Governance

Remuneration paid in 2008

Performance of Rio Tinto and individual executives

The Company experienced strong share price performance for the duration of 2008 with the exception of performance in the fourth quarter when commodity prices dropped sharply. This was reflected in the share price. 2008 earnings are in line with stretching targets approved by the board earlier in the year, despite the drop in commodity prices and the relatively fixed nature of Rio Tinto's costs making it difficult to realise significant reductions in costs within a short window of a few months. To illustrate the performance of the Company's share price relative to markets, graphs showing the performance of Rio Tinto plc in terms of TSR over the last five years, compared to the FTSE 100 Index and Rio Tinto Limited compared to the ASX All Ordinaries Index are reproduced above. A graph showing Rio Tinto's performance relative to the HSBC Global Mining Index is also included to illustrate the performance of Rio Tinto relative to other mining companies.

The effect of this performance on shareholder wealth, as measured by TSR, is detailed in the table on the next page. The relationship between TSR and executive remuneration is discussed in the Executive remuneration and Remuneration components sections appearing earlier in the report. TSR on an annual basis is based on a comparison of the opening and closing share prices plus dividends. Given this methodology, even though the share price exceeded the market average for over 11 months in 2008, it would not be reflected in the TSR calculation due to the sudden decline in share price in the last month of the year.

Rio Tinto shareholder return 2004-2008

Year	Dividends per share paid during the year	Share price - Rio Tinto plc £ (pence)		Share price - Rio Tinto Limited A$		Total shareholder return (TSR) (US$)
	US cents per share	1 Jan	31 Dec	1 Jan	31 Dec	plc %	Ltd %	Group %
2008	152.0	5,317	1,490	133.95	38.00	(71.5)	(71.1)	(71.3)
2007	116.0	2,718	5,317	74.30	133.95	99.5	82.9	91.8
2006	191.5	2,655	2,718	69.00	74.30	6.3	12.2	7.6
2005	83.5	1,533	2,655	39.12	69.00	77.5	81.3	78.4
2004	66.0	1,543	1,533	37.54	39.12	1.7	7.4	3.0

Rio Tinto Group and product group performance during 2008, and over the performance periods of the long term incentive plans which ended on 31 December 2008, affected executives' remuneration as follows:

Share based awards

• SOP - Rio Tinto TSR growth over the three years ending 31 December 2008 achieved the level required by the applicable performance condition for the 2006 award to vest 100 per cent. In addition, TSR performance for the five year period ending 31 December 2008 for the 2004 option re-test achieved the level required to vest 100 per cent. The vesting of the last option grant subject to a re-test provision will occur in March 2009 based on performance for the performance period ending 31 December 2008. Outstanding awards do not have a re-test provision and there is no provision in the plan currently for a re-test on future awards.
• MCCP - Rio Tinto ranked third in the ten company comparator group at the completion of the four year performance period ending 31 December 2008, resulting in 92.5 per cent vesting of the conditional award made (61.6 per cent of the maximum opportunity) to executives who were directors or product group chief executives at the date of the conditional award. This group included Tom Albanese, Guy Elliott, Preston Chiaro, Keith Johnson and Sam Walsh. The vesting shown in Table 4, is in accordance with the performance condition applicable to the 2005 award and represents 92.5 per cent of the original awards for those who were in executive director or product group chief executive roles at the time of grant of the conditional award.

Annual bonus (STIP)

STIPs have been determined for 2008 awards based on business performance, safety and the achievement of personal performance objectives. The committee determined that in order to conserve cash and to create alignment between management and shareholders, a 100 per cent bonus deferral for the executive directors and product group chief executives and a 50 per cent bonus deferral for the other executives would be implemented for any bonus due in respect of 2008. All bonus deferrals are into Rio Tinto shares valued on the date of grant. In the case of the executive directors and product group chief executives, the shares vest 100 per cent on the basis of service at the end of 2011. In the case of the other executives, an amount equal to 25 per cent of salary has been added to the amount of the bonus deferral to provide enhanced retention in a challenging period. The shares vest on the basis of service with 50 per cent vesting at the end of 2010 and the remaining 50 per cent at the end of 2011. Executives who leave due to retirement with the Company's consent or are deemed redundant will receive their bonus deferral at departure and, for those below product group chief executive level, pro rata vesting based on time of the 25 per cent of salary portion that has been contributed by the company. Consistent with the retention aspect of the deferral, executives who resign prior to vesting will forfeit the bonus deferral as well as the 25 per cent of salary portion, if applicable.

2008 STIP amounts are set out in Table 1 on page 152. The deferred portion (either 100 per cent or 50 per cent) appears in the deferred share column. The 50 per cent of the bonus that is not deferred and paid in cash to executives below the product group chief executives appears in the cash bonus column.

