Remuneration Report
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Information not subject to audit
Remuneration Committee
The Remuneration Committee is chaired by Willy Strothotte and its other members are David Rough and Paul Hazen, all of whom are non-executive directors. The Board recognises that Willy Strothotte is not an independent non-executive director as defined by the Code, but regards his membership as critical to the workings of the Committee due to his extensive knowledge and experience of the global mining resources sector.
The Remuneration Committee reviews the structure of remuneration for executive directors on an ongoing basis and has responsibility for the determination, within agreed terms of reference, of specific remuneration packages for executive directors and other members of the Executive Committee, including salaries, pension rights, bonuses, long-term incentives, benefits-in-kind and any compensation payments. The Committee is also aware of the level and structure of remuneration for senior management and advises on any major changes in employee remuneration and benefit structures throughout the Group, including the continuous review of incentive schemes to ensure that they remain appropriate for the Group. The Remuneration Committee commits to bringing independent thought and scrutiny to the development and review process of the Group with regards to remuneration.
The Committee met three times during 2008. The Chairman will continue to ensure that the Group maintains contact, as necessary, with its principal shareholders about remuneration. The purpose and function of the Committee in the future will not differ materially from this year and its terms of reference can be found on the Group’s website (www.xstrata.com).
The remuneration of non-executive directors, other than the Chairman, will be considered by the Chairman and the Chief Executive and will not be considered by the Remuneration Committee. The Chairman’s remuneration will be determined by the Remuneration Committee while the Chairman is absent.
The Chief Executive attends the Remuneration Committee meetings by invitation and assists the Remuneration Committee in its considerations, except when issues relating to his own remuneration are discussed. The Remuneration Committee is provided with national and international pay data collected from external survey providers.
During the year, Hay Group provided independent advice to the Remuneration Committee on executive remuneration. The Group also uses the Hay Group method for determining salaries for positions below Executive Committee level. The Hay Group provided no other services to the Group during 2008.
Remuneration Policy
Xstrata’s remuneration policy is designed to attract, retain and motivate the highly talented individuals needed to deliver its business strategy and to maximise shareholder wealth creation.
The policy for 2009 and, so far as practicable, for subsequent years, will be framed around the following principles for the Executive Committee:
- remuneration arrangements will be designed to support Xstrata’s business strategy and to align it with the interests of Xstrata’s shareholders;
- total reward levels will be set at appropriate levels to reflect the competitive global market in which Xstrata operates, with the intention of positioning such levels within the top quartile for outstanding performance when measured against a peer group of global mining companies and the FTSE100;
- a high proportion of the remuneration should be ‘at risk’, with performance-related remuneration making up at least 50% of the total potential remuneration for Executive Committee members; and
- performance-related payments will be subject to the satisfaction of demanding and stretching performance targets over the short and long term. These performance targets will be set in the context of the prospects of the Group, the prevailing economic environment in which it operates, and the relative performance of comparator companies.
The Remuneration Committee considers that a successful remuneration policy needs to be sufficiently flexible to take account of future changes in the business environment and in remuneration practices. Consequently, the remuneration policy and the Remuneration Committee’s terms of reference for subsequent years will be reviewed annually in the light of matters such as changes to corporate governance best practice or changes to accounting, legislation or business practices among peer group mining companies. This will help to ensure that the policy continues to provide Xstrata with a competitive reward strategy. In doing so, the Committee will take into account the UK Listing Rules, the provisions of the Code and associated guidance attached to it, as well as the guidance provided by a number of institutional investor representative bodies on the design of performance-related remuneration. Policies will be sensitive to pay and employment conditions elsewhere in the Group.
The Remuneration Committee is satisfied that Xstrata’s pay and employment conditions for non-Board employees around the world are appropriate to the various markets in which Xstrata operates. The Remuneration Committee does not consider a ratio comparison between executive directors and non-Board employees to be a useful way of assessing the fairness and equitability of Xstrata’s remuneration practices. The vastly different costs of living in the countries where Xstrata has operations and fluctuations in exchange rates mean any such trend analysis or comparisons with competitors would be meaningless.
