Hydro Annual Report 2011b

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