Gold hit an all-time high of $3,500 in April 2025, and the bull market is showing no sign of slowing down. This environment presents an opportunity for mining sector HR Committees and management teams to test whether incentive plans are performing as intended throughout the commodity cycle. Below we offer a few incentive design tools that help maintain the integrity of incentive plans.

Relative Metrics Can Help Address “Rising Tide” Syndrome

Relative metrics (particularly relative Total Shareholder Return) are among the most common in the mining sector. Relative metrics help ensure management is rewarded for true outperformance vs. peers, not simply on strong commodity prices. Typically, these metrics are designed to pay out above target for above the median of peers’ (or an index) performance and below target for the inverse. Selection of relevant peers is worth careful consideration (e.g., business model and stage, commodity/asset mix, correlation of historical returns, etc.).

Questions to ask:

Do our incentive plans include a relative metric?

Have we selected the right performance benchmarks?

Balance Your Scorecards

Rewarding for financial performance is critical for aligning management compensation with shareholder expectations. However, thoughtful incentive design should reflect a broader definition of success, particularly in this long-cycle and capital-intensive industry. A balanced scorecard will typically include a number of operational and strategic metrics that management can directly influence. Think: production vs. guidance, cost per ounce or tonne, capex deployment, execution against key project milestones, safety performance, responsible engagement with local communities, etc.

Questions to ask:

Do our programs include a balanced perspective of company performance?

Does our annual incentive plan hold management accountable for in-year actions that will result in longer-term performance?

Financial Metrics: To Normalize or Not to Normalize?

When including financial metrics (e.g., operating cash flow) in incentive plans, many companies normalize for the impact of commodity prices (i.e., adjust to budget prices) in order to only reward management for what they can control. However, this can be a slippery slope as FX and other costs fluctuate as well – where should we draw the line? Additionally, management teams should be rewarded for making good operational or cash utilization decisions based on the current commodity price reality – not a hypothetical normalized scenario. While letting the full impact of commodity prices flow through to financial outcomes in incentives may cause payout variability, this can also create more alignment with the shareholder experience. Both approaches (normalizing or not normalizing) are valid and have their own pros and cons – the implications should be well understood by all and factored into target setting and metric calibration. 

Some companies choose to forego this question entirely by only including the operational contributors to strong financial performance as scorecard metrics (e.g., production, production cost, and management of capital) rather than individual financial metrics.

Questions to ask:

How do we treat commodity prices in our financial metrics?

Are we comfortable with the variability in our pay outcomes throughout the commodity cycle?

Test Pay-for-Performance Alignment Regularly

Regular reviews of incentive outcomes relative to company performance are an important “health check” to confirm plans are working as intended. These reviews should include the full picture of compensation outcomes (short- and long-term incentives, including the impact of share price) and consider the experience of different employee groups (e.g., LTIP mix may vary by role). A longer-term lookback can inform how incentives have paid out at different points in the commodity cycle.

Questions to ask:

Have our pay outcomes (short- and long-term) aligned with shareholder experience over the same periods?

Have these outcomes varied appropriately throughout the commodity cycle?

Do these outcomes align with our overall views of the management team’s performance in the same period?

In Conclusion

In cyclical industries, incentive compensation often moves with commodity prices. The current gold price environment presents an opportunity for HR Committees and management teams to pressure-test incentive programs to ensure they reward for true outperformance and align with long-term shareholder interests.