Elements of Remuneration
The total remuneration package for executive directors comprises the following principal elements:
- base salary;
- annual bonus plan including deferred element;
- participation in long-term incentive arrangements;
- subsisting rights under the Xstrata AG share scheme in relation to individual arrangements (as detailed below);
- pension; and
- other benefits including housing allowance (where essential for the performance of duties), permanent health, life and private medical insurance.
Base Salary
The base salary of the executive directors is subject to annual review by the Remuneration Committee. The Remuneration Committee reviews external pay data to ensure that the levels of remuneration remain competitive and appropriate in the light of the Group’s policy. The Remuneration Committee is also responsible for ensuring that the positioning of the Group’s remuneration relative to its peers does not result in increases in remuneration without a corresponding increase in performance or responsibilities. When setting base salaries, the Committee also considers the impact on pension contributions and associated costs. During 2008 (with effect from 1 January 2008), base salary increases for Mick Davis, Trevor Reid and Santiago Zaldumbide were 14%, 22% and 6% respectively. Respective base salaries effective from 1 January 2009 will be GBP1,310,000, GBP660,000 and EUR970,000, representing increases of 4.80%, 5.60% and 4.08% respectively on salaries paid during 2008.
Santiago Zaldumbide provides his services to the Group under a professional services agreement entered into between him and Asturiana on 23 July 2007 to act as Chairman and Chief Executive Officer of Xstrata Zinc. This agreement replaced a similar agreement with Asturiana dated 29 January 1998, which was terminated by agreement on 23 July 2007. The current agreement is in force from its date of signature (23 July 2007) and continues indefinitely thereafter unless terminated by one of the parties giving the other written notice of no less than six months. The annual gross fee payable to Santiago Zaldumbide for the year ended 31 December 2008 was EUR932,000 including an amount in lieu of any pension-related payment. This annual fee is subject to review in line with the other executive directors.
Santiago Zaldumbide’s appointment as a director of Xstrata is subject to the existence of the above-referenced agreement between Santiago Zaldumbide and Asturiana. Santiago Zaldumbide receives no additional remuneration for his position as director of Xstrata plc but is eligible to participate in the Bonus Plan and the Long Term Incentive Plan.
Bonus Plan
Executive directors and the other members of the Executive Committee are eligible to participate in the Executive Committee Bonus Plan (‘the Bonus Plan’). The Bonus Plan focuses on the achievement of annual objectives, which align the short-term financial performance of the Group with the creation of shareholder value.
The bonus is based on Xstrata’s operational performance as measured by return on equity and net profit. Specific targets for return on equity and the proportion of net profits that make up the bonus pool are determined each year by the Remuneration Committee. Before the pool is finalised the Remuneration Committee actively considers whether the pool is appropriate in light of the other key financial and non-financial drivers of future shareholder value.
The payment of any bonus under the Bonus Plan is subject to a hurdle rate (for the financial years ending 31 December 2008 and 2009 it will be set such that the Group’s return on equity will be at least equal to the Group’s average cost of borrowing). If this hurdle is not reached, the bonus pool will be zero. The Remuneration Committee has the discretion to vary the basis of calculation and the performance targets for subsequent years.
The amount of the bonus pool that is distributed in any one year, and the relative proportions payable to each participant (or, at the discretion of the Remuneration Committee, to a trust for his/her benefit) will be at the discretion of the Remuneration Committee. Individual performance criteria have been agreed with each participant, which will be evaluated by the Remuneration Committee in determining individual allocations from the bonus pool.
The maximum bonus payable under the Bonus Plan for executive directors is 300% of salary. The highest level of bonus will only be available for truly outstanding performance. Bonuses will be payable in up to three tranches, as follows:
- the maximum bonus which any one participant is eligible to receive in cash will be limited to 100% of the individual’s base salary;
- any additional bonus up to a further 100% of base salary will be deferred for a period of one year; and
- any remaining bonus will be deferred for a period of two years.
