Mining CEOs rake in the cash

2013-04-28 10:00

Remuneration packages can outstrip the lowest-paid workers by 155 times, while Solidarity believes pay is way out of line in SA

South Africa’s mining chief executives, for the most part, paid themselves handsome salaries last year, raising the chagrin of trade unions who say the very same companies are likely to plead poverty during the course of looming wage negotiations.

An analysis of CEO remuneration at 10 of South Africa’s biggest mining groups for the 2012 financial year shows that total compensation tended to increase, in the opposite direction of most companies’ operational and financial performances, during what was a difficult period for the country’s mining industry.

The table (above) shows a comparison between the cash component (salary, perks and bonuses) of chief executives’ remuneration and how their companies have performed.

While there is some limited measure of correlation between company performance and cash remuneration, the comparison paints half the picture, as it does not take into account the additional share incentives most chief executives are entitled to.

The total remuneration for 2012 of the former chief executive of AngloGold Ashanti, Mark Cutifani, is a case in point.

The company reported a drop in headline earnings of 28.9% during a period in which the company was aided by a rising gold price, but which also saw its South African operations shut down for more than a month by sectorwide strikes.

Cutifani’s salary, perks and bonuses subsequently dropped from R27.8?million to R20.3?million for the year. But, whereas he exercised none of his share options in 2011, his decision to do so last year bagged him an additional R22.9?million.

As a result, Cutifani’s total remuneration for 2012 totalled more than R43?million, or about R117?000 per day for the 366 days of the year.

Another example where performance and reward also seems to be out of kilter is the case of Gold Fields chief executive Nick Holland.

The company posted a 38% decrease in headline earnings of R2.7?billion.

Holland nevertheless earned just less than R20?million in salary, cash bonuses and perks, while share proceeds of R25.3?million pushed his

total remuneration for 2012 to R45.3?million, up from R32.6?million in 2011.

Holland’s basic salary (perks, bonuses and shares excluded) of R9.31?million is 155?times more than the basic wage of R60?000 a year (benefits excluded) for the lowest-job-grade underground worker at what used to be Gold Fields’ KDC and Beatrix mines.

These mines were spun off in February as a separate company, Sibanye Gold.

Increases in basic salaries are not, for the most part, fuelling these increases in executive remuneration, as these increases are linked to inflation.

More often, the boards of directors at companies tend to entice chief executives with extended share incentives.

For instance, in 2011, former Anglo American CEO Cynthia Carroll saw her long-term incentive plan raised from the 200% of basic salary on which she was appointed in 2007 to 350% of basic salary.

As a motivation for the increase, in its 2010 annual report, Anglo American said: “While sensitive to shareholder concerns about the use of benchmarking in setting remuneration levels, the (board) feels it necessary to ensure that incentive levels remain appropriate to attract, retain and incentivise the senior management of a geographically diverse and operationally complex group.”

Labour unions say executive remuneration levels feature strongly when negotiations over worker wages take place.

Wage talks are bound to start within the next two months in South Africa’s mining sector, as many existing agreements come to an end on June 30.

Lesiba Seshoka, the spokesperson for the National Union of Mineworkers, said it is particularly frustrating when mining companies say market and operational conditions are rendering them penniless, yet that doesn’t filter through to executive pay.

“If companies want us to trust them, not only will they freeze executive pay, but also cut it,” he said.

Gideon du Plessis, the general secretary of trade union Solidarity, said executive pay is a central argument during wage negotiations.

“The performance and pay of executives in South Africa’s mining industry is way out of line,” he said.

A mining executive, who did not want to be named, said it was difficult to benchmark the salaries of South African chief executives against international peers, but the country is known to be one of the most challenging environments to work in.

The executive said: “CEOs in South Africa do not last longer than five years.

“In South Africa, you do it all, see it all and see the worst.”

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