Barrick Gold Corp. is still no poster child for corporate governance best practices. But with its latest changes to its approach to compensating its top executives, it is now addressing head-on an issue that has become both a major distraction and a major impediment to getting its ailing business back on track. Until the pay packets start to look more in line with the company's earnings and stock performance, though, investors may not be convinced it's enough.
The world's biggest gold miner has been quite rightly denounced for the big paydays enjoyed by some of its top people, even as the company suffered multi-billion-dollar losses and deep writedowns on bad investment decisions. Twelve months ago, as Barrick was already well into a disastrous year in which it lost more than $10-billion and saw its share price sliced nearly in half, the company revealed that new co-chairman John Thornton had received a $17-million pay pouch – instantly creating a lightning rod for investor frustration, a dollar-sign-festooned symbol of everything that was wrong at the top of Barrick.
While working to stop the financial bleeding, Barrick has spent the past several months trying equally hard to revive the image of its management and governance structure. Patriarch Peter Munk stepped aside, giving up the executive chairmanship of the company he founded. Barrick jettisoned several board members closely associated with Mr. Munk, replacing them with a new slate of independent directors.
Now, with its 2014 management information circular released Monday, the company has overhauled its executive compensation system from the one that paid its top five executives a combined $45-million in 2012. It has revamped its criteria for tying pay to the company's performance, and made made those criteria more transparent to investors (they are published in detail in the circular). More of executives' bonuses are now tied to long-term performance. Executives will be required to hang on to any shares rewarded as compensation until they retire from the company – they'll retain a personal stake in not just achieving strong performance, but sustaining it.
There are still issues. Mr. Thornton, who is set to succeed Mr. Munk as chairman at the annual meeting April 30, remains (as Mr. Munk has been) an executive chairman – a glaring lack of separation between board and management that is a major breach of governance best practices. Indeed, he was the highest-paid official at Barrick last year, taking in $9.5-million in his role as co-chairman – evidence of the size of his role in day-to-day management. (Median compensation for a board chairman among Canada's 100 biggest public companies is $350,000, according to executive consulting firm Spencer Stuart.)
Indeed, even with some of the compensation changes already in effect for 2013, executive pay remained generous. Yes, total compensation of the top-five executives was down 36 per cent from a year earlier, and the company said bonuses were cut by 50 per cent. But in a year when you lose $10-billion, any bonuses are hard for suffering investors to swallow.
An article on The Motley Fool investor website noted that for too long, Barrick's compensation has been tied to growth measures, such as production and cash flow. The new compensation criteria do emphasize return on invested capital (ROIC), which puts more focus on the efficiency of the company's assets rather than pure growth, and on increasing shareholder dividends. That should focus management priorities more on the sustainable health of the company than on increasing its gold output and reserves.
But the market won't be convinced by well-meaning gestures as long as they appear alongside $9.5-million pay numbers. If the goal is pay-for-performance, we're going to need to see the two visibly come closer into line.
Follow David Parkinson on Twitter at @ParkinsonGlobe.