Governance

"Oversight and ultimate responsibility for Xstrata’s SD Policy and Framework globally rests with the Xstrata plc Board”, Ian Strachan, Non-executive director

Sustainable Development governance

Xstrata operates a decentralised business structure within a robust governance framework. Our approach is to devolve authority and accountability to operational management, who have the optimal skills and information to respond to business challenges and opportunities.

Our SD business Strategy, Policy and performance standards are set by Xstrata’s Board and Executive Committee (EXCO) and are aligned with international leading practice and standards. However, the way in which our SD Strategy and Standards are achieved and maintained is determined by operational management, enabling our operations to be more responsive to the local context, encouraging innovation to find better ways of responding to challenges and empowering local management to be fully accountable to local stakeholders. Our auditing and assurance processes ensure that our Business Principles and Group SD Policy and Standards are being upheld at each operation and project and also aim to facilitate the sharing of good practice across Xstrata and provide examples of leading practice from outside our organisation.

Senior management oversight

Oversight and ultimate responsibility for our Sustainable Development (SD) Policy and Framework globally rests with the Xstrata plc Board. This responsibility is vested in the Board Health, Safety, Environment and Community (HSEC) Committee, which has been in place since 2005 and is chaired by Ian Strachan, an independent, non-executive director. Other members of the committee are Mick Davis, Xstrata plc CEO, David Rough, Deputy Chairman and Senior Independent Director, and independent non-executive directors Claude Lamoureux and Dr. Con Fauconnier. The Group Executive Committee is formally responsible for setting and implementing SD strategy, with the Board providing oversight of the Executive Committee’s performance.

The Board HSEC Committee meets quarterly to receive progress reports and updates from commodity businesses and to monitor material social, environmental and ethical issues and associated performance metrics. To gain a closer understanding of strategy implementation, members of the Board HSEC Committee regularly visit site operations.

The Board receives quarterly reports of key SD performance indicators, critical and high potential risk incidents and the ongoing SD assurance programme results. Board members also receive independent briefings on social, ethical and environmental issues as required and may consult with external experts at Xstrata’s expense.

More information on the Board HSEC Committee, including terms of reference, responsibilities and activities in 2010, is available in the Xstrata plc Annual Report or on our website at www.xstrata.com, together with information on all other Board committees.

Remuneration

Remuneration is linked to SD performance at all levels in our business. The Board Remuneration Committee examines the Group’s underlying safety, financial and SD performance in reviewing and determining base pay, payments of annual bonuses and the awarding and vesting of long-term incentives for executive and senior management. Variable remuneration throughout the Group is dependent on a bonus pool which is determined by overall company performance, measured by return on equity and net profit. Before the pool is finalised, the Board Remuneration Committee actively considers whether the pool is appropriate in light of the other key financial and non-financial drivers of future shareholder value, including health, safety, environmental and community performance.

Individual bonuses are determined according to individual performance criteria which comprise SD, financial and operational performance targets, including people development, occupational health and safety, environmental performance and community engagement. For site managers, mine supervisors and other employees, between 50% to 80% of variable remuneration is tied to SD performance including the identification and mitigation of key SD risks and with safety performance as a major component.