Rio Tinto has said that the financial penalties imposed on its ousted chief executive were the most that could be “legally defended”, as leading shareholders revolt over his pay package.
Jean-Sébastien Jacques left the Anglo-Australian mining group at the end of last year after the destruction of the sacred Juukan Gorge rock shelters in Western Australia, causing outrage and a reputational crisis for the firm.
In February Rio said that it had paid him £7.2 million last year, 20 per cent more than a year earlier and the highest earnings of his tenure, even though he was docked a bonus worth about £2.7 million as a punishment. Rio also decided that he would remain eligible for long-term share bonuses that could be worth up to £28 million based on the share price at the time its annual report was published.
This has angered some shareholders, with Norges Bank and the Local Authority Pension Fund Forum both voting against the remuneration report yesterday. Glass Lewis and Institutional Shareholder Services, two big advisory groups, have recommended that shareholders vote reject the pay deal.
Sam Laidlaw, chairman of Rio’s pay committee, told its annual general meeting, which was held online, that the financial penalties applied to Jacques and two other executives whose bonuses were docked were “the most that could durably be applied and legally defended in light of the extent of the executives’ ultimate accountability for Juukan Gorge, especially when taking into account relevant market precedents, and the fact that the employees were forfeiting their employment”.
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Rio Tinto, which reported a net profit of $9.8 billion last year, generates most of its earnings mining iron ore in Australia. It blew up the 40,000-year-old rock shelters at Juukan Gorge in the Pilbara region last May to expand an iron ore mine, even though it had been told that they were of the highest archaeological significance.
In August a board review concluded that Jacques and the other executives were partially responsible for “systematic weaknesses” in its approach to managing heritage sites and bungled the immediate response to the incident, but found no “deliberate act or omission to act” and no fraud or cover-up.
Rio docked Jacques’ annual bonus, which it said would have been worth £1.7 million, and also reduced by £1 million his share bonus under Rio’s long-term incentive plan. It bowed to pressure and ousted Jacques and the other two executives the following month after shareholders made clear that financial penalties were insufficient and new leadership was required.
Laidlaw, the former boss of Centrica, said: “Some have suggested that the failure of the three executives to respond appropriately should have resulted in the forfeiture of all outstanding remuneration.” However, he said it had concluded “that it was not in a position to legally terminate the three executives for cause and forfeit all outstanding remuneration” and it was “more appropriate that the three executives’ employment be terminated by mutual agreement (acknowledging the potential adverse effect that this may have on their longer-term careers)”.
The dual-listed company will hold a second annual meeting for Australian shareholders next month and the results of the votes on pay will not be disclosed until after that.
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Yesterday the company’s shares closed down 1.25 per cent, at £56.83.
