PROXY PAPER
BHP BILLITON LIMITED
Australian Securities Exchange: BHP
ISIN: AU000000BHP4
MEETING DATE:
21 NOVEMBER 2013
RECORD DATE:
19 NOVEMBER 2013
PUBLISH DATE:
14 OCTOBER 2013
INDEX MEMBERSHIP:
SECTOR:
COMPANY DESCRIPTION
INDUSTRY:
BHP Billiton Limited, together with its subsidiaries,
operates as a diversified natural resources company
worldwide.
METALS AND MINING
AUSTRALIA
COUNTRY OF INCORPORATION:
AUSTRALIA
DISCLOSURES:
COMPANY PROFILE
MATERIALS
COUNTRY OF TRADE:
VOTING IMPEDIMENT:
OWNERSHIP
DOW JONES GLOBAL TITANS 50; S&P
GLOBAL 100; S&P/ASX 100; S&P/ASX 20;
S&P/ASX 200; S&P/ASX 300; S&P/ASX 50;
S&P/ASX ALL ORDINARIES; DJSI AP; DJSI
WORLD; FTSE4GOOD GLOBAL INDEX
REMUNERATION
NONE
REFER TO APPENDIX REGARDING
COMPLIANCE STATEMENT
PREVIOUS BOARD
VOTE RESULTS
2013 ANNUAL MEETING
PROPOSAL
ISSUE
BOARD
GLASS LEWIS
1.00
Accounts and Reports (BHP Billiton plc & BHP Billiton
Limited)
FOR
FOR
2.00
Appoint Auditor (BHP Billiton plc)
FOR
FOR
3.00
Authorise Board to Set Auditor's Fees (BHP Billiton plc)
FOR
FOR
4.00
Authorise Board to Issue Shares w/ Preemptive Rights
(BHP Billiton plc)
FOR
FOR
5.00
Authorise Board to Issue Shares w/o Preemptive Rights
(BHP Billiton plc)
FOR
FOR
6.00
Authorise Board to Repurchase Shares (BHP Billiton plc)
FOR
FOR
7.00
Remuneration Report
FOR
FOR
8.00
Adopt New Long Term Incentive Plan
FOR
FOR
9.00
Equity Grant (CEO Andrew Mackenzie)
FOR
FOR
10.00
Elect Andrew Mackenzie
FOR
FOR
11.00
Re-elect Malcolm Broomhead
FOR
FOR
12.00
Re-elect Sir John Buchanan
FOR
FOR
13.00
Re-elect Carlos Cordeiro
FOR
FOR
14.00
Re-elect David Crawford
FOR
FOR
15.00
Re-elect Pat Davies
FOR
FOR
16.00
Re-elect Carolyn Hewson
FOR
FOR
17.00
Re-elect Lindsay P. Maxsted
FOR
FOR
18.00
Re-elect Wayne Murdy
FOR
FOR
19.00
Re-elect Keith C. Rumble
FOR
FOR
20.00
Re-elect John Schubert
FOR
FOR
21.00
Re-elect Shriti Vadera
FOR
FOR
CONCERNS
APPENDIX
22.00
Re-elect Jacques Nasser
23.00
Elect Ian Dunlop
BHP November 21, 2013 Annual Meeting
FOR
FOR
AGAINST
AGAINST
2
CGI GlassLewis
COMPANY PROFILE
BHP
S&P/ASX ALL ORDINARIES INDEX
FINANCIALS
1 YR TSR
3 YR TSR AVG
5 YR TSR AVG
3.1%
20.7%
-3.3%
8.0%
-3.8%
2.2%
MARKET CAPITALISATION (MM USD)
ENTERPRISE VALUE (MM USD)
REVENUES (MM USD)
152,885
184,087
66,003
MATERIAL TRANSACTION(S) IN PAST
12 MONTHS
Divestments totalling US$6.5 billion were either announced or completed during
FY2013
FIGURES AS OF 30-JUN-2013. ANNUALISED SHAREHOLDER RETURNS. SOURCE (EXCLUDING MATERIAL TRANSACTIONS): CAPITAL IQ
EXECUTIVE
REMUNERATION
BOARD &
MANAGEMENT
P4P
CGI GLASS LEWIS STRUCTURE RATING
CGI GLASS LEWIS DISCLOSURE RATING
CGI GLASS LEWIS READABILITY RATING
ELECTION METHOD
STAGGERED BOARD
COMBINED CHAIRMAN/CEO
% OF WOMEN ON BOARD
Majority
No
No
15 %
Fair
Fair
Good
Good
SAY ON PAY VOTE
CLAWBACK PROVISION
STRIKE AT LAST YEAR'S AGM
VOTE METHOD
CEO START DATE
AVERAGE NED TENURE
CGI GLASS LEWIS INDEPENDENCE
AUDITOR: KPMG
MATERIAL WEAKNESS(ES) IDENTIFIED IN PAST 12 MONTHS
RESTATEMENT(S) IN PAST 12 MONTHS
AUDITORS
ENVIRONMENTAL
& SOCIAL
RATINGS
ENVIRONMENTAL
SOCIAL
Yes
Yes
No
Poll
5/10/2013
6 years
92
TENURE: 10 YEARS
No
No
2013
2012
2011
2
3
2
3
2
3
RATINGS FROM 0 TO 5; 5 = BEST MARKET PRACTICE. DATA IS FOR THE PRIOR FINANCIAL YEAR.
SOURCE: CGI GLASS LEWIS E&S ADVISORY PAPER, PRODUCED IN CONJUCTION WITH THE CENTRE FOR AUSTRALIAN ETHICAL RESEARCH ("CAER").
CORPORATE
ENGAGEMENT
ENGAGEMENT WITH CGI GLASS LEWIS IN PAST 12 MONTHS
in person on April 4, 2013 and August 9, 2013
CURRENT AS OF OCT 14, 2013
BHP November 21, 2013 Annual Meeting
3
CGI GlassLewis
SHARE OWNERSHIP PROFILE
SHARE BREAKDOWN
1
SHARE CLASS
LTD Ordinary Shares
SHARES OUTSTANDING
3,212.4 M
VOTES PER SHARE
1
INSIDE OWNERSHIP
0.04%
STRATEGIC OWNERS**
0.27%
FREE FLOAT
99.73%
SOURCE CAPITAL IQ AND GLASS LEWIS. AS OF 01-AUG-2013
TOP 4 SHAREHOLDERS
1.
2.
3.
4.
HOLDER
BlackRock, Inc.
Colonial First State Asset Management (Australia) Limited
The Vanguard Group, Inc.
AMP Capital Investors Limited
OWNED* COUNTRY
3.04% United States
0.76% Australia
0.64% United States
0.53% Australia
INVESTOR TYPE
Traditional Investment Manager
Traditional Investment Manager
Traditional Investment Manager
Traditional Investment Manager
*COMMON STOCK EQUIVALENTS (AGGREGATE ECONOMIC INTEREST) SOURCE: CAPITAL IQ. AS OF 01-AUG-2013
**CAPITAL IQ DEFINES STRATEGIC SHAREHOLDER AS A PUBLIC OR PRIVATE CORPORATION, INDIVIDUAL/INSIDER, COMPANY CONTROLLED FOUNDATION, ESOP OR STATE OWNED
SHARES OR ANY HEDGE FUND MANAGERS, VC/PE FIRMS OR SOVEREIGN WEALTH FUNDS WITH A STAKE GREATER THAN 5%.
SHAREHOLDER RIGHTS
VOTING POWER REQUIRED TO CALL A SPECIAL MEETING
VOTING POWER REQUIRED TO ADD AGENDA ITEM
MARKET THRESHOLD
5%
5%
COMPANY THRESHOLD1
N/A
N/A
1N/A INDICATES THAT THE COMPANY DOES NOT PROVIDE THE CORRESPONDING SHAREHOLDER RIGHT.
BHP November 21, 2013 Annual Meeting
4
CGI GlassLewis
REMUNERATION DETAILS
For Financial Year to June 30, 2013
NON-EXECUTIVE DIRECTORS
NEDs' fees + superannuation
BHP Billiton Limited
Median for ASX 20
Chairman
A$1,108,600
A$708,101
Median remuneration for NEDs serving full year
A$287,040
A$295,295
Aggregate remuneration for all NEDs
A$4,291,800
Total remuneration cap approved by shareholders
A$3,496,000
Notes: Fees are reported in US$ but, for comparison purposes, have been converted to A$ at the year-end exchange rate of US$1=A$0.92. The NED
fee cap is US$3.8 million.
