VANCOUVER – In the last year Barrick Gold (ABX-T, ABX-N) has announced a multibillion-dollar overrun at its flagship development project in Chile, taken a $3.8-billion charge on a highly-criticized acquisition, changed its chief executive officer, and seen its share price sliced in half.
So it’s no great surprise that eight funds invested in the gold major are formally protesting the company’s decision to offer co-chairman John Thornton an “unprecedented” signing bonus of $11.9 million – and the protest could cost some Barrick directors their jobs.
The group of seven Canadian pension funds and one international investment fund say the signing bonus, which would bring Thornton’s total compensation for 2012 to $17 million, is a Canadian record.
“This compensation is inconsistent with the governance principle of pay-for-performance and is therefore disproportionate and sets a troubling precedent in Canadian capital markets,” the group said in a statement.
Barrick has made no comment on the matter, but will have to address the issue at its annual shareholders’ meeting in Toronto on April 24. The meeting will likely be a lively one, as it comes at the end of one of the worst years in Barrick’s 30-year history.
Following the sharpest gold price correction since the company’s market debut in 1983, Barrick shares fell to $17.97 on April 15, less than half their worth 52 weeks ago and a price not seen since 2003. Back then, gold was worth US$350 an ounce, a quarter of today’s US$1,400-per-ounce price.
Share price performance is not the only challenge facing Barrick today. On April 10 a Chilean court order construction at the company’s massive Pascua-Lama gold project halted after indigenous groups from the surrounding area filed complaints over alleged groundwater contamination. The work stoppage comes after Barrick raised its cost expectations for the project twice in the last year, the latest boost bringing total capital to a resounding US$8.5 billion.
When the project was greenlighted back in 2009, costs were expected to come in at US$3 billion.
Then there’s the $3.8-billion impairment charge that Barrick took just two months ago against its Lumwana copper mine in Zambia. Barrick acquired the mine in its $3.7-billion takeover of Equinox Minerals in 2011 but the operation has failed to live up to Barrick’s expectations.
Trouble has been brewing at Barrick for some time, which is how Thornton entered the scene. Thornton was appointed co-chairman in June 2012 as part of a management shakeup that followed founder and chairman Peter Munk’s public shaming of his company’s poor share price performance despite record profits.
Thornton is widely expected to take over the chairman seat from Munk when he retires. The signing bonus seems to solidify that pending transition: in a recent circular Barrick described Thornton’s signing bonus as “an inducement for Mr. Thornton to assume the co-chairman position and make a substantial commitment of his time to Barrick.”
But with Barrick’s share price having fallen 50% since his appointment, it is clear that Thornton’s arrival has not yet halted Barrick’s slide. That is precisely why the group of funds is up in arms about this $11.9-million handout.
The funds in the dissident group are Canada Pension Plan Investment Board, the Ontario Teachers’ Pension Plan, Caisse de dépôt et placement du Québec, Alberta Investment Management Corp, British Columbia Investment Management Corp, Hermes Equity Ownership Services, Ontario Municipal Employees Retirement System, and Public Sector Pension Investment Board.
As a group these funds collectively manage over $900 billion in assets. And Barrick’s regulations mean they have some power — leverage they will try to wield at the upcoming AGM.
The funds say they plan to vote against the “Say on Pay” resolution, which is a non-binding advisory motion. That vote will voice their discontent but will have no lasting impact. However, they also plan to vote against the election of the directors who awarded the pay package in their roles as members of the compensation committee.
That could cost some Barrick board members their jobs. Under Barrick’s majority voting policy, any nominee that fails to win majority support from the votes cast regarding their election must tender their resignation.
The directors in the firing line – those currently on the compensation committee – are Gustavo Cisneros, J. Brett Harvey, and Steven Shapiro.
These board members are not done for yet. For one, the board does not have to accept any such resignations. For another, the highly influential corporate governance advisory group Institutional Shareholder Services (ISS) is recommending investors vote against the Say on Pay resolution because of the Thornton bonus. ISS is not, however, recommending voting against any directors because it does not see any “significant corporate governance concerns.”
Still, the pension funds carry a lot of weight and their concerns will likely resonate with shareholders who agree that multibillion-dollar bonuses are not exactly commensurate with Barrick’s recent performance. If the dissident group can rally enough support, there’s a chance ABX shareholders could send the directors who approved the signing bonus packing.
$12 million bonus to show up?
What will it cost if he actually does something.
This is ridiculous, abusive, greedy and non-justifiable.
Clean house and put these over-inflated ego’s on the street to see if they can earn an honest living.