High pay in spotlight at gold mining companies
Canada’s senior gold miners have plenty of things to worry about these days: low prices, under-performing assets, social challenges and many more.
But at their annual meetings this week and next, investors may be a lot more concerned about the vast amounts of money that senior executives at these companies continue to pull in.
While Barrick Gold Corp. always gets attention for its sky-high compensation, its rivals are also facing criticism from one or both of the major proxy advisory firms, Institutional Shareholders Services (ISS) and Glass Lewis & Co.
Glass Lewis was particularly tough, as it recommended shareholders vote against non-binding “say on pay” resolutions at four companies: Barrick, Goldcorp Inc., Yamana Gold Inc. and Agnico Eagle Mines Ltd. Only Kinross Gold Corp. was spared among the senior producers, and it still got slammed for its executive pay.
On the surface, it is easy to see why the advisory firms aren’t happy. The senior gold miners have performed poorly for investors over the last couple of years, and executives haven’t shared much of the pain. Barrick executive chairman John Thornton got paid US$12.9 million in 2014, Goldcorp CEO Chuck Jeannes received US$8.5 million, and Yamana CEO Peter Marrone got US$11.3 million.
“Compensation should be commensurate with performance,” said Robert Gill, a portfolio manager at Lincluden Asset Management. “Unfortunately, the sector has underperformed and yet pay packages seem to be quite elevated.”
The gold miners have defended their pay practices, and a couple of them attacked the methodology used by the proxy advisory firms.
In a letter to shareholders last week, the head of Goldcorp’s compensation committee blasted Glass Lewis for relying on a “formulaic, proprietary model” that used “unadjusted financial measures” and compared Goldcorp’s performance to companies in different sectors. He stressed that Goldcorp performed well against its rivals based on total shareholder return.
“We believe that comparing Goldcorp’s performance in this way, to a group of companies, the majority of which are not in the gold industry, produces a misleading result, particularly during a challenging period for our industry,” Douglas Holtby said in the letter.
The advisory firms use very specific metrics to evaluate executive pay against performance. Glass Lewis uses change in operating cash flow, earnings per share growth, total shareholder return, return on equity and return on assets. With the gold price in the dumps, it is hard to show positive results on any of those metrics.