Commodities may be slumping and the world only slowly emerging from a deep recession, but the bank balances of BHP senior executives have not been too badly hurt.

In fact, despite Australia’s largest company experiencing profit halving and earnings per share falling from  $US2.75 ($A3.20) to $US1.06, BHP bosses, including CEO Marius Kloppers, managed to even snare pay rises last year.

Kloppers received total remuneration of $US10.4 million last year, up from $6.9 million the prior year (although Kloppers only became CEO on October 1, 2007). The former McKinsey consultant saw his fixed pay increase 19.3% and was paid a short-term cash bonus of $US1.73 million. Chief commercial officer Alberto Calderon, the man who led the ill-fated Rio Tinto bid, saw his total remuneration increase to $US4.9 million, while his cash bonus actually rose by 12.2% to $US1.01 million.

While the operating performance of BHP is to a large extent outside the control of management (being to a large extent at the whim of the commodity cycle), there are certain factors that  BHP can influence. For example, corporate activity is largely determined by management — in that respect, 2008-09 was not BHP’s finest year. The company’s aborted takeover of Rio cost more than $US450 million in financing and advisory costs — the Rio acquisition was steered by Kloppers, Calderon and outgoing chairman Don Argus.

Despite the cost and bid failure, Calderon was rewarded with a higher, short-term bonus. (BHP does, however, deserve a degree of credit for withdrawing the bid, proceeding would have been even more costly for shareholders). BHP also wrote more than $US3 billion from its mothballed Ravensthorpe nickel operations.

We are not merely criticising the highly paid BHP management purely in hindsight — in fact, Crikey was one of the few sceptical voices of the proposed Rio deal, noting the day after the merger was announced on November 12, 2007 that:

Amid the excitement of BHP’s long awaited proposal to Rio Tinto, it probably wouldn’t hurt for investors and commentators to take a leaf out of Kevin Rudd’s playbook and take a “cold shower” before heaping hyperbole on the mooted deal … how good the [acquisition] is for BHP will come down to price, and at the mooted US$170 billion price tag — the vast majority of benefits may end up in the hands of Rio shareholders.

BHP has a strong record in recent years of outstanding corporate governance practices — especially compared with the horrendous mess encountered at Rio. However, awarding generous cash bonuses and increased fixed pay in a year where total shareholder return and profitability slumped while management undertook a costly and timely frolic with Rio did BHP’s sterling reputation no favours.