UK Corporate Governance Code ( the Code ) Checklist per the 2013 Annual Report

Transcription

1 UK Corporate Governance Code ( the Code ) Checklist per the 2013 Annual Report B: Effectiveness Principle / Provision Summary of changes Evidence in 2013 AR B.2.4 The separate section of the Annual Report describing the work of the nomination committee should include a description of the board s policy on diversity, including gender, any measurable objectives for implementing the policy and progress on achieving those objectives. Page 108 Diversity policy To increase diversity, in particular the representation of women and ethnicity on the Board. With the appointment of Judy Dlamini and the retirement of David Challen and Sir CK Chow, the percentage of women on the Board, will revert to 25% in April B.6 New supporting principle B.6.2 The board performance evaluation process should consider the balance of skills, experience, independence and knowledge on the board, its diversity (including gender diversity), how the board works as a unit, and other factors relevant to its effectiveness. Any external board performance evaluation facilitator used by the company should be identified in the Annual Report and a statement made as to whether that party has any other connection with the company. Page 103 Page Board Evaluation Action Plan 2013 Page 103 Principle / Provision Summary of changes Evidence in 2013 AR C.1 The board s assessment of the company s position and prospects should, in addition to being balanced and understandable, be fair. Page 92 New supporting principle C.1.1 C.3.2 The board should establish arrangements that will enable it to ensure that the information presented in its assessment of the company s position and prospects is fair, balanced and understandable. The directors should state in the Annual Report that they consider the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company s performance, business model and strategy. The main roles and responsibilities of the audit committee should include an additional duty to report to the board on how it has discharged its responsibilities. Page 92 7 value pillars Page 99 Page 109 C.3.4 The audit committee should, if requested by the board, provide advice on whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides all the information necessary for shareholders to assess the company s performance, business model and strategy. Note: The addition of this new provision causes the numeration of all subsequent provisions in this section to change. Page 109 1

2 C.3.8 In addition to an explanation of how auditor objectivity and independence have been safeguarded in respect of non-audit services, the separate section of the Annual Report describing the work of the audit committee should include the significant issues it has considered in relation to the financial statements and how these were addressed. Page 109 D: Remuneration Summary of changes Evidence in 2013 AR D.2.1 Any remuneration consultants used by the company should be identified in the Annual Report and a statement made as to whether that party has any other connection with the company. Page 141 Code Preface, para 6 LR 9.8.6R(5) LR 9.8.6R(6)(a) and (b) DTR 7.2.2R DTR 7.2.2R(1) to (3) Does the chairman report in his annual statement on how the principles relating to the role and effectiveness of the board (in Sections A and B of the Code) have been applied?(note 2) Is there a statement of how the company has applied the Main Principles set out in the UK Corporate Governance Code in a manner that would enable shareholders to evaluate how the principles have been applied? (Note 2) Is there a statement as to whether or not the company has complied with all relevant provisions in the UK Corporate Governance Code throughout the financial year? In respect of any non-compliance for any period during the financial year, does the statement include: Does the corporate governance statement contain a reference to: the UK Corporate Governance Code; and / or any corporate governance code the company has voluntarily decided to apply; and / or all relevant information about the corporate governance practices applied beyond the requirements under national law? (Note 5) Page 92 Page 93 Page 93 Page 93 DTR 7.2.3R Does the company: DTR 7.2.3R(1) to (3) LR R(2) DTR 7.2.7R state where the UK Corporate Governance Code (or any other code it voluntarily follows) is publicly available or, where relevant, make its corporate governance practices publicly available and state where they can be found; Has the auditor reviewed the company s statement of compliance with the UK Corporate Governance Code to the extent required? Is there a description of the composition and operation of the company s administrative, management and supervisory bodies Page 93 Page 109 Page

