BHP is facing calls to cut executive pay over a $445 million payroll error. 

Directors at BHP are under scrutiny for their handling of a significant underpayment issue involving staff, as proxy adviser CGI Glass Lewis urges them to take more substantial action on executive compensation. 

The advisory firm has indicated that they anticipate more consequences for the incident in next year's pay.

In June, BHP disclosed an error in its payroll system that impacted nearly 29,000 current and former employees. 

This mistake involved incorrectly deducting excessive annual leave from some staff members while wrongly denying allowances to others who had worked at Port Hedland.

By August, the number of affected employees had risen to 34,000, with BHP setting aside $445 million to rectify the issue and compensate those affected.

The payroll glitch had been ongoing since the introduction of new workplace laws in 2010.

Mike Henry, BHP's chief executive, who took office in January 2020, saw a 3% deduction from his bonus linked to financial performance due to his level of responsibility for the payroll errors. 

However, CGI believes this issue justifies a more substantial impact on his short-term bonus.

“We have reservations regarding the annual bonus outcome in light of the underpayment issue identified during the year,” noted CGI in a communication to clients. 

“We are concerned that this issue has not impacted other components of the scorecard.”

Mike Henry received total compensation of $21.8 million in the year to June, including a base salary of $1.74 million, a short-term bonus of $3.7 million, and long-term incentive payments worth $8 million.

While CGI recommended BHP shareholders vote in favour of the remuneration report at the company's November 1 annual meeting, they signalled the desire for a broader impact on executive bonuses next year.

“We would expect the board to take a more strict approach and appropriately adjust the outcomes for the 'people' element of individual performance for all executives deemed accountable for this issue, as well as consider exercising its discretion regarding the vesting of some of the deferred shares,” stated CGI.

BHP self-reported the payroll incident to the Fair Work Commission, and an ongoing review is in progress, leading directors to acknowledge in August that the review's findings could affect executive pay in the coming years.

CGI indicated that this commitment was sufficient to secure its support ahead of this year's shareholder meeting.

“Given this assurance [for the BHP board to revisit the issue in the future], we are prepared to accept this year's outcomes with the expectation of more remuneration consequences in future periods and full disclosure of considerations in this matter,” it said.