A recent Glass Lewis blog looks at what can go wrong with ESG oversight — and how it can connect to, and impact, executive pay votes. The situation discussed in the blog involves Rio Tinto, a mining company dual listed in both Australia’s ASX 100 and the UK’s FTSE 350. At the company’s 2021 annual meeting, more than 60% of votes cast voted against its remuneration report, which serves as a retrospective, advisory look at the last year’s pay decisions. Here’s an excerpt:
Shareholder concerns centred on the company’s destruction of two ancient rock shelters in the Juukan Gorge, and its subsequent response. The blasting, which caused irreversible damage to a 46,000-year-old Aboriginal cultural heritage site in the Pilibara region of Western Australia, occurred in May 2020 as part of the expansion of an iron-ore mine.
The board review of the matter found certain executives, including the group chief executive, responsible failure to implement an adequate heritage management system. The company then determined that the group chief executive wouldn’t be entitled to receive any bonus awards for FY2020 and also said a reduction would be applied to LTIP awards that were due to vest in 2021. Stakeholders didn’t think the financial penalties were adequate and the executives involved retired, and the board chair announced an intention to retire at the conclusion of the company’s 2022 annual meeting.
Even with all this, investors weren’t happy and ultimately voted against the company’s renumeration report. The terms of the group chief executive’s departure apparently made the situation worse because as a good leaver, all of his outstanding awards will vest as scheduled, subject to pro-rating for the time worked and achievement of applicable performance conditions.
This case shows the importance of ESG oversight and that investors may look beyond the initial matter and consider related compensation decisions too. For executives involved in perceived ESG missteps, this case shows the potential of a wide-reaching effect.
-Lynn Jokela, CompensationStandards.com June 21, 2021