3 and their committees? (Note 6) Leadership Code A.1.1 Code A.1.2 Code A.1.2 Effectiveness Code B.1.1 Is there a statement of how the board operates, including a highlevel statement of which types of decisions are to be taken by the board and which are to be delegated to management? Are the chairman, deputy chairman (where applicable), chief executive, senior independent director and the chairmen and members of the nomination, audit and remuneration committees identified? (Note 7) Does the statement record the number of meetings of the board and of those committees and individual attendance by directors? (Note 8) Are the non-executive directors, considered by the board to be independent, identified as such and are reasons provided as to why the board has determined directors to be independent notwithstanding the existence of relationships or circumstances which may appear relevant to its determination? (Note 10) Evidence in 2013 AR Page 100 Diagram showing our Governance Structure Page 99 Page 100 Attendance table Evidence in 2013 AR Page 103 Code B.2.4 NEW Is there a separate section describing the work of the nomination committee, including the selection process it has used in relation to board appointments? (Notes 12 and 13) Does this section: Describe the board s policy on diversity, including gender, any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives? (Note 14) Page 108 Page 108 NEW Identify any external search consultancy that has been used and including a statement as to whether such party has any other connection with the company? (Note 15) Page 108 Code B.3.1 Code B.6.1 Are the other significant commitments of the chairman and any changes to them during the year, identified? Is there an explanation as to how performance evaluation of the board, its committees and its individual directors has been conducted? (Note 16) Page 99 Page 103 Code B.7.1 Are sufficient biographical details (and any other relevant information) given in respect of directors submitted for election or re-election? (Note 18) Page 94 3

4 Accountability Code C.1.1 Code C.1.1 NEW Is there an explanation by the directors of their responsibility for preparing the annual report and accounts and a statement by the auditor about its reporting responsibilities? Is there a statement that the directors consider the Annual Report taken as a whole, to be fair, balanced and understandable and provides the information necessary for shareholders to assess the company s performance, business model and strategy? (Note 19) Evidence in 2013 AR Page 111 Page 116 Page 144 Code C.1.2 Does the Annual Report include an explanation of (Note 20): Page 144 Page 150 (a) the basis on which the company generates or preserves value over the longer term (the business model); and Page 92 (b) the strategy for delivering the company s objectives? Page 92 Code C.1.3 and LR 9.8.6R(3) Is there a statement by the directors that the business is a going concern which has been prepared in accordance with the FRC s Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009, together with any necessary supporting assumptions or qualifications? (Note 21) Page 144 LR R(1) Has the going concern statement been reviewed by the auditor? Page 144 Code C.2 and Turnbull para 35 Turnbull para 33 Is there a statement by the directors as to how the board maintains a sound system of internal control to safeguard shareholders investment and the company s assets? (Note 22) Does the directors statement on internal control: Include such meaningful, high-level information as the board considers necessary to assist shareholders understanding of the main features of the company s risk management processes and system of internal control and avoid giving a misleading impression? Page 99 Page 113 Page 116 Turnbull para 34 Turnbull para 35 Turnbull para 35 Confirm that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the company, that it has been in place for the year under review and up to the date of approval of the Annual Report, that it is regularly reviewed by the board and that it accords with Turnbull? Include an acknowledgement by the directors of their responsibility for the company s system of internal control and for reviewing its effectiveness? Include an explanation that the system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss? Page 115 Page 113 Page 115 DTR 7.2.5R Is there a description of the main features of the company s internal control and risk management systems in relation to the financial reporting process? (Note 23) Page 115 4

