Barrick Gold Corp.’s Executive Compensation Games Hurt Shareholders

Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) has pledged to revamp its compensation practices following an investor backlash. Should investors pay attention to this issue?

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Executive compensation has become a major issue in the investment world, as shareholders balk at the often-ridiculous compensation packages given to executives at large corporations. The latest example is Barrick Gold Corp. (TSX:ABX)(NYSE:ABX), whose shareholders voted this week 75% against Chairman John Thornton’s $13 million compensation package.

Thornton’s pay was $9.5 million last year, and coincidentally his raise nearly matched the stock’s decline over the last year. Although there’s no direct correlation between executive compensation and stock price, some analysts believe the massive pay packets dished out to executives undermine the goal of achieving superior returns.

In a speech at Barrick’s annual meeting, Thornton said shareholders made their point “loud and clear” and he vowed to take the feedback and refine Barrick’s executive pay system. Barrick faced a similar vote at its last two shareholder meetings, but those votes failed to pass.

This time, however, Barrick was the focus of a campaign, led by major pension plans, including the Canada Pension Plan Investment Board, to change its executive compensation metrics. The company’s current executive compensation program is “structured in a way that does not align pay with performance,” the British Columbia Investment Management Corporation said in a statement.

The “say on pay” movement, while well meaning, has one major flaw: it’s non-binding. That means boards of directors are free to ignore the wishes of shareholders, even if 100% of them vote against a company’s proposed compensation package. So, pledges like Thornton’s to change the system are essentially meaningless and must be taken with a grain of salt.

Still, the movement is growing. The number of Canadian companies that allow their shareholders to vote on advisory resolutions increased last year to a total of 147 companies, according to a report by business law firm Osler, Hoskin & Harcourt.

Somewhat lost in the noise of the compensation controversy were Barrick’s latest quarterly earnings, which were also released this week. Barrick’s adjusted earnings per share in Q1 2015 were $0.05, down 75% from $0.20 last year. Revenue declined 15% to $2.25 billion. The company said it sold 1.39 million shares of gold during the quarter, a 14% decrease from last year. Lower gold prices also contributed to Barrick’s weak results.

What does all this mean for investors? The earning results suggest Barrick is a buying opportunity, especially if you believe gold prices are heading higher in the long term. But if you’re against Barrick’s executive compensation practices, you might want to choose another stock in the gold sector with a better record.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Doug Watt has no position in any stocks mentioned.

More on Metals and Mining Stocks

Oil pipes in an oil field
Energy Stocks

3 Top Stocks for Commodity Exposure

Top stocks like Teck Resources have been hit lately, but most commodity markets remain strong and ready for the next…

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Ivanhoe (TSX:IVN) Had a Record Quarter: Should You Buy the Stock Today?

Ivanhoe Mines Ltd. (TSX:IVN) delivered record profits in its Q2 2022 earnings, which should spur investors to look hard at…

Read more »

Gold bullion on a chart
Metals and Mining Stocks

Down by 37%: Is Barrick Gold (TSX:ABX) a Good Buy Right Now?

The top Canadian gold mining stock could be a strong buy as it trades for a significant discount from its…

Read more »

TSX Today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Tuesday, August 16

Falling precious metals prices could pressure TSX mining shares today, as investors closely watch the latest inflation data.

Read more »

Gold bars
Metals and Mining Stocks

1 Top Canadian Gold Stock to Buy Immediately

This Canadian gold mining stock looks cheap at current levels, and it could be an excellent play if you are…

Read more »

TSX Today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Monday, August 15

Mining and energy shares on the TSX could open lower Monday due mainly to an early morning decline in commodity…

Read more »

gold stocks gold mining
Metals and Mining Stocks

Gold Could Be on the Cusp of a Major Upside Move: Here’s How to Play it

Kinross Gold (TSX:K)(NYSE:KGC) stock is a relative bargain to play a recovery in the price of gold.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

Is Barrick Gold (TSX:ABX) a Strong Buy? Profit Surges Almost 19% in Q2 2022

TSX’s top mining stock should be a strong buy in August after the gold miner reported a 19% profit growth…

Read more »