Mining CEOs Punished as FTSE 100 Peers Keep Pay: Commodities

The largest mining companies traded in London cut pay for their chief executive officers by an average 23 percent last year, as boards punished several top managers after a wave of failed deals.

Average compensation for the 13 CEOs at companies valued in excess of 1 billion pounds ($1.6 billion) skidded to $3.6 million in calendar and fiscal 2012 from $4.7 million in 2011, data compiled by Bloomberg show. Anglo American Plc’s Cynthia Carroll, who left in April, had the biggest drop as her total pay fell 61 percent to 3.19 million pounds. In contrast, CEOs who run members of the U.K.’s FTSE 100 Index eked out an average 1 percent increase.

Four of the six biggest mining companies in the industry trade in London and their managers oversee assets from Australia to Zambia. Some lost their bonuses -- and their jobs -- after a mergers and acquisition binge over a decade to buy into a commodities-price boom that stalled in 2011.

“A number of these managers paid the price for poorly-timed acquisitions, expensive acquisitions or pursuing gold-plated expansions which resulted in a poor use of shareholder capital,” said Jeff Largey, a mining analyst at Macquarie Group Ltd. in London. He is the top-ranked analyst on BHP Billiton Ltd. and Rio Tinto Group according to the Bloomberg Absolute Return Ranking.

Companies in Britain and the U.S. have been under mounting pressure to curb executive remuneration amid an investor revolt dubbed the shareholder spring.

Paycuts Welcome

The total return on FTSE 100 mining stocks was a drop of 2.6 percent last year, the sixth-worst performer of 33 industry groups in the index tracked by Bloomberg. The 10 mining companies have lost a further 13 percent this year, as the broader index returned 8.1 percent.

“Where paycuts have occurred, it’s definitely welcome and it probably should have happened in more cases,” said Luke Hildyard, head of research at the High Pay Centre, a U.K. monitoring body set up in 2009 after an inquiry into public and private sector remuneration. “There is an air of deflecting the criticism. They want to win the spin war and distract from the issue.”

Failed deals in aluminum and coal caused $14 billion in writedowns at Rio Tinto and cost CEO Tom Albanese his job, while cost overruns at an iron project Carroll purchased in Brazil contributed to her departure from Anglo. BHP Billiton and Xstrata Plc CEOs also took pay cuts last year before leaving their jobs.

Carefree Investors

“Investors are very carefree in a rising market environment and tend to overlook how much the CEO is getting paid,” said Largey. “Once the cycle turns, the scrutiny really steps up.”

The backlash was carried over from 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.

Eurasian Natural Resources Corp. was the worst performer last year, shedding 54 percent of its value, while Anglo American dropped 26 percent. Fresnillo Plc, the best performer, gained 24 percent.

Randgold Resources Ltd. CEO Mark Bristow bucked the trend as a bumper share award saw his compensation jump 53 percent to $6.99 million pounds in 2012, making him the best-paid CEO among his peers. A $4 million share award to recognize Bristow’s “outstanding contribution” to the company was opposed by 39 percent of votes at the company’s annual shareholder meeting in April.

Deal Spree

Natural resources companies went on a deal spree in the past decade, spending $1.1 trillion chasing growth, according to data compiled by Bloomberg. Mergers and acquisition activity peaked in 2006 when mining and metals businesses spent more than $200 billion.

The mining industry’s M&A missteps have been compounded by higher costs for energy, labor and construction materials. That has trimmed profits, sapped investor appetite for further deals and spurred calls for greater returns.

The U.K.’s top 100 CEOs received a 1 percent median increase in total awarded remuneration, according to a survey by proxy voting agency Manifest and London-based pay consultants MM&K.

Burberry Group Plc’s Angela Ahrendts was the FTSE’s best-paid CEO with total realized remuneration of 16.9 million pounds, according to the survey. Barclays’ Diamond topped the earning chart last year with 20.9 million pounds.

Moderation Helps

“If you put your head above the parapet, then you’re liable to be highly visible, you’re going to attract a lot of negative feedback,” Cliff Weight, a director at pay consultant MM&K Ltd., said in an interview. “If you show a bit of moderation then it helps. It’s good that people seem to be listening.”

Former BHP Billiton CEO Marius Kloppers declined a bonus last year after the company took a $3.3 billion charge on gas and nickel assets. His total remuneration fell to $6.6 million from $11.1 million in the previous fiscal year.

Kloppers’ successor, Andrew Mackenzie, is paid an annual base salary of $1.7 million. Kloppers’ base salary in 2007, when he became CEO, was $1.85 million, growing to $2.2 million in fiscal 2012. BHP said “some downward rebasing at this time is appropriate,” when it announced Mackenzie’s pay in April.

Spokesmen for Anglo American, BHP, ENRC and Randgold declined to comment for this article.

Share Slump

Rio Tinto’s Albanese pocketed $4.4 million last year, even after forsaking his annual bonus for a third time over failed deals in aluminum and coal. In its annual report, Rio said it was “deeply disappointed” by the writedowns.

Total compensation for ENRC’s CEO Felix Vulis fell 1.8 percent to 2.98 million pounds, its annual report published April 30 shows, after the company’s shares declined 55 percent last year. The Kazakh-focused mining company and power producer is currently under investigation by the U.K.’s Serious Fraud Office for alleged fraud and bribery.

“If you look at the share-price performance of most of these companies it is understandable why investors question why bonuses should have been given or up-sized,” said Largey. “I don’t think investors saw the returns they were expecting.”

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