5 DTR R and DTR R Code C.2.1 Turnbull para 36 Turnbull para 36 Turnbull para 36 Where a company is required to prepare a group directors report within the meaning of s.415(2) and presents its own Annual Report and its consolidated Annual Report as a single report, does the corporate governance statement include a description of the main features of the group s internal control and risk management systems in relation to the process for preparing consolidated accounts? Do the directors report that they have conducted a review during the year of the effectiveness of the group s risk management and internal control systems, covering all material controls, including financial, operational and compliance controls? Do the directors disclosures: Summarise the process applied in reviewing the effectiveness of the system of internal control? Confirm that necessary actions have been or are being taken to remedy any significant failings or weaknesses identified from the review? (Note 24) Explain the process applied in dealing with material internal control aspects of any significant problems disclosed in the Annual Report? Page 93 Page 115 Page 115 Page 115 Code C.3.8 NEW NEW Is there a separate section describing the work of the audit committee in discharging its responsibilities? (Notes 12, 25 and 26) Does the section include: the significant issues that it considered in relation to the financial statements, and how these issues were addressed; an explanation of how it has assessed the effectiveness of the external audit process and the approach taken to the appointment or reappointment of the external auditor, and information on the length of tenure of the current audit firm and when a tender was last conducted; and (Note 27) Page 109 Page 109 Page 110 Page 112 if the external auditor provides non-audit services, an explanation of how auditor objectivity and independence is safeguarded? (Note 28) Does the explanation given above of how auditor objectivity and independence is safeguarded: Page 111 FRC Audit Committee Guidance 4.46 describe the work of the committee in discharging its responsibilities; Page 109 FRC Audit Committee Guidance 4.46 set out the audit committee s policy on the engagement of the external auditor to supply non-audit services in sufficient detail to describe each of the elements in paragraph 4.39 of the FRC Audit Committee Guidance (as set out in Note 29), or cross-refer to Page 111 5

6 where this information can be found on the company s website; (a) what the services are; (b) why the audit committee concluded that it was in the interests of the company to purchase them from the external auditor (rather than another supplier); and (c) how auditor objectivity and independence has been safeguarded? DTR 7.1.5R and DTR 7.1.6R Remuneration Code D.1.2 and Sch B Code D.2.1 NEW Is there a statement disclosing which body is responsible for carrying out the audit functions required by DTR 7.1.3R and how it is composed? (Note 30) Is there a description of the work of the remuneration committee as required by the Accounts Regulations, including, where an executive director serves as a non-executive director elsewhere, a statement as to whether or not the director will retain such earnings and, if so, what the remuneration is? (Note 12) Where remuneration consultants have been appointed, have they been identified in the Annual Report and is there a statement as to whether they have any other connection with the company? (Notes 15 and 31) Page 112 Evidence in 2013 AR Page 118 Page 141 Relations with shareholders Evidence in 2013 AR Code E.1.2 DTR 7.2.6R Accounts Regulations Sch 7 para 13(2)(c) Is there a statement of the steps the board has taken to ensure that members of the board and, in particular, the non-executive directors, develop an understanding of the views of major shareholders about their company? (Note 32) Does the corporate governance statement include: for each person with a significant direct or indirect holding of the company s securities, such details as are known to the company of the identity of the person and the size and nature of the holding? (Note 33) Page 118 Page 145 UNDERLYING PROVISIONS - Attention must be paid to the spirit of the code - Improve impact of shareholder interaction in monitoring the code by facilitating increased interaction with the Board - Throughout - Role of the senior independent director (SID): Page 99 6

7 - Leadership of the Chairman: personal report covering section A&B of the code (role and effectiveness of the Board) - Annual re-election of directors - Page 92 and page 93 respectively. - Page 93 - Comply or explain - Page 93 SECTION A LEADERSHIP - A1 Role of the Board - A1.1: The board should meet sufficiently regularly to discharge its duties effectively. There should be a formal schedule of matters specifically reserved for its decision. The annual report should include a statement of how the board operates, including a high level statement of which types of decisions are to be taken by the board and which are to be delegated to management. - A1.2: The annual report should identify the Chairman, the deputy Chairman (where there is one), the chief executive, the senior independent director and the chairmen and members of the board committees. It should also set out the number of meetings of the board and its committees and individual attendance by directors. - A1.3: The company should arrange appropriate insurance cover in respect of legal action against its directors. - A1.1: page Diagram A1.2: page 99 - A1.3: page 149 7

