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Bhp-Billiton Merger:

Fat pay cheque is just not enough

by Simon Longstaff

Imagine that tragedy strikes and your house goes up in flames. The fire brigade arrives and informs you that it will only douse the flames if you promise to pay a hefty bonus should they save your home. Or suppose that train drivers decided that they should receive special payment for simply having the trains turn up on time. How would you feel?

Well, I suspect that, in either case, most people would feel a sense of outrage. Part of their complaint would be that fire officers and train drivers might reasonably be expected to put out fires and drive trains on time as a matter of course. After all, that is what they are paid to do.

Now imagine the situation of company executives charged with the responsibility of running their company in a profitable manner and in the interests of the company as a whole. It might be thought that part of their job involves exploring options for the company's development – sometimes through merger and acquisition. It might be thought that their day-to-day role would range across the tasks of conducting complex negotiations, detailed planning and the like. And in return for all of this effort, it might be thought that they would be paid well, even handsomely, for the work that they do. As with firemen and train drivers we might expect that the men and women involved in the highest echelons of business would do what they are paid to do.

However, in the case of some businesses, it seems that this is not the case. For example, an integral part of the BHP/Billiton merger proposal being put to shareholders is that they approve a special payment of around AU$135,000,000 to a handful of senior executives within the two companies. Unfortunately, for shareholders, the directors have bundled the merger and payment proposal together so that you cannot vote on one element without the other. So much for genuine choice and shareholder democracy!

The payment of a windfall of this kind raises a number of serious ethical issues. The first of these has been alluded to already. Do we really think our society is improved if we embed the notion that people will only do their jobs well if they are paid a massive 'bonus' for doing so? What would the great builder of BHP, Sir Essington Lewis, have to say about this? He and his colleagues built the company content to earn a salary in return for which they gave their very best. Has that ideal of service in return for fair reward been lost?

Mention of Lewis raises another point. The value in BHP is the product of the effort of hundreds of thousands of people working over generations. Senior executives make a huge difference to a company. For example, BHP's CEO, Paul Anderson, has transformed the place in a breathtaking display of what one, committed and talented person can do. However, I think that he would be the first to acknowledge that his success is a reflection of the collective endeavours of his colleagues. So, if a bonus is to be paid, why limit it to the happy few at the top of the tree?

We should pay people well. We should pay them fairly. Greed is not good – sometimes enough is enough.

At the time of writing, Simon Longstaff owned a handful of BHP shares and sat on BHP's Global Conduct Committee as an independent member.

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