Hydro Annual Report 2011b

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F28 FINANCIAL STATEMENTS Note 9 - Raw material and energy expense Note 9 - Raw material and energy expense Amounts in NOK million 2011 2010 Raw material expense and production supplies 55 807 49 555 Change in inventories own production (135) (921) Writedowns of inventories 172 74 Reversals of writedowns of inventory (19) (15) Raw material and energy expense 55 825 48 694 Raw material expense and production supplies include effect of commodity derivative instruments. See note 41 Derivative instruments and hedge accounting. Note 10 Board of Directors' statement on Management remuneration Board of Directors' statement on Management remuneration The statement on the remuneration of the company's Chief Executive Officer (CEO) and other members of the Corporate Management Board has been prepared in accordance with the provisions of the Norwegian Public Limited Companies Act, the Norwegian Accounting Act and the Norwegian Code of Practice for Corporate Governance. Guidelines for management remuneration Hydro's guidelines for the remuneration of the company's CEO and other members of the Corporate Management Board reflect Hydro's global human resources policy, whereby "Hydro shall offer its employees an overall compensation package that is competitive and in line with good industry standards in the country in question. Where appropriate this package should include, in addition to the base salary, also a performance-based incentive that overall shall reflect individual performance." Process for determination of remuneration The Board of Directors has appointed a separate compensation committee consisting of the board chairman and two shareholder-elected board members, as well as one employee representative. The CEO normally participates in the committee's meetings unless the committee is considering issues relating directly to the CEO. Other representatives of senior management may attend meetings if requested to do so. The committee functions as an advisory body for the Board of Directors and the CEO and is responsible primarily for: Making recommendations to the Board of Directors based on the committee's annual evaluation of the principles and systems underlying the remuneration of the CEO and other members of the Corporate Management Board. Making recommendations to the Board of Directors based on the committee's annual evaluation of the overall remuneration of the CEO, including the annual basis for bonus payments and bonus payments actually made. Assisting the CEO by consulting on the remuneration of the other members of the Corporate Management Board. Key principles for determination of remuneration during the coming financial year The following statement regarding the remuneration of members of the Corporate Management Board will be presented for an indicative vote to the annual shareholders' meeting to be held in May 2012. The Board of Directors proposes that the guidelines set forth below shall apply for 2012 and up until the annual shareholders' meeting in 2013. The remuneration of members of the Corporate Management Board shall reflect at all times the responsibility of the CEO and the other members of the Corporate Management Board for the management of Hydro, taking into account the complexity and breadth of the company's operations, as well as the growth and sustainability of such operations. The determination of the level of the total compensation package will be, first and foremost, based on being competitive, but not a wage leader, within the relevant labor markets, while at the same time reflecting Hydro's international focus. Hydro attaches importance to transparency and to ensuring that remuneration arrangements are developed and implemented in accordance with principles for good corporate governance. The total remuneration of the CEO and other members of the Corporate Management Board will consist of a fixed package of salary and benefits supplemented by performance-based bonuses, share-based long-term incentive plans, employee share plans, pension and insurance arrangements and severance pay.
FINANCIAL STATEMENTS Note 10 Board of Directors' statement on Management remuneration F29 Fixed remuneration The fixed remuneration provided to members of the Corporate Management Board includes a base salary (which is the main element of remuneration) and benefits in kind such as a company car or car allowance, a telephone, newspapers and other similar benefits. The base salaries of individual members of the Corporate Management Board are evaluated annually in light of the complexity and responsibility of the relevant employee's role and his or her contribution, qualifications and experience, together with conditions in the labor market and general salary trends. Bonus The annual bonus shall reflect achievements in relation to pre-defined financial targets, key performance indicators (KPIs) and compliance with and the promotion of Hydro's core values ("The Hydro Way"). The bonus parameters, which are both balanced and ambitious, relate to financial and operational business targets, as well as to individual leadership expectations. Bonus payments to the CEO and the other members of the Corporate Management Board are dependent on Hydro's posting of positive underlying earnings before interest and tax (EBIT), together with delivery of operational goals within pre-defined budgetary frameworks. The Board of Directors is concerned to ensure that bonus parameters are balanced and reflect the varied nature of Hydro's operations. Bonus parameters will typically relate to organizational and operational targets and improvements, as well as health, safety and environment (HSE) and corporate social responsibility (CSR). The targets are established as part of the annual business-planning process. The maximum annual performance-based bonus payable to the CEO is equal to 50 percent of his or her annual base salary. The maximum annual performance-based bonus payable to any other member of the Corporate Management Board is equal to 40 percent of his or her annual base salary. Bonus payments are not taken into account when determining the basis for pensionable salary. Long Term IncentiveThe long-term incentive (LTI) consists of 30 percent or 25 percent of annual base salary payable, respectively, to the CEO and other members of the Corporate Management Board. LTI payments are dependent on Hydro's posting of positive underlying earnings before interest and tax (EBIT) for the previous financial year. Recipients of LTI payments are required to invest the net amount received after tax in Hydro shares. Any such shares must be held for three years. Any holder of such shares who voluntarily terminates his or her employment during such three-year period must pay to the company an amount equal to the after-tax value of the shares at the date of such termination. The LTI arrangement is reevaluated annually. LTI payments are not taken into account when determining the basis for pensionable salary. Other share-based bonuses The CEO and other members of the Corporate Management Board are eligible to participate fully in Hydro's discounted employee share purchase plan on the same terms as all other eligible employees (as described below in note 11 Employee and management remuneration). No share-based remuneration plans in the form of