8 - A2 Division of responsibilities - A3 The Chairman - (1)The Chairman is responsible for setting the board s agenda and ensuring that adequate time is available for discussion of all agenda items, in particular strategic issues. - A3(1): page (2)The Chairman should also promote a culture of openness and debate by facilitating the effective contribution of nonexecutive directors in particular and ensuring constructive relations between executive and non-executive directors. - (3)The Chairman is responsible for ensuring that the directors receive accurate, timely and clear information. The Chairman should ensure effective communication with shareholders. - A3(2): page A3(3): page A3.1: The Chairman should on appointment meet the independence criteria set out in B.1.1 below. A chief executive should not go on to be Chairman of the same company. If, exceptionally, a board decides that a chief executive should become Chairman, the board should consult major shareholders in advance and should set out its reasons to shareholders at the time of the appointment and in the next annual report. - A3.1: The Chairman was independent upon appointment. 8

9 - A.4 Non executive Directors - Main Principle (a). As part of their role as members of a unitary board, non executive directors should constructively challenge and help develop proposals on strategy. - (b). Non executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. - (c). They should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible. They are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing and, where necessary, removing executive directors, and in succession planning. - A4(a): page A4(b): page A4(c): page A.4.1 The board should appoint one of the independent non executive directors to be the senior independent director to provide a sounding board for the Chairman and to serve as an intermediary for the other directors when necessary. The senior independent director should be available to shareholders if they have concerns which contact through the normal channels of Chairman, chief executive or other executive directors has failed to resolve or for which such contact is inappropriate. - A4.1: page 99 Role of the senior independent director (SID) David Challen is the senior independent non executive director. He is available to shareholders, acts as a sounding board and confidant for the Chairman and is available as an intermediary for the other directors if necessary. - A4.1: page 99 Investor Relations 9

10 - A.4.2 The Chairman should hold meetings with the non executive directors without the executives present. Led by the senior independent director, the non executive directors should meet without the Chairman present at least annually to appraise the Chairman s performance and on such other occasions as are deemed appropriate. - A4.2: page 99 Board effectiveness: At every board meeting, time is set aside for a NEDs only discussion. SECTION B EFFECTIVENESS - B1: Composition of the Board The board and its committees should have the appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge their respective duties and responsibilities effectively. - B1.1: Identification of independent NEDs, reference to character & judgement and possible relationships which could affect judgement - B1: page 93 - B1.1: page B1.2: At least half the board should be made up of independent NEDs - B1.2: page B2: Appointments to the Board: board should be satisfied that plans are in place or orderly succession - B2: Page

11 - B2.1: There should be a Nomination Committee which should lead the process for board appointments and make recommendations to the board. A majority of members of the Nomination Committee should be independent non executive directors. The Chairman or an independent non executive director should chair the committee, but the Chairman should not chair the Nomination Committee when it is dealing with the appointment of a successor to the Chairmanship. The Nomination Committee should make available its terms of reference, explaining its role and the authority delegated to it by the board. - B2.2: The Nomination Committee should evaluate the balance of skills, experience, independence and knowledge on the board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment. - Page 108 B2.1, B2.2 : Extract on the role of the Nomco - Terms of reference available on the Company website: American-Plc/about/approach/governance/terms_of_ref_nom.pdf - See above - B2.3: Non executive directors should be appointed for specified terms subject to reelection and to statutory provisions relating to the removal of a director. Any term beyond six years for a non executive director should be subject to particularly rigorous review, and should take into account the need for progressive refreshing of the board. - B2.3: - Page 93 11

12 - B2.4: A separate section of the annual report should describe the work of the Nomination Committee, including the process it has used in relation to board appointments. An explanation should be given if neither an external search consultancy nor open advertising has been used in the appointment of a Chairman or a non executive director. - B2.4: page 93 - B3: Commitment - B3.1: For the appointment of a Chairman, the Nomination Committee should prepare a job specification, including an assessment of the time commitment expected, recognising the need for availability in the event of crises. A Chairman s other significant commitments should be disclosed to the board before appointment and included in the annual report. Changes to such commitments should be reported to the board as they arise, and their impact explained in the next annual report. - B3.1: page 94 Biography - B.3.2 The terms and conditions of appointment of non executive directors should be made available for inspection. The letter of appointment should set out the expected time commitment. Non executive directors should undertake that they will have sufficient time to meet what is expected of them. Their other significant commitments should be disclosed to the board before appointment, with a broad indication of the - B3.2: Available for inspection at the Company s registered office 12