CEO REMUNERATION
BHP Billiton Limited
Median for ASX 20
CEO - date of appointment
May 10, 2013
Total fixed remuneration
N/A
A$2,672,170
Short-term incentives (cash)
N/A
A$1,825,000
Long-term incentives (amortised)
N/A
A$3,573,074
Other remuneration
N/A
A$27,687
Total remuneration
N/A
A$8,394,888
Notes: CEO not in position for the full financial year. Fees are reported in US$ but, for comparison purposes, have been converted to A$ at the year-end
exchange rate of US$1=A$0.92.
BHP November 21, 2013 Annual Meeting
5
CGI GlassLewis
PAY-FOR-PERFORMANCE
Bhp Billiton Limited's executive remuneration practice received a FAIR grade in our proprietary pay-for-performance model. The Company paid: more remuneration to its CEO than the median CEO
remuneration for 8 similarly sized companies with an average enterprise value of A$162.4 billion and more than a sector group of 20 materials companies. Overall, the Company paid more than its
peers and performed about the same as its peers. (Note: The amount listed for CEO remuneration reflects portions paid to multiple individuals who served as CEO during the fiscal year.)
FY 2013 REMUNERATION COMMITTEE GRADE
GOOD
FAIR
HISTORICAL REMUNERATION GRADE
POOR
CEO REMUNERATION
Total fixed remuneration
Short-term incentive (cash)
Grant date fair value of equity awards
Other remuneration
Total remuneration
Notes:
2013
2012
2011
FAIR
FAIR
FAIR
CEO COMPARED TO MEDIAN
A$2,474,339
A$1,243,380
A$9,376,677
A$ 0
A$13,094,396
SHAREHOLDER WEALTH AND BUSINESS PERFORMANCE
Note: Remuneration analysis for period ending 6/30/2013. Performance measures based on weighted average of annualized 1, 2 and 3 year data.
BHP November 21, 2013 Annual Meeting
6
CGI GlassLewis
VOTING RESULTS FROM LAST ANNUAL MEETING (NOVEMBER 29, 2012)
AS PERCENTAGE OF SHARES OUTSTANDING
NO.
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
20.00
PROPOSAL
Accounts and Reports
(BHP Billiton plc and
BHP Billiton Limited)
Elect Pat Davies (BHP
Billiton plc and BHP
Billiton Limited)
Re-elect Malcolm
Broomhead (BHP
Billiton plc and BHP
Billiton Limited)
Re-elect John
Buchanan (BHP Billiton
plc and BHP Billiton
Limited)
Re-elect Carlos
Cordeiro (BHP Billiton
plc and BHP Billiton
Limited)
Re-elect David
Crawford (BHP Billiton
plc and BHP Billiton
Limited)
Re-elect Carolyn
Hewson (BHP Billiton
plc and BHP Billiton
Limited)
Re-elect Marius
Kloppers (BHP Billiton
plc and BHP Billiton
Limited)
Re-elect Lindsay
Maxsted (BHP Billiton
plc and BHP Billiton
Limited)
Re-elect Wayne Murdy
(BHP Billiton plc and
BHP Billiton Limited)
Re-elect Keith Rumble
(BHP Billiton plc and
BHP Billiton Limited)
Re-elect John Schubert
(BHP Billiton plc and
BHP Billiton Limited)
Re-elect Shriti Vadera
(BHP Billiton plc and
BHP Billiton Limited)
Re-elect Jacques
Nasser (BHP Billiton plc
and BHP Billiton Limited)
Appoint Auditor and
Authorise Board to Set
Fees
Authorise Board to
Issue Shares w/
Preemptive Rights (BHP
Billiton plc)
Authorise Board to
Issue Shares w/o
Preemptive Rights (BHP
Billiton plc)
Authorise Board to
Repurchase Shares
(BHP Billiton plc)
Remuneration Report
Approve Equity Grant
(CEO Marius Kloppers)
FOR
AGAINST
ABSTAIN
DISCRETIONARY
TOTAL
CGI GLC RECOMMENDATION
44.49%
0.12%
0.61%
1.41%
46.63%
For
44.94%
0.12%
0.16%
1.41%
46.63%
For
44.94%
0.15%
0.14%
1.41%
46.64%
For
44.43%
0.66%
0.14%
1.41%
46.64%
For
44.92%
0.16%
0.14%
1.41%
46.63%
For
44.83%
0.26%
0.14%
1.41%
46.64%
For
44.92%
0.18%
0.13%
1.41%
46.64%
For
44.61%
0.49%
0.13%
1.40%
46.63%
For
44.45%
0.64%
0.14%
1.41%
46.64%
For
44.95%
0.14%
0.14%
1.41%
46.64%
For
44.96%
0.12%
0.14%
1.41%
46.63%
For
44.90%
0.18%
0.13%
1.41%
46.62%
For
44.88%
0.19%
0.15%
1.41%
46.63%
For
44.91%
0.18%
0.13%
1.41%
46.63%
For
44.90%
0.15%
0.17%
1.41%
46.63%
For
44.29%
0.78%
0.15%
1.41%
46.63%
For
44.73%
0.33%
0.16%
1.41%
46.63%
For
44.76%
0.32%
0.14%
1.41%
46.63%
For
43.53%
1.45%
0.28%
1.35%
46.61%
For
43.61%
1.44%
0.26%
1.32%
46.63%
For
BHP November 21, 2013 Annual Meeting
7
CGI GlassLewis
VOTING RESULTS FROM LAST ANNUAL MEETING (NOVEMBER 29, 2012)
AS PERCENTAGE OF VOTES LODGED
NO.
PROPOSAL
1.00 Accounts and Reports (BHP Billiton plc and BHP Billiton
Limited)
2.00 Elect Pat Davies (BHP Billiton plc and BHP Billiton
Limited)
3.00 Re-elect Malcolm Broomhead (BHP Billiton plc and BHP
Billiton Limited)
4.00 Re-elect John Buchanan (BHP Billiton plc and BHP Billiton
Limited)
5.00 Re-elect Carlos Cordeiro (BHP Billiton plc and BHP Billiton
Limited)
6.00 Re-elect David Crawford (BHP Billiton plc and BHP Billiton
Limited)
7.00 Re-elect Carolyn Hewson (BHP Billiton plc and BHP
Billiton Limited)
8.00 Re-elect Marius Kloppers (BHP Billiton plc and BHP
Billiton Limited)
9.00 Re-elect Lindsay Maxsted (BHP Billiton plc and BHP
Billiton Limited)
10.00 Re-elect Wayne Murdy (BHP Billiton plc and BHP Billiton
Limited)
11.00 Re-elect Keith Rumble (BHP Billiton plc and BHP Billiton
Limited)
12.00 Re-elect John Schubert (BHP Billiton plc and BHP Billiton
Limited)
13.00 Re-elect Shriti Vadera (BHP Billiton plc and BHP Billiton
Limited)
14.00 Re-elect Jacques Nasser (BHP Billiton plc and BHP
Billiton Limited)
15.00 Appoint Auditor and Authorise Board to Set Fees
16.00 Authorise Board to Issue Shares w/ Preemptive Rights
(BHP Billiton plc)
17.00 Authorise Board to Issue Shares w/o Preemptive Rights
(BHP Billiton plc)
18.00 Authorise Board to Repurchase Shares (BHP Billiton plc)
19.00 Remuneration Report
20.00 Approve Equity Grant (CEO Marius Kloppers)
BHP November 21, 2013 Annual Meeting
FOR
AGAINST
ABSTAIN
DISCRETIONARY
CGI GLC
RECOMMENDATION
95.40%
0.26%
1.31%
3.03%
For
96.38%
0.25%
0.34%
3.03%
For
96.36%
0.32%
0.29%
3.02%
For
95.27%
1.42%
0.29%
3.02%
For
96.33%
0.34%
0.30%
3.02%
For
96.12%
0.56%
0.29%
3.03%
For
96.32%
0.39%
0.27%
3.02%
For
95.67%
1.05%
0.28%
3.01%
For
95.32%
1.36%
0.29%
3.03%
For
96.38%
0.29%
0.30%
3.03%
For
96.40%
0.27%
0.30%
3.03%
For
96.29%
0.40%
0.29%
3.03%
For
96.24%
0.41%
0.32%
3.03%
For
96.31%
0.39%
0.28%
3.02%
For
96.29%
0.32%
0.37%
3.02%
For
94.99%
1.67%
0.32%
3.02%
For
95.92%
0.70%
0.34%
3.03%
For
95.99%
93.40%
93.51%
0.69%
3.11%
3.09%
0.30%
0.59%
0.56%
3.02%
2.90%
2.84%
For
For
For
8
CGI GlassLewis
1.00: ACCOUNTS AND REPORTS (BHP BILLITON PLC & BHP BILLITON LIMITED)
PROPOSAL REQUEST:
Receipt of financial statements and reports
PRIOR YEAR VOTE RESULT: 95.4%; For
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL SUMMARY
Shareholders will receive and consider the Company's financial statements and directors' and auditor's reports for the financial year
ended June 30, 2013. Shareholders are voting to approve receipt of the statements and reports, not to approve their substance and
content.
