Barrick Gold Digs Itself Into Another Hole Over Compensation

Maybe those big trucks are needed to halt away the compensation packages bestowed on Barrick Gold's chairman. Photo: Barrick Gold.

The way some companies respond to investor anger over excessive executive compensation practices, you'd think all they have to do is pay lip service to revising their policies and the thorns in their side will disappear.

Just two years after Barrick Gold was rebuked by its shareholders for lavishing chairman John Thornton with what many saw as an extreme and unwarranted pay package for 2012, an outcry that led the miner to cut it nearly in half the following year, Barrick is back again and giving him a hefty pay raise once more.

Gold-plated pay packagesLast month Barrick detailed that Thornton received almost $13 million in total compensation for 2014, including $5 million in cash, $7 million to buy company stock, and nearly $1 million in pension and other benefits. That's 37% more than the gold miner paid him in 2013 when it cut his pay to $9.5 million as a result of the shareholder revolt. What rubs a lot of people the wrong way is that despite a move to supposedly "pay for performance" -- as a Barrick puts it, "breed emotional and financial ownership among its decision makers" -- Thornton's pay for 2014 soared while Barrick's stock lost over a third of its value.

Yet the gold miner isn't alone in seemingly patronizing critical shareholders. Coca-Cola was also shamed by investors last year into changing the way it compensates CEO Muhtar Kent, but even after making gestures toward how it distributes long-term incentive awards, the beverage giant's board of directors still maneuvered to ensure he lost no ground.

Kent's compensation soared to $25.2 million in 2014, a 24% increase from the year before. Even after excluding pension benefits, and balancing for the bonus the board also awarded him (but which he declined), Kent's total compensation still jumped 13% from one year to the next.

When gold prices were soaring, it looked like the gold miner had the golden touch, but it's since fallen like a lead balloon with the collapse in the commodity's value. Photo: Barrick Gold.

Institutional oppositionEven though it's about half the size of the beverage giant's executive package, Barrick Gold investors aren't getting a bargain with Thornton's pay, at least according to several investment advisory services and pension funds. Both Glass Lewis and Institutional Shareholder Services are recommending investors vote against the package at the miner's annual meeting on April 28, and three of the world's biggest pension funds say they're not only going to do just that but they're also going to vote against the board of directors as well.

The Wall Street Journal reported last week the Ontario Teachers' Pension Plan issued a statement in opposition to the board.

"We do not believe that sufficient progress has been made in crafting a board with the appropriate set of skills we assess that Barrick needs. Coupled with our ongoing concerns with the compensation decisions taken by the board, we have now lost confidence in the ability of the directors to effectively exercise their duties to our level of satisfaction."

Along with British Columbia Investment Management and the Netherlands' PGGM Vermogensbeheer, one of the biggest pension fund managers in Europe, the Canadian pension group will vote against reelecting the board to office. They're not the largest Barrick shareholders -- together they own less than 1% of its stock -- but they're influential and may cause other investors to cross the aisle to their side.

Shares of Barrick Gold were flying high during the heady days of the gold rush, trading at the mid-$50 a share range as an ounce of the yellow metal streaked toward its peak of $1,900. Together they fell hard, and where the precious metal trades under $1,200 an ounce today, Barrick's stock goes for less than $13 a share.

ABX data by YCharts.

But the miner is also saddled with a heavy debt load of almost $13 billion; the potentially lucrative, but ultimately stalled, Pascua-Lama project in Chile; asset writedowns; diminished output; and the possibility it will lose its position as the premier gold miner.

A tarnished futureAnalysts at JPMorgan Chasesay Barrick Gold is expected to suffer from declining gold production that could drop to as little as 4.5 million ounces by 2020, far below the already reduced output of 6.25 million ounces it realized last year. With even further reductions to come in the future, Barrick's annual production could actually end up being less than Newmont Mining, AngloGold Ashanti, and Goldcorp.

Which is why the miner lavishing such outsized compensation on its chairman chafes many shareholders. While Barrick Gold defends its compensation policies, it wouldn't be surprising to see them change once again in response to the new outcry. But this time investors will likely want to make sure that whatever alterations are made, they're more substantial than its previous attempt and do more than simply rearrange the deck chairs on a sinking Titanic.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. The Motley Fool owns shares of JPMorgan Chase and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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