Rio CEO Jumps With No Golden Parachute After Losing $14 Billion

Tom Albanese will leave Rio Tinto Group without a cash windfall, forgoing his bonus for a third straight year after failed deals in aluminum and coal saw him relinquish control of the world’s second-biggest mining company.

Albanese resigned as chief executive officer after Rio said it will take about $14 billion of writedowns. He won’t get a short-term performance bonus for 2012 or 2013, or any lump-sum payment upon leaving, the London-based company said. He’ll go with about 10.7 million pounds ($17 million) of share options.

The 55-year-old executive would have been entitled to about 1.27 million pounds in cash and deferred shares for last year had he met performance targets, Rio’s annual report shows. He already gave up his 2011 bonus following an earlier writedown. In contrast, Canada’s Kinross Gold Corp. booked a severance expense of $16.4 million after CEO Tye Burt was replaced.

“It was almost a given that he wouldn’t get a payoff leaving under these circumstances,” said Deborah Hargreaves, director of U.K. monitoring body the High Pay Centre. “It’s also not certain that he would have qualified for the other performance targets.”

Companies in Britain and the U.S. have faced mounting pressure to curb executive remuneration amid an investor revolt dubbed the shareholder spring. The backlash was first primarily directed at financial institutions, with Barclays Plc giving former CEO Robert Diamond about a 10th of his full entitlement on departure after politicians pointed to his role in the Libor-fixing scandal that saw the bank fined 290 million pounds.

Live Issue

“The government has made a big issue out of payment for failure and payoffs for people who have been seen to screw up, so I think that’s concentrated minds,” Hargreaves said. “It’s been on the agenda since the shareholder spring. All the people I speak to on remuneration committees say it’s a very live issue with them.”

Albanese’s basic salary was 1.06 million pounds in 2012, a 2.5 percent increase from a year earlier, according to Rio’s annual report. His total remuneration fell 19 percent to 4.47 million pounds in 2011 after he declined a bonus, citing an $8.9 billion writedown of the company’s aluminum division.

“While I leave the business in good shape in many respects, I fully recognize that accountability for all aspects of the business rests with the CEO,” Albanese said yesterday in a statement. He was unavailable for an interview.

Rio climbed 1.8 percent to 3,502.5 pence by the close in London trading. It earlier advanced 2.7 percent to A$66.35 in Sydney, more than the benchmark S&P/ASX 200 Index’s 0.3 percent gain.

Rio executives have contracts that can be terminated by either party with 12 months’ notice, or immediately by paying the base salary, according to the company’s annual report.

Share Options

Albanese will leave with vested but unexercised share options granted from 2003 through 2009 and valued at about 10.7 million pounds. He also has 1.6 million pounds of shares that may vest in February. His accrued pension was worth 476,000 pounds a year at the end of 2011.

Albanese’s lack of bonus or lump-sum payment contrasts with the package awarded to Kinross’s Burt, who was replaced after the shares fell 28 percent in the first seven months of last year. Burt had presided over a $2.49 billion writedown on the Tasiast mine in Mauritania, an asset Kinross acquired as part of its C$8 billion ($8.1 billion) purchase of Red Back Mining Inc. in 2010. His total compensation in 2011 was $7.68 million, including $1.44 million in salary, according to an April filing.

Canadian peer Barrick Gold Corp., which fired its CEO Aaron Regent in June, recorded $13 million in severance costs in the first nine months of 2012. Regent’s 2011 compensation was $9.3 million, including $1.66 million of salary, according to a March filing.

State Pressure

Directors in the U.K. “have to consider the political ramifications well beyond what directors in North America have had to consider,” said Steve Chan, principal at Hugessen Consulting Inc. in Toronto, which advises boards on pay. “The U.K. government and regulators as you know have intervened in executive compensation matters much more than in Canada and the U.S.”

Rio paid $38 billion to buy aluminum producer Alcan Inc. in 2007, an acquisition that soured when metal prices plunged during the global financial crisis. The company has written down asset values at its aluminum division by more than $29 billion since 2009.

Rio is also writing down 70 percent of the value of Albanese’s A$3.9 billion ($4.1 billion) purchase of Mozambique coal producer Riversdale Mining Ltd., less than two years after completing the deal.

The board picked Sam Walsh, the 63-year-old head of Rio’s iron-ore unit, to take the helm. Walsh will earn a basic salary of A$1.9 million (1.25 million pounds), 18 percent more than Albanese last year.

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