Rio Tinto
Annual report 2011

Letter from the Remuneration committee chairman

Dear Shareholder,

As the new chairman of the Remuneration committee, I am pleased to introduce our report on remuneration for 2011, for which we seek your support at our annual general meetings in London in April, and in Brisbane in May.

The report is designed to provide you with the necessary information to demonstrate the link between our Group’s strategy, its performance, and the remuneration outcomes for its executives. It is also intended to deliver the remuneration disclosures required by Australian and UK regulation.

In writing to you, I am fully aware of the strength of feeling which the subject of executive remuneration provokes; and I’m aware too that many of our shareholders have registered their concerns through their votes and abstentions on the remuneration report at our recent annual general meetings. Both the board and the Remuneration committee have reflected very carefully on this. I realise that the decisions made by the Committee will not always please all our owners: if we seek perfect consensus among shareholders, I’m afraid we will seek in vain. But we are conscious of our obligation to be as accessible to you as we can so that, on behalf of the board, I hear your views, and try to answer your questions; and in so doing, carry those opinions into our decision-making forums. Since my appointment I have met a number of major shareholders in the UK and in Australia and this process has been invaluable to me in understanding shareholders’ perspectives on legacy and current issues.

Reflecting shareholder feedback, we will be bringing to our 2013 annual general meetings proposals relating to the future structure of our incentive plans. We intend to consult widely on these proposals, and on the broader remuneration context, particularly during 2012, so that by the time we make our recommendations to you in 2013, we will have had the benefit of the thoughts and feedback of as many major shareholders as practical.

Our remuneration strategy and policies focus on using remuneration resource to help implement a successful corporate strategy that will create superior value for our shareholders over the long term. We see that resource as yours; and our endeavour is to use it wisely to promote and protect your interests. We want to use it to ensure that your Company can attract, motivate and retain the high quality and committed people that are critical to lead the business.

We seek to reward employees fairly and responsibly, by providing an appropriate balance between fixed and variable remuneration, the payment of which is linked to the achievement of what are intended to be demanding Group and individual performance measures. But our aim is to pay no more than is necessary to achieve this goal.

Whilst we delivered another record year of underlying earnings performance, short term incentive payments are, on average, lower than in 2010 as the Group did not outperform to the same extent, the challenging financial and safety targets set by your Board for 2011. I also acknowledge the responsibility shown by Tom Albanese and Guy Elliott in informing the Remuneration committee that they did not wish to be considered for an annual bonus in the light of the impairments in our Aluminium business. The Committee endorsed this request.

This year, we have introduced a different format to the remuneration report. We have responded to the request for greater simplicity by providing you with the essential remuneration narrative in the first sections of the report, amplified by the ever-increasing disclosures required by Australian and UK statute and regulation which appear, piece by piece, in the pages that follow. So the sections which follow this letter are:

  • About the report
  • Our remuneration strategy and approach
  • What we paid our executive directors and why
  • Remuneration committee responsibilities, independent advisers, and how the Committee spent its time in 2011
  • Appendix: detailed remuneration disclosures.

We hope this presentation makes our approach, and the facts behind it, more accessible. We would find it very helpful to know in due course what you think.

Yours sincerely,

Signature of John Varley

John Varley, remuneration committee chairman

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