Financial performance was assessed against underlying earnings targets for the Group and product groups, as relevant, and established by the committee earlier in the year. The potential impact of fluctuations in exchange rates and some prices are outside the control of the Group. The Committee therefore compares, on an equal weighting basis, both actual results (unflexed) and underlying performance flexed for prices and exchange rates. The Committee retains discretion to consider underlying business performance in deciding STIP awards. The committee did not exercise its discretion to offset the effect of the sharp decline in performance late in the fourth quarter.

Safety measures included Group or relevant product group safety. The 25 per cent weighting comprises 15 per cent allocated to improving the All injury frequency rate (AIFR) and ten per cent allocated to a reduction in critical risk scores as determined by the application of the Semi-quantitative risk assessment (SQRA) approach. Threshold, target and outstanding measures were set relative to previous year's performance according to the following:

Performance level	Threshold	Target	Outstanding
Excellent	No AIFR deterioration +SQRA complete	5% AIFR Improvement + zero fatalities + 10% reduction in critical risk score	10% AIFR Improvement + zero fatalities + 20% reduction in critical risk score
Good	No AIFR deterioration +SQRA complete	10% AIFR Improvement + zero fatalities + 10% reduction in critical risk score	20% AIFR Improvement + zero fatalities + 20% reduction in critical risk score
Fair	No AIFR deterioration +SQRA complete	20% AIFR Improvement + zero fatalities + 10% reduction in critical risk score	40% AIFR Improvement + zero fatalities + 20% reduction in critical risk score

These measures reflect the number one priority of safety at all Rio Tinto operations including corporate offices. Corporate offices receive a safety score based on the combined safety scores of the product groups. Safety scores are subject to additional adjustment downward should a signicant number of incidents, especially the incidence of fatalities, occur during the year. In 2008, Rio Tinto experienced eight fatal incidents globally resulting in 18 deaths. Discretion was exercised to further adjust the scores downward to recognize the magnitude of the loss of life in accidents in 2008.

Personal performance targets and objectives were established for each executive at the start of the performance period. These comprise a balanced set of measures for each individual (as discussed in the following section) that reflect current operational performance, as well as progress on initiatives and projects designed to align with the business priorities of each business, product group and Rio Tinto.

To achieve a strong linkage between business/financial and personal performance and remuneration, the business/financial performance factor is multiplied by the personal factor as set out below and applied to the target STIP percentage, which ranges from 50 to 60 per cent of salary depending on the executive:

	Business/financial threshold 67%, target 100%, outstanding 133%		Personal threshold 25%, target 100%, outstanding 150%
	Group financial	Product group financial	Group/PG safety	Personal performance objectives*
Executive directors**, Group executives, global heads	50% flexed earnings 50% unflexed earnings	-	25%	75%
Product group CEO	20% flexed earnings 20% unflexed earnings	30% flexed earnings 30% unflexed earnings	25%	75%

*Personal contribution to key business performance drivers
** Dick Evans' STIP reflects that of a product group chief executive

The only exceptions to this template are for Rio Tinto Alcan where the business performance metrics for the product group chief executive were driven by 80 per cent upstream earnings (50 per cent flexed/ 50 per cent unflexed) and 20 per cent downstream EVA per the former Alcan bonus plan, and in the case of the Group executive Technology & Innovation (T&I), where safety reflects measures applicable to T&I led projects and Group safety performance.

Strong markets for much of the year followed by a severe global downturn during the fourth quarter made 2008 an unusual year. The impact of the downturn on earnings was further exacerbated by a simultaneous increase in the costs of many inputs. Earnings performance for the Group as a whole measured against stretching targets resulted in a STIP score of 87 per cent of target for business performance. Product group performance varied from zero (Copper & Diamonds) to 109 per cent of target (Energy & Minerals). The committee did not exercise its discretion to adjust for the sharp downturn in commodity prices at the end of the year and the impact this had on performance.

Group safety performance resulted in the committee approving a score of 49 per cent of target. Product group safety varied with scores ranging from 18 per cent of target (Copper & Diamonds) to 89 per cent of target (Rio Tinto Alcan).

Consequently, total STIP awards for executives, including personal STIP scores detailed below, ranged from 29 per cent to 107 per cent of target (14 per cent to 53 per cent of maximum), or a range of 17 per cent to 64 per cent of salary, depending upon the executive. The executive directors, product group chief executives and Group executives have target STIP awards of 60 per cent of salary. Target STIP is 55 and 50 per cent of salary for Debra Valentine and Hugo Bague, respectively.

Tom Albanese

Based on record earnings in a challenging year overall, the committee assessed personal performance including Group safety as 99 per cent of target. The overall STIP award is 86 per cent of target (43 per cent of maximum) which is 52 per cent of salary (43 per cent of maximum). 100 per cent of the bonus payment has been deferred into Rio Tinto shares.

