ArcelorMittal Annual <strong>Report</strong> 200972 Corporate GovernanceBoard of Directors and Senior<strong>Management</strong> Compensation PolicyPhilosophyThe ArcelorMittal CompensationPolicy for executives is based onthe following principles:• Provide total compensationcompetitive with executive compensationlevels of industrial companiesof a similar size and scope;• Promote internal equity and marketmedian base pay levels for ourexecutives, combined with‘pay for performance’;• Motivate managers towardsthe achievement of Group-wideand personal goals, includingefficiency and growth; and• Retain individuals who consistentlyperform at expected levelsand contribute to the successof the organization.Governance PrinciplesThe Appointments, Remunerationand Corporate Governance Committeeof ArcelorMittal draws up proposalsannually for the Board of Directorson ArcelorMittal’s executive compensation.The Committee also prepares proposalson the fees to be paid annually tothe members of the Board of Directors.Such proposals relating to executivecompensation comprise thefollowing elements:• Fixed annual salary;• Short-term incentives, e.g.,performance-related bonus; and• Long-term incentives, e.g., stock options.They apply to the following groupof senior executives:• the Chief Executive Officer;• the members of the Group <strong>Management</strong>Board; and• the members of the <strong>Management</strong>Committee.Decisions on short- and long-termincentive plans may apply to a largergroup of employees. The Appointments,Remuneration and CorporateGovernance Committee receives updatesabout the application of these planson a regular basis.Fixed Annual SalaryThe size of the fixed annual salaryis targeted to the median salarylevel of the peer group of companies,i.e., industrial companies of a similarsize and scope. The base salary levelsare reviewed annually to ensure thatArcelorMittal remains competitive.Short-Term Incentives:Performance-Related BonusArcelorMittal has a discretionary bonusplan. The performance of the ArcelorMittalGroup as a whole, the performanceof the relevant business units, theachievement of specific objectivesand the individual’s overall performanceand potential determine the outcomeof the bonus calculation. This bonus plan,called the Global Performance BonusPlan, is applicable to more than 2,000executives and managers worldwide.The bonus is calculated as a percentageof the individual’s base salary. Differentpercentage ranges are used dependingon the hierarchical level of the individual.Performance-related bonuses are paidonly if certain minimum performancethresholds are exceeded by theArcelorMittal Group as a whole and/orthe relevant business segment.In 2009, the Global Performance Bonuswas divided into two parts, with 30%related to the Company’s objectives duringthe first six months of the year in orderto focus management on the short-termand rapid actions required in responseto the economic crisis. Wherever possible,40% of the 2008 Global PerformanceBonus and 2009 Global PerformanceBonus were paid in shares as per theresolution approved by the annualgeneral meeting of May 12, 2009.Long-Term Incentives: Stock OptionsThe Chief Executive Officer, the Group<strong>Management</strong> Board members andthe <strong>Management</strong> Committee membersbenefit from the Global Stock OptionPlan. This plan also applies to a largergroup of employees. The overall capon options available for grants duringa year is approved by the shareholdersat the annual general meeting.Other BenefitsIn addition to the main compensationelements described above, otherbenefits may be provided to executives,such as company cars and contributionsto pension plans and insurance policies.Stock Option PlanIn 1999, the Company established theArcelorMittal Global Stock Option Plan,known as ‘ArcelorMittalShares’ witha duration of 10 years. As the initial planreached expiration, a new ‘ArcelorMittalGlobal Stock Option Plan 2009-2018’was adopted by the annual generalmeeting shareholders on May 12, 2009and took effect as of May 15, 2009.Under the terms of this new stock optionplan, ArcelorMittal