share options, or share appreciation rights (SARs), will be implemented. Pensions During 2010 Hydro executed an internal pension reform through a transition in Norway to a defined contribution pension plan, whereby the existing defined benefit pension plan was closed to externally recruited new employees with effect from March 1, 2010. In connection with the establishment of the new pension system, approximately 20 percent of existing employees transferred to the defined contribution plan. The plan also involves the allocation of 20 percent of the basic salary in excess of 12G (where "G" is the National Insurance basic amount) as a vested right. This defined contribution company pension plan for salaries in excess of 12G will be continued. The CEO and other members of the Corporate Management Board are members of Hydro's defined benefit pension plan. The CEO is entitled to retire on a pension after reaching the age of 62. The Board of Directors may also require the CEO to do so. Full pension entitlement is earned after 30 years' employment at Hydro. From the age of 62, defined pension benefits consist of 60 percent of the pensionable salary. After age 65, the rate of pension is 65 percent of the pensionable salary. A ceiling has been established regarding the CEO's pensionable earnings. Future salary increases will increase the CEO's pension basis up to a ceiling of NOK 5.5 million (such amount to be adjusted annually from the date in 2009 on which the CEO took up his appointment in accordance with the annual percentage changes in the National Insurance basic amount, "G"). Corresponding pension arrangements were put in place during 2010 in respect of the other Norwegian members of the Corporate Management Board. These arrangements have the effect that future salary increases will only increase the pension basis up to a ceiling equivalent to NOK 3.5 million on January 1, 2010 (such amount to be adjusted annually in line with the annual percentage changes in the National Insurance basic amount, "G"). These pensions also make the receipt of 60 percent of the pensionable salary between the ages of 62 and 65 dependent on at least five years' membership in the Corporate Management Board between the ages of 50 and 60. The established pension plan does not apply to persons who are entitled to
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Annual Report - 2011
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Annual Report - 2011 HyDRO’S REPO
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Aluminium market price weakens LME
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cost renewable energy production, w
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Corporate Management Board AnnuAl r
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• Secure stable production and fi
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Key financial information NOK milli
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for foundry alloys continued to be
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• Using viable energy sources •
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Share of non-Norwegian leaders Perc
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Capital employed - - upstream focus
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petitive supply of standard alumini
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Further improved bauxite and alumin
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Alumina production Million mt 7 6 5
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and Hydro - but both have also rest
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Operations Hydro’s primary alumin
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Plant Country Employees (per Dec. 3
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Active risk management We have deve
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Contribution margin to profit EUR p
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Flat rolled products consumption We
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Build on the high performance of ou
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European extrusion consumption (tot
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Operations Hydro is a global energy
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expected remediation costs relating
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Direct greenhouse gas emissions fro
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The Qatalum aluminium plant, in whi
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postponed in 2011 due to the market
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Water management Enough clean water
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The annual business planning proces
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Total payments (taxes, fees, etc.)
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Qatalum, where Hydro holds a 50 per
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Effective organization Hydro had 22
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Cooperating for safety at Slovalco
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from a 10-year perspective, we redu
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In 2011, we established an electron
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sold or demerged during the year ha
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vIABIlItY perForMAnCe Auditor’s R
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Current income tax tax vIABIlItY pe
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Environment Greenhouse gases gases
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Total waste vIABIlItY perForMAnCe F
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81 FInAnCIAl AnD operAtInG perForMA
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FINANCIAL AND OPERATING PERFORMANCE
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Market developments and outlook Mar
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Items excluded from underlying EBIT
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Items excluded from underlying EBIT
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Financial income (expense), net Yea
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Primary Metal Operational and finan
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Liquidity and capital resources The
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3) Including provisions for pension
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108 RISK REVIEW Risk factors Risk f
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110 RISK REVIEW Risk factors or var
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112 RISK REVIEW Risk factors leadin
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Page 131 and 132: Description Developments and events
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F78 FINANCIAL STATEMENTS Auditor's
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PENDIX A2 Appendix A1 APPENDIX Term
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Hydro is a global supplier of alumi
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Hydro Annual Report 2011b

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