A paper published in the journal Resources Policy states that bonus schemes for middle management employees in mining companies play a role in tailings dams failures.
According to the research article, such compensation packages actively encourage managers to cut costs and increase production, as the material decisions that put into motion such measures lay in their hands and positive results would increase their annual bonuses.
Although most mining companies don’t make public the compensation packages they give their middle management personnel, such incentives are known to be a common practice in the industry. Thus, using the information provided by the two companies that do report them, Newmont Goldcorp (NYSE: NEM, TSX: NGT) and AngloGold Ashanti (JSE:ANG, NYSE:AU), the authors of the study found that some schemes are equivalent, in financial terms, to an equity payment plus a put option.
“So the bonus is highly leveraged. Like investment bankers, the person stands to gain a lot if his/her performance is above target, but loses little, if it falls below target,” the study reads.
“Year after year, managers keep taking risks with a low probability of occurrence but with potentially catastrophic consequences. These risks are compounded by shortages of experienced staff due to the cyclic nature of the industry and the retirement of the baby-boomer generation.”
For the rest of this article: http://www.mining.com/bonus-schemes-play-role-tailings-dams-failures-research/