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Chief executive Sam Walsh expects 2016 to be “an even tougher year” than the last. (Image: Screenshot from IBM’s video)
Rio Tinto (LON, ASX:RIO), the world’s second largest miner, has put a freeze on salaries for all employees, in a fresh attempt to weather tough market conditions marked by a continuing slump in commodities prices.
Chief executive Sam Walsh told employees that expenses for travel and money spent on temporary workers will also be under the spotlight.
“Late last year, we saw market prices continue to rapidly fall. What we see ahead is very sobering,” Walsh wrote Tuesday in an e-mail obtained by Australian Mining to all Rio Tinto employees.
“This situation is not temporary and our industry is moving into the new normal which means we must continue to be one step ahead,” Walsh warned.
Rio’s boss said the decision to freeze pay, while disappointing, was necessary given the market context.
No matter the exchange… Shares are down. (Source: Google Finance)
Shares in the group have slumped by 36% over the last 12 months, in line with other market players such as BHP Billiton, Glencore and Anglo American.
Prices for iron ore, Rio’s biggest earner, fell 4% overnight on Wednesday and are now back below $40 a tonne. Analysts predict the steel-making material will test new lows again this year.
Copper, another of Rio’s top revenue generator, dropped early this week to the lowest since 2009, as concerns intensify that China’s economic growth is faltering.
Rio Tinto’s pay freeze follows the company’s announcement in December that it would slash capital expenditure in 2016 by a sixth, to $5 billion.
7 Comments
Altaf
The decision to increase production to flood out competition is not a collective one. It is taken by managements of big three. When they face cash flow difficulties, why make employees suffer? In fact Sam Walsh should pay salaries from his pocket if company has no cash. If his gamble pays off, he takes bonus. Then he should take risk on down side too.
What ever the situation, employee salaries should not stop. Nor the bills of subcontractors be stopped. Nor the interest on debt be stopped.
The company should sell inventories or mines and create cash flow.
Madbull
Good one Sam! It is far better to have a frozen salary than to be retrenched. You are handling the commodity rout like a geopolitical situation. I am watching the Fe ore industry closely for posterity.
Vinod Sao
cost cutting and sacrificing on part of salary is better than issuing pink slips as all professionals understand that the market is passing thru really bad patch .
Manco Capac
Hey what happened to “I too sexy for my recovery”? I guess the guys in Harvard will include this in his dreamed of case study. Maybe its time to throttle back production of Iron ore and get more money for less tons.
Richard Usher
Foolish announcement. Who at Rio Tinto in their annual pay review this year would actually be expecting an uplift in their salary? By making this kind of announcement it depresses the tone across the business, and also hurts junior/graduate level employees the most. It’s the same as removing free fruit and newspapers from the canteen. Cost saving benefits are small, knock on effect on morale is huge.
Mark Harder
What I hear in this piece is that executive salaries will also be frozen. Not necessarily the case in a downturn, at least in the US.
2ndOrion
Sam Walsh is Smart. All other companies like Rio Tinto should be doing the same. The major buyer of commodities has cut back because the market in the country and world wide for products has been cut back, and may even be cut back even further because of world wide sales. World wide, looking at the price charts, prices will have to stabilize at a lower level as prices will have to depend upon global consumption more. This just means tightening of everyone’s belt.