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Glass, Lewis & Co. gave Yamana an 'F' grade for compensation and recommended shareholders vote against its executive pay package.

Glenn Lowson/The Globe and Mail

In the long-running controversy over executive pay in the Canadian gold industry, Yamana Gold Inc. is a name that frequently crops up.

At its recent annual meeting, the Toronto-based company came close to losing another say-on-pay vote, squeaking by with just 54.5-per-cent approval, after its 2018 executive compensation package raised the ire of a proxy advisory firm.

Glass, Lewis & Co. gave Yamana an “F” grade for compensation and recommended shareholders vote against its executive pay package.

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Yamana has “a history of misaligning pay and performance,” Glass Lewis wrote, and shareholders “should be deeply concerned with the compensation committee’s failure."

Yamana’s founder and executive chairman Peter Marrone appears to have heard the message. The gold industry “should be critically evaluating what is fair compensation,” he said in an interview last week.

“We are compensating at levels that are not consistent with where those levels should be. I think levels should be lower.”

Last year, Mr. Marrone’s own compensation jumped to US$5.1-million from US$4.3-million. Yamana’s shares meantime fell by 20 per cent during the period and are trading about 85 per cent below peak 2012 levels.

In 2015, Yamana lost a say-on-pay vote after awarding Mr. Marrone a US$2.7-million cash bonus and 450,000 performance share units as a reward for making a major acquisition – on top of his regular US$5.7-million compensation. In the aftermath, he returned the share units, but kept the cash bonus.

Long a sore spot for investors in the beaten down gold sector, exorbitant executive pay amid poor performance has flared up again.

A large contingent of Goldcorp Inc.’s shareholders opposed a discretionary US$12-million cash bonus recently awarded to outgoing chairman Ian Telfer, who agreed to sell the company near an historic low. Pension fund British Columbia Investment Management called Mr. Telfer’s payout “egregious.”

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Barrick Gold Corp. has lost two say-on-pay votes in the past seven years.

Yamana’s compensation practices have improved over the years. At one point, a change in control provision that kicks in if Mr. Marrone loses his job if the company is acquired was set at three times his annual salary plus bonus.

But that provision has been reduced to two times his salary plus bonus, or roughly US$9-million. Over the past 15 months, Mr. Marrone has also bought about a million shares in Yamana using his own money, meaning more of his net worth is directly tied to the performance of the shares.

Despite periodic vitriolic opposition from shareholders and proxy firms, the subject of pay remains a touchy subject among Canada’s gold executive community. While some CEOs acknowledge that change is needed, few actually step up and take big pay cuts. Robert McEwen, who was richly rewarded during his run as Goldcorp’s founder and CEO, is one of the few to take a stand. As CEO of McEwen Mining Inc., he takes home a mere US$1 a year in salary and receives no cash bonus.

When The Globe and Mail asked Mr. Marrone if he’d be willing to accept a much lower compensation package going forward, he replied “We’ll see.”

Away from the noise over compensation, Yamana has plenty of work to do to win back the confidence of investors. Last month, the shares slipped after it agreed to sell its one of its top-performing mines to Lundin Mining Corp. for US$800-million plus contingency payments that could eventually bring in an extra US$225-million. Scotia Capital Markets Inc.’s Tanya Jakusconek was one of a number of analysts who felt the Chapada mine in Brazil was worth considerably more.

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But Mr. Marrone said the Chapada sale price was “very very fair,” pointing out that the mine has required a big capital investment over the next few years that would have wiped out much of its cash flow.

By selling the mine, Yamana also cut its debt load considerably.

Yamana’s hefty debt, some of it incurred through its 2014 acquisition of its half share in Osisko Mining Corp., is a major reason investors have stayed away from the stock. The company’s net debt is projected to fall to US$900-million from US$1.7-billion as a result of the Chapada sale.

Scotia’s Ms. Jakusconek wrote in a recent note that the Chapada transaction makes Yamana “a more attractive merger partner,” but Mr. Marrone played down any chance of an M&A deal. While he isn’t averse to a merger, he says it would be much more satisfying to pull off a turnaround of Yamana.

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