The West

Safety versus growth at FMG

The executive bonus scheme at Fortescue Metals gives significantly more weight to "growth performance" than safety.

The company's last annual report shows 8 per cent of measures used to calculate short-term senior executive bonuses relate to improvements in safety outcomes, the same weighting given to mine production and cost measures but less than a third of the emphasis placed on growth performance.

The bonus structure would be probed by the independent audit of safety at the company ordered by chief executive Nev Power.

Fortescue's weighting on safety is less than half of that of its major Pilbara competitors. BHP Billiton and Rio Tinto tie 20 per cent of senior executive bonuses to measures related to safety performance.

Fortescue's 2013 annual report says its incentive scheme is designed to motivate senior managers and support a "clear performance focus" for executives.

Responding to questions from _WestBusiness _yesterday about whether Fortescue believes it provides sufficient incentives at senior levels to ensure a strong focus on safety performance, a spokeswoman said incentives were "only one component of ensuring a strong focus on safety".

Providing a safe working environment for all employees and contractors was Fortescue's highest priority, she said.

The company "empowers everyone to take whatever action is required to ensure safe operation, including stopping production when necessary". "Over reliance on incentives can lead to under-reporting of safety incidents and hazards," she said.

Safety at Fortescue's Pilbara operations has been in the spotlight after deaths and serious injuries on its mine sites over the past five months.

The company last week called in external consultants to conduct a "forensic" examination of its culture, systems, policy and reporting. The review, which will not be made public, will examine the entire business. According to the annual report, safety performance carries the same weighting in performance objectives as production performance, measured by the number of tonnes shipped against set targets, and meeting growth targets.

Measures of the cost-per-tonne of ore shipped also carries an 8 per cent weighting, as does a second indicator targeting the conversion of mining reserves into tonnes shipped.

The achievement of financial targets, measured by an absolute return on equity, carries a 10 per cent weighting. The remaining 50 per cent is based on individual performance, measured against objectives.

Health and safety outcomes, measured against a range of targets, make up 20 per cent of the calculation at Rio. Financial measures make up 50 per cent of the weighting, with individual performance against set targets set at 30 per cent.

BHP's broad structure is similar, though the company includes some measurement of environmental and community incidents in its 20 per cent weighting for executive bonuses.

At BHP, financial outcomes are worth 40 per cent of the short-term incentive plan each year. Capital management and individual performance are each worth 20 per cent.

A death in December and a number of accidents resulting in serious injury did not prevent Fortescue's main measurement of safety outcomes improving during the last quarter.

The Fortescue safety bonus is tied to the achievement of a 15 per cent drop in the total reportable injury frequency rate at its operations. According to Fortescue's December-quarter report, its TRIFR across all operations was 7.1, down 6.5 per cent from the full-year average last financial year. Fortescue would need a TRIFR of 6.46 for the current financial year to trigger executive bonuses.

The West Australian

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