CGI GLASS LEWIS ANALYSIS
We believe that all of the necessary financial statements and reports are present in the Company's annual report. We note that in the
opinion of KPMG, the Company's independent auditor, the financial statements and the directors' reports have been properly prepared
in accordance with International Financial Reporting Standards, Article 4 of the IAS Regulation, the Companies Act 2006, the
Australian Corporation Regulations 2001, and Australian Accounting Standards.
Accordingly, we recommend that shareholders vote FOR this proposal.
BHP November 21, 2013 Annual Meeting
9
CGI GlassLewis
2.00: APPOINT AUDITOR (BHP BILLITON PLC)
PROPOSAL REQUEST:
Ratification of KPMG
PRIOR YEAR VOTE RESULT: 96.29%; For
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
AUDITOR OPINION:
Unqualified
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
AUDITOR FEES
Audit Fees:
Audit-Related Fees:
Tax Fees:
All Other Fees:
Total Fees:
Auditor:
2013
$3,756,000
$24,087,000
$0
$1,765,000
$29,608,000
KPMG
Years Serving Company:
Restatement in Past 12
Months:
2012
$4,386,000
$26,706,000
$0
$3,785,000
$34,877,000
KPMG
2011
$4,216,000
$17,103,000
$0
$2,347,000
$23,666,000
KPMG
10
No
CGI GLASS LEWIS ANALYSIS
We believe the balance of fees paid to the auditor is reasonable and that the Company has a track record of disclosing the appropriate
information about these services in its filings.
The board is also seeking shareholder approval to set the auditor's fees for the forthcoming financial year in Proposal 3. Given that
fees were reasonable during the past year, we see no cause for shareholder concern with regard to that resolution.
Accordingly, we recommend that shareholders vote FOR Proposals 2 and 3.
BHP November 21, 2013 Annual Meeting
10
CGI GlassLewis
4.00: AUTHORISE BOARD TO ISSUE SHARES W/ PREEMPTIVE RIGHTS (BHP
BILLITON PLC)
PROPOSAL REQUEST:
General authority to issue shares on a preemptive basis
PRIOR YEAR VOTE RESULT: 94.99%; For
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL DETAILS
Authority Type
Amount Requested
Percentage of
Share Capital
Expiry
Prior Year Issuances
Notes
General authority with preemptive rights
$264,008,975
25% of BHP Billiton plc's issued ordinary share capital (9.9% of the total share capital for BHP Billiton plc and
Limited)
2014 AGM
None, excluding obligations under its employee share plans
None
CGI GLASS LEWIS ANALYSIS
Under the proposal, the board's authority to issue shares will be limited to 25% of the Company's issued ordinary share capital. This
limit meets the guidelines issued by the Association of British Insurers and other UK investor bodies.
We believe that this authority will benefit shareholders by providing the Company with the flexibility to finance operations and future
business opportunities. We find the terms of the proposal to be reasonable.
Accordingly, we recommend that shareholders vote FOR this proposal.
BHP November 21, 2013 Annual Meeting
11
CGI GlassLewis
5.00: AUTHORISE BOARD TO ISSUE SHARES W/O PREEMPTIVE RIGHTS (BHP
BILLITON PLC)
PROPOSAL REQUEST:
General authority to issue shares on a non-preemptive basis RECOMMENDATIONS & CONCERNS:
PRIOR YEAR VOTE RESULT: 95.92%; For
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
FOR- NO CONCERNS
PROPOSAL DETAILS
Authority Type
Amount Requested
Percentage of
Share Capital
Expiry
Prior Year Issuances
Notes
General authority without preemptive rights
$53,404,636
5% of BHP Billiton plc's issued ordinary share capital (approximately 2% of the total share capital for BHP
Billiton plc and Limited)
2014 AGM
None, excluding obligations under its employee share plans
None
CGI GLASS LEWIS ANALYSIS
Under the proposal, the board's authority to issue shares without preemptive rights will be limited to 5% the Company's issued ordinary
share capital. This limit meets the 5% cap generally recommended by the Association of British Insurers and other UK investor bodies.
We believe that this authority will benefit shareholders by providing the Company with the flexibility to finance operations and future
business opportunities.
Accordingly, we recommend that shareholders vote FOR this proposal.
BHP November 21, 2013 Annual Meeting
12
CGI GlassLewis
6.00: AUTHORISE BOARD TO REPURCHASE SHARES (BHP BILLITON PLC)
PROPOSAL REQUEST:
General authority to repurchase shares
PRIOR YEAR VOTE RESULT: 95.99%; For
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
75%
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL DETAILS
Authority Type
Percentage of
Share Capital
Maximum Price
Minimum Price
Expiry
Prior Year
Repurchases
Notes
Market repurchases of ordinary shares
10%
105% of the average of the middle-market quotations for an ordinary share according to the Daily Official List of
the London Stock Exchange for the five business days immediately preceding the day on which the purchase
contract is made.
Nominal value
2014 AGM
None
The board states that the Company would only repurchase its shares if, in the board's opinion, the expected
effect would result in an increase in earnings per share and would benefit shareholders generally.
CGI GLASS LEWIS ANALYSIS
As a general rule, we believe that buyback programs and associated share cancellation programs are in shareholders' best interests,
so long as the Company is left with a sufficiently strong balance sheet in light of its capital requirements. Typically, a repurchase is
used to return surplus capital to shareholders, increase earnings per share, or provide shares for equity compensation plans.
We believe that the terms under which the Company is considering a repurchase of its shares are reasonable.
Accordingly, we recommend that shareholders vote FOR this proposal.
BHP November 21, 2013 Annual Meeting
13
CGI GlassLewis
7.00: REMUNERATION REPORT
PROPOSAL REQUEST:
Approve remuneration report for the year ended June 30,
2013
PRIOR YEAR VOTE RESULT: 93.4%; For
BINDING/ADVISORY:
Advisory
REQUIRED TO APPROVE:
N/A
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
REMUNERATION POLICY FEATURES¹
POSITIVE
NEGATIVE
Incentives reflect performance relative to peers
Mandatory STI deferral
Balance of short- and long-term incentives
STI opportunity, pension contributions reduced
Executive share ownership guidelines increased
Stated 10% dilution limit
Revised clawback/malus policy
LTIP awards based on a single metric, reliant on discretion
Significant STI payouts despite financial decline
¹Both positive and negative remuneration features are ranked according to CGI Glass Lewis' view of their importance or severity.
EXECUTIVE DIRECTORS
NAME AND TITLE
BASE SALARY
BONUS PAYMENTS 1
TOTAL CASH 2
ACTUAL
MAXIMUM
Andrew Mackenzie CEO
$1,271,000
150%
320%
$2,880,000
Marius Kloppers Former CEO
Peter Beaven President, Copper
$1,906,000
151%
320%
$3,424,000
$143,000
170%
320%
$221,000
Dean Dalla Valle President, Coal
$143,000
144%
320%
$303,000
Geoff Healy Chief Legal Counsel
$77,000
-
320%
$77,000
Mike Henry President, HSEC, Marketing and Technology
$1,000,000
163%
320%
$2,528,000
Graham Kerr Chief Financial Officer
$1,000,000
180%
320%
$1,901,000
Jane McAloon President, Governance and Group Company Secretary
$106,000
154%
320%
$147,000
Daniel Malchuk President, Aluminium, Manganese and Nickel
Jimmy Wilson President, Iron Ore
$121,000
154%
320%
$650,000
$143,000
154%
320%
$218,000
$1,005,000
147%
320%
$1,762,000
Karen Wood President, People and Public Affairs
Alberto Calderon Former Chief Executive, Aluminium Nickel & Corporate Development
Marcus Randolph Former Chief Executive, Ferrous & Coal
Michael Yeager Former Chief Executive, Petroleum
$981,000
160%
320%
$1,806,000
$1,097,000
157%
320%
$2,006,000
$1,290,000
138%
320%
$2,291,000
1 Expressed as percentages of base salary. 2 Excludes long-term incentives.
Marius Kloppers stepped down as CEO on May 10, 2013 and retired from the Company effective October 1, 2013. Andrew Mackenzie,
previously chief executive of the non-ferrous division, became group CEO on May 10, 2013 with salary set at $1,700,000 per annum.