The deferred elements take the form of conditional awards of Xstrata shares which vest subject to the participant remaining in employment throughout the deferral period. The number of shares awarded will be determined by reference to the market value of the shares at the date concurrent awards under the LTIP are made.
There is no intention to use newly issued ordinary shares for the Bonus Plan and any shares required for the satisfaction of deferred bonuses will be acquired by market purchase.
Other Benefits
In 2008, following termination of discussions with Vale, and in light of unprecedented approaches from executive recruitment firms, a small group of senior executives whose particular skills and services the Company was seeking to retain, were awarded a one-off retention bonus payable in May 2009 conditional upon, amongst other things, their remaining in employment to and including 30 April 2009.
In order to facilitate travel to the Group’s operations, many of which are located in remote locations not served by commercial flight routes, Xstrata leases a private aircraft to be used from time to time for business travel by Group executive management. During the year, the Remuneration Committee approved the private use of leased aircraft for Mick Davis, subject to any private usage not conflicting with company requirements, for a limited number of hours per annum, not all of which were utilised in 2008.
Long Term Incentive Arrangements
All equity-based awards are subject to an overall limitation on the number of shares issued, transferred from treasury, or that remain issuable pursuant to awards of 10% within any ten-year period after the listing date.
Added Value Incentive Plan
The Added Value Incentive Plan (the ‘AVP’) is designed to incentivise the Chief Executive by providing a share of the long-term value he creates for shareholders over and above the value created by Xstrata’s peer companies and to create alignment with shareholders by means of share ownership. The Remuneration Committee believes that the Chief Executive has a unique role in delivering value to shareholders through the efficient utilisation of Xstrata’s assets and by making value-enhancing acquisitions and divestments. For this reason, membership of the AVP is restricted to the current Chief Executive and any future successor in that role.
The Chief Executive’s participation in the AVP is contingent on his building up and maintaining a holding of at least 350,000 ordinary Xstrata shares.
The Chief Executive will not be eligible for awards under the Xstrata plc Long Term Incentive Plan (the ‘LTIP’) in any year when an AVP cycle commences.
Payments under the scheme will be based upon the growth in the Company’s total shareholder return (‘TSR’) over the relevant performance period relative to an index of global mining companies, which form the Xstrata TSR Index. Performance will be assessed over periods of both three years (‘Phase 1’) and five years (‘Phase 2’) from date of award.
At the end of a Phase 1 performance period Xstrata TSR will be calculated and compared to the Xstrata TSR Index, and the Added Value created over the performance period will be calculated.
If this figure is positive, it will be multiplied by a participation percentage (which is 0.5% of the Added Value for the 2005 Plan Cycle, 0.3% for the 2006 and 2007 Plan Cycles and 0.5% for the 2008 Plan Cycle) to calculate the ‘Phase 1 Base Reward’. The maximum aggregate participation percentage for Plan Cycles commencing in any three-year period cannot exceed 1.1%. No payments will be made if Xstrata underperforms the Xstrata TSR Index.
There is a cap which applies to the calculation at the end of the Phase 1 performance period. If the cap has been applied then the Chief Executive will become eligible for Phase 2 of a Plan Cycle. At the end of the Phase 2 performance period the calculation will be carried out in the same way as at the end of Phase 1, but only to the extent that performance exceeds the applicable cap.
The Remuneration Committee recognises that the absolute value received by shareholders is higher when outperforming a rising market than outperforming a market which is static or falling, therefore, two modifiers are applied. Firstly, the Phase 1 and Phase 2 Base Rewards will be increased or decreased in line with the Xstrata share price index measured against the comparator group. Secondly, a reduction will be made for lower levels of absolute performance, by applying a multiplier to the indexed Base Rewards to calculate the Final Rewards. For the 2008 Plan Cycle and future plan cycles, for absolute TSR of 25% and above a multiplier of 1 will be applied, for absolute TSR of -25% or below a multiplier of 0.5 will be applied. For the 2005, 2006 and 2007 Plan Cycle, the multiplier for absolute TSR of -25% is 0. Between -25% and +25% straight-line interpolation will apply. Provided Xstrata’s TSR is at least equal to the TSR index, the Phase 1 Final Reward under each Plan Cycle will be at least $1 million. The multiplier was adjusted for the 2008 Plan Cycle and for future Plan Cycles as the Remuneration Committee considered it was necessary in order to ensure that the AVP continues to offer an adequate incentive and reward for mitigating shareholder losses in a falling market.
