Newcrest execs get bonus for Lihir

Some executives still receiving a bonus for acquisition that destroyed shareholder value

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite blowing up shareholder value with its $9.5 billion acquisition of Lihir Gold in 2010, Newcrest Mining (ASX: NCM) still paid bonuses to some executives for their role in the takeover.

And that illustrates how corporate Australia has lost touch with its shareholders. In its annual report released on Monday, Newcrest reported bonuses of $125,000 paid to three executives each in the 2013 financial year. That comes despite the miner writing down the value of Lihir by $3.7 billion this financial year.

According to the Sydney Morning Herald (SMH), the bonus payments were agreed to some years ago for their roles in the Lihir acquisition, and come on top of bonuses of $75,000 each in 2011 and $100,000 each in 2012. Newcrest reported in its 2012 annual report that it was concerned with retaining a number of key executives, and therefore agreed to the retention bonus payments.

The SMH also reports that the Australian Shareholders Association (ASA) has already been critical of the gold miner for the bonuses paid to former chief executive Ian Smith for landing the acquisition. Mr Smith was paid $750,000 in 2012 as a bonus, which along with his termination payment of $2.25 million and regular salary saw him walk away from the company $6.7 million dollars better off.

The ASA has threatened to vote against the remuneration report at the annual meeting next month. Newcrest is still under investigation by the corporate regulator over its disclosure regime, after several analysts were allegedly tipped off on production cuts before the news was made public.

One has to wonder what value Newcrest's eight non-executive directors add, at an annual cost of more than $2 million in directors' fees. Amongst other roles, non-executive directors are to scrutinise the performance of management, ensure that the company's obligations to shareholders are met and determining appropriate levels of remuneration for the executive directors.

One factor that we like to look at when researching companies is 'skin in the game'. In other words, does the management team hold a substantial number of shares. There is a weight of evidence that shows improved business performance as a direct result of insider ownership. Newcrest directors hold just 245,000 shares between them, out of a total of 765 million.

Of course Newcrest isn't alone in destroying shareholder value. Plenty of other Australian companies have done it in the past, including Billabong International (ASX: BBG), Rio Tinto (ASX: RIO) and Treasury Wine Estates (ASX: TWE).

Foolish takeaway

Newcrest has defended Lihir, saying it remained a world class asset, and that it contributes a similar amount of its total valuation as it did when acquired. I don't know about that, but what I do know is that Newcrest overpaid for Lihir and apart from former CEO Ian Smith, no-one else appears to have been made to pay the piper for their roles in the acquisition. In fact, it seems quite the opposite.

Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

More reading

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »