Wrap Text
Terms of Contract for Incoming CEO Andrew Mackenzie
BHP Billiton
NEWS RELEASE
Release Time IMMEDIATE
Date 18 April 2013
Number 08/13
TERMS OF CONTRACT FOR INCOMING CEO ANDREW MACKENZIE
The Board of BHP Billiton today announced the terms of employment for incoming Chief
Executive Officer (CEO), Andrew Mackenzie. The contract will be effective from 10 May
2013 when Mr Mackenzie commences as CEO.
In announcing the details, BHP Billiton Chairman, Jac Nasser, said “The Board and
Remuneration Committee believe that the existing CEO remuneration package, endorsed by
shareholders, has contributed to the consistent and substantial financial out performance of
the Company over many years. However, we also believe that some downward rebasing at
this time is appropriate; a view that is supported by Andrew. The package announced today
supports our evolving strategic priorities and does not compromise on our need to motivate a
high level of performance and ensures alignment with our shareholders’ expectations. 72
per cent of the total package is “at-risk” which at BHP Billiton means it will only be earned
where there is genuine outperformance.”
The key components are:
- A base salary of US$1,700,000 per annum (an increase from Mr Mackenzie’s current
base salary of US$1,200,000 per annum);
- A pension of 25 per cent of base salary (a decrease from 36 per cent for Mr Mackenzie);
- A short term incentive target opportunity of 160 per cent of base salary, with a maximum
opportunity of 240 per cent of base salary (maximum reduced from 320 per cent
previously);
- A long term incentive award for 2013 of 400 per cent face value of base salary (subject
to shareholder approval);
- Dividend equivalent payments on vested shares made in the form of shares (made in
cash previously); and
- Minimum shareholding requirement of five times base salary (previously three times base
salary).
Mr Mackenzie’s actual remuneration is linked substantially to business outcomes and
shareholder returns with the “at-risk” component (comprising short and long term incentives)
set at 72 per cent of his total remuneration (at fair value). Fixed remuneration (base salary
and pension) comprises 28 per cent of the total.
The performance period under the long term incentive plan remains at five years and vesting
remains subject to the same performance requirements applied to previous awards. The
Board and Remuneration Committee will hold an overriding discretion to reduce the number
of long term incentive awards that would otherwise vest to Mr Mackenzie where they
consider such vesting would be inappropriate.
In exercising that discretion, the Board and Remuneration Committee will decide if the value
at the time of vesting is consistent with the overall performance of the company, the CEO’s
individual performance and the prevailing remuneration levels in the relevant market.
A summary of the key terms of the contract is set out in the attached schedule.
Further information on BHP Billiton can be found at: www.bhpbilliton.com.
Media Relations Investor Relations
Australia Australia
Gabrielle Notley James Agar
Tel: +61 3 9609 3830 Mobile: +61 477 325 803 Tel: +61 3 9609 2222 Mobile: +61 467 807 064
email: Gabrielle.Notley@bhpbilliton.com email: James.Agar@bhpbilliton.com
Fiona Hadley Andrew Gunn
Tel: +61 3 9609 2211 Mobile: +61 427 777 908 Tel: +61 3 9609 3575 Mobile: +61 402 087 354
email: Fiona.Hadley@bhpbilliton.com email: Andrew.Gunn@bhpbilliton.com
Eleanor Nichols United Kingdom and South Africa
Tel: +61 3 9609 2360 Mobile: +61 407 064 748
email: Eleanor.Nichols@bhpbilliton.com Tara Dines
Tel : +44 20 7802 7113 Mobile : +44 7825 342 232
United Kingdom Email : Tara.Dines@bhpbilliton.com
Ruban Yogarajah Americas
Tel: +44 20 7802 4033 Mobile: +44 7827 082 022
email: Ruban.Yogarajah@bhpbilliton.com Brendan Harris
Tel: +44 20 7802 4131 Mobile: +44 7990 527 726
Jennifer White email: Brendan.Harris@bhpbilliton.com
Tel: +44 20 7802 7462 Mobile: +44 7827 253 764
email: Jennifer.White@bhpbilliton.com Matt Chism
Tel: +1 71 359 96158 Mobile: +1 281 782 2238
Americas email: Matt.E.Chism@bhpbilliton.com
Jaryl Strong
Tel: +1 713 499 5548 Mobile: +1 281 222 6627
email: Jaryl.Strong@bhpbilliton.com
BHP Billiton Limited ABN 49 004 028 077 BHP Billiton Plc Registration number 3196209
Registered in Australia Registered in England and Wales
Registered Office: 180 Lonsdale Street Registered Office: Neathouse Place
Melbourne Victoria 3000 Australia London SW1V 1BH United Kingdom
Tel +61 1300 55 4757 Fax +61 3 9609 3015 Tel +44 20 7802 4000 Fax +44 20 7802 4111
Members of the BHP Billiton Group which is headquartered in Australia
Sponsor: Absa Capital (the investment banking division of Absa Bank Limited, affiliated with
Barclays)
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Summary of proposed terms of employment Mr Andrew Mackenzie
Chief Executive Officer – BHP Billiton
1. Term
Mr Mackenzie will be employed under a single contract of service with the BHP
Billiton Group with no fixed term. The contract is effective from 10 May 2013; the date
of Mr Mackenzie’s appointment as Chief Executive Officer. The contract can be
terminated by the Group on 12 months notice and by Mr Mackenzie on 6 months
notice. Payment can be made in lieu of notice, the details of which are set out in
section 6 below. Mr Mackenzie’s performance and remuneration will be reviewed at
the end of each financial year.