On appointment as group CEO, Mr. Mackenzie's pension contribution was reduced from 36% to 25% of salary. Mr. Mackenzie
received approximately $700,000 in respect of relocation from the UK to Australia.
Mr. Kloppers received a pro-rated bonus award under the GIS to reflect service during the year, paid fully in cash. His outstanding
LTIP awards will be pro-rated for time-served and will vest at the end of the normal cycle based on performance against relevant
targets. In respect of notice period, he will receive base salary, pension contributions and other applicable benefits, but no other
payments.
EXECUTIVE REMUNERATION STRUCTURE - SYNOPSIS
FIXED
Mr. Mackenzie's salary increased from $1,200,000 to $1,700,000 per annum on appointment as CEO. (Prior CEO:
$2,215,200 p.a.)
Messrs. Henry and Kerr each received a 10% salary increase, to $1,100,000 per annum.
Several executives' pension contributions were reduced; now 25% of salary for all current executives.
BHP November 21, 2013 Annual Meeting
14
CGI GlassLewis
CURRENT: GROUP INCENTIVE SCHEME ("GIS")
AWARD TYPE
Cash, deferred shares, options
DEFERRAL TERMS
Executives receive an award of shares (and/or options) equal to their cash
award, deferred for a two-year period
Awards based on a set of key performance indicators ("KPIs") including: (i)
Health, safety, environment and community ("HSEC"); (ii) Profit after tax; (iii)
Earnings before interest and tax ("EBIT"); (iv) Capital management; and (v)
individual measures based on contribution to overall company performance
and key project deliverables of each role and implementation of the
operating model.
NOTES
The targets, weightings and results below reflect the CEO's opportunity,
which is based on group rather than business-unit performance.
SHORT-TERM
INCENTIVES
CONDITIONS
CEO WEIGHTING
CEO FY 2013
ACTUAL
HSEC
15%
Between threshold/target
PAT
50%
Between threshold/target
Capital Management
15%
Individual Measures
20%
Above target
EBIT
0%
(Applies for divisional executives)
METRICS
Above target (cost)
Between threshold/target (schedule)
Reflects CEO's opportunity.
PROPOSED: SHORT TERM INCENTIVE PLAN ("STIP")
AWARD TYPE
Cash, deferred shares
Similar to the GIS, under the STIP, performance will be assessed using an
individual scorecard reflecting financial outcomes and measures that impact
long-term sustainability; the Sustainability Committee will assist in
determining appropriate HSEC metrics. Half of any award will be delivered in
cash, and half in shares deferred for a two-year period.
The limits under the new STIP will be 240% of base salary, comprising
120% of base salary in cash and an equivalent value in deferred equity
(previously, 320% of salary comprising 160% in cash and 160% in shares).
OVERVIEW
Both cash and share awards under the STIP will be subject to malus and
clawback provisions. Dividends will not be allocated over the deferral
period; however, upon vesting, a dividend equivalent payment ("DEP") will
be provided in the form of shares. The value of the DEP is based on the
dividends that would have been payable over the deferral period.
SHORT-TERM
INCENTIVES
HSEC comprises fatalities, environmental & community incidents; total
recordable injury frequency; HSEC risk management; and health, safety
and community.
NOTES
Financial outcomes comprise group profit after tax, and unit earnings before
interest & tax (in each case, adjusted for ForEx, commodity prices &
exceptional items).
Capital Management reflects both cost & schedule.
CONDITIONS
CEO & FUNCTIONAL GMC WEIGHTING
HSEC
20%
20%
Financial outcomes
40% (group)
20% (group)
20% (unit)
Capital management
20% (group)
10% (group)
10% (unit)
Individual performance
20%
20%
METRICS
OTHER GMC WEIGHTING
CURRENT/PROPOSED: LONG TERM INCENTIVE PLAN
AWARD TYPE
Performance shares
Sector peer group (see below; 67%) and a broad stock market group (MSCI
World; 33%).
The sector peer group of companies is broken down in Resources (75%)
and Oil and Gas (25%)
PEER GROUP
Resources: Alcoa, Anglo American, Cameco, Freeport McMoRan, Norilsk,
Peabody Energy, Rio Tinto, Southern Copper, Teck Cominco, Vale,
GlencoreXstrata.
Oil and Gas: Apache, BG group, BP, Devon Energy, Exxon Mobile, Shell,
Woodside Petroleum.
BHP November 21, 2013 Annual Meeting
15
CGI GlassLewis
VESTING TERMS
Awards may only vest following a five year performance period
INDIVIDUAL LIMITS
The plan rules allow for a maximum award level based on a fair value
approach. Using that approach, all awards are capped at 200% of base
salary, equivalent to a face value of 488% of base salary. Historically, the
Company has relied primarily on the fair value approach in setting caps on
LTI awards.
However, for the FY2014 awards, the remuneration committee has
determined award sizes based primarily on face value, with the CEO eligible
for a grant of up to 400% of salary ($6,800,000). Using the face value
approach, the board has determined that all LTIs to other GMC members
will be capped at a range of 300-350% in FY2014.
LONG-TERM
INCENTIVES
Awards granted in fiscal year 2007 vested as to 100% of total on October 2,
2012.
PREVIOUS AWARDS
Awards granted in fiscal year 2008 would also have vested in full based on
TSR performance over the five-year period to June 2013; however, the
committee exercised its discretion to reduce vesting by 35% to reflect that
while the Company outperformed the peers, TSR was negative over the
period.
This plan is to replace the existing LTIP and is subject to shareholder
approval in a separate proposal at this year's annual meeting. The terms of
the plans are largely equivalent; however, going forward malus and
clawback provisions will apply, and DEPs (see above under STI for a
definition) will be satisfied through shares instead of cash.
The fair value of each performance share under the LTIP has been
calculated as 41% of the market value of one Company share.
NOTES
The rules of the LTIP give the committee discretion to reduce the number of
awards that will vest, notwithstanding the fact that the performance hurdle
for full vesting has been met (see "Previous Awards" above). Further, the
committee may prevent awards from vesting for individual participants based
on individual performance or other factors.
TOTAL SHAREHOLDER RETURN ("TSR")
METRICS
Vesting*
Performance**
Measured
25%
Equal to the Index TSR
Over Period
100%
Exceed the Index TSR by average of 5.5% p.a
Over Period
*Percent of this portion of an award. **Straight-line vesting between points.
CGI GLASS LEWIS ANALYSIS
CGI Glass Lewis believes ASX-listed entities should fully disclose and explain all aspects of their executives' remuneration in such a
way that shareholders can comprehend and analyse the company's policies and procedures. In completing our assessment, we
consider, among other factors, the appropriateness of performance targets and metrics, how such goals and metrics are used to
improve company performance and whether incentive schemes encourage prudent risk management and the board's adherence to
market best practices. In addition to overall structure and disclosure, we encourage companies to improve the readability of the report
to facilitate investor comprehension. We also emphasise and evaluate the extent to which the company links executive pay with
performance and remuneration structures with strategy.
OVERALL STRUCTURE: FAIR
Single Metric
As noted in prior Proxy Papers, we are concerned that the performance targets attached to awards made under the Company’s
long-term incentive plan are based upon a single metric, relative TSR. However, we acknowledge that TSR is measured against two
separate peer groups, somewhat mitigating this concern. Further, as noted above, while vesting is based on TSR, the committee
retains discretion to reduce vesting levels, including when it does not consider TSR to reflect overall performance. As discussed below
(see "2008 Award Adjustment"), this discretion has been used appropriately, further mitigating our concerns. Nonetheless, we believe
that the introduction of a new LTIP metric, such as one of the Company's key business drivers identified in the remuneration report,
could create new incentives and challenges for executives and reduce the need for such discretionary adjustments.
