The term "remuneration" is mentioned 549 times in BHP Billiton’s 2015 annual report, showing how much attention the directors pay to the matter. The remuneration report takes up 33 pages of the company’s annual report.
Admirably, the document deals in much detail with the pay packages of its executives, as well as those of its nonexecutives.
If other companies dealt with their remuneration disclosures the way Billiton does, shareholder activism would be dead.
In terms of Billiton’s remuneration policy, many of its directors, including CEO Andrew Mackenzie, were quite active on the directors’ dealings front last week.
Mackenzie exercised his options to acquire 73 527 shares in the world’s biggest miner.
At today’s price of R188.18/share, Mackenzie’s loot was worth R13.8m. But he did not have to pay a cent for the stock.
These were shares that vested to him under the deferred-share scheme of the company’s short-term incentive (STI) plan of 2014. Mackenzie achieved 85% of the STI targets, which entitled him to a short-term bonus of US$2.3m in a cash and shares mixture.
Half of this will be paid out in 2018.
He received another 9 377 shares in terms of "dividend equivalent payments".
For the long-term incentive (LTI) share awards to vest to the directors, Billiton was required to deliver a total shareholder return (TSR) that exceeded its peer group of companies by 5.5% for each of the five years that ended in June 2014.
"In relation to the LTI awards granted in 2010, BHP Billiton’s TSR performance was negative 15.2% over the five-year period from July 1 2010 to June 30 2015," says the company in the report.
"This is below the weighted median peer group TSR of negative 4.5% and below the index TSR of positive 78.6% over the same period. This level of performance results in zero vesting for the 2010 LTI awards, and accordingly all 129 648 of the CEO’s 2010 LTI awards have lapsed."
Six of Mackenzie’s senior colleagues were subjected to the same treatment
This is exactly the kind of remuneration policy that puts directors in the same boat as their investors. Not only is performance measured over a period of five years, but the payment of any due benefit is withheld for about three years after it is due.
"The [remuneration] committee is guided by those measures in supporting our executives in taking a long-term approach to decision-making in order to build a sustainable and value-adding business," says the company.
Mackenzie still took home a total pay packet of $4.5m for the 2015 financial year.
In Billiton’s remuneration, you don’t you see such excuses as "attraction and retention of skills" to justify obscene payments to directors.
Billiton goes a step further. It structures the pay of its nonexecutive directors in such a manner that they are also in the same boat as investors in the company.
Nonexecutives must utilise at least 25% of their annual board fees to buy stock in the company. This they must hold for the duration of their tenure on the board.