BHP Billiton News Prompts Rebound

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BHP Billiton’s share price (LSE:BLT) rebounded today as two new parts of the company’s developing story were revealed. By and large, investors will probably give much more attention to the cuts in executive pay than the other, just as significant story. BHP shares are up at 1,046.00 at 11:09 a.m. EDT. That is a gain of 25 points, or nearly 50% of yesterday’s decline. BHP closed at 1,021.50 yesterday, 22 September, after closing on the 21st at 1,076.00.

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Second Story First

I have chosen to lead with what I expect to be the lesser read of the BHP stories today. I am doing that because I don’t want reader to miss it should they lose interest (God forbid!) halfway through this article, thinking they know what the rest of it says.

Oxfam America released a highly complimentary story about BHP’s voluntary, public disclosure of “taxes and other payments to governments,” citing its transparency as “critical for investors to assess risk and for communities to ensure that the funds used for poverty reduction.” As the world’s largest mining company, BHP’s voluntary reporting sets an example and standard for others to follow for “the establishment of a globally consistent disclosure framework that includes formal equivalency agreements between jurisdictions,” and support for the principle for Free, Prior and Informed Consent.

NOTE: Some countries legally mandate this transparency. Australia, where BHP is headquartered, is not yet one of those countries.

First Story Last

BHP announced that, as a result of “Softening demand for commodities such as iron ore and crude oil, coupled with rising supply … [and] weakest annual earnings since 2003,” executive pay packages would be cut significantly.

QUESTION: Isn’t this the point in time when most companies announce that they are laying off thousands of employees, whilst increasing executive salaries and bonuses?

Given the overall condition of the global demand and supply problem for mined products, it is reasonable to expect that there will be plant closures and layoffs throughout the entire sector. The point here is that BHP is trimming the fat as it should – at the executive level. Following are the significant changes.

  • CEO Andrew Mackenzie:
    • A 43% reduction in pay and benefits from $8 million (USD) to $4.6 million.
    • A 26% reduction in performance bonuses. (Due to safety issues that have plagued the company in the recent past, Mackenzie received nothing for that component of his bonus package.  In addition, because the company wants a stronger emphasis on safety, the safety results portion of his bonus package has been increased from 20% to 25%.
  • Chairman Jac Nasser: A reduction in pay from $1.1 million to $960,000.
  • Non-executive Directors: A basic salary reduction from $170,000 to $160,000.

Will these moves solve all of BHP’s problems? Most certainly not. But they are sage steps to smoother sailing through an unstable economic environment.

Image courtesy of renjith krishnan at FreeDigitalPhotos.net

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