Incentive Limits & Fair Value Methodology
As noted above, the committee is increasingly setting and disclosing individual award levels and limits under the LTIP in terms of face
value (reflecting the actual total opportunity), rather than fair value, which takes into account the estimated difficulty of achieving
performance conditions. While the plan's upper individual limit is still set at a fair value 200% of salary (equivalent to 488% of salary on
a face value basis), and the committee continues to consider fair value when setting awards, the limits for most executives have been
set at a face value of 300% or 350% of salary, and the committee states that it has placed less emphasis on the fair value
methodology this year. We consider this to be a positive change that increases transparency and simplicity, and encourage the
committee to continue reducing its use of the fair value methodology.
In addition, given that average vesting over the past four years has been over 90% of total opportunity, we believe a review of the fair
value factor used for the plan, currently 41%, would be appropriate. We note that the fair value methodology is used for the
" purposes of
benchmarking and derivation of total target remuneration" for the CEO, which may allow for outsized pay should the disparity between
BHP November 21, 2013 Annual Meeting
16
CGI GlassLewis
benchmarking and derivation of total target remuneration" for the CEO, which may allow for outsized pay should the disparity between
estimated and actual value persist.
2008 Award Adjustments
As noted above, the committee exercised its discretion to reduce vesting of the FY2008 awards by 35%. The committee states that
while Company TSR (negative 9.4%) 'exceeded' that of the 15 member peer group (negative 44%) by 34.6%, on an absolute basis
the Company's TSR was negative over the period. The committee further notes that only one of the peers recorded TSR in excess of
the Company's, while 14 of the peers recorded negative TSR over the period. We believe the committee has acted appropriately in
reducing vesting levels to reflect poor absolute performance. As noted above, we remain concerned that the lack of a more robust
incentive structure makes such discretionary adjustments necessary; however at this time, the committee appears to be exercising this
discretion appropriately.
On joining the Company in 2008, Andrew Mackenzie received a special award over 225,964 shares in compensation for awards
forfeited from his previous employer. These awards were subject to the 35% reduction described above. In addition, Mr. Mackenzie
and the committee determined that he would give up an additional 50,000 shares to reflect overall performance.
OTHER
NED Retirement Plan
Two NEDs currently serving on the board, David Crawford and John Schubert, have outstanding benefits under the Company's
now-closed NED Retirement Plan, valued at $559,941 and $279,792, respectively. CGI Glass Lewis has long opposed NED
retirement plans such as this one, as we view such benefits as deferred fees and the potential loss of such benefits can be a strong
disincentive to NEDs expressing dissenting views to the board and, in extreme cases, taking the ultimate step of resigning. In this
case, we acknowledge that the plan in place was considered standard practice when Messrs. Crawford and Schubert were appointed
to the board and that it has been frozen since October 2003.
Shareholding Guidelines
Going forward, shareholding requirements will increase from 300% for the CEO (200% for other executives) to 500% of salary for the
CEO (300% other executives).
OVERALL DISCLOSURE: GOOD
CGI Glass Lewis has thoroughly reviewed the directors' remuneration report for the most recently completed fiscal year. Upon review
of the Company's executive remuneration programme, we find that the Company has provided adequate disclosure with regard to both
its short-term and long-term incentive arrangements.
READABILITY: GOOD
Readability describes the ease in which the remuneration report can be read and understood. In our view, the remuneration report
successfully facilitates investor comprehension of the Company's remuneration practices by disclosing key information in a very logical
and plain English manner, with clearly distinguished and concise sections that are straightforward to follow.
2013 PAY FOR PERFORMANCE: FAIR
As indicated by CGI Glass Lewis' pay-for-performance model on page 6, the Company has adequately aligned executive remuneration
and company performance in the past year. At this point in time, CGI Glass Lewis has not identified pay-for-performance issues with
this Company that should be of substantial concern to shareholders.
SUMMARY
The remuneration report provides comprehensive disclosure of the Company's executive compensation policies and structure, which
generally appear to satisfy best practice guidelines. We commend the committee for avoiding costly payments in respect of Messrs.
Kloppers' and Mackenzie's departure and appointment, respectively, and moreover for using the recent succession as an opportunity
to reduce the quantum associated with the CEO role through lower STI limits, a reduced LTI potential for FY2014 and standardised
25% of salary pension contribution. The reduced incentive limits and pension contributions were also extended to all members of the
GMC, which we find appropriate in the context of a sector-wide slowdown.
We also welcome the expansion of malus and clawback provisions associated with both the STI and LTI, the board's commitment to
the payment of dividend equivalents in shares rather than cash, and increased shareholding requirements for the CEO and other key
executives.
Shareholders may question the level of bonus payouts in light of financial performance. We believe that additional disclosure regarding
earnings and profits targets, which were met at threshold level despite declining year-on-year, would be appropriate; however, we note
that the GIS/STIP structure is based around a variety of operational and strategic targets in addition to financial measures, and believe
the committee has provided an appropriate explanation for its assessment of performance in these non-financial areas. We also note
that despite reduced financial performance, dividend payouts have been increased in each of the past two years.
In the aggregate, we find the Company's recent changes to executive compensation positive, and the remuneration policies and
practices to be appropriately aligned with the interests of shareholders.
BHP November 21, 2013 Annual Meeting
17
CGI GlassLewis
Accordingly, we recommend shareholders vote FOR this proposal.
BHP November 21, 2013 Annual Meeting
18
CGI GlassLewis
8.00: ADOPT NEW LONG TERM INCENTIVE PLAN
PROPOSAL REQUEST:
Approve new Long Term Incentive Plan terms
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL DETAILS
If approved, the Company will adopt a new long-term incentive plan ("LTIP"), which will replace its existing LTIP. The terms of the plan
are discussed in greater length in Proposal 7.
The new plan is, materially, no different to the old plan. However, there are certain additions to the plan that differ from the old LTIP.
In particular, subject to shareholder approval, the new LTIP will introduce broader malus and clawback provisions that will enable the
remuneration committee to reduce or extinguish unvested LTIP or to claw back vested awards in certain circumstances, such as when
fraud or misconduct had taken place on behalf of the participant, or where there is a material misstatement in the financial accounts.
Further, the new LTIP will provide for dividend equivalent payments on vested awards to be delivered to participants in the form of
additional Company shares, as opposed to cash.
This proposal also seeks shareholder approval of the new LTIP under sections 200B and 200E of the Australian Corporations Act for
any potential termination benefits that may be provided to the Company's directors and employees holding a managerial or executive
office. The board is seeking this authority for the period between shareholder approval of this resolution until the close of the 2014 AGM.
Under section 200B of the Corporations Act, shareholder approval is required before the Company may give a person a benefit
(exceeding 12 months' base salary) in connection with that person's retirement from a board or managerial office, unless the benefit
falls within certain exceptions set out in the Corporations Act, or the payment of the benefit is approved by shareholders.
Pursuant to the rules of the LTIP, the board has discretion to determine where a participant ceases employment with the Company
(other than for cause), that a pro-rata (relative to time served) portion of performance shares will remain on-foot and subject to the
original performance conditions.
Further, in the case of cessation of employment in limited special circumstances (i.e. death, illness, disablement), the board may also
exercise its discretion in determining that all of the performance conditions have been satisfied before the end of the testing period,
and accelerate the vesting of all of the unvested awards held by the participant.
The value of the termination benefits cannot be determined with any certainty in advance as it will be influenced by factors such as the
Company's share price at the time of vesting and the number of awards that the board determines to vest. Additionally, the value of the
benefit may be affected by:
The director's or employee's length of service and the portion of any relevant performance periods that have expired at the time
their employment terminates;
The director's or employee's fixed remuneration at the time grants of equity securities are made under the LTIP and at the time
their employment terminates; and
The number of unvested awards that the director or an employee holds at the time their employment terminates.
CGI GLASS LEWIS ANALYSIS
In general, CGI Glass Lewis believes that equity-based compensation is an effective way to attract, retain and motivate key
employees. When used appropriately, it can provide a vehicle for linking executive pay to a company's performance, thereby aligning
the interests of executives with those of shareholders. Tying a portion of an executive's compensation to the performance of the
Company provides an incentive to maximise share value by those in the best position to realise that value.