50% of the Final Reward for a Phase of a Plan Cycle shall be payable in cash or in shares, as determined by the Remuneration Committee, as soon as practicable following determination of the Final Reward for that Phase by the Remuneration Committee. Of the remaining 50% of a Phase 1 Final Reward, 25% shall be deferred for a period of one year and 25% shall be deferred for a period of two years. The remaining 50% of a Phase 2 Final Reward shall be deferred for a period of one year.
The Xstrata TSR and Share Price Indices will be weighted by market capitalisation. The comparator group for each plan cycle comprises relevant global mining firms. These are shown below.
| Comparator group for the TSR and Share Price Indices | ||||
|---|---|---|---|---|
| 2005 | 2006 | 2007 | 2008 | 2009 |
| Alcoa Inc Alcan Inc Anglo American plc Arch Coal Inc BHP Billiton plc Coal & Allied Industries Ltd Elkem ASA Eramet SA Grupo Mexico SA de CV Inco Ltd Korea Zinc Inc Lonmin plc Falconbridge Ltd Norddeutsche Affinerie AG Peabody Energy Corp Phelps Dodge Corp Rio Tinto plc Teck Cominco Ltd Umicore SA |
As for 2005 but excluding: Elkem ASA |
As for 2006 but excluding: Inco Limited Falconbridge Limited Phelps Dodge Corp |
As for 2007 but excluding: Alcan Inc |
As for 2008 but excluding: Coal & Allied Industries Ltd Lonmin plc Umicore SA And including: Companhia Vale do Rio Doce (Vale) Vedanta Resources plc Freeport McMoRan Copper & Gold Inc MMC Norilsk Nickel Impala Platinum Holdings Ltd |
In the event of one or more constituents undergoing a take-over, merger, dissolution, variation in capital or any other event that will materially affect calculation of an Index, the Remuneration Committee shall determine how this should be reflected in the Index calculation. The Remuneration Committee may add other relevant competitors to the Index if required.
In the event of a change of control, all open Plan Cycles will vest immediately. The Final Reward under each open Plan Cycle will be calculated as if the performance period terminated on the date of the transaction save that the Committee has discretion to disapply the cap that would otherwise apply in the calculation of Phase 1 Excess Return. In the event of the Chief Executive ceasing to be an Xstrata employee as a result of death, ill health or disability, all open Plan Cycles will vest immediately. The Final Reward under each open Plan Cycle will be calculated as if the performance period terminated on the date of cessation of employment. In the event of the Chief Executive ceasing to be an Xstrata employee other than in the circumstances described above, all Plan Cycles will lapse and no payments will be made unless the Remuneration Committee in its absolute discretion determines otherwise. In the event of a variation in the capital of Xstrata, the Participation Percentages may be adjusted in such a way as the Remuneration Committee determines.
The Added Value Incentive plan will terminate on 9 May 2010, after which no further awards will be granted.
2005 AVP cycle
Phase 1 of the 2005 cycle vested on 9 May 2008 when the increase of Xstrata’s TSR was 404.26%, the growth of the Xstrata TSR Index was 238.16% and the growth of the Xstrata Price Index was 220.65%. This performance represents an outperformance of 166.10%. As a result, the cap was applied to the Phase 1 Added Value and Phase 2 was triggered. As at 31 December 2008, it is not expected any payment will be made under Phase 2 of the 2005 Plan Cycle, however, the determination of final reward will be made at the end of the Phase 2 performance period on 9 May 2010. For further information please see Shares.
