group showed a 9% retraction in total shareholder returns, even though this outperformed the mining market’s negative 44% return. This means Mackenzie is awarded £4.6m out of £8.6m that would have been due to him.
BHP Billiton had already said, at Mackenzie’s appointment, he would be paid $500,000 less a year that his predecessor, Marius Kloppers, less even than the $1.9m being paid to Rio Tinto’s Sam Walsh and $1.8m for Mark Cutifani, CEO of Anglo American.
In the South African mining sector, the question of executive pay is no more sensitive than at a time when gold miners are being criticised for concluding 8% wage increases with unions. Before the agreement, the lowest basic pay for an entry-level worker in the gold sector was about R5,000/month. According to labour expert, Andrew Levy, speaking at the Mining Lekgotla in August, the average minimum wage in South Africa is about R3,000/month.
As a sample, Miningmx asked Harmony Gold and AngloGold Ashanti to comment on executive pay. Both declined to comment directly although the observation was made that a new tactic is for CEOs to buy shares in the company to align interests.
“Graham [Briggs, CEO], Frank [Abbott, financial director] and Ken Dicks [non-executive director] bought some shares last year, and Frank increased his holding recently, buying R2.6m of shares,’ said Marian van der Walt, spokesperson for Harmony Gold.
“It’s also worth noting that Harmony’s chairperson, Patrice Motsepe, is giving away at least half of his fortune estimated by Forbes magazine at about R30bn recently.
“No direct comment on remuneration save for the fact that our excom is 25% smaller now than it was this time last year, and overall executive pay for the group is roughly 40% less than a year ago,’ said Stewart Bailey, spokesperson for AngloGold Ashanti.
“We’re cutting more than 40% our corporate and management roles and taking our overhead down by more than half in 2014,’ he said. Srinivasan Venkatakrishan, CEO of AngloGold Ashanti, bought R1.62m company shares in August.