In this case, we have concerns regarding the LTIP's historical reliance on a single performance measure, relative TSR. However, as
discussed further in Proposal 7, TSR is measured relative to multiple peer groups and the committee has been active in exercising
discretion to ensure that payouts fairly reflect overall performance. We otherwise consider the LTIP to be well-structured, including the
extended five-year performance periods. We are also supportive of the introduction of broader malus and claw back provisions and
believe that the use of shares, rather than cash, to fulfill dividend entitlements should further align executive and shareholder interests.
With regard to the termination provisions, we believe that such benefits should comprise base salary for the notice period (preferably
no more than 12 months), performance-based incentives that have vested, but not been exercised, and unvested performance-based
incentives that vest subject to pro-rata service and performance or otherwise remain "on foot" (i.e. remain subject to the original
performance and vesting conditions) after the executive has left the company. We note that this Company's termination benefits align
with these recommendations.
BHP November 21, 2013 Annual Meeting
19
CGI GlassLewis
In addition, we are supportive of companies seeking the pre-approval of terminations benefits subject to a "sunset clause" whereby the
authority will lapse and again be submitted for shareholder approval at least every three years. The Company has adopted a sunset
clause for this authority, and will review the termination provisions at the 2014 AGM.
Accordingly, we recommend that shareholders vote FOR this proposal.
BHP November 21, 2013 Annual Meeting
20
CGI GlassLewis
9.00: EQUITY GRANT (CEO ANDREW MACKENZIE)
PROPOSAL REQUEST:
Approve equity grant to CEO Andrew Mackenzie
PRIOR YEAR VOTE RESULT: N/A
BINDING/ADVISORY:
Binding
REQUIRED TO APPROVE:
Majority
RECOMMENDATIONS & CONCERNS:
FOR- NO CONCERNS
PROPOSAL DETAILS
This proposal seeks shareholder approval of an equity grant to Andrew Mackenzie, the Company's CEO. Chapter 10 of the Listing
Rules of the Australian Securities Exchange ("ASX") requires that the Company seek shareholder approval of any issue of securities to
the Company's directors. However, shareholder approval is not required if those securities are purchased on-market, and the
Company does plan to acquire these shares for allocation on-market. Nonetheless, as a matter of best practice in Australia, the board
has submitted the equity grant for the CEO for shareholder approval.
Subject to shareholder approval, Mr. Mackenzie will be granted deferred shares pursuant to the Group Incentive Scheme ("GIS") up to
$898,699 and performance shares under the Long Term Incentive Plan ("LTIP") equal to 400% of base salary (face value:
$6,800,000/fair value: $2,788,000). The LTIP rules limit awards to a fair value of no more than two times base salary. This method has
been more fully described in our analysis for Proposal 7, along with the performance conditions, vesting terms and other key aspects
of the LTIP.
CGI GLASS LEWIS ANALYSIS
In general, CGI Glass Lewis believes that equity-based compensation is an effective way to attract, retain and motivate key
employees. When used appropriately, it can provide a vehicle for linking executive pay to a company's performance, thereby aligning
the interests of executives with those of shareholders. Tying a portion of an executive's compensation to the performance of the
Company provides an incentive to maximise share value by those in the best position to realise that value.
As discussed in Proposal 7, we believe the Company's remuneration policy is adequately disclosed and that the structure of its
long-term incentive plan is supportable. Further, as indicated by CGI Glass Lewis' pay-for-performance model on page 6, we believe
that the Company has adequately aligned executive remuneration and performance in the past year. As such, except with regard to
the use of "fair value" in determining award amounts, as further discussed in Proposal 7, we see no cause for shareholder concern
with respect to the proposed grant.
Accordingly, we recommend that shareholders vote FOR this proposal.
BHP November 21, 2013 Annual Meeting
21
CGI GlassLewis
10.00:
ELECT ANDREW MACKENZIE
PROPOSAL REQUEST:
Election of thirteen directors
RECOMMENDATIONS & CONCERNS:
PRIOR YEAR VOTE RESULT: All directors received greater than 95% of votes in favour
ELECTION METHOD:
FOR-
Broomhead M.
Buchanan S.
Cordeiro C.
Crawford D.
Davies P.
Hewson C.
Mackenzie A.
Maxsted L.
Murdy W.
Nasser J.
Rumble K.
Schubert J.
Vadera S.
Majority
NOT UP- None
BOARD STRUCTURE
NAME
UP AGE
GLASS LEWIS
CLASSIFICATION
COMPANY
CLASSIFICATION
OWNERSHIP**
COMMITTEES
AUDIT REM GOV NOM
Andrew Mackenzie*
TERM
START
TERM
END
YEARS
ON
BOARD
2013
2013
0
2010
2003
2013
2013
3
10
RISK
56
Insider 1
Not Independent
Yes
Malcolm Broomhead
Sir John Buchanan
61
70
Independent
Independent 2
Independent
Independent
Yes
Yes
Carlos Cordeiro
David Crawford
57
69
Independent
Independent 3
Independent
Independent
Yes
Yes
2005
1994
2013
2013
8
19
Pat Davies
Carolyn Hewson
Lindsay P. Maxsted
62
58
59
Independent
Independent
Independent 4
Independent
Independent
Independent
Yes
Yes
Yes
2012
2010
2011
2013
2013
2013
1
3
2
Wayne Murdy
Jacques Nasser
69
Independent
Independent
Yes
2009
2013
4
65
Independent 5
Independent
Yes
2006
2013
7
Keith C. Rumble
John Schubert
59
70
Independent
Independent 6
Independent
Independent
Yes
Yes
2008
2000
2013
2013
5
13
Shriti Vadera
51
Independent
Independent
Yes
2011
2013
2
·CEO
·Chairman
C = Chair, * = Public Company Executive,
C
C
C
C
C
= Withhold or Against Recommendation
1. CEO.
2. Senior independent director. Chairman of two FTSE 100 boards. Has served as a director for more than nine years; however, is considered independent by the board.
3.
4.
5.
6.
Has served as a director for more than nine years; however, is considered independent by the board.
Former CEO of KPMG in Australia (until December 2007). Chairman of two S&P/ASX 100 company boards.
Chairman.
Has served as a director for more than nine years; however, is considered independent by the board.
**Percentages displayed for ownership above 5%, when available
NAME
ATTENDED AT
LEAST 75% OF
MEETINGS
ADDITIONAL PUBLIC COMPANY DIRECTORSHIPS
Andrew Mackenzie
Malcolm Broomhead
Yes
Yes
None
(1) Asciano Limited
Sir John Buchanan
Yes
Carlos Cordeiro
David Crawford
Yes
Yes
(2) Smith & Nephew plc; ARM Holdings plc
None
(1) Lend Lease Group
Pat Davies
Carolyn Hewson
Yes
Yes
None
(2) Stockland ; BT Investment Management Limited
Lindsay P. Maxsted
Yes
Wayne Murdy
Yes
(2) Westpac Banking Corporation; Transurban Group
(1) Weyerhaeuser Company
Jacques Nasser
Yes
Keith C. Rumble
Yes
BHP November 21, 2013 Annual Meeting
(1) Twenty-First Century Fox Inc.
None
22
CGI GlassLewis
John Schubert
Shriti Vadera
Yes
Yes
None
(1) AstraZeneca plc
MARKET PRACTICE
INDEPENDENCE AND COMPOSITION
BHP*
Independent Chairman
Board Independence
Audit Committee Independence
Remuneration Committee Independence
Nominating Committee Independence
Percentage of women on board
Directors' biographies
Yes
Yes1
92%
Majority 2
100%; Independent Chair
Majority 3
100%; Independent Chair
Majority 4
100%; Independent Chair
Majority 5
15%
N/A 6
Details can be found on page 124 of the Company's 2013 Annual Report.
REQUIREMENT
BEST PRACTICE
Yes7
Majority 8
100%9
Majority 10
Majority 11
N/A
* Based on Glass Lewis Classification
1.
2.
3.
4.
5.