Guy Elliott

Based on personal performance targets related to work occasioned by the unsolicited pre-conditional offer by BHP Billiton, the divestments programme, the efficiency and effectiveness of the finance function and the additional portfolio responsibilities taken in the second half of 2008 for the management of the downstream aluminium businesses, the committee assessed personal performance including Group safety as 87 per cent of target. The overall STIP award is 76 per cent of target (38 per cent of maximum) which is 46 per cent of salary. 100 per cent of the bonus payment has been deferred into Rio Tinto shares.

Dick Evans

Based on personal performance targets related to on-time and on-budget completion of the Sohar Aluminum smelter, progress with the Gove and Yarwun II construction projects, the development of feasibility studies for new and expansion projects, leadership of the Rio Tinto Alcan integration programme, work occasioned by the unsolicited pre-conditional offer by BHP Billiton, business sustainability and the environment and succession planning, the committee assessed personal performance including product group safety as 89 per cent of target. The overall STIP award is 62 per cent of target (31 per cent of maximum) which is 37 per cent of salary. 100 per cent of the bonus payment has been deferred into Rio Tinto shares until his retirement on 31 December 2009.

Hugo Bague

Based on personal performance targets related to human resources transformation projects, Rio Tinto Alcan integration and leadership of the human resources function including work occasioned by the unsolicited pre-conditional offer from BHP Billiton, the committee assessed personal performance including Group safety as 98 per cent of target. The overall STIP award is 85 per cent of target (43 per cent of maximum) which is 43 per cent of salary. 50 per cent of the bonus payment has been deferred into Rio Tinto shares.

Preston Chiaro

Based on personal performance targets related to growth projects, particularly the progression of feasibility studies for thermal coal and uranium projects, support to the divestment processes, significant supply chain improvements in the Hunter Valley, Australia, and initiatives related to climate change, the committee assessed personal performance including product group safety as 101 per cent of target. The overall STIP award is 102 per cent of target (51 per cent of maximum) which is 60 per cent of salary. 100 per cent of the bonus payment has been deferred into Rio Tinto shares.

Bret Clayton

Based on personal performance targets related to both the Diavik and Argyle expansion projects, the progression of pre-feasibility studies and feasibility studies on new projects including Oyu Tolgoi, La Granja, Resolution and Sulawesi, and business sustainability including talent development and joint venture management, the committee assessed personal performance including product group safety as 82 per cent of target. The overall STIP award is 29 per cent of target (14 per cent of maximum) which is 17 per cent of salary. 100 per cent of the bonus payment has been deferred into Rio Tinto shares.

Keith Johnson

Based on the progress of the One Rio Tinto project including the continued roll-out of the 'Aligning Business Systems' project, the achievement of objectives set within each of the Business Resources Areas including Exploration, Marine, Rio Tinto Procurement, Business Services and the global marketing centre, and Rio Tinto Alcan integration, the committee assessed personal performance including Group safety as 100 per cent of target. The overall STIP is 87 per cent of target (44 per cent of maximum) which is 52 per cent of salary. Keith Johnson's bonus payment has not been deferred as he is leaving the Group on 31 July 2009.

Grant Thorne

Based on the progress of the expansion projects under the management of Technology & Innovation including Argyle, Kestrel, Clermont and QIT Madagascar Minerals, progress on key technology initiatives (including Autonomous trucks and underground development), Rio Tinto Alcan integration and leadership of the Technology & Innovation group, the committee assessed personal performance including T&I safety as 110 per cent of target. The overall STIP award is 96 per cent of target (48 per cent of maximum) which is 56 per cent of salary. 50 per cent of the bonus payment has been deferred into Rio Tinto shares.

Debra Valentine

Based on leadership of the legal function including establishment of a global legal function, and significant contribution to the unsolicited pre-conditional offer by BHP Billiton, the committee assessed personal performance including Group safety as 107 per cent of target. The overall STIP award is 93 per cent of target (47 per cent of maximum) which is 51 per cent of salary. 50 per cent of the bonus payment has been deferred into Rio Tinto shares.

Sam Walsh

Based on personal performance related to on-time and on-budget completion of key expansion projects in the Pilbara, the progression of feasibility studies for global projects including Corumba, IOC and Simandou, business sustainability items related to technology development including progress on the automated trains and automated drills, marketing effectiveness and work occasioned by the unsolicited pre-conditional offer by BHP Billiton, the committee assessed personal performance including product group safety as 107 per cent of target. The overall STIP award is 107 per cent of target (53 per cent of maximum) which is 64 per cent of salary. 100 per cent of the bonus payment has been deferred into Rio Tinto shares.

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