13 time involved and the board should be informed of subsequent changes. - B4: Development: Chairman should ensure directors update their skills and the knowledge and familiarity with the company required to fulfil their role on the board and on committees - B.4.1 The Chairman should ensure that new directors receive a full, formal and tailored induction on joining the board. As part of this, directors should avail themselves of opportunities to meet major shareholders. - B4: Page B4.1, B4.2: page B.4.2 The Chairman should regularly review and agree with each director their training and development needs. - B4.2: page B5: Information and Support: Supporting Principles: - The Chairman is responsible for ensuring that the directors receive accurate, timely and clear information. Management has an obligation to provide such information but directors should seek clarification or amplification where necessary. Under the direction of the Chairman, the company secretary s responsibilities include ensuring good information flows within the board and its committees and between senior management and nonexecutive directors, as well as facilitating induction and assisting with professional development as required. - B5: page 99 13

14 - The company secretary should be responsible for advising the board through the Chairman on all governance matters. - Page 99: Board also receives a governance update from the company secretary highlighting developments in company law, corporate governance and best practice. - B5.2: All directors should have access to the advice and services of the company secretary, who is responsible to the board for ensuring that board procedures are complied with. Both the appointment and removal of the company secretary should be a matter for the board as a whole. - B5.2: page 99 Directors also have access to management, and to the advice of the company secretary. - See also Article 106 of the Company s Articles. - B6: Evaluation: The board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. - B6.1: The board should state in the annual report how performance evaluation of the board, its committees and its individual directors has been conducted. - B6.1: page 93 - B6.3: The non executive directors, led by the senior independent director, should be responsible for performance evaluation of the Chairman, taking into account the views of executive directors. - B6 3: page 93 - B7: Re-election: directors should be submitted for reelection at regular interval, subject to continued satisfactory performance - B7: Page 93 14

15 - B7.1: All directors of FTSE 350 companies should be subject to annual election by shareholders. All other directors should be subject to election by shareholders at the first annual general meeting after their appointment, and to reelection thereafter at intervals of no more than three years. Non executive directors who have served longer than nine years should be subject to annual re-election. The names of directors submitted for election or re-election should be accompanied by sufficient biographical details and any other relevant information to enable shareholders to take an informed decision on their election. - B7.1: Page 93: In accordance with the UK Corporate Governance Code, Anglo American will continue to propose the re-election of all its directors on an annual basis. Page 94 Biographies - B7.2 The board should set out to shareholders in the papers accompanying a resolution to elect a non executive director why they believe an individual should be elected. The Chairman should confirm to shareholders when proposing re-election that, following formal performance evaluation, the individual s performance continues to be effective and to demonstrate commitment to the role. - B7.2: page 93 15

16 SECTION C: ACCOUNTABILITY - Main Principle The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems. - C1.1: Responsibility statement from directors in the Annual Report and Accounts should contain a statement by the auditors about their reporting responsibilities - C1.2 Directors explanation regarding preservation of value over the long term and strategy to deliver objectives - C1.3: Directors should report in half-yearly financial statements that the business is a going concern with the necessary supporting evidence - C.2 Risk Management and Internal Control Main Principle The board is responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The board should maintain sound risk management and internal control systems. - C.2.1 The board should, at least annually, conduct a review of the effectiveness of the company s risk management and internal control systems and should report to shareholders that they have done so. The review should cover all material controls, including financial, operational and compliance - Page : Effective risk management - Audit report: page C1.1: page C1.2: page 4 - Chairman s Statement: Delivering value and delivering our growth projects - C1.3: See the Company s half yearly financial report - C2: page Effective risk management Page Audit Committee report C2.1: page