2006 AVP cycle
As at 31 December 2008, the decrease of Xstrata’s TSR was 62.29%, the decrease of the Xstrata TSR index was 32.62%, and the decrease of the Xstrata Share Price Index was 36.31%, as calculated under the AVP for the 2006 Plan Cycle. This performance represents an under-performance of 29.67%. If this is the outcome at the end of the three-year period no payment will be made under the plan.
2007 AVP cycle
As at 31 December 2008, the decrease of Xstrata’s TSR was 79.35%, the decrease of the Xstrata TSR index was 47.92%, and the decrease of the Xstrata Share Price Index was 49.90%, as calculated under the AVP for the 2007 Plan Cycle. This performance represents an under-performance of 31.43%. If this is the outcome at the end of the three-year period no payment will be made under the plan.
2008 AVP cycle
As at 31 December 2008, the decrease of Xstrata’s TSR was 87.23%, the decrease of the Xstrata TSR index was 66.51%, and the decrease of the Xstrata Share Price Index was 67.21%, as calculated under the AVP for the 2008 Plan Cycle. This performance represents an under-performance of 20.72%. If this is the outcome at the end of the three-year period no payment will be made under the plan.
Long Term Incentive Plan
Executive directors are eligible to participate in the Long Term Incentive Plan (the ‘LTIP’). The LTIP aims to focus management’s attention on continuous and sustainable improvements in the underlying financial performance of the Group and on the delivery of superior long-term returns to Xstrata’s shareholders by providing executives with the opportunity to earn superior levels of reward for outstanding performance. In addition, the LTIP further aligns the interests of shareholders and management by encouraging executives to build a shareholding in the Group.
The LTIP provides for the grant of both contingent awards of free shares (‘Free Share Awards’) and share options on the same occasion to the same individual. The two elements are complementary and ensure that the cyclical nature of the industry does not have an excessively adverse effect on employee remuneration in circumstances where the performance of the Group has otherwise been good, relative to that of competitors.
The Free Share Awards will ensure that where the Group has performed well over the specified performance period, participants will be rewarded even if there is no substantial share price growth due to external factors, such as commodity prices or general economic conditions. The option element will only provide a benefit to participants when shareholders also benefit from future share price growth. The options will be subject to stretching performance targets to ensure that windfall growth in the share price as a result of external factors does not deliver rewards which are not justified by the performance of the Group, relative to its peer group. The policy regarding performance targets is discussed in more detail below.
The number of ordinary shares over which options will be granted will be calculated using a binomial valuation of the option (or a similar approach) which the Remuneration Committee considers represents both the cost to Xstrata of providing the benefit and the value of the option itself as a component of the total remuneration package. The option value at grant will be subject to a lower and upper limit as determined by the Remuneration Committee from time to time. In determining the value of Free Share Awards, the value of the underlying shares will be used.
Using the method above, the value ratio of Free Share Awards to share options for awards made during 2008 was in general 1:1, based on the value at the time of grant. The Remuneration Committee may change the ratio for future awards if it is thought appropriate.
The Remuneration Committee has determined that annual awards will be made under the LTIP to minimise the impact of share price volatility and to reflect existing best practice. The rules of the LTIP provide that the aggregate value of options and Free Share Awards made to an individual in any one year may not exceed an amount equal to two times base salary in normal circumstances (although, in exceptional circumstances, the limit may be up to, but may not exceed, four times base salary).
Summary of performance conditions
During 2006, 2007 and 2008, executive directors were granted market value options and Free Share Awards under the LTIP. The vesting of both the options and Free Share Awards is subject to the satisfaction of stretching performance conditions over a three-year performance period. Half of the options and Free Share Awards are conditional on TSR relative to a peer group and half are conditional on the Group’s real cost savings relative to targets set on a stretching scale over the three-year period, as follows:
For the awards conditional on TSR, 25% of the combined award will vest if TSR growth is at the median of the specified peer group, the full 50% of the combined award will vest for performance at or above the second decile with straight-line vesting between these points. No vesting will occur for TSR growth below median performance.
