Skip to main content

John Thornton, chairman of Barrick Gold Corp., is seen in December, 2013.Tim Fraser/The Globe and Mail

Someone needs to break the bad news to gold miners: their party's all but over. If they keep paying their chief executives handsomely, there's no chance they'll win back the global investors they sought for so long.

After peaking in 2011, the S&P/TSX Gold Index has been decimated, losing 63 per cent of its value. Miraculously, though, boards of directors have barely noticed. Which is why, even after tens of billions of dollars worth of writedowns and rounds of executive upheaval, the gold sector's chief executives still get paid through the roof.

Barrick Gold Corp. is feeling the heat. Despite a share price that plunged by nearly one-third in 2014 – Barrick's stock now trades at $15.52, a level not seen since last century – chairman John Thornton was handed a 36 per cent pay bump, bringing his total compensation to $12.9-million (U.S.).

If only it ended there. Barrick's in the spotlight, but many of its rivals, such as Eldorado Gold Corp. and Yamana Gold Inc., are in the same boat.

Eldorado is a particularly fascinating case study. Even though the company's shares have plunged 59 per cent over the past five years, Paul Wright, the long-time CEO, was paid $13.8-million last year – a 146 per cent pay raise.

As if that isn't enough to raise eyebrows, let's put it in context. Brian Porter, Bank of Nova Scotia's CEO, made $10.3-million (Canadian) during the last fiscal year, steering the lender to a profit of $7.3-billion. Eldorado, meanwhile, made $106-million (U.S.) – after losing $649-million the year prior – yet its CEO got paid more.

Yamana Gold Corp. is also in on the trend – something few people have noticed. The compensation table in the miner's proxy circular makes it appear as though CEO Peter Marrone took a steep pay cut last year, and for good reason. After earning $10.4-million in 2013, his pay was apparently slashed to $5.8-million in 2014, coinciding with a halving of the company's stock price. Good corporate governance, it seemed.

If only. Dig deeper and readers will find a special section that reveals Mr. Marrone earned a special bonus last year, simply for striking an acquisition.

Early in 2014, Yamana teamed up with Agnico-Eagle Mines Ltd. to buy Osisko Mining Corp. Even though expanding the company lies directly within the CEO's mandate, Yamana's board thought Mr. Marrone deserved a special award, worth $2.7-million in cash – as well as some special shares whose values are determined by the performance of the acquired asset.

This compensation, it must be said, comes after Mr. Marrone was one of the highest-paid executives in Canada since the financial crisis. Better yet, the $3.9-billion acquisition of Osisko – split between two acquirers – was partially paid for by taking on new debt. By the end of 2014, Yamana was struggling with its total leverage, which forced the miner to sell new shares at bargain prices in January to help tackle the debt burden.

When Yamana first announced the Osisko deal, its shares were trading around $9 apiece. Today they're worth roughly half that.

A rich man getting richer isn't even the biggest problem here. What boards seem to miss is that they aren't doing the sector any good. If there's any hope of bringing institutional investors back to the table – particularly those outside of Canada, who aren't as fluent with metals and mining and who got burned in the past few years – gold executives have to stop getting paid like these are the glory days.

When asked about its compensation, Yamana did not reply to The Globe and Mail. Barrick, for its part, has already gone public with its defence, because it is, thankfully, under pressure from multiple Canadian pension funds. The miner argues that Mr. Thornton's pay is justified because he has taken concrete steps to improve the company's performance.

Meanwhile, Eldorado wrote in an e-mail that it has been taking action, including: lowering the base salaries for its executives; emphasizing share incentives that better match executive pay with long-term results; and judging its managers' performance relative to its peers.

That last point is a crucial one. Scroll through the gold miners' circulars and it becomes clear this is a regular practice – they mostly compare themselves with one another. That makes sense, of course. But only to a certain point.

If a board is rewarding its CEO for having the company's share price drop only 50 per cent when the broader sector is down 63 per cent, well, I just don't know where to begin.

Had this been a one-off situation with a single miner, it wouldn't be so bad. But this is a growing issue across the sector. If this is what gold CEOs are getting paid in bad years, what will they expect if the market rebounds?

In Canada, it sometimes feels like raising these issues is futile. Institutional shareholders here are often loath to stick their necks out, so it can seem as if nothing will ever change.

But there is another option – one that involves much less risk for investors. This is the season for gold sector annual general meetings – Yamana's is on Wednesday – and investor votes still matter. If there's any hope of sending a message, disgruntled shareholders should use their voting powers wisely.