17 controls. - C.3 Audit Committee and Auditors Main Principle The board should establish formal and transparent arrangements for considering how they should apply the corporate reporting and risk management and internal control principles and for maintaining an appropriate relationship with the company s auditor. - C3. page 111 & Code Provisions - C.3.1 The board should establish an Audit Committee of at least three, or in the case of smaller companies, two, independent non executive directors. The board should satisfy itself that at least one member of the Audit Committee has recent and relevant financial experience. - C.3.1 Page C.3.2 (a). The main role and responsibilities of the Audit Committee should be set out in written terms of reference and should include: to monitor the integrity of the financial statements of the company and any formal announcements relating to the company s financial performance, reviewing significant financial reporting judgements contained in them; - (b). to review the company s internal financial controls and, unless expressly addressed by a separate board risk - C3.2: Page 109 Roles and responsibilities - (a) page (b) Page

18 committee composed of independent directors, or by the board itself, to review the company s internal control and risk management systems; - (c). to monitor and review the effectiveness of the company s internal audit function; - (c) Page (d). to make recommendations to the board, for it to put to the shareholders for their approval in general meeting, in relation to the appointment, re-appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor; - (d) page (e). to review and monitor the external auditor s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements; - (f). to develop and implement policy on the engagement of the external auditor to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm, and to report to the board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken. - C.3.3 The terms of reference of the Audit Committee, including its role and the authority delegated to it by - (e) page (f) Page C3.3: page Terms of reference for the Audit Committee can be found on the Anglo American website: American-Plc/siteware/docs/audit_committee_ToR.pdf 18

19 the board, should be made available. A separate section of the annual report should describe the work of the committee in discharging those responsibilities. - C.3.4 The Audit Committee should review arrangements by which staff of the company may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The Audit Committee s objective should be to ensure that arrangements are in place for the proportionate and independent investigation of such matters and for appropriate follow-up action. - C 3.4: page 114: Whistleblowing programme - C.3.5 The Audit Committee should monitor and review the effectiveness of the internal audit activities. Where there is no internal audit function, the Audit Committee should consider annually whether there is a need for an internal audit function and make a recommendation to the board, and the reasons for the absence of such a function should be explained in the relevant section of the annual report. - C.3.6 The Audit Committee should have primary responsibility for making a recommendation on the appointment, reappointment and removal of the external auditor. If the board does not accept the Audit Committee s recommendation, it should include in the annual report, and in any papers recommending appointment or re-appointment, a - C 3.5: page C 3.6: page

20 statement from the Audit Committee explaining the recommendation and should set out reasons why the board has taken a different position. - C.3.7 The annual report should explain to shareholders how, if the auditor provides non-audit services, auditor objectivity and independence is safeguarded. - C 3.7: page 111 SECTION D: REMUNERATION D.1 The Level and Components of Remuneration - Main Principle Levels of remuneration should be sufficient to attract, retain and motivate directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant proportion of executive directors remuneration should be structured so as to link rewards to corporate and individual performance. Page 120 Key aspects of the remuneration policy for executive directors. Basic salary levels are reviewed annually by the Committee, taking account of Company performance, individual performance, levels of increase for the broader UK population and inflation Reference may also be made to median levels within relevant FTSE 50 and global extractive companies The Committee also considers the impact of any basic salary increase on the total remuneration package Page Indicative total remuneration levels: The Company s policy for executive directors results in a significant portion of the remuneration received by executive directors being dependent on Company performance. Figure 3 [on page 125] illustrates how the total pay opportunities for the current chief executive and the finance director vary under three different performance scenarios: above, target and below. Code Provisions - D.1.1 In designing schemes of performance-related remuneration for executive directors, the Remuneration Committee should follow the provisions in Schedule A to this Code. - SCHEDULE A THE DESIGN OF PERFORMANCE-RELATED REMUNERATION FOR EXECUTIVE DIRECTORS - (A1) The Remuneration Committee should consider whether the directors should - A1: page 120 Each year executive directors participate in the BSP which rewards earnings per share (EPS) and individual performance. The EPS targets are set each year to ensure they are demanding yet 20

