South African fund managers overseeing almost $180 billion in assets said they are stepping up pressure on mining companies to curb executive pay as returns to shareholders dwindle.
“Costs are going up double-digit, money is not coming in, yet we are seeing a big, big rise in executive pay,” Fidelis Madavo, who helps manage about 1.4 trillion rand ($140 billion) at Public Investment Corp., South Africa’s state pension fund, said at a conference in Johannesburg. “We have been talking to CEOs individually on this.”
Pay for chief executive officers at South African mining companies increased 12-fold in the decade to 2012 while dividends per share dropped 25 percent, according to a presentation at the conference by Michael Schroder, a fund manager at Old Mutual Plc, who helps manage the equivalent of $4.1 billion of assets.
“We are not happy,” said Schroder. “Something clearly has gone wrong here.” He criticized Gold Fields Ltd.’s decision to give CEO Nick Holland a 39 percent pay rise to 45.3 million rand in 2012, when the shares fell 17 percent. Holland’s pay included salary, bonuses and long-term incentives accumulated in previous years.
Holland’s 9.3 million-rand salary is 144 times higher than the annual wage, excluding bonuses and benefits, paid to entry-level underground workers at Gold Fields, who receive 5,400 rand a month. Management have taken a pay freeze for the 2012-2013 financial year, spokesman Sven Lunsche said in an e-mail, declining to comment further.
CEOs of companies on the Johannesburg Stock Exchange are paid an average 54 times more than the lowest-earning worker at their companies, according to a study published this year by PricewaterhouseCoopers LLP. The ratio is 20 times in China, 12 times in Switzerland and 204 times in the U.S., the study shows.
Investors are starting to be heard by mining companies’ boards on the question of pay, according to Sandy McGregor, a fund manager at Allan Gray Ltd., which manages about $35 billion of assets.
“The system is evolving,” he said in an interview. “I don’t think you’re going to see such huge packages in the future.” The firm has hired a person to work full-time to talk to companies about executive pay, he said.
“It has become a major issue,” McGregor said. “There are a lot of executives in the mining industry who are getting more than they should. We don’t mind people getting very large remuneration packages, but they must have done something to deserve it.”
State-run PIC, which manages public workers’ pensions, rejected pay plans at Anglo American Platinum Ltd., Gold Fields Ltd., AngloGold Ashanti Ltd., Sibanye Gold Ltd. and Royal Bafokeng Platinum Ltd., it said in August. PIC voted at the companies’ annual general meetings in April and May. The industry “is going through a very, very hard period,” Madavo said.
The Chamber of Mines, which represents South African mining companies, didn’t immediately respond to a request for comment.
“My advice to the CEOs is this,” said Old Mutual’s Schroder. “Your personal greed is the biggest obstacle for the turn of this trend.”