Norilsk Nickel might link independent director pay to confidentiality agreement
MOSCOW. Dec 12 (Interfax) - MMC Norilsk Nickel might condition payment of remuneration to independent directors on the signing of confidentiality agreements if the mining company's board of directors approves a recommendation made Friday by its human resources and remuneration committee.
"The committee recommended that the board approve a condition under which independent directors can receive remuneration only after signing a confidentiality agreement. [Independent director] Brad Mills said at a board meeting that for international practice this is nonsense, that at a western company they simply could not begin working on the board without signing an agreement," the head of the committee, Marianna Zakharova told Interfax.
Four of the 13 members of Norilsk Nickel's board have not signed confidentiality agreements: Lucian Bebchuk, Farhad Moshiri, Oleg Deripaska and Maxim Sokov. The first two are currently considered to be independent, but under new rules to be adopted by the board and shareholders, only Bebchuk would retain this status.
The committee recommendation will be put forward at the board meeting scheduled for December 13, which will review the agenda of the extraordinary general meeting planned for January.
Norilsk Nickel's charter currently defines as independent those directors who represent shareholders holding less than 10% of company shares. Six of the board's 13 members are therefore defined as independent: Lucian Bebchuk, Alexander Voloshin, Enos Banda, Bradford Mills, Claude Dauphin and Farhad Moshiri.
At least two of them would lose their independent status if the amendments are adopted. Voloshin, as the former chairman of Norilsk Nickel's board, would fall under the amendment that an independent director should not have held a post on the company's executive board or the post of board chairman for three years prior to being elected.
Moshiri, who represents Metalloinvest, falls under another amendment proposing that a shareholder (direct or indirect, including as part of a group) with more than 2% of votes, or an employee of such a shareholder cannot be considered as independent.
This provision would also apply to Dauphin of Trafigura if this commodities trader, whose companies, according to Norilsk Nickel, at the end of 2010 acquired 8% of the miner from a quasi-treasury stake, remains the beneficiary of at least 2% of votes.
"The criteria [for defining directors as independent] should be stricter so that independent directors are in fact that. When investors see that we have strict criteria, they have more confidence in the company," Zakharova said.
"The recommendations on the criteria for independence are not directed against anyone specific, these are generally accepted norms," she said.
Asked about the reasoning behind the proposal to strip a former board chairman of independent status, Zakharova said: "There are examples of this in international practice. If you work as the board chairman, after a certain time you indentify with the company in one way or another."
Zakharova also said that her committee recommended the approval of the same amount of remuneration for independent directors that was in effect prior to the last annual general meeting: $62,500 quarterly, plus up to 2 million rubles in documented expenses per year, and an additional $31,250 quarterly for chairing a board committee; plus up to 20,000 phantom shares. Remuneration is not supposed to exceed $1 million for an independent director.
For remuneration of an independent chairman of the board (not current board chairman Andrei Bugrov, who represents Interros), the committee recommended hiring international consulting firm Egon Zehnder to make its recommendations, Zakharova said.
In addition to Zakharova, the human resources committee includes another representative of Interros - Larisa Zelkova, as well as independent director Lucian Bebchuk, who was nominated to the board by Rusal.
Zakharova said that Bebchuk did not participate in the committee meeting. "Lucian agreed with the draft recommendations, so this is strange. Particularly considering the fact that Lucian was recommended as a professor of corporate governance and we were counting on his expertise," she said.
Rusal has said it was surprised by the logic of the amendments proposed by Interros that would restrict a director's ability to be considered independent if he held the post of board chairman at any time in the preceding three years. In that case, "any independent director, if he is elected chairman of the board of directors, stops being considered independent if he is reelected to the company's board of directors in the subsequent three years," Rusal said.
Rusal said it supports the initiative that representatives of shareholders who hold large stakes should not be considered independent. "In our view, this threshold should be 5%, which is about the number of votes necessary to elect one director to Norilsk Nickel's board of directors. In this regard, the threshold of 2% proposed by Interros raises questions," the aluminum company said.
Norilsk Nickel will hold an EGM to vote on remuneration for independent directors on or around January 10. The request to call a meeting was made by Norilsk Nickel board director Maxim Sokov.
Norilsk Nickel shareholders at their AGM on June 21 rejected points on remuneration and an options plan for independent directors, although they were unchanged from 2010. Management and principal shareholder Interros voted against, as did minority shareholders on the recommendation of ISS and Glass Lewis. However, new chairman Andrei Bugrov, an executive at Interros, promised to resolve the problem of compensation for independent directors within three months.
Interros and Rusal almost immediately began consultations on a new incentive program for independent directors.
Remuneration was proposed at $62,500 quarterly, plus up to 2 million rubles in documented expenses per year. Independent directors chairing a board committee would receive an additional $31,250 quarterly. Compensation for an independent director - chairman of the board was to be set at $2.5 million, with an annual bonus of $3 million.
Under the options plans rejected by shareholders, each independent director would get a provisional 20,000 shares (208,000 shares for an independent chairman of the board). Participants in the options program would receive remuneration but cannot receive dividends. Remuneration is not supposed to exceed $1 million for an independent director or $10 million for an independent chairman of the board.
