Barrick’s Compensation Governance Process
The Board is responsible for the oversight of Barrick’s executive compensation principles, practices, and programs, and approves major compensation programs on the recommendation of the Compensation Committee. The independent directors of the Board approved the compensation of the Executive Chairman and the President based on the recommendations of the Compensation Committee. The Board also approves director compensation programs.
Role of the Compensation Committee
The Compensation Committee recommends the compensation of the Executive Chairman based on an assessment of his performance for the year by the Corporate Governance & Nominating Committee in consultation with the Lead Director. The Compensation Committee approved and/or recommended the compensation of the President, Senior Executive Vice President, Strategic Matters, Executive Vice President and Chief Financial Officer, Chief Investment Officer, and other Executive Committee members based on their assessment of Company performance, the Long-Term Company Scorecard, the API Scorecards, and any other relevant factors, with input from the Executive Chairman.
- Designs and drives all aspects of Barrick’s compensation policies and plans;
- Develops performance measures and scorecards for Barrick’s long-term and short-term executive compensation programs;
- Evaluates the performance of our Partnership Plan participants collectively by using the Long-Term Company Scorecard at the end of each year;
- Evaluates the individual performance of our Executive Committee using the API Scorecards at the end of each year;
- Approves and/or recommends to the Board annual compensation for our Executive Committee using the API Scorecards and other relevant factors at the end of each year;
- Provides recommendations to the Board regarding compensation for the Executive Chairman and President;
- Considers the implications of risks associated with the Company’s executive compensation programs and practices; and
- Reviews the remuneration of the directors from time to time to ensure that it properly reflects the time commitment and responsibilities associated with being an effective director.
For further detail about the role of the Compensation Committee and a description of its key activities and accomplishments in 2017, see the discussion under Committees of the Board – Compensation Committee.
Composition of the Compensation Committee
The members of the Compensation Committee are J. Brett Harvey (Chairman), Gustavo A. Cisneros, J. Robert S. Prichard, Steven J. Shapiro, and Ernie L. Thrasher. None of the Compensation Committee members is an officer or employee of Barrick or its subsidiaries, and each member of the Committee meets the Board’s independence standards derived from the corporate governance guidelines established by the NYSE Standards and National Instrument 58-101.
Collectively, the Compensation Committee’s members have extensive compensation-related experience in the natural resources and energy sectors as senior executives (past and present) and members of the board of directors and committees of other public and private corporations.
- Mr. Harvey, the Chairman of the Compensation Committee, has held a number of positions with CONSOL Energy Inc., including Chairman Emeritus, Chairman, and Chief Executive Officer. As such, he draws from his management experience to provide relevant compensation and governance-related insights. As well, Mr. Harvey is the Lead Director of Barrick’s Board of Directors.
- Mr. Shapiro was the Chairman of the Compensation Committee of El Paso Corporation. Mr. Shapiro also has extensive experience from his former executive roles at Burlington Resources Inc. and Vastar Resources Inc. As well, Mr. Shapiro is the Chairman of Barrick’s Audit Committee, which assists in consideration of the issues that are relevant to both committee mandates.
- Mr. Cisneros has extensive experience as the owner and Chairman of Cisneros, a large privately-held conglomerate. As well, Mr. Cisneros is the Chairman of Barrick’s Corporate Governance & Nominating Committee, which assists in consideration of the issues that are relevant to both committee mandates.
- Mr. Prichard has extensive human resources and compensation experience through his prior roles as President of the University of Toronto, and President and Chief Executive Officer of both Metrolinx and Torstar Corporation. He has taught labour law for many years and previously served as the Compensation Committee chairman of Imasco Limited. He is the current Compensation Committee chairman of George Weston Limited and a member of the Compensation Committee of Bank of Montreal.
- Mr. Thrasher is the founder, Chief Executive Officer, and Chief Marketing Officer of XCoal Energy & Resources, a global coal products supplier. He draws from his management experience to provide relevant compensation and governance-related insights.
