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BHP Reduces Employee Incentives by 20% Amid Performance Shortfalls and Safety Concerns

Discover why BHP has reduced employee incentives by 20% amid performance shortfalls and safety concerns. Explore the impact and implications on the blog.

BHP (ASX, LON, NYSE: BHP), the world's largest mining company, has announced a 20% reduction in short-term incentives for all employees for the 2023-24 fiscal year, according to the Australian Financial Review (AFR). This decision follows the company's failure to meet its internal performance targets.

Reasons Behind the Incentive Reduction

The reduction in incentives is attributed to several factors:

  • Cost and Production Goals: BHP struggled to achieve its cost and production targets in certain divisions.

  • Safety Incidents: A tragic incident at the Saraji coal mine in Queensland, which resulted in the death of a worker in January, significantly impacted the company's performance evaluation.

These factors, combined with hiring freezes in some divisions, have reportedly frustrated employees, some of whom expressed concerns to AFR about what they perceive as unrealistic internal goals.

Historical Context and Management Response

This is not the first instance of incentive cuts at BHP. In 2019, the company reduced incentives by 20% following operational issues, including a train derailment in Western Australia and a fatality at the Saraji coal mine. Then-CEO Andrew Mackenzie experienced a nearly 25% reduction in his annual pay due to additional problems at the Olympic Dam in South Australia and Escondida mines in Chile.

Current CEO Mike Henry has emphasized the importance of safety, promising to enhance safety measures across all operations following multiple fatalities last year.

Financial Impact and Future Measures

BHP's financial performance has also been under pressure. In February, the company reported that its profits for the first half of the year were adversely affected by a $2.5 billion impairment charge related to its nickel business in Western Australia and a further $3.2 billion in payments associated with the Samarco dam disaster in Brazil.

As part of its cost-cutting measures, BHP has disbanded several global corporate teams, signaling a strategic shift towards more streamlined operations.

Looking Ahead

The incentive reduction and cost-cutting measures indicate BHP's ongoing efforts to realign its operational and financial strategies amidst challenging conditions. The company's commitment to safety and performance improvement will be critical as it navigates these adjustments.

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