2. Fixed Salary and retirement benefits
Mr Mackenzie will be paid a base salary of US$1,700,000 per annum.
He will be entitled to an additional sum equal to 25 per cent of base salary (which at
the commencement of the contract will be US$425,000 per annum) which he may
pay into a superannuation or pension scheme, take as cash in lieu of retirement
benefits or take in cash on retirement.
3. Benefits
Mr Mackenzie is required to relocate from London, UK to the Company’s head office
in Melbourne, Australia. He will receive benefits to cover the cost of his relocation
from the UK to Australia in accordance with BHP Billiton’s normal policy in respect of
such transfers, including relocation allowance, costs of international transfer, health
insurance, life and disability insurance and the preparation of multi-jurisdictional
taxation returns.
4. Incentive arrangements
Mr Mackenzie will continue to participate in the Group Incentive Scheme (GIS) and
the Long Term Incentive Plan (LTIP). The GIS and the LTIP were initially approved
by shareholders in 2004 and amendments have been approved at subsequent
Annual General Meetings. Short term incentives are delivered under the GIS and
long term incentives are delivered under the LTIP. Copies of the current rules of the
GIS and the LTIP are available on the BHP Billiton website at www.bhpbilliton.com.
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Short Term Incentives - GIS
Under the rules of the GIS, Mr Mackenzie is entitled to incentive awards calculated
by reference to his base salary. For performance at the target level, which requires
Mr Mackenzie to meet the rigorous performance hurdles set by the Board, including
delivery against designated health and safety measures and the budget, Mr
Mackenzie would receive a bonus of 160 per cent of his base salary. Half is paid in
cash and half in deferred equity. The deferred equity must be held for two years. The
Remuneration Committee has discretion to allot options instead of deferred shares.
For performance at the maximum level Mr Mackenzie would receive a bonus
of 240 per cent of his base salary.
The grant of deferred shares and options will be subject to the approval of
shareholders where required by applicable listing rules, and will be valued and
reported each year in the Remuneration Report which forms part of the Annual
Report. The valuation will be subject to audit by the Group’s auditors.
The GIS rules currently allow for a maximum bonus of two times the target level (i.e.
320 per cent of base salary); however, the Board and Remuneration Committee have
decided to reduce the maximum bonus to 1.5 times the target level (i.e. 240 per cent
of base salary). This reduced maximum will apply to Mr Mackenzie and all of his
direct reports from the 2014 financial year.
Long Term Incentives - LTIP
Long term incentives are issued under the terms of the LTIP. The number of LTIP
awards allocated will be determined by the Board on the recommendation of the
Remuneration Committee and must be approved by shareholders each year. LTIP
awards are subject to performance hurdles which are set out in the rules of the LTIP
and measured five years after the effective date of the grant. Performance hurdles
are not subject to re-testing.
The performance hurdle requires BHP Billiton's total shareholder return (TSR) over a
five year performance period to be measured against the TSR of an index of
comparator companies. If BHP Billiton’s TSR is below the index TSR no LTIP awards
vest and the awards are forfeited. Twenty five per cent of the LTIP awards vest if
BHP Billiton’s TSR is equal to the index TSR.