For the remaining award, vesting is conditional on the Group’s real cost savings relative to targets set on a stretching scale: 5% of the combined award will vest for 1% cost savings, 35% for 2% cost savings and 50% for 3% or more cost savings, with straight-line vesting between these points. No vesting will occur for cost savings that are less than 1%. Real cost savings will be measured in relation to operating costs after adjusting for the effects of inflation, excluding depreciation, commodity price-linked costs, effects of currencies on translation of local currency costs and planned life of mine adjustments.
Since the Group’s share price and those of its peers are significantly influenced by the cycle in commodity prices, the Remuneration Committee considers TSR relative to a peer group to be an appropriate performance measure as it rewards relative success in growing shareholder value through the development and execution of the corporate strategy. The Remuneration Committee is also satisfied that TSR will be a genuine reflection of the Group’s underlying financial performance. The use of the second measure, Group real cost savings relative to targets, reflects the Group’s strategic initiative to add shareholder value through productivity and cost efficiencies. Furthermore, the use of a financial performance measure alongside a relative TSR measure is aligned with current corporate governance best practice.
The performance targets are not capable of being retested at the end of the performance period, so that any proportion of a Free Share Award or option which does not vest after three years will lapse, although vested options will remain exercisable for a maximum of seven years or such shorter period as the Remuneration Committee may specify (after which they will lapse).
In the event of a change of control, all Free Share Awards and options will vest in full or (in certain circumstances) may be exchanged for equivalent options or LTIP awards over shares in the acquiring company.
The peer group of global mining companies used to determine the vesting of the options and Free Share Awards conditional on TSR under the LTIP, comprises the same comparator group used to form the Xstrata Share Indices for the CEO’s Added Value Incentive Plan for the relevant year detailed above. The Remuneration Committee may, at its absolute discretion, vary, add, remove or alter the companies making up the peer group where events happen which cause the Remuneration Committee to consider that such a change is appropriate to ensure that the performance condition continues to represent a fair measure of performance. This is provided that the Remuneration Committee reasonably considers such a varied or amended performance condition is not materially easier or more difficult to satisfy.
In calculating the TSR, the common currency of US dollars will be used and the share price of a notional parcel of shares of the Group and the companies in the specified peer group will be averaged over a period preceding both the start and end of the relevant performance period. The Remuneration Committee has resolved that averaging over a three-month period eliminates the volatility in spot share prices that could otherwise distort the assessment of whether the target has been met.
The TSR of the Group and each member of the peer group over any performance period is calculated by taking the growth between the closing value and the base value of 100 shares expressed as a percentage of the base value, on the assumption that any net dividend per share paid by any company during the relevant performance period is reinvested in shares on the last day of the month during which the relevant shares go ex-dividend. This calculation is subject to such adjustments to closing value and base value as the Remuneration Committee considers appropriate to reflect any variation of share capital or any merger, takeover, reconstruction, demerger or change in listing status by any member of the peer group or upon any other events which the Remuneration Committee considers may materially distort the calculation.
2006 LTIP Award
At 31 December 2008, the Group was ranked 15th out of the peer group of 19 companies (including Xstrata) in terms of TSR for the 2006 award. If this is the outcome at the end of the three-year performance period then 0% of each executive director’s 2006 award linked to TSR will vest.
2007 LTIP Award
At 31 December 2008, the Group was ranked 14th out of the peer group of 16 companies (including Xstrata) in terms of TSR for the 2007 award. If this is the outcome at the end of the three-year performance period then 0% of each executive director’s 2007 award linked to TSR will vest.
2008 LTIP Award
At 31 December 2008, the Group was ranked 15th out of the peer group of 15 companies (including Xstrata) in terms of TSR for the 2008 award. If this is the outcome at the end of the three-year performance period then 0% of each executive director’s 2008 award linked to TSR will vest.
It should be noted that these amounts are based on the Group’s results at this provisional stage and do not necessarily reflect the eventual outcome.
