Rio Tinto is primed to tighten its belt another notch this year with a global salary freeze on all employees, reduced travel expenditure across the board, and further scrutiny of contractor and consultancy spending.
An internal email written by chief executive Sam Walsh [recently obtained by Australian Mining] revealed Rio Tinto’s increased focus on cost saving measures, spelling out there would be no annual pay increases for anyone from the CEO down.
“Late last year we saw market prices continue to rapidly fall. What we see ahead is very sobering,” Walsh declared.
The CEO said he anticipated 2016 would be an even tougher year than the last, with prices for commodities “now around 2005 levels or lower”, and some “down as much as 80 per cent from their highs and nearing long-term historic averages”.
“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 said.
“The pressure this is placing on our industry is significant and it is a tough time across the sector. It is important we recognise that the pressure isn’t going to let up.
Walsh attributed the new pressures to sluggish global economic growth in the wake of the economic crises of 2009, but also because of slow growth in China and its transition from “metals-intensive sectors – like infrastructure and construction – to consumer spending.
“This decision was a very difficult one,” Walsh said of the pay freeze.
“I’m sure you are disappointed by it, as am I, but it is necessary given the market context.
“It doesn’t reflect the hard work or effort put in by everyone.”
The email stated that Short-Term and Long-Term Incentive Plans (STIP, LTIP) from 2015 and the myShare Global Employee Share Plan would be unaffected.
Walsh pointed out that this was not the first downturn seen by the company, and that he expected Rio Tinto can “thrive when others falter”.
“In fact, this challenging market presents an opportunity to widen the gap between us and our competitors,” he said.
A spokesman for Rio Tinto was unable to provide further comment on the changes, except to confirm that STIP, LTIP and myShare would remain unaffected.
In addition to the pay freeze Walsh stipulated that travel commitments in 2016 needed to be limited, while encouraging staff to increase their use of remote communication technology.
“While our travel costs have come down, they are still too high and we need to make better use of the technology that enables us to interact with each other remotely,” he said.
“I have asked ExCo (Executive Council) members to reduce their travel commitments for 2016, and I have cancelled numerous trips from my own calendar. Everyone needs to do the same.”
Walsh said the company would be deploying tools for stricter, more disciplined expense management, and that there was a need to “further scrutinise consultancy and contractor spend”.
He also encouraged employees to come forward with any cost-saving ideas: “If you have good ideas to further conserve cash, please let me know.”
Safety will also be a key focus for Rio Tinto in 2016. In the wake of four employee deaths in 2015 the CEO set a new goal for a fatality-free year, with emphasis on embedding critical risk management in every operation.
“No one should die working for Rio Tinto. We will only eliminate fatalities if we focus on the essentials – what really matters to keep everyone safe,” he said.
“It has been an exceptional effort to reach this point, but we neeed extra vigilance from each and every person to avoid a fatality.”
Rio Tinto is already set to engage a round of pay cuts this year, with Workpac employees at the Hail Creek coal mine expected to suffer a reduction of their flat hourly rate starting 18 January.
According to internal documents received by Australian Mining, a recent commercial review by Rio Tinto outlined that cost cutting was required in order for the Hail Creek mine to remain viable.
A statement from the contractor said: “WorkPac must reduce its current costs to the client as an alternative to losing our commercial contract and/ or contributing to the eventual demise of the Mine itself."