As reported on the BBC website, Mick “The Miner” Davis of Xstrata has been offered £9.6m as
"retention payments" for each of the next three years if (and surely
this must be a big “if”) shareholders approve,
and he agrees to stay on as boss once Xstrata’s merger with Glencore is
completed.
It won’t come as a surprise to learn that Davis is already
one of the best paid bosses of a FTSE 100 company. But he’s not the only one of Xstrata’s
employees who is in line for a significant retention payment: In total, 64 of
Xstrata's senior employees are being offered £46.4m in retention payments
(basically being paid for turning up!) for each of the next two years. The
rationale behind this is that these managers are “critical for our businesses
and whose continued employment is key to integrating the two businesses and
maintaining and enhancing the value of its operations and growth projects".
But just how critical can these roles be?
A recent report on BBC Radio 4’s More or Less programme
revealed that bosses of the UK's biggest companies earn millions in
"excess remuneration", and that pay packages designed to incentivise
FTSE 100 chief executives had little effect on company performance.
Independent research for the programme compared profit
growth and total shareholder return against the total realised pay earned by
bosses between 2008 and 2010.
They found (for example) that former Reckitt Benckiser boss
Bart Becht earned £138.6m more than the performance of his company justified -
an 1,199% overpayment.
Dr Hermann Stern, chief executive of Obermatt (an
international financial research company specialising in indexing operating
performance) found that “there was absolutely no pay-for-performance link in
the UK for those three years. Remuneration committees never want to pay below
average. They are more worried about retention than performance. So this has
led to spiralling pay inflation.”
Whether worry over retention can ever justify a retention
payment of almost £30m is clearly questionable, but it will be interesting to
see whether the “shareholder spring” which has led to major shareholders
expressing serious concern over excessive pay and bonus packages will extend
into the depths of the mining industry.
Equally concerning, however, is the relative silence in the
HR community over an area which demands a response from the UK’s HR
professionals. Surely our role is to direct and control executive reward, not
just administer it!
