Xstrata CEO to receive $44.4 million to stay on post merger with Glencore

Three months after announcing the $80 billion merger between Swiss diversified miner Xstrata Plc and commodities giant Glencore International, Xstrata yesterday revealed to the discomfort of its shareholders that Mick Davis, the South African CEO of Xstrata will receive a €28.8 million ($44.4 million) bonus over three years for heading the merged entity.

Davis, one of the highly paid CEO's in the mining industry, will be paid $14.9 million a year until 2015 as retention pay, plus salary, bonus and benefits. He will also receive a deferred award of shares worth as much as €6 million, as part of a performance bonus, subject to meeting targets over three years.

Davis, a former cricket umpire and Billiton's chief financial officer, who was the architect of BHP and Billiton merger, already takes home £2.86 million ($5.4 million) as salary, cash bonus and benefits. This excludes long-term incentives, deferred bonuses and retirement benefits.
 
Compared to Davis' current salary, Marius Kloppers, CEO of BHP Billiton is paid £2.82 million, Cynthia Carroll, CEO of Anglo American £2.13 million and Tom Albanese, CEO of Rio Tinto £1.01 million.

But the massive size of the proposed payment has already invited the wrath of some shareholders, with speculation that it may fail to receive the backing from investors at the extraordinary meeting next month.

It is relatively easy to veto the proposal as only 16.4 per cent of Xstrata's shareholders need to vote against to block it since Xstrata and Glencore have opted to implement the merger using a 'scheme of arrangement', which requires agreement from 75 per cent of shareholders rather than the usual 50 per cent. Since Glencore already owns 34 per cent of Xstrata, it will not be able to vote.

Xstrata shareholders already feel that Davis' current payout is too high. At the company's recent annual general meeting, 37 per cent of them voted against the company's 2011 pay package.
 
Xstrata justified the huge payment being a key to the success of the merger, which would create a mining and trading powerhouse with sales of $209 billion.
 
Davis was appointed by Xstrata as CEO in 2001 soon after the merger of BHP Billiton. When he joined the company in October 2001, Xstrata was a small Swiss-listed mining company with a market capitalisation of around $500 million and largely reliant on ferro-alloys and zinc operations in South Africa and Europe.