The Board is confident that the Compensation Committee collectively has the knowledge, experience, and background to carry out the Committee’s mandate effectively and to make executive compensation decisions in the best interests of the Company and its shareholders.
Independent Compensation Consultant
The Compensation Committee has sought the views of an independent compensation consultant on executive compensation-related matters from time to time. In May 2016, Pay Governance was selected by the Compensation Committee as its new independent consultant to assist with refining the Executive Chairman’s compensation structure, on the basis of its broad experience advising compensation committees of a number of S&P/TSX60 cross-listed companies. In 2016, Pay Governance provided benchmarking advice and data for the Executive Chairman, materials on traditional and innovative performance-based compensation models employed by other companies, as well as design and shareholder engagement support with the refined approach to compensation for the Executive Chairman. In 2017, Pay Governance provided benchmarking advice and data for the Executive Chairman. The chart below summarizes the fees paid to Pay Governance in 2017 and 2016 for services provided to the Compensation Committee. Pay Governance provides advisory services exclusively to the Compensation Committee and does not advise management.
The Compensation Committee reviews and approves all fees and terms of consulting services provided by compensation consultants that are mandated by the Compensation Committee or commissioned by management. As provided in the Compensation Committee’s mandate, the Chair of the Committee must pre-approve any non-compensation services provided by any compensation consultants to the Company to ensure that the independence of such consultants is not compromised.
Compensation Benchmarking and Peer Group
The competitive positioning of executive compensation is assessed using our Mining Peer Group, which is reviewed and approved every year by the Compensation Committee. The Compensation Committee will re-evaluate the Mining Peer Group during 2018 to ensure its continued appropriateness. Our Mining Peer Group is comprised of ten global mining companies that Barrick competes with for investors, capital, and mining properties, as well as qualified and experienced executive talent in the mining industry, selected based on the criteria below. Overall, we position our total compensation opportunities between the median and 75th percentile of the Mining Peer Group. Total compensation awarded may be higher or lower than the median to 75th percentile range to reflect performance. Total compensation in excess of the 75th percentile will only be awarded for superior outperformance. In 2017, the Compensation Committee reviewed benchmarking data for the Executive Chairman and the Executive Committee, including our President; Senior Executive Vice President, Strategic Matters; Executive Vice President and Chief Financial Officer; and Chief Investment Officer. The benchmarking data was referenced alongside other considerations, including the scope, responsibilities, and accountability of our Executive Chairman and Executive Committee, which at times, may be broader than their respective job titles indicate. When determining executive compensation levels, the Compensation Committee also considers shareholder and governance views, the overall economic climate and business environment, retention needs, experience and potential for future advancement, and internal pay relativity. The Committee also considers Barrick’s TSR performance on an absolute and relative basis to ensure pay decisions reflect the shareholder experience. TSR performance is reviewed annually against the Mining Peer Group, sector peers, and other broad market indices. TSR performance is assessed for companies outside of our Mining Peer Group as our shares are widely-held by institutional and retail shareholders who have shareholding interests beyond companies that operate in the mining industry.
Managing Compensation Risks
We regularly monitor the risks associated with our executive compensation plans, programs, policies, and decisions. In 2014, the Compensation Committee was presented with the results of a comprehensive compensation risk assessment, which confirmed that our executive compensation plans and programs do not encourage unnecessary and excessive risk-taking and do not create significant risks that are reasonably likely to have a material adverse effect on Barrick. We will undertake to refresh the compensation risk assessment in 2018.
