Australian miners are being forced to take the axe to all levels of management in a bid to cut costs amid lowering commodity prices. BHP Billiton (ASX: BHP) cut back executive pay packets when it employed current CEO Andrew Mackenzie for 25% less than his predecessor Marius Kloppers.
Companies are scrambling to make sense of Chinese growth data to predict commodity prices whilst the country itself is trying figure out how to stem growth and property levels. Paul Benson, a former senior manager at BHP, says that "people are starting to act as though there is a longer-term change taking place."
Troy Resources' (ASX: TRY) executives and directors have lowered their own wages by 10% and will receive payments in equity rather than in cash. This is reminiscent of the time after the global financial crisis when mining execs were rewarded with incentive-heavy salaries.
Cause and effect
At the root of all Australia's cut backs is the very fact that for the past 21 years, the country has had uninterrupted growth. This has led to extremely high pay packets for our top 100 companies and at times increased 11% annually. Even the lower skilled workers in our mines were getting unreasonably high wages.
Now, at a time when companies are trying to sell assets just as quick as products, top brass are saying they can't expect suppliers to cut costs if they aren't willing to do it themselves. "You can't ask suppliers to make cuts if you, at the top level, aren't willing to take some pain yourself" said Peter Harold of Panoramic Resources (ASX: PAN).
Foolish takeaway
Our biggest miners are feeling the pain just as much as their smaller counterparts. Rio Tinto (ASX: RIO) has pledged to cut up to $5 billion in costs by the end of next year and Newcrest (ASX: NCM), our biggest gold miner, warned last month it may write down assets to the tune of $6 billion. It's a tough time for our miners and their employees. Investors may be wise to show caution before entering into the sector.
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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.