Subsisting Rights under Xstrata AG Share Schemes
Subsisting options held by Mick Davis pursuant to terms on which they were recruited are held on terms which reflect the provisions of the Management and Employee Share Incentive Scheme previously operated by Xstrata AG, except as expressly provided otherwise. These options were converted into equivalent options over ordinary shares in the Group at the time of the listing of the Group’s shares on the London Stock Exchange (‘the Listing’) but otherwise continue to be subject to the terms and conditions (as modified) of the original Xstrata AG share scheme. It is intended that the options will as far as possible be satisfied by the transfer of ordinary shares in the Group held by the trustees of the Xstrata Employee Share Ownership Trust and the Xstrata Employee and Directors Share Ownership Trust. Whilst subsisting options continue to exist under this scheme, no future grants will be made. Subsisting options are not subject to performance conditions because they were originally granted under arrangements (which did not provide for awards to be subject to performance) which related to Xstrata AG prior to the Group becoming a UK listed company.
Performance Graph
The performance graph set out above shows the TSR for a holding of shares of the Group for the five years ended 31 December 2008 compared with the TSR for a hypothetical holding of shares of the same kinds and number as those by reference to which the FTSE 100 index is calculated. The Board considers that the FTSE 100 currently represents the most appropriate of the published indices for these purposes.
TSR has been calculated assuming that an equivalent sum was invested in shares of the Group and in the FTSE 100 index.
Dividends are invested in additional shares and benefits receivable in the form of shares are also added to the relevant holding.
Pensions
Mick Davis and Trevor Reid have participated in money purchase retirement plans from their respective dates of joining the Group. The plans are designed having regard to the taxation and employment status of each executive.
Group contributions are reassessed at regular intervals and are based on actuarial advice with the objective of accumulating sufficient funds over the working lifetime of each executive to provide an overall target pension which is currently intended to be equivalent to approximately 60% of final salary at normal retirement age for executives who begin participating in the plans at the age of 40. Prior to 6 April 2006, these contributions were paid to a combination of an approved money purchase pension plan and a Funded Unapproved Retirement Benefits Scheme (FURBS). From 6 April 2006, contributions have been made through a combination of payments to a registered pension plan and cash sums to each executive, having regard to the tax limits on contributions and benefits from registered UK pension plans (with only cash payments being made after 2007). The actual benefits payable from the pension plans will be based on the amount which has accumulated in that member’s money purchase accounts. No employee contributions are currently payable by Mick Davis and Trevor Reid.
As noted above, Santiago Zaldumbide receives no pension benefits under the terms of his professional services agreement.
External Appointments
Executive directors are not permitted to hold external directorships or offices without the approval of the Board. Santiago Zaldumbide, having gained the approval of the Board, held a directorship with ThyssenKrupp SA. He was also a member of the Supervisory Board of Air Products and Chemicals, Inc. In total, the remuneration received by Santiago Zaldumbide, in relation to his positions in these companies, amounted to EUR49,943.
Non-Executive Directors
The level of fees for non-executive directors is set at the level considered necessary to obtain the services of individuals with the relevant skills and experience to bring added depth and breadth to the composition of the Board.
Non-executive directors’ fees are reviewed annually by the Chairman and the Chief Executive in the light of fees payable to non-executive directors of comparable companies and the importance attached to the retention and attraction of high calibre individuals as non-executive directors.
Non-executive directors are eligible to forgo all or part of their Directors’ fees to acquire shares in the Group, after deduction of applicable income tax and social security contributions.
The non-executive directors do not, and will not in the future, participate in the Bonus Plan or LTIP or any other performance-related incentive arrangements which may be introduced from time to time.
Entitlements under Service Contracts
Executive Directors
Mick Davis and Trevor Reid have employment agreements with Xstrata Services (UK) Limited (‘XSL’) effective from 1 February 2002 which are for fixed terms of one year. However, their services as Chief Executive and Chief Financial Officer respectively are provided to the Group under a secondment agreement entered into between the Group and XSL on 19 March 2002. Each of Mick Davis and Trevor Reid is seconded to the Group for a fixed term of two years thereafter renewable by either party for further periods of two years.