Enhanced Clawback Policy
Barrick has adopted a Clawback Policy that goes beyond the yet-to-be implemented provisions of the U.S. Dodd-Frank Act. Under the Clawback Policy, we may recoup certain incentive compensation paid to our Executive Chairman, Named Partners, other Partnership Plan participants, former executive officers, and certain other officers and employees (a Covered Person) in cases of a material financial restatement which improperly resulted in the overpayment of incentive compensation. The Clawback Policy provides that in the event of a restatement of financial results due to material non-compliance with any financial reporting requirement under applicable securities laws, other than as a result of a change in accounting principles or securities laws, the Board may seek to recoup excess incentive compensation which was paid or granted upon the achievement of certain financial results in the 36-month period preceding the date of the restatement, to the extent that the amount of such compensation would have been lower if the financial results had been properly reported. In the case of our Executive Chairman, Named Partners, and Partnership Plan participants, the Clawback Policy applies regardless of whether the individual engaged in wrongful conduct that caused or was a significant contributing factor to the need for the restatement.
As a result of an amendment to our Clawback Policy in February 2017, the Clawback Policy now also allows for the recoupment of incentive compensation from Covered Persons, where the Board determines that wrongful conduct (fraud, dishonesty, or gross negligence) has occurred which resulted in a Covered Person improperly achieving certain performance targets and receiving or realizing a higher amount of incentive compensation than such Covered Person would have otherwise been entitled to receive or realize. Recoupment can be sought for a period of 36 months from the date on which the wrongful conduct occurred.
A copy of our Clawback Policy is available on our website at www.barrick.com/company/governance.
Share Ownership Requirements
Our partnership culture requires that our Executive Chairman and partners be owners; we expect them to have a high degree of financial and emotional ownership in the Company. Share ownership is a core attribute of our culture and something that all of our partners embrace. Reflecting this philosophy, Barrick has implemented share ownership requirements for the Executive Chairman (four times salary), President (ten times salary), and all Senior Executive Vice Presidents and Executive Vice Presidents (five times salary). In addition, share ownership requirements extend to other Partnership Plan participants, including Senior Vice Presidents, Vice Presidents, Executive Directors, and General Managers (one and a half to two and a half times salary). All Partnership Plan participants have until the later of five years from the date he or she became a partner or February 2020 to meet the share ownership requirements.
Common Shares held by our Named Partners, Common Shares purchased through Barrick’s ESPP, Common Shares held in trust, unvested RSUs, and unvested PGSUs are counted towards satisfying share ownership requirements. Stock options do not count towards these requirements. Our Partners are required to achieve their applicable share ownership requirements by the later of the end of the fifth year from the date he or she becomes a member of the Partnership Plan or February 2020. The share ownership requirement for the Executive Chairman is evaluated annually on December 31. The share ownership requirement for our Partners is evaluated at least once per annum on December 31 and may also be evaluated following the annual LTI granting cycle, in February after the end of the most recently completed financial year.
Mr. Thornton currently satisfies his share ownership requirement. Mr. Thornton has exceeded his share ownership requirement, with a total Common Share ownership position of 2,202,160 Common Shares worth over ten times his base salary as at March 1, 2018. All Named Partners, except Mr. Thomson, do not currently satisfy their share ownership requirements. They have until the later of the end of the fifth year from the date they became a partner or February 2020 to meet their share ownership requirements. In the table below, share ownership has been evaluated as at year-end on December 31, 2017 and March 1, 2018 to take into consideration the long-term incentive grants that were made to our Named Partners in February 2018 for 2017 performance.
- The value of Common Shares, PGSUs, RSUs, and DSUs is based on the closing price of our Common Shares on the NYSE on December 29, 2017 ($14.47), the last trading day of 2017, and March 1, 2018 ($11.42).
- For the purposes of determining the share ownership requirements as at December 31, 2017, the 2017 pre-tax base salary has been used for Messrs. Thornton ($2,500,000), Dushnisky (Cdn $1,200,000), Thomson (Cdn $900,000), Hill (Cdn $700,000), and Ms. Raw (Cdn $800,000). For the purposes of determining the share ownership requirements as at March 1, 2018, the 2018 pre-tax base salary has been used for Messrs. Thornton ($2,500,000), Dushnisky (Cdn $1,200,000), Thomson (Cdn $900,000), Hill (Cdn $900,000), and Ms. Raw (Cdn $900,000). For Messrs. Dushnisky, Thomson, and Hill and Ms. Raw, 2017 annual base salaries were converted from Canadian dollars to U.S. dollars based on the annual average exchange rate reported by the Bank of Canada (1.2986); 2018 annual base salaries were converted from Canadian dollars to U.S. dollars at the Bank of Canada daily average rate of exchange on March 1, 2018 (1.2851).
