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From the FT's Lex blog

These miners have a high opinion of their worth. Mick Davis, chief executive of Xstrata, is to be paid nearly £30-million ($46-million U.S.) over three years to stay in his job if the merger with Glencore goes ahead and he becomes chief executive of the combined group, on top of his current arrangements. Even allowing for the mountains of cash that mining companies have generated in the commodities boom, this is largesse on a scale to turn a banker's head. Investors who have taken to their high horses recently about less egregious examples of overpaid bosses now face a test.

Glencore's $90-billion "merger of equals" with Xstrata is, in effect, a takeover of the latter by the former, given that the trading and mining house already owns 34 per cent of its target. The terms are 2.8 Glencore shares for each Xstrata share. Those terms were not altered when both sides published details on Thursday to flesh out the rationale for the deal. So Xstrata investors have even more reason to focus on the £173-million "management incentive" that their board has awarded to top executives, of which Mr. Davis is to get nearly £10-million in each of 2013, 2014 and 2015.

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The board uses two arguments to justify this. One is that Mr. Davis has created tremendous value at Xstrata. That is half-true: Xstrata has become a £27-billion mining powerhouse under his stewardship but miners have ridden a decade-long commodities boom and Mr. Davis is already well paid for the wealth he has created. A second is that he is indispensable to making the merger a success. That is bogus. There are plenty of talented mining executives to choose from: nobody is indispensable, even in an industry that thinks itself special.

The proposed Xstrata/Glencore merger is putting too much focus on Mr. Davis. Xstrata's board should pay less attention to its chief executive and more to explaining to its own rather sceptical investors where exactly the value in this merger lies.

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