For all the LTIP awards to vest, BHP Billiton's TSR must exceed the index TSR by a
specified percentage. The Remuneration Committee determines the percentage each
year. For the 2012 financial year the percentage was set at 5.5 per cent per annum
over the five year performance period.
For performance between the index TSR and the percentage determined by the
Remuneration Committee, vesting occurs on a sliding scale.
For the 2013 calendar year, Mr Mackenzie will receive an LTIP award with a face
value equal to 400 per cent of base salary (subject to shareholder approval at the
Annual General Meetings). The fair value of the LTIP award (as calculated by the
Remuneration Committee’s independent advisor Kepler Associates) is 41 per cent of
the face value, thus the LTIP award has a fair value equal to 164 per cent of base
salary. The value and number of shares awarded to Mr Mackenzie will be reported in
the subsequent Remuneration Report that forms part of the Annual Report. The
Remuneration Report will be subject to audit by the Group’s auditors.
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Grants are subject to an overriding discretion held by the Remuneration Committee
to reduce the number of awards that will vest in circumstances where the
performance hurdle has been met or partially met. The Committee does not have
power to approve the vesting of awards where the performance hurdle has not been
met. In exercising that discretion the Committee will decide if the value at the time of
vesting is proportionate to the overall performance of the Company, the CEO’s
individual performance and the prevailing remuneration levels in the relevant market.
Dividends
A dividend equivalent payment is provided on GIS and LTIP awards when the vesting
period is over and the GIS deferred shares and options and LTIP awards are
exercised. No payment is made in respect of unvested or lapsed GIS and LTIP
awards.
The Board and Remuneration Committee has determined that dividend equivalent
payments in respect of future GIS deferred shares and options and LTIP awards will
be made in the form of shares, instead of cash as has been prior practice.
5. Minimum shareholding requirement
The Board and Remuneration Committee has determined that Mr Mackenzie as CEO
will be required to hold BHP Billiton securities with a value at least equal to five times
his pre-tax (gross) annual base salary. This is an increase from the previous level for
the CEO which was three times pre-tax annual base salary. The value of the
securities for the purposes of this requirement is the market value of the underlying
shares. Unvested awards do not qualify.
The equivalent requirement for Mr Mackenzie’s direct reports will be three times
(previously two times) pre-tax (gross) annual base salary.
Where sufficient securities are not held to meet the relevant requirement, it is
expected that participants will grow their holdings to the required level over an
acceptable timeframe in accordance with the scheduled vesting of equity awards.
6. Termination of contract
The Group retains the right to terminate the contract by giving 12 months notice or by
making payment in lieu of notice to 12 months base salary plus the amount paid in
lieu of a contribution to a superannuation or retirement scheme (i.e. a total of
US$2,125,000). Mr Mackenzie would also be entitled to any accrued entitlements
such as earned but untaken leave.
7. Entitlements under the GIS and LTIP on termination
The rules of the GIS and LTIP set out the entitlement of participants on termination of
employment. Copies of the rules of the GIS and the LTIP are available on the BHP
Billiton website at www.bhpbilliton.com.
Resignation or termination for cause
The current rules provide that where employment is terminated by the resignation of
the executive, or by the Group for cause, a participant is not entitled to any cash
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incentive for the year in question. All GIS and LTIP awards that have been allocated
but which are not yet exercisable lapse.
Retirement or termination by mutual agreement
If Mr Mackenzie retires or his employment terminates by mutual agreement:
• Any GIS awards that had been granted, but which were not exercisable at the
date of departure, would vest in full;
• He may at the Remuneration Committee’s discretion be considered for a pro rata
short term cash incentive for his period of service during that year based on
performance; and
• Mr Mackenzie would have a right to retain entitlements to LTIP awards that have
been granted but that are not exercisable, pending satisfaction of future
performance hurdles. The number of entitlements Mr Mackenzie would be
permitted to retain would be reduced pro rata to reflect his period of service.
These entitlements would become exercisable only if the performance hurdles
are ultimately met and the Remuneration Committee approves vesting.
Other circumstances
Special provisions relate to events described as “uncontrollable” such as death,
serious injury. In those circumstances, all of the deferred shares, options and LTIP
awards that have been awarded but which are not exercisable become immediately
exercisable by Mr Mackenzie or his estate.
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