Rio Tinto chairman Jan du Plessis baffled by miner’s pay structure

Rio Tinto’s chairman concedes there are elements of the miner’s pay structure he “struggles to understand”.

Rio chairman Jan du Plessis.

Rio Tinto chairman Jan du Plessis has conceded there are elements of the miner’s pay structure he “struggles to understand”.

In frank comments to a UK parliamentary committee overnight Mr du Plessis, who claimed the chairmanship of the mining giant in 2009, also admitted the group (RIO) was carried away during the boom years, leading to capital expenditure that was well above sustainable levels.

The commentary came amid a tit-for-tat with British politicians as the business, energy and tndustrial strategy committee proceeded with its corporate governance review.

The committee is honing in on executive pay as new Prime Minister Theresa May looks to curb exorbitant wages at the top end of town.

As Mr du Plessis defended the pay offered to Rio’s leaders through the mining downturn, he also noted remuneration reports had become increasingly unwieldy.

“(There are) elements of our remuneration so complex even I struggle to understand it — and that’s a big statement,” he said.

“I think this is a real issue.”

The longtime mining executive said it was a challenge to simplify schemes on offer, however, with the risk of building “complexity on complexity” as new options are put forward, citing specifically the prospects of incorporating carbon footprint and safety into pay schemes.

“It’s very easy to get trapped into accommodating lots of different people with different interests,” Mr du Plessis said.

“The challenge we all have is to make it more simple. I think it’s too complex, I would like to keep it more simple.”

A near 25 per cent lift in the pay of Rio’s chief executives over the past five years as the share price fell made little sense in the eyes of the committee, but the miner’s chairman said the best comparison was against its peers rather than the broader market.

“In the last five years we have underperformed the general share indices … but we’ve done much better in relative terms than the rest of the mining sector,” he said.

“That is why, to some extent, our executives quite rightly deserve a pay-off.”

Mr du Plessis was also forthright in his admission that many mining executives enjoyed a healthy dose of luck through the halcyon years as Chinese growth surged.

“In the boom years it’s easy to look like a genius, it’s easy to think you’re a genius … but you’re just lucky,” he said.

“Managing a company in a downturn is even tougher and that is what we are trying to say here (with our remuneration).”

The company pushed wages up sharply through the boom years as higher commodity prices saw the cash pile into its coffers, although it was capital expenditure that Mr du Plessis singled out as the area that spiralled out of control.

The post-2013 slowdown has served as a reality check for the miner, he suggested.

“The harsh truth is that in 2012 we were spending far, far beyond our means. We were living way beyond our means,” he said.

“We had to cut the amount of capital we were putting into the business, we couldn’t afford it.”

Arguably the most volatile exchange came as the Rio chairman was questioned on the CEO and CFO receiving safety bonuses despite the company having four fatalities last year.

Mr du Plessis argued an absolute requirement for zero fatalities did not marry with a “dangerous” industry.

“This is a trap of political correctness,” he said.

“Sadly we have never had a year without a fatality (in our 140 years).”

If the zero fatality threshold was introduced it would merely lead to the chief executive making up a higher salary through other measures, he added.

“We couldn’t try harder. We have an outstanding reputation for safety.”

Mr du Plessis felt the blowtorch alongside John Hood, chair of the compensation committee at advertising giant WPP, and Amra Balic, a managing director at BlackRock Investment Stewardship.