21 be eligible for annual bonuses. If so, performance conditions should be relevant, stretching and designed to promote the long-term success of the company. Upper limits should be set and disclosed. There may be a case for part payment in shares to be held for a significant period. realistic. They primarily reflect internal budgets and price expectations for the year. Consideration is also given to prior performance and external expectations. The individual objectives are based on the Company s strategic priorities for the year and are shown in Figures 8a and 8b on pages 130 and 131. The maximum bonus opportunity is 210% of salary, with 40% of any award deferred into shares vesting three years after the end of a bonus year and 20% deferred into shares vesting five years after the end of a bonus year. - (A2) The Remuneration Committee should consider whether the directors should be eligible for benefits under long-term incentive schemes. Traditional share option schemes should be weighed against other kinds of longterm incentive scheme. - A2: page 121 Figure 1 details the purpose, maximum opportunity and operation of the Company s Long Term Incentive Plan. page The Company s ability to use its Discretionary Option Plan (DOP) is restricted to recruitment arrangements where the Committee may also offer additional cash and/or share-based elements to replace any remuneration forfeited, when it considers these to be in the best interests of the Company and its shareholders. - page UK-based executive directors, as UK employees, are eligible to participate in the Company s Save As You Earn (SAYE) scheme and Share Incentive Plan (SIP). Under HMRC rules these plans do not have performance conditions - (A3) Executive share options should not be offered at a discount save as permitted by the relevant provisions of the Listing Rules. In normal circumstances, shares granted or other forms of deferred remuneration should not vest, and options should not be exercisable, in less than three years. Directors should be encouraged to hold their shares for a further period after vesting or exercise, subject to the need to finance any costs of acquisition and associated tax liabilities. - A3: page 120 Bonus Share Plan (BSP) For any award under the BSP, 40% of the award comprises Bonus Shares vesting three years after the end of bonus year and 20% comprises Bonus Shares vesting after three years, but subject to a further two year deferral period. - Page 121 Long Term Incentive Plan (LTIP) awards made under the LTIP are subject to performance measures over a three-year period and any shares that vest are subject to an additional holding period of two years. - page 125 Shareholding targets: Within five years of appointment, executive directors are expected to hold Company shares with a value of three times basic salary for the chief executive and two times basic salary for other executive directors. The Committee takes into consideration achievement against these targets when making grants under the Company s various long-term incentive plans. - (A4) Any new long-term incentive schemes which are proposed should be approved by shareholders and should preferably replace any existing schemes or, at least, form part of a well considered overall plan incorporating existing schemes. The total potentially available rewards should not be excessive. - A4: page BSP In addition, an updated set of BSP rules will be presented to shareholders for approval at the 2014 AGM, as the current rules expire on 21 April page 125 Figure 3 illustrates how the total pay opportunities for the current chief executive and the finance director vary under three different performance scenarios: above, target and below. 21

