Pay gap as big as ever in gold mining

Party may be coming to an end as production declines and miners seek to reduce their costs

GOLD-mining executives have been raking it in over the past five years as a rising gold price and weaker currency boosted profits — despite a drop in gold production during one of the biggest bull markets in recent times.

While local companies are pleading poverty in pay negotiations, citing rising costs and weaker prices, an analysis of pay increases at the top show that boards have richly rewarded their members and managers.

At AngloGold Ashanti, pay for executive managers including gains on share schemes jumped 155% from R83.7-million in 2008 to R213-million last year while its gold production declined 20.8%. AngloGold is South Africa’s biggest gold miner with operations in 11 countries.

Non-executive directors at AngloGold, who decide on the pay packages for the bosses, were also richly rewarded with their remuneration jumping from R5.8-million in 2008 to $1.8million (R18.5-million) last year.

The chairman’s approved pay for attending six meetings a year increased from R1.5-million ($150 000) in 2008 to R2.5million ($251 325) as of June 1 last year. Tito Mboweni, current chairman, earned R3.6-million ($357 000) last year, up from $302 000 in 2011.

At Gold Fields, total compensation for executives, non-executives and key managers nearly doubled every year, from R18million in 2009, to R44.5-million in 2010, to R135.7-million in 2011, to R211-million last year. This included salaries, bonuses, share proceeds and allowances.

Other gold companies went the same route.

At Harmony Gold, which mines almost all its gold in South Africa, total pay for the executive management and nonexecutive directors, excluding gains from share options, increased from R12.7-million in 2008 to R21.8-million last year.

Yet over the same period, Harmony’s gold output declined 18% to 1.28 million ounces.

Chairman Patrice Motsepe, who also owns a substantial stake in Harmony through African Rainbow Minerals, saw his pay increase 40% over the past five years to R883 000, roughly in line with the increases offered to officials, miners and artisans at Harmony.

Harmony CEO Graham Briggs, who has served as CEO since August 2008, took home R7.3million last year, including a bonus of R1.3-million. He also has options or ownership of 653 691 shares, worth R25.8-million at current market prices.

Earlier this month, Harmony, scrapped its final dividend for financial 2013 and took a $268million (R2.7-billion) writedown on its 50% stake in the Hidden Valley mine in Papua New Guinea, blaming poor production performance and declining gold prices.

Harmony plans to cut capital expenditure by R650-million in financial 2014, mainly affecting the Hidden Valley project.

By contrast, average annual wages for workers in lower job grades — including artisans, miners, officials, labourers and wagon drivers — were R155 037 last year, according to the Chamber of Mines.

Hefty salaries paid to management attracted unfavourable attention from shareholders, however.

The Public Investment Corporation (PIC), the biggest investor on the JSE, said this week that it voted against the executive pay at some of the country’s biggest mining companies, including AngloGold Ashanti, Gold Fields and Sibanye Gold this year, according to Bloomberg.

The PIC said the salaries failed to track performance and seemed high relative to peers.

But the party may be coming to an end. Earlier this month, AngloGold Ashanti announced that it would impair its assets by up to $2.6-billion to reflect the weaker gold price, while also halting its interim dividend and targeting cost reductions of about $460-million, including through the retrenchment of 800 managers.

Gold Fields said it would be impairing assets to the tune of R1.6-billion.

While above-inflation salary increases ranging from 8% to 10.25% have been granted to lower-level employees every year except for 2009 over the period, it has been insufficient to make any dent in the gap between workers and management.

This year, Chamber of Mines companies, which negotiate wages centrally, initially offered an increase of 4% to workers in the lower job grades, while unions demanded increases ranging from 10% to more than 150%.

The offer has since been increased to 5.5%, with 6% offered for entry-level jobs and rock-drill operators. This would bring the basic wage for underground entry-level workers to R5 300 a month. With benefits, the guaranteed wage for these employees would be R9 120 a month.

Despite low increases offered to workers and the dire outlook for the industry this year, executives in gold mining have not been queuing up to take salary or bonus cuts, a step often taken by companies to demonstrate the seriousness of the challenges faced and to show solidarity with employees.

Prominent activist and businesswoman Cheryl Carolus, who also serves on the board of Gold Fields, said businesses globally face the challenge of determining an equitable distribution between workers, executives, host communities and shareholders.

“It is easy to target CEOs and say they should cut their pay, but boards should also look at the way they compile targets,” she said.

While talks with Solidarity and the Association of Mineworkers and Construction Union will continue tomorrow, Uasa and the National Union of Mineworkers (NUM) have been issued with a certificate of nonresolution from the Commission of Conciliation, Mediation and Arbitration, allowing it to go on a protected strike. The NUM, still the biggest union in the gold sector, is expected to issue a strike certificate to employers tomorrow, spokesman Lesiba Seshoka said.

From 2008 to last year, the number of employees represented by central bargaining in the gold-mining sector fell 14% to 142 193, while average annual wages increased 77%, from R87 355 to R155 037, according to Chamber of Mines data.

The wages exclude any employee share schemes and additional profit share schemes by individual companies.