- As at March 1, 2018, Mr. Thornton owns 1,401,590 Common Shares directly, 59,970 Common Shares indirectly through a Rollover IRA, and 500,000 Common Shares indirectly through a Grantor Retained Annuity Trust. Mr. Thornton also exercises control or direction over 240,600 Common Shares held in the names of his wife and children. In addition, 212,831 Common Shares are held in family trusts for the benefit of Mr. Thornton’s children and for which his wife is the trustee. Mr. Thornton does not have beneficial interest in or control over these Common Shares held in trust. On March 8, 2018, Mr. Thornton used 61% of the after-tax value of his LTI award ($2,617,869) to purchase 136,636 Common Shares which are subject to a holding period until the later of: (a) the date Mr. Thornton retires or leaves the Company, and (b) three years following the date of purchase. Mr. Thornton also acquired an additional 169,364 Common Shares. Following these purchases, Mr. Thornton’s total share ownership position increased to 2,720,991 Common Shares, which is approximately 13 times his base salary as at March 15, 2018.
- Mr. Dushnisky holds 114,479 Common Shares directly. Since March 1, 2018, Mr. Dushnisky purchased an additional 12,000 Common Shares, bringing his total share ownership position to 126,479 Common Shares. Mr. Dushnisky has until February 17, 2020 to meet his share ownership requirement.
- Mr. Thomson holds 71,466 Common Shares directly.
- Ms. Raw holds 23,944 Common Shares directly. Ms. Raw has until December 31, 2020 to meet her share ownership requirement.
- Mr. Hill holds 9,535 Common Shares directly. Mr. Hill has until December 31, 2021 to meet his share ownership requirement.
Shareholder Return Performance Graphs
The following graph compares the total cumulative shareholder return for Cdn $100 invested in our Common Shares on the TSX at December 31, 2012 with the cumulative total return of the S&P/TSX Global Gold Index (formerly, the S&P/TSX Capped Gold Index) and the S&P/TSX Composite Index for the five most recently completed financial years, assuming the reinvestment of dividends.
Five-Year Cumulative Total Shareholder Return on Cdn $100 Investment(1)
December 31, 2012 to December 31, 2017
- Dividends paid on our Common Shares are assumed to be reinvested at the closing share price on the dividend payment date. The two TSX indices are total return indices, and they include dividends reinvested.
Five-Year Total Shareholder Return on Cdn $100 Investment
The following graph compares the total cumulative shareholder return for US $100 invested in our Common Shares on the NYSE at December 31, 2012 with the cumulative return of the PHLX Gold & Silver Sector (XAU) Index and the S&P 500 Index for the five most recently completed financial years, assuming the reinvestment of all dividends.
Five-Year Cumulative Total Shareholder Return on US $100 Investment(1)
December 31, 2012 to December 31, 2017
- Dividends paid on our Common Shares are assumed to be reinvested at the closing share price on the dividend payment date. The S&P 500 Index and the PHLX Gold & Silver Sector (XAU) Index are total return indices, and they include dividends reinvested.
