Company Document: Barrick’s new compensation plan rewards long-term performance

ISS and Glass Lewis have recommended voting against Barrick’s Say on Pay proposal. We have received considerable support for our compensation system in other quarters, and we want to explain the system in general and the way in which we apply it to the Executive Chairman’s compensation in particular.

Barrick’s new leadership has designed a compensation system that restores the culture that drove the company’s initial success and ensures a focus on creating long-term value. We talked to current long-term owners and companies outside of our peer group. We weighed the critique of short-term stock-based compensation by influential author and former dean of the Rotman School of Management, Roger Martin, in his groundbreaking work Fixing the Game.

We considered McKinsey & Company’s finding that more than 50% of a typical company’s value is created by activities that will take place three or more years in the future. And we considered the findings of a recent survey in the Financial Analysts Journal that reported 78% of executives would improve quarterly earnings even if their actions destroyed long-term value. As Dominic Barton and Mark Wiseman, two of Canada’s most respected business leaders on the world stage, recently argued in the Financial Times:

“The biggest financial rewards should be reserved for managers who deliver long-term value, not just a quick pop in the stock.” They noted that on average, 74% of fund managers are compensated in cash, tied to outperforming an annual stock market benchmark. The result, in their words, is an obsession with next quarter’s earnings rather than the next 10 years’. This has led to a system of agents, managing other people’s long-term money, based on their own short-term performance objectives.

With all these findings in mind, Barrick designed a compensation system that would breed emotional and financial ownership among its decision makers. The company does not want leaders whose interests are merely aligned with owners; we want leaders to be owners—as they were during Barrick’s earlier success.

Therefore, instead of awarding managers based on short-term performance, Barrick now measures its leaders against a long-term scorecard designed to drive superior returns for the company’s owners under wide-ranging market conditions. Barrick also rewards strong performance with common shares that cannot be sold until leaders leave the company. The result is that our leaders’ personal wealth is tied to the long-term success of the company. And as owners of the business, they will build value for the benefit of other long-term owners, their fellow employees, and the communities and countries with whom they partner.

This compensation system is unprecedented and is the most long-term, owner-centric system in the mining industry and well beyond. It has received considerable support. Many have asked us why this is not the norm in the industry. We agree that it should be.

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