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Why Robeco rejected Xstrata’s remuneration report

02-06-2012 | Visie | Michiel van Esch

Robeco prefers a process of dialogue but sometimes voting against management is the only option. Michiel van Esch explains why Xstrata’s remuneration report was rejected.

Key points

  • Robeco rejected Xstrata’s remuneration report
  • Main issues were excessive pay, inappropriately structured incentives and lack of clarity on retirement benefits
  • Re-election of remuneration committee’s chairman opposed
  • Ivan Glasenberg’s re-election to Xstrata board contested

 

Engaging is often the best way to influence unsatisfactory executive-pay arrangements. But what do you do when a company’s remuneration policy has lagged best practice for several years? Sometimes there’s no option but to vote against management.

That’s precisely what Robeco did at the Xstrata AGM in May. A raft of remuneration issues—including excessive pay, inappropriately structured incentives and continuing lack of clarity on retirement benefits—pushed Robeco into voting against the company’s remuneration report, as well as rejecting the re-election of the chairman of the Anglo-Swiss mining group’s remuneration committee.

Excessive pay and inappropriate incentives
Let’s look at those issues in more detail. “We were mainly concerned about the structure of the remuneration plan,” explains Engagement Assistant Michiel van Esch. “Pay levels remain excessive, particularly for the chief executive, with an inappropriate emphasis on short-term, rather than long-term, performance.”

That’s not all. Van Esch describes the terms for outstanding equity awards—which allow for full vesting in the event of a change of control at the company—to be “extremely troubling”, given the proposed merger of the company with Glencore International, the integrated commodities producer.
Van Esch’s concerns were deepened by the company’s intransigence in the face of a significant level of sustained shareholder opposition.

 

“Structural issues have not been addressed and disclosure of retirement benefits remains opaque”

 


What the remuneration committee has done is some fiddling around the edges. It has, for instance, introduced a new format and layout for its 2011 report. But that is about it. “Structural issues have not been addressed and disclosure of certain elements of remuneration, such as retirement benefits, remains largely opaque,” explains Van Esch.

Given all these factors, Robeco voted against the company’s remuneration report.

Accountability for remuneration report
Van Esch adds that further steps were necessary. “When remuneration issues such as these do not improve over a number of years, we hold the board members on the remuneration committee to be accountable,” he explains. After all, the members of the committee do have the responsibility of reviewing all aspects of the remuneration program for the company’s executive officers.

“It appeared to us that David Rough, chairman of the remuneration committee, had not fulfilled his duties,” says Van Esch. “As a result, we did not support his re-election.”

There was one final area where Robeco took action. Van Esch points out that board members have to be accountable when they do not attend a sufficient number of board meetings. Ivan Glasenberg, the CEO of Glencore, attended less than 75% of the meetings held by Xstrata’s board during the most recently completed fiscal year.

“We viewed this as a failure to fulfill a fundamental responsibility to represent shareholders at such meetings,” he explains. “We voted against his re-election to the board of Xstrata.”
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