By Susan Taylor and Nicole Mordant
TORONTO/VANCOUVER, Jan 18 (Reuters) - Gold mining companies
are running a charm offensive with their biggest shareholders on
the thorny issue of executive pay, keen to hold onto investors
angry about ongoing generous compensation after four years of
dire stock returns.
Stung by a reprimand from disgruntled shareholders in proxy
votes last year, some miners are meeting investors earlier than
ever to win support for compensation plans months ahead of
spring 'say-on-pay' votes.
Largely abandoned by generalist funds after a 44 percent
drop in gold prices and 70 percent slump in stock values since
2011, the mining firms are desperate to avoid a further exodus
of sector-focused funds.
"If you have say-on-pay votes against you and ... you're
unwilling to change, people vote with their feet," said
London-based Jamie Horvat, who manages the $1.5 billion Vanguard
Precious Metals and Mining Fund.
In Canada, home to more large gold producers than any other
country, at least three big miners began talking to shareholders
last fall about 2016 executive pay, some six months ahead of
when miners typically visited investors in past years - if at
all - with pay plans.
Mining executives are generally well paid, but the gold
industry "is in its own class," said Steve Chan, a principal at
executive compensation consultant Hugessen Consulting.
Gold executive pay surged alongside company profits as
bullion prices rose nearly five-fold between 2005 and 2011, Chan
said. But compensation did not typically follow profits lower as
bullion declined.
Cash-strapped miners have reduced costs in every corner -
selling assets, closing mines and cutting staff - but CEO pay at
the biggest miners is still increasing, a late-2015 study shows.
In 2014, median total pay for mining CEOs rose 8.8 percent
to $2.2 million from 2013, mostly due to bigger short-term
incentives such as bonuses, said the report from recruiter Swann
Global and remuneration consultant HRascent.
"The mining industry is in a world of pain and ... this pain
is not being felt in compensation yet," said Jeremy Wrathall of
Investec bank, a study partner.
There is little correlation between CEO pay and a company's
financial performance, measured by market capitalization, return
on equity and other common metrics, the study said.
That conclusion is at odds with wider trends tying pay to
measures like shareholder returns. Last year, 69 percent of
companies in the S&P 1500 linked compensation to performance,
research firm Equilar said.
DIFFERENT THIS SEASON
By November, several miners had called to discuss
compensation plans with Joseph Foster, portfolio manager at Van
Eck in New York, one of the gold sector's biggest shareholders.
Miners outlined performance goals they want to use to calculate
executive pay and asked for input.
"It tells me that the final product, this proxy season, will
be different than past proxy seasons and we'll see stuff that's
more aligned with what shareholders are looking for," he said.
If not, Foster is prepared to sell: "If it's something
that's insidious and endemic within a company, then I don't have
to own these companies."
Kinross Gold K.TO , the world's fifth-biggest producer,
began talking to investors in September, versus November a year
ago, a spokeswoman said. Eldorado Gold ELD.TO spoke with top
shareholders around November and Yamana Gold YRI.TO began such
talks last year.
Of the three Canadian shareholder say-on-pay votes that
failed in 2015, two were at miners, Barrick Gold ABX.TO and
Yamana Gold, which vowed to fix their pay plans. Eldorado has
trimmed its executives' pay.
Goldcorp CEO Chuck Jeannes said the downturn is reflected in
his equity pay, while Kinross CEO Paul Rollinson said sizeable
gaps exist between potential bonus awards and final payouts.
Egregious pay may not deter all investors, some of whom may
fear missing a major discovery, 1832 Asset Management fund
manager Robert Cohen said.
"If one of these companies goes really well and they didn't
own it, because they fussed over a CEO making a million dollars
a year too much, they miss out," he said.
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Graphic showing executive compensation rises as gold price falls
http://tmsnrt.rs/1l6IMPR
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