Response to shareholder concerns, statement of shareholder voting

Anglo American plc – Annual report – 31 December 2016

Industry: mining





2017 remuneration policy

The remuneration policy disclosed in section 2 of this report has been revised during the year and will be put to shareholders for approval at the 2017 AGM, in line with normal timescales. In preparing the policy, the Committee was mindful of the complexities of setting remuneration against the backdrop of volatility in the mining sector. The Committee also took into consideration the feedback received from some shareholders in advance of the 2016 AGM, as well as the relatively low level of support received for the 2015 remuneration report in comparison to previous years. In particular, we were determined to address investors’ concerns about the potential windfall gains for executive directors arising as a result of the volatility of the Company’s share price and the mining industry more generally.

While we believe that the fundamental structure of the remuneration package is appropriate, we have made a number of changes to the previous remuneration policy which are primarily designed to address the issue of volatility, while also directly addressing the concerns raised by shareholders in relation to the 2016 grant levels:

  • Continue the use of EPS as a KPI for short term incentives, as the Committee considers it to be appropriate in measuring annual business performance. However, the measure will be split into two; half of the award will be measured on actual results versus the original budget, and the other half will be measured excluding the impact of quoted commodity price and exchange rate fluctuations. The Committee considers that this change will help smooth volatility and result in outcomes which provide a better balance between items within management’s control and those outside it. This is explained further on page 90
  • The performance conditions to be applied to LTIP awards from 2017 onwards will incorporate a greater emphasis (70%) on TSR, recognising two challenges of identifying financial targets. First, the mining sector is subject to significant earnings volatility driven by uncontrollable factors. Secondly, while driving controllable performance, there is a need to continue to align management rewards with shareholder returns to a greater extent. The remaining 30% of LTIP awards from 2017 will be subject to a balanced scorecard of financial and strategic measures. Further details can be found on page 106
  • Reduce the maximum annual LTIP opportunity for the chief executive from 350% to 300% of basic salary, bringing it into line with the other executive directors and moderating the value that may be received from future LTIP awards
  • Introduce a cap on the value that can be received from LTIP awards, both past and future. The maximum combined value that can vest in relation to the 2014, 2015 and 2016 LTIP awards is limited to the sum of the total face value of the 2014-2016 awards at grant, with any value above that level being forfeit before the start of the two-year holding period. For the chief executive, this limit is £13.1 million. From 2017 onwards, the value of LTIP awards at the time of vesting, using the share price at the time, will be limited to twice the face value of the award at grant; in exceptional circumstances amounts earned above twice the face value of the award may be deferred at the discretion of the Committee. Further details can be found on pages 91 and 107.

The Committee undertook a thorough and detailed consultation with our major shareholders in relation to these changes. Views as to specific remuneration items are inevitably diverse, particularly given the global spread of our shareholder base and the sometimes different perspectives of, for example, UK and South African shareholders. However, we are confident that we have created a remuneration policy that balances the needs and expectations of management and shareholders, is fair and robust, links directly to the Company’s strategy and gives the Committee greater ability to deal with volatility.