The employment of Mick Davis and Trevor Reid may be terminated by not less than 12 months’ notice by XSL or the director concerned or by a payment in lieu of notice by XSL. On termination of employment by XSL in breach, including on a change of control, or if Mick Davis or Trevor Reid resigns in circumstances where they cannot in good faith be expected to continue in employment, each director is entitled to be paid a sum equal to 100% of his annual salary plus pension and other benefits and his previous year’s bonus (plus any accrued basic salary and expenses) and to have all entitlements under his retirement benefit plans paid in accordance with the plan rules. As both Mick Davis and Trevor Reid participate in defined contribution arrangements it is not expected that any significant additional liability would arise in respect of retirement plan entitlements beyond that already accrued in the accounts. For the purposes of calculating termination payments, annual bonus will be capped at 300% of annual salary.
In addition, each of the executive directors is eligible to participate in the Bonus Plan which provides that deferred amounts up to an aggregate ceiling of 200% of salary remain payable in the event of cessation of employment by reason of death, injury, ill health or disability (in which case they are payable immediately) or retirement (in which case they are payable on the normal vesting date). No deferred amounts are payable in the event of cessation by dismissal for cause. In the case of termination by reason of death, injury, ill health or disability before the date the bonus is awarded for a financial year, or if the Remuneration Committee in its discretion so resolves, a proportion of the annual bonus pool may still be awarded subject to the normal discretion of the Remuneration Committee.
Executive directors are entitled to any outstanding LTIP awards on cessation of employment by reason of death, injury, ill health or disability (in which case they are payable immediately in full) or retirement (in which case they are payable on the normal vesting date to the extent they vest for performance at that time).
On termination of the professional services agreement dated 23 July 2007, other than on his voluntary termination or termination for gross negligence, Santiago Zaldumbide is entitled to be paid a sum equal to 100% of his annual salary and other benefits and his previous year’s bonus (plus any accrued basic salary and expenses). Santiago Zaldumbide is engaged as a director of Xstrata plc on the terms of a letter of appointment dated 18 March 2002. Santiago Zaldumbide will receive no additional remuneration for his position as director of Xstrata plc and is not entitled to any compensation in respect of the termination of his office as a director of Xstrata plc.
Non-Executive Directors
Willy Strothotte is engaged by the Group as a non-executive director and Chairman on the terms of a letter of appointment. The appointment was for an initial fixed term of 36 months which commenced on 25 February 2002 and is now terminable by six months’ notice by Willy Strothotte.
The Group may terminate Willy Strothotte’s appointment at any time and on such termination Willy Strothotte will not be entitled to any compensation for loss of office. The term may be renewed by the Board.
David Rough is engaged by the Group as the senior independent non-executive director and deputy Chairman on the terms of a letter of appointment. The appointment was for an initial fixed term of 36 months which commenced on 1 April 2002 and is now terminable by six months’ notice by David Rough.
The Group may terminate David Rough’s appointment at any time and on such termination David Rough will not be entitled to any compensation for loss of office. The term may be renewed by the Board.
Ivan Glasenberg, Paul Hazen, Robert MacDonnell and Sir Steve Robson are each engaged by the Group as a non-executive director on the terms of a letter of appointment. Each appointment was for an initial fixed term of 36 months which commenced on 25 February 2002 and is now terminable by six months’ notice by the non-executive director.
Ian Strachan is engaged by the Group as a non-executive director on the terms of a letter of appointment. The appointment was for an initial fixed term of 36 months which commenced on 8 May 2003 and is now terminable by six months’ notice by Ian Strachan.
Claude Lamoureux is engaged by the Group as a non-executive director on the terms of a letter of appointment commencing on 6 May 2008. The appointment is terminable by six months’ notice by Claude Lamoureux.
The Group may terminate each non-executive director’s appointment at any time and on such termination the non-executive director will not be entitled to any compensation for loss of office. Each term may be renewed by the Board.
There is no arrangement under which a director has agreed to waive future emoluments nor have there been any such waivers during the financial year.
There are no outstanding loans or guarantees granted or provided by any member of the Group to or for the benefit of any of the directors.
No significant awards have been made in the financial year to any past director.