Governance
Executive remuneration
Rio Tinto is subject to a number of different reporting requirements for the contents of this Remuneration report. Whilst UK disclosure requirements relate to the directors, the Australian Corporations Act and regulations both require disclosures for "key management personnel". The Australian Corporations Act also requires disclosures in respect of the five highest paid executives below board level.
The board has considered the definition of "key management personnel" and has decided that, in addition to the executive and non executive directors, they comprise the product group chief executives and the Group executive Business Resources.
The board also considered the definition of five highest paid executives below board level and has decided that, based on the criteria to determine this group of senior management, these executives will be selected from a population comprising key management personnel and members of the Rio Tinto executive committee. In addition to the key management personnel, the following members of senior management are therefore included in this report: Hugo Bague, global head of Human Resources, Debra Valentine, global head of Legal and Grant Thorne, Group executive Technology and Innovation.
Throughout this report, the executive directors, product group chief executives, Group executive Business Resources and the five highest paid executives below board level will collectively be referred to as the "executives".
This represents a change to the normal ranking of remuneration observed in prior years in which the product group chief executives and Group executive Business Resources were both the key management personnel and the five highest paid executives below board level. 2008 was an unusual year in that the fall in the share price since November 2008 resulted in a negative adjustment to the IAS 24 values for share awards under the Mining Companies Comparative Plan (MCCP). The most senior executives experienced the largest negative accounting adjustment thereby resulting in a re-ordering of the senior executives in terms of total remuneration based on the IAS 24 valuation.
During the period since year end, Rio Tinto has announced senior management changes which affect the executive group defined above. On 12 January 2009, Dick Evans, executive director and chief executive Rio Tinto Alcan, indicated his intention to retire on 20 April 2009. He will continue to act as an adviser to the Company for the remainder of his contract to 31 December 2009 and to assist with the transition and integration of Rio Tinto Alcan. Jacynthe Côté was named as chief executive, Rio Tinto Alcan on 1 February 2009. In addition, from 1 February 2009, the responsibilities of the Business Resources function were incorporated into other functions and the Group executive Business Resources, Keith Johnson will be leaving the Group.
Board policy
Rio Tinto operates in global, as well as local markets, where it competes for a limited resource of talented executives. It recognises that, to achieve its business objectives, the Group needs high quality, committed people. Rio Tinto has therefore designed an executive remuneration policy to support its business goals by enabling it to attract, retain and appropriately reward executives of the calibre necessary to deliver very high levels of performance. This policy is regularly reviewed to take account of changing market, industry and economic circumstances, as well as developing Group requirements. The main principles of the Group's executive remuneration policy are:
- to provide total remuneration which is competitive in structure and quantum with Global comparator companies' practices;
- to achieve clear alignment between total remuneration and delivered business and personal performance, with particular emphasis on both short term business performance and long term shareholder value creation and performance relating to health, safety and the environment;
- to link variable elements of remuneration to the achievement of challenging performance criteria that are consistent with the best interests of the Group and shareholders over the short, medium and long term;
- to provide an appropriate balance of fixed and variable remuneration; and
- to provide internal equity between executives within Rio Tinto and to facilitate the movement of executives within Rio Tinto to meet the needs of the Group.
Consistent with the Company's business strategy to have high quality long term mining assets, the Company seeks to achieve a remuneration mix which best reflects the long term nature of the business. Rio Tinto aims to move towards a greater portion of remuneration being in long term incentives. The Company deferred bringing a proposal to shareholders to enhance the variable components of pay as a percentage of total remuneration due to the economic environment and the challenges facing the mining industry in particular, and implemented a bonus deferral programme instead. The Company will continue to review the remuneration structure to improve its alignment with the business strategy.
The composition of total remuneration packages is designed to provide an appropriate balance between fixed and variable components. This is in line with Rio Tinto's objective of aligning total remuneration with personal and business performance. Details of the executives' remuneration are set out in Table 1. The Group's return to shareholders over the last five years is set out in Remuneration paid in 2008.
