Governance
Introduction
Rapid change characterised the environment faced by Rio Tinto in 2008. While focused work continued throughout the year on the integration of Alcan, and the industry experienced strong commodity prices well into the third quarter, the sharp global and industry downturn in the fourth quarter necessitated quick action to compensate for the sharp change in revenues and significant fixed costs. The year also proved challenging due to the unsolicited pre-conditional offer from BHP Billiton, which occupied eleven months of the year and created significant uncertainty for employees. It also constrained Rio Tinto's ability to take actions to enhance the alignment between the remuneration structure and business and people priorities, which are key to shareholder value creation.
Rio Tinto has pursued a divestment strategy during 2008 which was hampered by the global credit crisis. A significant number of employees are in businesses that have been identified for divestment, which presents a unique human resources challenge when the divestment process is extended over many months.
As announced at the end of 2008, Rio Tinto is continuing to rationalise its workforce and its assets in response to the downturn, and to use cash flows to repay the existing level of debt. In close collaboration with management, Rio Tinto is working to establish the delicate balance that is required between the needs of Rio Tinto employees and their families, the communities in which its people and assets are located, and its shareholders. Rio Tinto continues to believe that our people are amongst its most important assets, and to treat them with respect is in the best interests of everyone and consistent with its profile as a world class organisation.
Consistent with the challenging economic environment, the Company took steps to conserve cash in 2009 including granting no increases in salary at the executive director and product group chief executive level and minimal increases below this level. Despite the economic conditions, the Company achieved near target earnings for 2008. To enhance alignment of executives with shareholders and to support retention in the current environment, the committee introduced a 100 per cent mandatory deferral of any bonus payable into shares at the product group chief executive level and above and a 50 per cent deferral for other senior executives.
Remuneration committee
The following independent, non executive directors were members of the committee during 2008:
- Andrew Gould (chairman from 24 April 2008)
- Sir Richard Sykes (chairman until 24 April 2008)
- Sir David Clementi
- Michael Fitzpatrick
- Richard Goodmanson
- Paul Tellier
The committee met seven times during 2008 and members' attendance is set out on Board committees. The committee's responsibilities are set out in its terms of reference which have been approved by the Board and may be viewed in the corporate governance section of the website. They include:
- recommending executive remuneration policy to the board;
- reviewing and determining the terms of service, including remuneration and any termination arrangements, for the chairman, executive directors, product group chief executives and the company secretary of Rio Tinto plc;
- reviewing and confirming the remuneration and conditions of employment strategy for other senior managers;
- recommending share-based long term incentive plans to the board; and
- monitoring the effectiveness and appropriateness of executive remuneration policy and practice.
The global head of Human Resources, Hugo Bague, and Jane Craighead, global practice leader, Total Rewards attended committee meetings in an advisory capacity. The chairman, Paul Skinner and the chief executive, Tom Albanese, participated in meetings at the invitation of the committee during 2008, but were not present when their own individual remuneration was discussed. Ben Mathews, the company secretary of Rio Tinto plc, acts as secretary to the committee, but was not present when his own remuneration was discussed.
The committee appointed Deloitte LLP in 2008 to provide it with independent advice on executive remuneration matters. Deloitte LLP also provides taxation advice to the Group mainly related to Rio Tinto's share plans as well as providing unrelated taxation and consulting advice. To carry out its duties in accordance with its terms of reference, the committee monitors global remuneration trends and developments and draws on a range of external sources of data, in addition to that supplied by Deloitte LLP, including publications by other remuneration consultants such as Towers Perrin, Hay Group, Mercer and Watson Wyatt.
Corporate governance
The committee reviewed its terms of reference in 2008 and concluded that, in the course of its business, it had covered the duties set out in the Combined Code on Corporate Governance, published by the UK Financial Reporting Council (the Code), complied with Principle 8 of the revised Australian Securities Exchange Corporate Governance Principles and Recommendations (the ASX Principles), and was constituted in accordance with the requirements of the Code and the ASX Principles. The performance of the committee was evaluated in 2008 which confirmed that it had satisfactorily performed the duties set out in its terms of reference.