Five-Year Total Shareholder Return on US $100 Investment
Share Performance and Executive Compensation
Change in Named Executive Officer Total Compensation(1)
versus Barrick Cumulative Value(2) of Cdn $100 and US $100 Investment
December 31, 2012 to December 31, 2017
- Total compensation represents the total reported value of salary, API, grant date fair value of equity-based LTI awards, pension value, and all other compensation from the Summary Compensation Table for the NEOs in role as at December 31 each year. To provide a consistent basis of comparison over the five-year period, the figures for all years include total compensation for only the top five NEOs who were active in their roles as of December 31 each year. The compensation for interim NEOs and departed NEOs has been excluded; however, this information is disclosed in the circular for the relevant year. For 2017, NEO compensation is disclosed in the “Summary Compensation Table” of the Circular.
- Dividends paid on our Common Shares are assumed to be reinvested at the closing share price on the dividend payment date.
Five-Year Total Shareholder Return on Cdn $100 and US $100 Investment
Five-Year Change in NEO Total Compensation
Each year, the Compensation Committee reviews NEO total compensation in the context of their individual and collective contributions to Barrick’s financial and operational performance, as well as TSR to ensure that total compensation appropriately reflects the shareholder experience. Over the past few years, we have demonstrated a thoughtful, rigorous, and long-term approach to managing the business in a volatile gold price environment by consistently executing on our strategic priorities. Due to the long-term nature of the mining industry and the volatility of the gold price, actions taken may not yield positive immediate impacts on our share price performance.
From 2012 to 2017, average market gold prices declined from near-record levels of an average of $1,669 per ounce to an average of $1,257 per ounce, which is reflected in the decline of our share price on the TSX and NYSE over the same period. Since then, we have substantially upgraded the quality of our portfolio, created a stronger, safer, and more efficient business by implementing Best-in-Class operations, and relentlessly pursued debt reduction to ensure that we have a robust balance sheet that can withstand gold price volatility.
2017 was another year of solid execution, driven by strong individual leadership and effective collaboration and teamwork. Barrick generated operating cash flow of $2.07 billion and free cash flow(1) of $669 million and further reduced total debt by $1.51 billion, exceeding the 2017 debt reduction target of $1.45 billion. Following the divestment of high-cost, non-core operations over the past three years, Barrick is now focused on high-margin, long-life gold operations and projects clustered in core districts throughout the Americas, with a materially stronger balance sheet. Barrick’s quarterly dividend was raised from $0.02 per share to $0.03 per share in 2017 and additional investments were made to advance organic projects. Distinctive and strategic partnerships were formed with Shandong Gold and Cisco’s Networking Academy. To further advance Barrick’s digital initiatives, the Cortez and Goldstrike mines were unified into a single operation to drive operating efficiencies, Barrick’s first Chief Digital Officer was appointed, and Ms. Patricia A. Hatter, a leader in technology and digital transformation with 22 years of experience, has been nominated to stand for election as an independent director.
In determining 2017 total compensation for the NEOs, the Compensation Committee considered the strategic progress made during the year; the impact of continued gold price volatility on Barrick’s share price fluctuations, particularly in the short-term; and the overarching goal to grow free cash flow per share. On the NYSE, Barrick’s one-year cumulative TSR was -9% and three-year cumulative TSR was 38%. On a three-year basis, Barrick’s TSR is above the median of the Mining Peer Group, the ten global mining peers that Barrick competes with for investors, capital, mining properties, and qualified and experienced executive talent in the mining industry.
In consideration of the above, the Compensation Committee awarded total compensation of $23.61 million for the 2017 NEOs. This reflects a decrease of 47% from 2012 (compared to our five-year cumulative TSR of -45% and -56% on the TSX and NYSE, respectively), a decrease of 8.2% from 2016 (compared to our one-year cumulative TSR of -15% and -9% on the TSX and NYSE, respectively), 2.7% of Barrick’s adjusted net earnings of $876 million, and 0.3% of Barrick’s common shareholder equity of $9,286 million as at December 31, 2017.
- Free cash flow is a non-GAAP financial performance measure with no standardized meaning under IFRS and therefore may not be comparable to similar measures presented by other issuers. For further details regarding non-GAAP financial performance measures, please see Other Information – Use of Non-GAAP Financial Performance Measures.