BlueScope Steel’s largesse to its senior executives comes as no surprise. In 2011-11 financial year, BlueScope gave its entire board, CEO Paul O’Malley and two other senior executives pay rises despite a $1 billion-plus loss and the share price tanking. But BlueScope has always been generous to its board and executives.

Chairman Graham Kraehe’s fees have steadily climbed from $300,000 in 2003 to nearly $490,000 this year, while the company’s first CEO, Kirby Adams, was lavishly rewarded with total remuneration packages just shy of $5 million per annum, except for an off-year in 2006, when flat growth and a fallen share price only saw him scoop up a mere $2.9 million.

The key reason is that BlueScope’s strategy for most of the past decade has been focused not on developing a robust business model but on being the darling of the share market.

As Glenn Dyer explained on Monday, our other, smaller BHP spin-off, OneSteel, has been a very different beast under chairman Peter Smedley and CEO Bob Every, moving into iron ore exports, higher-grade steel products and using the strong dollar to acquire assets offshore and move up the value chain.

BlueScope has settled for sticking to its basic steel production model and hitting governments up for assistance. OneSteel started off with much more debt than BlueScope, with a gearing ratio of over 38% in 2003 in the aftermath of its spin-off from BHP. It steadily paid down debt until 2006. Its dividend growth was steady but not spectacular — 11 cents a share in 2003, steadily rising to 21.5 cents on the eve of the GFC.

BlueScope, under American CEO Kirby Adams, took a different approach. The company repeatedly paid out special dividends — seven cents in 2003, 10 cents in 2004, 20 cents in 2005, as well as big final dividends each year. The company also launched a $200 million share buyback in early 2005. Meanwhile, it was taking on debt rapidly — having started with virtually none, its gearing ratio had hit 38% by 2006. BlueScope also aggressively built its presence in Asia and China, spending too much money on a strategy that was well thought out but badly executed — by 2006, the company was publicly admitting the performance of its new Asian assets was poor.

But the strategy made BlueScope a stock market star. The relative performance of the two companies shows BlueScope initially far outstripping OneSteel:

By 2005, even the Sunday papers had tips on how you could get in on the action of BlueScope’s remorselessly rising share price.

Adams’s and Kraehe’s strategy included targeting unions. In late 2004 Adams launched a savage attack on “manufacturing sector trade union leaders” whom he accused of handicapping the sector. Adams’s attitude perfectly suited the times — at that point the Howard government was preparing its WorkChoices assault. Then-AWU secretary Bill Shorten had already gone to the company’s AGM that year to lash the company for refusing to talk to the union.

Wages growth for the company’s workers lagged inflation and was well below that of workers at OneSteel and Smorgon Steel (later to be split between the two larger companies). In what would become a familiar story, Adams sacked 600 workers across the company’s operations, including 250 at Port Kembla with the closing of the steel works, in June 2006 to try to take the heat off the company’s flagging performance. The dose would be repeated in 2008 and again this week.

Adams, who left BlueScope in 2007, took his anti-union strategy to Tata’s Corus in Europe, where he instigated a brawl with British unions at the Teesside Cast Products plant, only to be moved on last year.

But as OneSteel paid down debt and looked to expand into iron ore before anyone knew about a resources boom, the writing was already on the wall for BlueScope. As early as February 2004, commentators were wondering what would happen when Chinese steel production, rapidly improving in quantity and quality, turned that country from a net importer to a net exporter. Adams at the time publicly worried about what would happen if the Australian dollar rose — at that stage it had just fallen below 80 US cents.

Instead of responding creatively, Kraehe and Adams stuck to the standard-issue management model — go the unions, look after investors and keep the company share price going up and up. The trick was still working when current CEO Paul O’Malley took over but the company couldn’t defy economic gravity forever, even without a global financial crisis. However, executive remuneration apparently can continue to defy gravity.