Whether Kloppers is worth his salary depends on how you look at the numbers

I could work out how many times Marius Kloppers's pay package would stretch around Australia's coast if it was laid out in single US dollar bills too, but you get the idea: compared with anyone other than his peers, BHP's chief executive is paid a surreal amount of money.

And paydays such as Kloppers's and the $16.1 million one that Commonwealth Bank recently disclosed for its chief executive, Ralph Norris, will continue. The methodology behind them is almost bulletproof, and reviews conducted here and overseas in the wake of the world's financial disaster will only result in tinkering at the edges.

The core design feature of modern remuneration survived the global crisis, and at BHP they are actually being reinforced.

After a review by the board, the group is maintaining its relatively lengthy five-year "default" vesting term for shares issued to reward long-term performance.

But in a move that is likely to be scrutinised closely, it also wants shareholders to approve a change to allow 25 per cent of long-term shares granted to vest halfway through the five-year term, add a general market peer group to the resources sector peer group it already uses for performance benchmarking, and extend the peer group measuring period from three months to six months.

BHP says the changes will bring it more into line with typical plans in the Australian and British markets, but they will also de-risk the plan, making it less of of an "all or nothing" proposition.

The group's core remuneration structure continues the standard corporate pay pyramid, which has a guaranteed annual cash salary as its base. In September last year Marius Kloppers received $US2.04 million, up from $US1.98 million a year earlier.

The next layer of the pyramid is an annual bonus, paid mainly in cash but also in shares and options. It is paid when the executive meets an assortment of internal performance targets, and in Kloppers's case they were weighted 15 per cent to occupational health and safety issues, 50 per cent to BHP's profit after tax, 15 per cent towards effective capital management, and 20 per cent to a bunch of individual performance indicators that were not detailed. For his performance in the year to June this year, Kloppers received $US4.66 million, split evenly between cash and deferred shares and options.

There is a thin layer in the pyramid that represents payments to executive retirement schemes, $US815,554 in the latest year in the case of the CEO, but the piece that caps the corporate pay pyramid is the long-term incentive payment.

This a contingent benefit: value is crystallised for the executives not when the shares are granted but when they vest - five years later in BHP's case at present, and then only if BHP's total shareholder return (TSR, or share price gain plus dividends) beats the TSR of its peer group by 30.7 per cent over five years, or an average of 5.5 per cent a year.

The resources sector peer group includes all the obvious suspects, including Rio Tinto, Vale, Xstrata and Alcoa. In 2009-10, the group outperformed comfortably, with a five-year TSR of 187.7 per cent versus 113.6 per cent between July 2005 and July 2010. Using its 2005 market capitalisation as the base, BHP estimates that the outperformance was worth $US59.2 billion.

This number and others like it are the key defence against critics of the huge salaries that top executives receive. But for it to work, boards need to be able to demonstrate cause and effect, and it is at this point that things get ropey.

In BHP's case, for example, there's no doubt that Kloppers contributed to the gain, before and after his October 2007 confirmation as CEO. One of the ironies is that BHP's market rating soared after a decision by him to stage a tactical retreat: it was on his recommendation that the board abandoned its bid for Rio Tinto at the height of the financial crisis in November 2008, exposing Rio's internal weakness, and BHP's own formidable balance sheet strength.

To what extent his actions, or the actions of BHP's top executive team, contributed to the TSR outperformance is, however, always a subjective call. BHP says the board remuneration committee decided that the TSR outperformance was "a genuine reflection of BHP's underlying financial outperformance," and that the committee needed to make that judgment for shares to vest.

But it also says that the committee's judgment is qualitative, and that's a weakness in the corporate pay defence case. There's no precise way to work out what value executives add to the value of their company. The TSR measure is only a proxy. Not a bad one, to be fair, but an imperfect defence.

The Maiden family owns BHP shares.

mmaiden@theage.com.au