Barrick finally rights the ship on executive pay

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Going two-for-four is a fine day at Rogers Centre for Joey Bats and his Blue Jays teammates. As far as say-on-pay votes go, however, it's another matter entirely.

That's the scorecard for Barrick Gold with this week's win on its shareholder vote on advisory compensation at the annual general meeting.

Clearly, Barrick has had a few problems in recent years sorting through best practices in executive pay. This week's vote, in which Barrick got 90 per cent of the shareholder's vote for its pay plan, suggests the company is finally on the right track.

After studying the company's recent pay history, however, I'm inclined to say that some of its perceived abuses may not have been as bad as shareholders thought – and the current system, while rigorous, may be setting up the company's executives for very lucrative paydays in the coming years.

Much of the irritation with Barrick is due to the company's compensation of executive chairman John Thornton, a former president of Goldman Sachs who joined the company in 2012. Barrick paid him more than $17-million that year, including a cash "sign-on payment" of $11.9-million (U.S.).

This led to shareholders' first "no" in the advisory vote on executive pay, in the spring of 2013. Proxy advisory firm Institutional Shareholder Services noted that Mr. Thornton's payment, at a time when Barrick's shareholder returns lagged peers, "goes well beyond attracting talent and provides significant value to the recipient even if performance is stagnant."

Mr. Thornton's pay declined in 2013 – to $9.46-million – and ISS switched its recommendation to a yes vote on Barrick's pay practices. The following year, however, ISS returned to a "no" recommendation as Mr. Thornton's pay rose again, to $12.9-million, and Barrick attempted a "co-president" structure that inflated total executive pay.

Here's the thing about Mr. Thornton, though: Every dollar in salary and bonuses Barrick has paid him, and then some, has gone into Barrick stock. At the company's direction, he used the after-tax amounts from his bonuses to buy Barrick shares. And trading records show Mr. Thornton has spent an additional $13.8-million buying stock in the open market – an amount far in excess of the $8.9-million he made in salary through 2015.

And Mr. Thornton, as a Barrick shareholder, has fared as poorly as everyone else. That $11.9-million bonus in 2012 turned into 177,500 shares, after tax, that cost him $6-million. At Barrick's recent low of $5.91, they were worth just over $1-million; even with Barrick's rebound, they're worth less than $3-million – half what he paid for them.

This, I think, is what Barrick thought it was doing by directing Mr. Thornton to use his bonuses to buy stock – aligning him with the shareholders. There never were any performance criteria behind the awards, however: Barrick simply gave him a lot of money in recognition of his "leadership."

The company's new "Performance Granted Share Unit Plan" is an answer to that concern, and there's a lot to like about it. The company develops and discloses a long-term performance scorecard, then evaluates its performance a year later. The percentage of goals the company has achieved determines what portion of the stock award it gives to executives. The awards vest in three years – but at that point, the executives receive stock that they then must keep until they retire or leave the company.

Barrick has graded itself as achieving just 25 and 30 per cent, respectively, of its goals in the first two years of the program. "The [compensation] committee has shown a bias to very conservative scoring," says Barrick spokesman Andy Lloyd. "If you look at most people's assessments of Barrick last year, they would probably describe it as a fairly banner year in terms of meeting the specific commitments we set … the score that came back was 30 out of 100."

This is important, because the "opportunity" stock award for most of the 50 executives in the plan is three times their annual salary. For the highest-level executives named in the annual proxy, the opportunity can approach five times; for president Kelvin Dushnisky, the opportunity is six times salary. (Mr. Thornton is not a participant in the program.)

For executives to get that full award, the scorecard rating must be 100 per cent, which at this time seems unlikely. But even at the 2015 scorecard result of 30 per cent, Mr. Dushnisky received an award of nearly $1.6-million, and two executive vice-presidents received nearly $1-million. A high scorecard rating in the future could yield tens of millions of dollars in stock awards.

Which will be fine for Barrick, as it tries to develop its "partner culture" of ownership, and will likely be fine for Barrick shareholders, as a high scorecard rating will probably go hand in hand with robust stock returns. But it's a reminder that good pay practices, like bad ones, can yield large numbers in the annual proxy.