UPDATE 3-Barrick Gold unveils new pay scheme, may add directors

Mon Mar 31, 2014 6:46pm EDT

(Adds response from Barrick director on retention)

By Allison Martell

TORONTO, March 31 (Reuters) - Barrick Gold Corp unveiled a new executive compensation plan on Monday, and lead director J. Brett Harvey said the company might select two new board members after its annual meeting on April 30.

Under the plan, effective for 2014, the largest part of top executives' compensation would be based on performance, paid in units that convert into Barrick shares and that cannot be sold until the executive retires or leaves the company.

The plan, detailed in a regulatory filing, is the latest move by Barrick to improve governance after a series of missteps in recent years angered investors. At last year's annual meeting, shareholders voted down a nonbinding resolution on executive pay.

"We heard the shareholders loud and clear. We understood what they had to say," Harvey, who chairs the compensation committee, told reporters on Monday.

In December, Barrick said two longtime directors would not stand for re-election and announced four new board nominees. It also confirmed that the company's founder, Chairman Peter Munk, would step down at the annual meeting and be replaced by Co-Chairman John Thornton.

Harvey said the company was "probably going to pick up two more" directors after the annual meeting.

He said the new compensation plan is meant to better line up management's interests with those of shareholders: "The theme internally became, instead of having wealthy managers, we wanted wealthy owners that were managers."

RETENTION ISSUES?

Harvey said he is not aware of any peer companies that place the same restriction on selling share awards.

One company that has introduced a similar plan is HSBC Holdings, which overhauled its pay scheme when Thornton was chair of its compensation committee. HSBC Holdings' executives must retain long-term share awards until they retire or leave.

Shares awarded under Barrick's new long-term incentive plan take three years to vest, and if executives leave to join a competitor they forfeit shares that have not vested. Shares that have vested become available over two years.

Frank Glassner, chief executive officer of Veritas Executive Compensation Consultants, said even with penalties, the plan could give executives an incentive to leave the miner.

"We don't want to incent them for leaving. We certainly don't want to punish them for their good performance in staying, either," he said.

While deferring some compensation is not uncommon, he said, three to five years is a best practice.

Yvan Allaire, executive chairman of the board of the Institute for Governance of Private and Public Organizations, was positive about the plan overall

"It's a giant step in the right direction," said Allaire, praising the move towards share awards over stock options.

Options have fallen out of favor in recent years in part because of concerns they encourage short-term thinking, and offer executives gains if their company's stock rises without downside risk if it falls.

But Allaire also said the plan could cause retention issues.

In an emailed statement, Harvey said the system is meant to create a management team "personally vested" in Barrick's success.

"In developing our new system, we looked at other companies who use a similar approach and they have found that it is actually a motivating factor in the retention of key executives," he said.

"WE HEARD THE SHAREHOLDERS"

Thornton's total compensation was $9.5 million in 2013, including a $5 million cash award that he has committed to use to buy and hold Barrick shares. Last year, he bought shares with his controversial $11.9 million signing bonus.

Barrick said all shares awarded under the long-term compensation plan will be bought on the open market to avoid dilution. It also laid out new minimum ownership requirements, which among other things will require the chief executive to own shares worth 10 times base salary by 2020.

Last year, proxy advisory firm Glass Lewis had recommended that its clients withhold votes from three Barrick directors at the annual meeting, criticizing Thornton's signing bonus and the severance paid to outgoing Chief Executive Aaron Regent, among other things.

"In terms of large, discretionary packages, I think we heard the shareholders on that," Harvey said. "I think we'll be very hesitant to do that kind of thing." (Editing by Jeffrey Hodgson, Andre Grenon, Peter Galloway and Lisa Shumaker)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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