Governance - Xstrata

120 | Governance
Remuneration report continued
such analysis would not be appropriate and would limit flexibility of
linking remuneration to performance. The Remuneration Committee
continues to operate a policy under which there is a balance of a
coherent overall reward philosophy with empowerment of business
units and an emphasis on incentivising exceptional performance
through arrangements appropriate to the level of responsibility.
Linking reward to performance
The Remuneration Committee considers that reward should be
commensurate with performance. In reviewing and determining base
pay, payments of annual bonuses and the award and vesting of
long-term incentives, the Remuneration Committee examines the
Group’s underlying safety, financial and sustainable development
performance. The Remuneration Committee is able to justify high
reward when there is exceptional performance.
The following achievements during 2010 evidence exceptional
performance and have supported the Remuneration Committee’s
approach when setting current remuneration levels:
� By the end of the year, the Group’s total recordable injury
frequency rate, lost time injury frequency rate and disabling injury
severity rate had improved by 20%, 10% and 11% respectively
compared to 2009
� Whilst any fatality whatsoever is regarded as unacceptable by the
Group, there was a reduction in the number of fatalities at
managed operations from nine in 2009 to three in 2010
� Xstrata management’s emphasis on operational excellence,
including cost improvements, has enabled record cost efficiencies of
$541 million to be achieved across the Group in 2010; savings were
achieved in all of the Group’s businesses and represent an unbroken
record of annual real cost savings since Xstrata’s IPO in 2002
� EBITDA increased by 53% to $10.4 billion in 2010, with
pre-exceptional attributable net profit of $5.2 billion which was
86% higher than in 2009
� Xstrata management demonstrated excellent operational and
fiscal management throughout 2010. Xstrata’s working capital
increased by only 6% despite upward pressure on receivables
balances and purchased inventory from higher commodity prices
during 2010
� In 2010, Xstrata was named Mining Sector Leader for the
fourth consecutive in the Dow Jones Sustainability Index
and was awarded PwC’s Building Public Trust award for its
sustainability reporting
� The successful acquisition of Sphere Minerals has provided Xstrata
with a meaningful entry into the iron ore market
� Xstrata continued to execute its organic growth strategy by
approving a number of major projects during the year which will
significantly increase production capacity. These included the
$672 million (ZAR4.9 billion) development of the second phase
of the Lion ferrochrome complex expansion in South Africa,
a $1.47 billion investment to develop the Antapaccay copper
project as a major long-life, low cost brownfield expansion to
the Tintaya copper mine in southern Peru, the low cost, long-life
$4.2 billion Las Bambas copper project in Peru, the development
of the $1.1 billion Ulan West underground thermal coal mine in
the central west of New South Wales, Australia, the $1.1 billion
Ravensworth North project and the AUD274 million George
Fisher Mine expansion
� Xstrata’s ongoing positive momentum in developing its industryleading
pipeline of organic growth projects resulted in the
successful commissioning of major Nickel Rim South, Blakefield
South coal and Goedgevonden coal growth projects in the first
half of 2010 and completion of construction of a magnetite
plant at Ernest Henry mine, part of the operation’s $542 million
transformation into a major underground copper-gold mine
� Xstrata’s share price during 2010 rose by 34.3% compared
to 27.8% for the FTSE 350 Mining Index and by 9% for the
FTSE 100 index over the same period
Elements of remuneration
The total remuneration package for executive directors comprises
the following elements:
� base salary;
� annual bonus plan including a deferred element;
� participation in long-term incentive arrangements;
� retirement benefits; and
� other benefits including housing allowance (where essential for
the performance of duties), permanent health, life and private
medical insurance, provision of short-term interest-free loans to
assist with funding double taxation liabilities where appropriate
and, in the case of the Chief Executive, limited private use of the
Company’s leased aircraft.
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 in line with Group 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
Remuneration Committee also considers the impact on retirement
benefits contributions and associated costs. As disclosed in the 2009
Remuneration report, base salary increases for Mick Davis, Trevor
Reid and Santiago Zaldumbide (with effect from 1 January 2010)
were 3%, 3% and 3.1% respectively. Respective base salaries,
effective 1 January 2011, will be £1,430,000, £750,000 and
€1,040,000, representing increases of 5.9%, 10.3% and 4%
respectively. This is broadly in line with the treatment of base salary
reviews for other Group staff, except that the increase for Trevor Reid
was determined by the Remuneration Committee in the context of
his outstanding contribution to the performance of the business and
to bring him in line with his peers in other companies of comparable
market size.