The recently released REM Report 2015 analyzes the associated remuneration/compensation practices of 100 leading mining companies and offers supporting comments from specialists consulting in executive search, remuneration analysis and design, investment and asset management. The report is for the year ending December 31, 2014, and compares with 2013 to highlight trends.
It provides comparative findings of the base and total fees paid to chairmen and nonexecutive directors. The report also includes the analysis of the remuneration/compensation for CEOs, CFOs, COOs, business unit heads, group counsels and corporate executives.
The market capitalization of the 100 companies included in the REM Report 2015 ranges from $123 billion down to $0.5 billion as of December 31, 2014. The 100 companies include global, major, mid-cap, and small mining companies and a few explorers with projects in development. The product mix of the companies include bulk minerals, base metals, precious metals, energy minerals, coal, industrial minerals, agricultural minerals and specialty minerals such as diamonds. They are segmented into five commodity groups for comparisons; these are diversified commodities, bulk commodities, base metals, precious metals and specialty commodities. The companies have their primary listing on either the New York, London, Australian, Toronto, Johannesburg or NASDAQ stock exchanges. This, together with their headquarters, is used to segment them as either American, Canadian, United Kingdom, South African or Australian.
The top three companies included in the report remained unchanged from the 2014 report, namely BHP Billiton, Rio Tinto and Glencore. In fact, the top 10 companies remain from the 2014 report with minor reorganization. There were five new companies in the top 50 and only two in the leading 100.
The report stated that in 2014 mining company chairmen were paid a median base fee of $158,000 and a median total fee of $271,000. The median total fees paid increased by a modest 0.4% when compared with the pay reported in 2013. For “same incumbent” chairmen, i.e., those who have been in the role for full years in both 2013 and 2014, the year-on-year median percentage movement was 2.6%.
The report stated that generally the total fees paid to chairmen are consistent with relative market capitalization—the chairmen of the companies with the highest capitalization being greater than those with lesser capitalization.
The total fees paid to the chairmen of companies in the diversified commodities sector are far greater than the total fees paid to the chairmen of companies in other sectors. Also, chairmen of companies in the U.K. and Canada are paid more than those in the other countries.
Chief executive officers, presidents, managing directors and group managing directors were paid a median fixed pay of $768,000, a median fixed pay plus short-term incentives of $1,348,000 and a median total package of $2,202,000 in 2014. The median total package payment in 2014 increased by 8.8% from 2013, whereas the mean declined by 0.8%, mainly due to a more significant decline in the mean base pay.
Significantly, the majority of the increase in total package resulted from higher “at-risk” values being reported, with both median and mean fixed pay increasing by 1.2%.
Where CEOs have been in the role for full years in 2013 and 2014, the median total package paid to same incumbent CEOs was $2,054,000 in 2014, an increase of 4.4%, versus the rate of increase for those who were in the same role for 2012 and 2013, which was -0.1%.
The “at-risk” components of pay for the CEOs in the larger companies is greater than that paid to those in the smaller companies. In looking at “same incumbent” data during the 2014 reporting period there was a steady increase across actual at risk values for CEOs, whereas in 2013 declines in Long Term Incentive values counteracted increases in short-term incentive values.
The CEOs of companies in the diversified commodities sector were paid much more, in all categories of pay, than CEOs in other commodity sectors. CEOs in the specialty commodities were paid the least.
As in earlier reports, the REM Report 2015 examined the remuneration/compensation payments made in 2014 to the CEOs of the 100 leading companies and correlated these payments with the commercial performance of the corresponding company as reported in 2014.
As has been found previously, there was not a strong correlation between CEO pay and company financial performance. The strongest correlation, albeit modest, was found between CEO fixed pay and EBITDA. There appears to be no relationship between return on equity and CEO pay components.
CEO fixed pay has the most consistent relationship with market cap, EBITDA and net profit. CEO STI payments show very little correlation with market cap and net profit and consequently, nor does the Total Package paid.
While 2014 was a volatile period for the mining sector, the CEOs of the leading 100 mining companies experienced a relatively stable period in terms of their tenure. During the year, 15% of companies changed CEO, which is close to the norm for large listed companies across all industry sectors. However, within the leading 50, the rate of turnover dropped from 22% in 2013 to 16% in 2014.
The mean tenure of mining company CEOs is 5.25 years, with the median being 4.06 years.
Of the 15 companies that changed CEO in 2014, six are ranked in the top 25 with the median tenure of this top 25 group of companies being only 2.33 years. Only one of the leading 100 mining companies had a female CEO.
The mean age of the 100 CEOs was 53.4 years, with the range from 35 years to 75 years; the median age was 55 years. This age profile is very similar to that of the CEOs of the top 2,500 public companies across all industry sectors.
The REM Report is a registered trading name of HRascent and The Swann Group. HRascent is a Melbourne, Australia-based specialist in Remuneration Planning and Reporting. Swann Global, also headquartered in Melbourne, is an executive search, recruitment and organizational development consulting practice with a global focus on the natural resources and industrial sectors. Further information and ordering instructions are available at www.theremreport.net.