ASXCGC Principles and Recommendations 2.2
ASXCGC Principles and Recommendations 2.1
ASXCGC Principles and Recommendations 4.2
ASXCGC Principles and Recommendations 8.1
ASXCGC Principles and Recommendations 2.4
6. ASXCGC Principle 3 requires a company to disclose a diversity policy (or
otherwise explain why not)
7. ACSI Guideline 4.1; APRA Standard 17; FSC Guideline 11.6
8. ACSI Guideline 10; APRA Standard 16; FSC Guideline 11.4
9. ACSI Guideline 23.3(b); FSC Guideline 11.8.2
10. ACSI Guideline 10.2; APRA Standard 48; FSC Guideline 11.8.3
11. ACSI Guideline 10.2; FSC Guideline 11.8.1
Companies listed on the London Stock Exchange are required to comply or explain against the UK Corporate Governance Code (the
"UK Code"), which recommends that all directors stand for reelection annually.
BHP Billiton plc has a premium listing on the London Stock Exchange ("LSE") and BHP Billiton Limited has a primary listing on the
Australian Securities Exchange ("ASX"). In addition, BHP Billiton plc has a secondary listing on the Johannesburg Stock Exchange
("JSE") and both the plc and Limited shares trade as American Depository Receipts ("ADRs") on the New York Stock Exchange ("NYSE").
UNITED KINGDOM PRACTICE
The UK Code states, among other things, that at least half the board, excluding the chairman, should comprise independent NEDs.
The chairman, in turn, should be independent prior to appointment to the board and the roles of chairman and chief executive should
not be exercised by the same individual. Because the chairman is no longer considered independent once appointed to this position,
UK companies should also name a senior independent director to ensure proper oversight. Finally, the UK Code recommends
companies maintain standing audit, nominations and remuneration committees that abide by specific independence requirements (see
table above).
AUSTRALIAN PRACTICE
Entities listed on the ASX must comply with the requirements of the ASX Listing Rules. Further, ASX-listed entities are encouraged to
follow an "if not, why not" approach in regards to the guidelines of the ASX Corporate Governance Council Principles and
Recommendations ("ASXCGC Principles") which, amongst other things, state that: (i) the majority of the board should comprise
independent non-executive directors ("NEDs"); and (ii) the chairperson should be an independent director and the roles of chairman
and chief executive should not be exercised by the same individual. In addition to the ASXCGC Principles, from the perspective of
investors, there are three published sets of corporate governance guidelines or standards that are influential in the Australian market –
those of the Australian Council of Superannuation Investors ("ACSI"), the Financial Services Council ("FSC") and the Australian
Prudential Regulatory Authority ("APRA").
CGI GLASS LEWIS ANALYSIS
We bring the following issues to the attention of shareholders:
DIVERSITY
CGI Glass Lewis supports the ASXCGC Principles regarding board diversity, as we have had a long-standing practice of assessing
the composition and mix of skills of the independent element of the board and believe improved diversity is an important step towards
this end. We have reviewed this Company's reporting on this issue and have determined the following:
Features
Diversity Policy Disclosed?
Specific Gender Diversity Policy Disclosed?
Measurable Gender Objectives Disclosed?
BHP November 21, 2013 Annual Meeting
Yes
23
No
CGI GlassLewis
ELECTION OF DIRECTORS
We believe shareholders should be mindful of the following issues:
The Company continued to feel the effects of falling commodity prices, and ambitious acquisitions over the past decade, with earnings
and attributable profits each declining for the second consecutive year and the valuation of aluminum and nickel assets impaired by
approximately $3.88 billion2013
(
Annual report, p. 213). The results, and recent executive turnover, are in line with the sector as a
whole. Following significant writedowns to its operations and assets over the past two years, the Company has reduced its capital and
exploration budget from $18 billion to $16 billion for 2014, with just one major project approved during the past year compared with 8
in 2012 and 11 in 2011, and any expansion to the Olympic Dam project put on hold for at least another year ("BHP Forced to Keep
Olympic Dam On Hold."
The Australian. September 27, 2013). However, the Company has committed to investing a further $2.6 billion in its
Jansen Potash project by 2017 (Company press release. August 20, 2013).
EXECUTIVE TURNOVER
Marius Kloppers stepped down as the Company's chief executive on May 10, 2013, and retired from the Company on October 1,
2013. Andrew Mackenzie, who previously served as chief executive of the non-ferrous division, replaced Mr. Kloppers as the
Company's chief executive in May 2013. Mr. Mackenzie has a unique background, having won awards as a geologist before gaining
management and oversight experience in both oil and mining as an executive with BP plc and later Rio Tinto plc. He joined the
Company in 2008.
CORRUPTION PROBE
As discussed in previous Proxy Papers, the U.S. Securities and Exchange Commission ("SEC") began investigating the Company in
April 2010 for possible connections to corrupt practices in several of its former projects. The Company states in its Annual Report that
evidence uncovered regarding potential violations of anti-corruption laws involving interactions with government officials has been
disclosed to relevant authorities. The Australian Federal Police have also indicated that they have started an investigation.
In August 2013, the SEC and the U.S. Department of Justice notified the Company of the issues they consider could form the basis of
enforcement actions, relating to hospitality provided as part of the Company's sponsorship of the 2008 Beijing Olympics, as well as
terminated exploration and development efforts. The Company states it is not possible to predict the outcome of the investigation at
this time; however, it has acknowledged that the evidence disclosed to authorities includes "possible violations ... involving interactions
with foreign government officials" (Company press release. August 16, 2013), which could leave the Company liable under the U.S.
Foreign Corrupt Practices Act and similar anti-corruption legislation. We will continue to monitor this issue going forward.
BOARD ISSUES
Shareholders should be aware that chairman Jacques Nasser is considered independent by the FSC, ACSI, the ASXCGC and CGI
Glass Lewis (Australia). At the same time, we also note that the UK Code does not consider the test of independence to be appropriate
for the non-executive chairmen given the scope of the role. As such, chairman Jacques Nasser is considered non-executive by our UK
standards. However, we note he was independent on appointment under UK standards and that this market difference will not
materially affect any of our analysis and proxy voting recommendations.
SELF-NOMINATED DIRECTOR CANDIDATE
Nominee DUNLOP is not a member of the current board and has nominated himself for election at the Company's 2013 annual
meeting. As such, Mr. Dunlop is not included in the board table above.
Dunlop Biography and Rationale for Nomination
Regarding this nomination, the Company states the following in the chairman's letter in its 2013 Notice of Meeting:
"This year an individual retail shareholder has nominated an additional candidate for election: Ian Dunlop. The Board, assisted by the
Nomination and Governance Committee, has considered Mr. Dunlop's nomination in the context of the structured and rigorous
planning it undertakes for Non-executive Director succession. A threshold requirement is for the skills and experience of any
prospective Board member to add to the overall skills and experience of the Board and meet its future needs. In this context, the
Board considers that Mr. Dunlop would not add to the effectiveness of your Board.
Mr. Dunlop has advised the Group that he wishes to draw attention primarily to climate change issues. As a global organisation
producing energy products and operating in an energy intensive industry, we are continuously and actively managing risks associated
with climate change. We have taken a leading role in the resource sector, acknowledging nearly 20 years ago that climate science
justified action.
In line with Our Charter value of Sustainability, we have publicly advocated action on climate change policy such as carbon pricing. At
the same time, we have reduced our own emissions and reported against clear performance targets. We have constantly reviewed the
issue as a driver of change in the global energy mix. We see the potential for a transition to lower carbon energy sources and the
management of our portfolio reflects this view.
The Board believes this approach is right and positions the Group appropriately. The diversity of our portfolio, combined with actions
focused on emissions abatement, will position us well to manage future policy developments. You can find a summary of our
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approach, including targets, actions and performance, in our Sustainability Report.
Your Board has a depth of skills and experience in this area and the Group’s performance has benefited from its guidance. The Board
believes that the addition of a director whose focus is primarily on a single issue will not add to the effective governance of the
business. For these reasons, the Board recommends you vote against the appointment of Mr. Dunlop."
The chairman intends to vote undirected proxies against the election of Mr. Dunlop.
The 2013 Notice of Meeting also provides the following statement from Mr. Dunlop, and further information is available on his website:
"Ian Dunlop has wide experience in energy resources, infrastructure and international business, including with the Royal Dutch
Shell Group. He has senior executive and director level experience in oil, gas and coal exploration and production.
He is a past Chair of the Australian Coal Association (1987–88), the Australian Greenhouse Office experts Group on emissions
Trading (1998–2000) and was CEO of the Australian Institute of Company directors (AICD) (1997–2001).
