As hard as it is to picture, Barrick Gold founder and chair Peter Munk came close to grovelling at the company’s annual meeting in Toronto in April. “I’d like to apologize … I was the one that convinced them,” he explained. “If you want to give me hell—give anybody hell—I’m here. Don’t blame my board.”
But it’ll take more than words to placate the shareholders of the world’s largest gold miner, 85% of whom objected to the company’s generous pay packages for its executives and directors. “We expect to see some real change going forward,” says Gwen-Ann Chittenden, spokesperson for shareholder B.C. Investment Management.
Last year, partly as a result of a management shuffle amid flagging corporate performance, Barrick paid its leadership team $47 million, including an $11.9-million signing bonus to new co-chair John Thornton. That didn’t add up for some institutional shareholders, who argued they’d lost confidence in the board’s compensation committee. Taking advantage of a fairly new means of curbing runaway compensation, shareholders held a so-called say-on-pay vote.
Say on pay is a voluntary practice in Canada (99 of 4,000 publicly traded companies participate), and the vote’s outcome is not legally binding, but it’s terribly embarrassing for a company to lose, says Bryce Tingle, who holds the Edwards Chair in Business Law at the University of Calgary. The say-on-pay movement emerged in the United Kingdom in 2002, says Tingle. “The idea was, if we made the board more accountable to shareholders, then we’d see less of this rapidly growing executive pay.”
The practice made its way to Canada in 2006, when shareholders adopted resolutions at certain companies’ AGMs. Barrick’s meeting marks only the second time shareholders voted against a corporation using say on pay in Canada. Last year, biotech company QLT Inc. lost a similar vote. But until the proxy materials for its 2013 AGM are released, corporate reaction to the vote remains speculative.
The options for Barrick, a much larger and more visible company, are limited. The 2012 pay contracts that inspired the vote are binding, whereas there are no immediate consequences to losing a say-on-pay vote.
According to Tingle, Barrick’s playbook at this point should be to reach out to its largest shareholders and explain why the executive compensation was reasonable or necessary. The board should affirm in the same conversations that it is committed to following best practices in setting compensation in the future. When it comes to negotiating future pay packages, Tingle says Barrick should adhere to the guidelines of advisory firms such as Institutional Shareholder Services and Glass, Lewis & Co. If the company deviates, it must have a good explanation.
Finally, in next year’s shareholder materials, Barrick must explain how the results of this year’s vote were considered in the compensation proposals for next year’s meeting.
Should it just ignore the say-on-pay vote, Tingle says, the board risks prompting the election of a dissident slate of directors, or even a lawsuit for breach of duty. While that has yet to happen in Canada, there’s always a first time.