Barrick Gold Corp. is seeking to align the bulk of its executives' compensation with the gold company's performance and is expected to require top managers to hold their stock until retirement.
After a tumultuous year where Barrick's stock plummeted 50 per cent and the company recorded nearly $14-billion (U.S.) in writedowns, the miner is considering a plan that would require its executives to hold their shares until they leave the company.
Currently, executives are paid a mix of cash, stock options, restricted share units and performance-based share units. They are not required to hold their Barrick shares until retirement and can exercise their stock options at certain dates.
"That would be a step in the right direction," said Chris Mancini, an analyst with the Gabelli Gold Fund, which holds 2.9 million Barrick shares. "To the degree that this could have executives think toward long term, that would be a positive development," he said.
Barrick's shareholders have been pushing for changes to how the company is governed after Barrick overpaid for copper company Equinox Minerals Ltd. and awarded incoming chairman John Thornton with a $11.9-million signing bonus.
News of the bonus came after the company announced that costs at one of its top gold projects, Pascua Lama, would jump more than 50 per cent to $8.5-billion. That project has since been suspended, and Barrick has embarked on a soul-searching journey to improve its corporate governance. The company recently announced changes to its board.
Peter Munk, the 86-year old founder and chairman, will hand over the top position to Mr. Thornton at Barrick's 2014 annual meeting of shareholders. Two of the other long-serving directors will resign and Barrick has nominated four new independent directors.
If Barrick ends up adopting this plan, the biggest difference, according to Mr. Thornton, is that executives cannot sell their stock awards until they retire.
"What that means is through good times, bad times and in-between times, you should be more concerned with the share price and the dividend than you are with your salary," Mr. Thornton said in a recent interview. "It will shift to a system of ownership, not to a system of what I am calling high-paid managers," he said.
The gold company drew its inspiration for this idea from HSBC Holdings PLC, where Mr. Thornton was a director and in charge of revamping the bank's compensation plans. HSBC executives are now evaluated for short-term and long-term bonuses.
Corporate governance experts say Barrick's compensation schemes have been moving in the right direction.
"It makes sense to see 80 to 90 per cent of an executive's pay linked to performance," said Paul Gryglewicz, a managing partner at Global Governance Advisors. But he warned that if an executive is awarded too many "deferred share units," (which only vest upon retirement) that could trigger early retirement.
According to the latest regulatory filing, Barrick chief executive Jamie Sokalsky's total pay package for 2012 was $11.36-million, of which $1.24-million was his salary and the rest was issued in the form of an annual incentive, as well as restricted and performance-based stock units.
Mr. Munk's total pay package was $4.287-million, of which $2.07-million was his salary.
Mr. Thornton's total pay package was $17-million, of which $1.42-million was his salary. Mr. Thornton's controversial bonus fell outside of Barrick's executive compensation arrangements. He used his bonus to buy 177,500 Barrick shares.
Barrick's compensation committee will make the final decision, the details of which will be unveiled when the company issues its management proxy circular before the shareholder meeting.