The mining industry proves executive pay is broken – by Tim Kiladze (Globe and Mail – December 15, 2016)

The global mining boom went bust years ago, but somehow, the board of directors at Teck Resources Ltd. missed the news. From 2011 to 2015, the mining giant, which specializes in coal, copper and zinc, paid chief executive officer Don Lindsay roughly $10-million a year on average – among the most of any CEO in the country.

Over the same time frame, Teck’s stock tanked. From their postcrisis peak in January, 2011, to the depths they reached last December, the miner’s shares fell more than 90 per cent. Even after a big rebound this year, they’re still down by more than half.

That the Teck CEO’s pay barely budged as shareholders suffered is bad enough. But the split between long-term shareholders’ fortunes and Mr. Lindsay’s is about to widen: With the shares on a tear, soaring 432 per cent this year on the back of recovering commodity prices and a more manageable debt load, Teck executives will be swimming in money because of the way the company gives out options and other stock-based pay.

Teck’s erratic results help illustrate one of the serious flaws in the way we pay executives. The compensation consulting community that advises boards swears that share-based pay is the best way to reward leaders, because it links incomes with performance for investors.

But share-based pay is far from perfect – and its weaknesses are exposed when CEOs of cyclical commodity companies are given large dollops of it. When executives are handed stock – or worse, options – at lower and lower prices every single year during the downturn, their gains are torqued when the cyclical rebound takes hold. Canada is full of such companies.

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