may grant optionsto purchase common stock to seniormanagement of ArcelorMittal and itsassociates for up to 100,000,000 sharesof common stock. The exercise priceof each option equals not less than thefair market value of ArcelorMittal stockon the grant date, with a maximum termof 10 years. Options are granted at thediscretion of ArcelorMittal’s Appointments,Remuneration and Corporate GovernanceCommittee, or its delegate. The optionsvest either ratably upon each of the firstthree anniversaries of the grant date,or, in total, upon the death, disabilityor retirement of the participant.On August 5, November 10 andDecember 15, 2008, ArcelorMittal granted7,255,950, 20,585 and 48,000 options,respectively, under the ArcelorMittalSharesplan to a group of key employees atan exercise price of $82.57, $22.25and $23.75, respectively. The optionsexpire on August 5, November 10 andDecember 15, 2018, respectively.On August 4, 2009, ArcelorMittalgranted 6,128,900 options under thenew ArcelorMittal Global Stock Option Plan2009-2018 to a group of key employeesat an exercise price of $38.30. The optionsexpire on August 4, 2019.The Company determines the fair valueof the options at the date of grant usingthe Black-Scholes option pricing model.The fair values for options and othershare-based compensation are recordedas expenses in the consolidated statementof operations over the relevant vesting orservice periods, adjusted to reflect actualand expected levels of vesting.The fair value of each option grantto purchase ArcelorMittal commonshares is estimated on the dateof the grant using the Black-Scholesoption pricing model with thefollowing weighted average assumptions(based on the year of the grant):
ArcelorMittal Annual <strong>Report</strong> 2009Corporate Governance 732008 2009Exercise Price $82.57–22.25 $38.30Dividend yield 1.82%–6.74% 1.96%Expected annualized volatility 45%–57% 62%Discount rate – bond equivalent yield 4.02%–2.52% 3.69%Weighted average share price $82.57–22.25 $38.30Expected life in years 6 6Fair value of options (per share) $34–9 $20The expected life of the optionsis estimated by observing general optionholder behavior and actual historicallives of ArcelorMittal stock option plans.In addition, the expected annualizedvolatility has been set by referenceto the implied volatility of options availableon ArcelorMittal shares in the open market,as well as historical patterns of volatility.The compensation expense recognizedfor stock option plans was $228 millionand $176 million for the years endedDecember 31, 2008, and 2009, respectively.Option activity with respect toArcelorMittalShares is summarizedbelow as of and for the years endedDecember 31, 2008, and 2009:Range ofWeightedAverageNumber Exercise Prices Exercise Priceof Options (per option) (per option)Outstanding, December 31, 2007 13,579,438 $2.26–74.54 $46.15Granted 7,324,535 22.25–82.57 82.01Exercised (954,844) 2.26–64.30 31.88Canceled (347,034) 2.26–82.57 51.28Forfeitures (43,629) 28.75–64.30 43.35Outstanding, December 31, 2008 19,558,466 2.26–82.57 60.01Granted 6,128,900 38.30 38.30Exercised (456,251) 2.26–33.76 24.56Canceled (539,023) 33.76–82.57 70.02Forfeitures (644,712) 2.26–82.57 52.20Outstanding, December 31, 2009 24,047,380 2.26–82.57 55.22Exercisable, December 31, 2009 11,777,703 2.26–82.57 52.46Exercisable, December 31, 2008 6,011,214 2.26–82.57 39.75Exercisable, December 31, 2007 2,595,164 2.26–64.30 24.49The following table summarizes certain information regarding total stock options of the Company outstanding as of December 31, 2009:Options OutstandingWeighted averagecontractual lifeOptions exercisable(number ofExercise Prices (per option) Number of options (in years) options)82.57 6,831,783 8.60 2,379,76274.54 13,000 7.95 8,66664.30 5,244,202 7.59 3,571,92943.40 1,394,326 3.50 1,394,32638.30 6,121,900 9.60 27,00033.76 2,425,857 6.67 2,425,43428.75 1,552,547 5.65 1,552,54723.75 48,000 8.96 15,99822.25 20,585 8.87 6,86120.38 11,429 2.50 11,42916.53 29,373 1.50 29,3738.57 150,200 0.42 150,2002.26 204,178 2.26 204,178$2.26 – 82.57 24,047,380 7.84 11,777,703
Change language