Friday, 1 June 2012

Mining firm plumbs the depths with £30m retention payment for Chief Executive

Mining may be a dangerous and dirty business (as well as one that is profitable for its owners and shareholders) but a retention payment of almost £30m over the next three years for the Chief Executive of a newly-merged Anglo-Swiss mining firm seems somewhat over the top!

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!

1 comment:

  1. You never know, the proposed packages might have been even larger and what we see is as a result of HR Reward managers digging their heels in!!