Xstra-ta very much

Xstrata may find that its remuneration report resolution hits the headlines yet again on May 5th. Against a backdrop of general public hostility towards high director bonuses and greater shareholder scrutiny on remuneration reports resolutions, resulting in higher levels of dissent (“Against” votes plus abstentions), Xstrata’s board will likely again need major shareholder, Glencore International, to come to the rescue to ensure shareholders give the Remuneration Report resolution majority support.

At last year’s AGM, without the support of Glencore – who continue to hold around 34% of the voting rights – the resolution would have received less than 50% support, largely thanks to the vesting of £107m in share awards to the CEO which was tucked safely away in the remuneration report footnotes, if not quite so hidden in our analysis.

This year sees more of the same. CEO Mick Davis received upper quartile salary in terms of sector, index, market cap and turnover peer group comparison. He also received pension contributions equivalent to 160% of his salary along with a very healthy bonus of nearly three times salary. Given the Obermatt Bonus Index recommendation of no bonus (based on EBITDA and sales indicators with industry peer groups), Davis would seem to have done well indeed. In total, Davis has received over £6.7m in expected value during 2009, with roughly half being bonus and nearly one third being pension payments, on top of an already comfortable salary level.

However, with the Remuneration Committee being chaired by Xstrata’s and Glencore’s Chairman, support from the majority shareholder is a given. This means the resolution only needs support of fewer than one third of the remaining voting rights available to gain approval, which may not prove difficult if last year is anything to go by, despite the clear independence issues the governance arrangements represent.

With such generous bonuses and other benefits being paid to the CEO of a company whose net profits and EPS have fallen from last year, Xstrata is sure to make a mark again in the 2010 season. But will shareholders actually choose to oppose the report in sufficient numbers?

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