Executive pay cuts a 'commendable' move by BHP

The company's decision to cut executives' incentive payments has been recognised as a good move.

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Fund managers believe that the need to cut the pay of executives is now being recognised by boards, following BHP Billiton's (ASX: BHP) decision to do so last month.

Whilst one of the key focuses across the struggling mining sector has been to eliminate unnecessary costs and reduce spending, a number of executives, as well as the company's former CEO Marius Kloppers, qualified to receive a combined $70 million worth of shares.

However, current directors of the board managed to reduce this payout by 35% or $23.4 million according to The Australian Financial Review, recognising that such payments were 'excessive'.

In order for the executives to qualify for the scheme, BHP was gvien a target of outperforming its competitors by 30.5%, regardless of whether a gain or loss was realised. The company delivered a negative 9.4% total shareholder returns over the last five years whilst its competitors delivered returns of negative 44%.

Dean Paatsch from governance group Ownership Matters said that, although the miner did well in comparison to its peers, "the thing they could not sell was the negative result", whilst also recognising the move as "the best example of shareholder pressure" he has seen.

Foolish takeaway

According to reports, Mackenzie himself had been allowed to collect 450,964 shares, however, he will only collect 243,126 of them. The CEO elected to forgo these share, and the company recognised that the move reflected "a more modest approach to remuneration befitting the times."

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

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