Mr. Dunlop is a Fellow of AICD, the Australasian Institute of Mining and Metallurgy, the Energy Institute (UK), a Member of the Society
of Petroleum Engineers of AIME (USA) and a member of The Club of Rome.
Mr. Dunlop says: 'In my view, the greatest challenge the world, and BHP Billiton, now faces is global warming caused by greenhouse
gas emissions from human fossil-fuel consumption. The extent and speed of warming has been badly underestimated. Current policies
are leading to an average surface temperature increase in excess of 4 [degrees Celsius], compared with the 'official' target of less
than 2 [degrees Celsius]. This is a world of 1 billion people, not 7 billion, in which business as we know it is not possible. It is nothing
less than suicidal to continue investment in fossil-fuel expansion.
The current Board must take action by changing investment priorities far more extensively than the Company has recently announced.
I consider that my particular mix of experience and global perspective would complement existing board member skills in achieving
what must become top priorities for BHP Billiton and its shareholders.'"
The board states that the above information was provided by Mr. Dunlop and that the Company does not "in any way endorse the
platform on which Mr. Dunlop is standing for election."
The Company's Response to Climate Change
In this case, Mr. Dunlop is contending that he should sit on the board to assist the Company in taking more significant actions
regarding climate change. While we recognize that the Company is exposed to significant risks as a result of its exposure to climate
change, it appears that the Company has both addressed its exposure in this regard and has taken actions to mitigate this exposure.
According to the Company's
2013 Sustainability Report, potential physical impacts of climate change on its operations may include
"changes in precipitation patterns, increased storm intensities and higher average temperatures, which may adversely affect the
productivity and financial performance of [its] operations." In addition, the Company states that regulations aimed at controlling
greenhouse gas emissions could impact its operational costs and could impact demand for fossil fuel products, including coal and gas.
The Company further states that, in the medium- to long-term it is "likely to see changes in the costs associated with [its]
GHG-intensive assets as a result of regulatory requirements in a number of the countries where [it] operate[s]" (p.24). The Company
also provides information concerning its response to these risks in its most recent sustainability report, where it provides its efforts
regarding: (i) engaging in policy development on issues associated with climate change; (ii) reducing its greenhouse gas
emissions; and (iii) efforts to supply, access and use energy efficiently (pp.25-26).
Regarding board oversight of sustainability issues, the Company maintains sustainability committee of the board of directors.
According to its charter, the sustainability committee is responsible for oversight of the Company's health, safety, environment and
community ("HSEC") framework, and assures this framework though "a robust and independent assurance and audit process,
established by the Risk and Audit Committee." In addition, the committee's charter specifies that the committee has access to
"independent legal and specialist advice on HSEC matters." As such, it appears that the Company has ensured that there is board
oversight of climate change-related issues and that the designated committee has access to specialists on specific related areas, on
an as-needed basis.
Peer Analysis
Peer company Rio Tinto plc (LSE: RIO) states on its website that "the majority of [its] energy now comes from greenhouse gas-friendly
hydro and nuclear power" and that it has "set targets to further reduce [its] greenhouse gas emissions intensity as well as [its] energy
efficiency performance." Rio Tintostates that climate change is one of the issues of highest materiality, and reports further information in
itsannual report and in its sustainable development report. Among other things, the firm states that it has spent more than US$100
million on research and development on technologies that will reduce emissions from coal-fired industries and that, as a result of
recent portfolio changes, 96% of its Alcan power supply is carbon-free and falls into the lowest-cost quartile for energy. In addition, it
states
that aluminium produced using hydroelectricity (which represents approximately 83% of the aluminium product group's power
supply) has the lowest footprint with respect to primary energy consumption and climate change in life cycle analysis studies.
Regarding board oversight, Rio Tinto maintains sustainability
a
committee of the board that oversees sustainable development
responsibilities in areas including the environment, safety and health.
Further peer company Anglo American plc (LSE: AAL) discusses its efforts to mitigate its exposure to climate change on its website,
Specifically, the firm provides information on issues including: (i) its climate change strategy; (ii) its efforts in identifying energy-saving
and emissions-reduction opportunities and setting emissions reductions targets; (iii) its use of technologies aimed at using energy more
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efficiently; and (iv) its climate change-related engagements and partnerships. Anglo American provides further information regarding
its efforts to mitigate its exposure to climate change-related risks in its
2012 Sustainable Development Report, where it provides specific
information regarding its greenhouse gas reduction efforts and its energy consumption, among other things (pp.60-63). Regarding
oversight of sustainability issues, Anglo American has created asafety and sustainable development committee of the board that is
responsible for, among other things, reviewing the progressive implementation of the firm's sustainable development policies and
receiving reports covering matters relating to material safety and sustainable development risks and liabilities.
To further compare, we note that the Company as well as its peers have consistently responded to the Carbon Disclosure Project
("CDP"). The CDP, acting on behalf of a partnership of 722 institutional investors with $87 trillion in assets under management and 60
purchasing organizations, advocates improved disclosure of climate change data through responses to comprehensive annual
questionnaires. The CDP issues reports and collects data on carbon emissions, water management, public procurement, and supply
chain information, among others. While not all companies are invited to disclose data through the CDP, CGI Glass Lewis generally
views a company’s response as indicative of its commitment to disclosure of its environmental impact and responses to that impact.
While all three companies responded to the CDP in 2013, according to the CDP's 2013 Global 500 Climate Change Report the
Company received a score of 75 (grade of "C") for its disclosure of climate change-related information, while Rio Tinto received a
score of 88 (grade of "B") and Anglo American received a score of 96 (grade of "A"). However, despite receiving a lower rating than
its peers for its quality of disclosure of climate change-related issues, the Company reported lower carbon intensity (as measured as
tonnes of carbon emissions per unit of revenue) than both of its peers (p.35). In addition, the CDP notes that the Company's annual
remuneration review takes into account performance against carbon emissions targets (p.34).
Conclusion
Although it appears that the Company could improve the quality of its climate change-related disclosure, it is clearly acknowledged and
the board has taken actions to mitigate the risks associated with climate change and its greenhouse gas emissions. Although the
Company still maintains some exposure to these risks, given the nature of its operations, we are not convinced that the board has
ignored this issue or that its current oversight of climate change or sustainability issues is deficient at this time.
Further, CGI Glass Lewis generally defers to the board regarding the nomination of new directors. We do not recommend voting for
individuals who offer themselves for election to the board, without the support of the board, unless we consider that Company
performance has clearly suffered due to poor board oversight, the board has failed to plan appropriately for board composition,
renewal or succession and that the appointment of the external nominee would provide for a more independent and effective board or
otherwise be in the best interests of shareholders. In this case, we find that the Company's director nomination processes are
well-disclosed, and that there is an adequate mix of skills, diversity and industry expertise on the board. As such, and given that we
believe the Company and its board have appeared to adequately address issues related to climate change, we are unconvinced that
the election of Mr. Dunlop to the board would be in the Company or its shareholders' best interests. For these reasons, we do not
believe shareholders should support Mr. Dunlop's self-nomination to the board.
RECOMMENDATIONS
Given the above, we recommend voting against nominee DUNLOP.
Having reviewed the other nominees, we do not believe there are substantial issues for shareholder concern.
Accordingly, we recommend shareholders vote:
AGAINST: Dunlop
FOR: All other nominees
The Company discloses the following biographical information for director Andrew Mackenzie, who joined the board during the past year:
Andrew Mackenzie Mr. Mackenzie has over 30 years’ experience in oil and gas, petrochemicals and minerals. He joined BHP Billiton in November 2008 as Chief Executive
Non-Ferrous and commenced as Chief Executive Officer in May 2013. Prior to BHP Billiton, Mr Mackenzie worked at Rio Tinto, where he was Chief Executive of Diamonds
and Minerals, and BP, where he held a number of senior roles, including Group Vice President for Technology and Engineering and Group Vice President for Chemicals.
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APPENDIX
Questions or comments about this report, GL policies, methodologies or data? Contact your client service representative or go to
www.glasslewis.com/issuer/ for information and contact directions.
NOTE
BHP purchased a copy of this Proxy Paper from CGI Glass Lewis Pty Ltd for distribution after publication to institutional investor clients.
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LEAD ANALYSTS
Governance & Remuneration: Dimitri Zagoroff
Governance & Remuneration: Bridget Murphy
Environmental & Social:
Courteney Keatinge
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