Page 154 - Annual Report 2020

Financial Measure
measure Scorecard targets Performance against scorecard targets outcome
ROCE For FY2020, the target for ROCE was 19.9%, ROCE of 16.9 % was reported by BHP for FY2020. Adjusted for the factors Below target.
with a threshold of 16.3% and a maximum outlined below, ROCE is 18.2%, which is below target. The following
of 21.1%. adjustments were made to ensure the outcomes appropriately reflect
The target ROCE is derived from the Group’s the performance of management for the year:
approved annual budget. It is the Group’s • The impacts of movements in commodities prices and exchange rates
practice to build a material element of increased ROCE by 1.2%.
stretch performance into the budget. • Adjustments for other material items ordinarily made to ensure the
Achievement of this stretching ROCE target outcomes reflect the performance of management for the year
will result in a target CDP outcome. The increased ROCE by 0.3%, mainly due to the exclusion of the impacts
threshold and maximum are a fair range of of unusually severe weather events during FY2020.
ROCE outcomes that represent a lower limit • Having reviewed the FY2020 exceptional items (as described in note 3
of underperformance below which no CDP ‘Exceptional items’ in section 5), the Committee determined they should
award should be made, and an upper limit not be considered for the purposes of determining the ROCE CDP
of outperformance that would represent the outcome, with the exception of the exceptional item in relation to the
maximum CDP award. costs of the COVID-19 pandemic on BHP’s FY2020 results. The Committee
Because a material element of stretch concluded that, while this was outside the control of management,
performance is built into the budget the direct costs and volume impacts of COVID-19 should flow through
(and hence the ROCE target derived from to the ROCE outcomes for CDP scorecard purposes. The Committee
the budget), together with physical and considered this was appropriate in light of the global impacts of the
regulatory asset constraints, the COVID-19 pandemic. This adjustment reduced ROCE by 0.2%. Beyond
performance range around target is subject this, the Committee concluded that no further action was required
to a greater level of downside risk than there in respect of exceptional items.
is upside opportunity. Accordingly, the range The key drivers of the ROCE performance being below target at 18.2% were:
between threshold and target is greater than
that between target and maximum. For • In Minerals Australia, despite record volumes at Western Australia Iron
maximum, the Committee takes care not Ore, Caval Ridge and Poitrel and record coal mined at Broadmeadow,
to create leveraged incentives that production was lower than expected at Western Australia Iron Ore, Coal
encourage executives to push for and Olympic Dam due mainly to reliability issues and shutdown timing,
short-term performance that goes beyond together with higher maintenance and contractor costs.
our risk appetite and current operational • In Minerals Americas, lower production than expected at Escondida
capacity. The Committee retains, and has (despite mill throughput being at record levels) and Pampa Norte due
a track record of applying, downward to unplanned maintenance, equipment failures and lower recoveries,
discretion to ensure that the CDP outcome partly offset by better than expected cost performance.
is appropriately aligned with the overall • In Petroleum, lower market demand for petroleum products resulted
performance of the Group for the year, and in lower than expected production volumes at Trinidad and Bass Strait,
is fair to management and shareholders. particularly in the last quarter of FY2020, together with extended
maintenance in Australia impacting volumes, partly offset by better
than expected cost performance.
The outcome against the ROCE KPI for FY2020 was 39 per cent against the target of 50 per cent. As a Group-level outcome, this outcome
applied to Mike and Andrew for their time as CEO.
Individual performance measures for the CEOs
Individual measures for the CEOs are determined at the commencement of the financial year (or at the time of appointment for a new
CEO). The application of personal measures remains an important element of effective performance management. These measures seek
to provide a balance between the financial and non-financial performance requirements that maintain our position as a leader in our
industry. The CEOs’ individual measures for FY2020 included contribution to BHP’s overall performance and the management team,
and also the delivery of projects and initiatives within the scope of the CEO role as specified by the Board, as set out in the tables below.
Mike Henry
Individual Measure
measures Individual scorecard targets Performance against scorecard targets outcome
Safety and • Future plan for reduction in near misses. • Near misses reduced significantly in FY2020 from FY2019; analysis Target.
sustainability • Risk management embedded. completed and future action plans completed to achieve further
• Climate change next steps. significant reductions.
• Material risks recorded appropriately, and agreed risk appetites being
embedded in the business.
• Next stage of climate change plans delivered.
Performance • Team restructuring. • New ELT members appointed, Technology and Transformation Target.
• BHP Operating System implementation. restructured, World Class Functions benefits accelerated, Operations
• Gender representation advanced. Committee established.
• BHP Operating System deployment proceeding according to plan, with
volume and safety benefits delivered, as well as supporting compliance
with COVID-19 protocols.
• Positive improvements in gender representation in the second half, after
a slow start to FY2020. By 30 June 2020 gender diversity had increased
2.0 percentage points to 26.5%, up from 24.5% at 30 June 2019, for a
cumulative increase of 8.9 percentage points from 17.6% at 30 June 2016.
Portfolio • Portfolio value improvement. • Significant progress achieved on portfolio enhancement activities Target overall
• Strategy review improvement. in spite of the challenges faced during the year with COVID-19, social (i.e. a blend of
• Samarco strategy implemented. unrest in Chile and unprecedented market volatility in oil and gas, above, on and
including progressing agreed capital and operational options below target).
and projects at Petroleum, Escondida, Western Australia Iron Ore,
Queensland Coal and Olympic Dam.
• Developed an improved review process for our portfolio and strategy
around existing portfolio and growth options, and successfully conducted
a large portion of the process, including significant Board engagement.
The process is ongoing and will complete during 2020.
• While the agreed Samarco strategy has been executed consistent
with the principles to achieve fair and reasonable compensation and
remediation, there have been some delays due to COVID-19 and further
work and focus is required in FY2021. Insurance recoveries have been
progressed, class actions are being actively managed and the first
phase of dam decommissioning has been approved.
Tailings dams • Tailings Dam Taskforce work. • Delivered the work of the Tailings Dam Taskforce in accordance with Target.
• Long-term strategy development. agreed plans, schedules and targets, together with accelerating dam
remediation activities across the Group.
• Developed a long-term tailings management strategy to deliver step
change risk reduction within 10 years.

152 BHP Annual Report 2020