22 - (A5) Payouts or grants under all incentive schemes, including new grants under existing share option schemes, should be subject to challenging performance criteria reflecting the company s objectives, including non-financial performance metrics where appropriate. Remuneration incentives should be compatible with risk policies and systems. - (A6) Grants under executive share option and other longterm incentive schemes should normally be phased rather than awarded in one large block. - A5: page 120 BSP Each year executive directors participate in the BSP which rewards earnings per share (EPS) and individual performance. - The EPS targets are set each year to ensure they are demanding yet realistic. They primarily reflect internal budgets and price expectations for the year. Consideration is also given to prior performance and external expectations. The individual objectives are based on the Company s strategic priorities for the year. - page 107- LTIP Performance measures the LTIP is subject to two performance measures: Attributable Return on Capital Employed (ROCE) and Total Shareholder Returns (TSR). The ROCE measure has been selected to reflect the strategic focus on disciplined capital allocation and the TSR measures to reflect the extent to which value is being delivered to shareholders. - Each year, the Committee reviews the performance targets prior to grant to ensure they remain sufficiently stretching. The initial ROCE targets have been informed by the Company s stated 2016 attributable ROCE aspiration and each year will be set with reference to current budgets. The relative TSR targets are set such that only a quarter of the award is payable for median performance whilst maximum vesting requires exceptional relative performance. The Committee is able to reduce any unvested awards, vested awards subject to a holding period or future grants in the event of a material misstatement in the Company s results or, for 2014 awards onwards, misconduct or a material failing in risk management processes that has given, or is likely to give, rise to significant and lasting value destruction for the Company - A6: page 121 The Committee makes an annual conditional award of shares to each executive director [as opposed to once every 3 or 5 years]. - (A7) Consideration should be given to the use of provisions that permit the company to reclaim variable components in exceptional circumstances of misstatement or misconduct. - A7: page 120 BSP The Committee is able to reduce any unvested Bonus Share awards, vested awards subject to a deferral period or future awards in the event of a material misstatement in the Company s results or, for 2014 awards onwards, misconduct or a material failing in risk management processes that has given, or is likely to give, rise to significant and lasting value destruction for the Company page 121 LTIP. The Committee is able to reduce any unvested awards, vested awards subject to a holding period or future grants in the event of a material misstatement in the Company s results or, for 2014 awards onwards, misconduct or a material failing in risk management processes that has given, or is likely to give, rise to significant and lasting value destruction for the Company - (A 8) In general, only basic salary should be pensionable. The Remuneration Committee should consider the pension consequences and associated - A8: page 122 Pensions maximum opportunity is 30% of basic salary. Executive directors participate in defined contribution pension arrangements, so the impact of salary increases is limited. - page the Committee considers the general basic salary increase for the broader UK employee population when determining the annual salary 22

23 costs to the company of basic salary increases and any other changes in pensionable remuneration, especially for directors close to retirement. increases for the executive directors. The rate of basic salary increase for the chief executive and the finance director, at 0% of salary for 2013 and 3% for 2014, has been lower than (in 2013) and the same as (in 2014) the general increase for the UK employee population - D.1.2 Where a company releases an executive director to serve as a nonexecutive director elsewhere, the remuneration report should include a statement as to whether or not the director will retain such earnings and, if so, what the remuneration is. - D1.2: page 125 External directorships Executive directors are not permitted to hold external directorships or offices without the prior approval of the Board. If approved, they may each retain the fees payable from one such appointment. - Page 134 Figure 12, footnote (1) In addition to the basic salaries above, René Médori and Cynthia Carroll each retained fees amounting to 66,000 and 37,000 respectively in respect of external directorships. - D.1.3 Levels of remuneration for non executive directors should reflect the time commitment and responsibilities of the role. Remuneration for nonexecutive directors should not include share options or other performance-related elements. If, exceptionally, options are granted, shareholder approval should be sought in advance and any shares acquired by exercise of the options should be held until at least one year after the non executive director leaves the board. Holding of share options could be relevant to the determination of a non executive director s independence (as set out in provision B.1.1). - D1.3: page 124: Figure 2 - Remuneration policy for non-executive directors the policy does provide for participation in the Company s share incentive schemes or pension arrangements. - D.1.4 The Remuneration Committee should carefully consider what compensation commitments (including pension contributions and all other elements) their directors terms of appointment would entail in the event of early termination. The aim should be to avoid rewarding poor performance. They should - D1.4: page 126 Section Figure 4 sets out the Company s policy on termination. This policy is consistent with provisions relating to termination of employment in the executive directors service agreements and with provisions in the incentive plan rules with one exception. René Médori s service agreement contains a longstanding provision under which the Company may pay a lump sum in lieu of any notice period, comprising salary, bonus and pension contributions in respect of the unexpired notice period, with the bonus element calculated based on the average bonus percentage paid over the last three years and prorated based on the time employed during the bonus year. The Committee intends, if required, to meet this obligation but does not intend to include such a clause in any future service agreements. 23

24 take a robust line on reducing compensation to reflect departing directors obligations to mitigate loss. - Page 126 Figure 4 - Salary and benefits continue to be paid to the date of termination of employment, including any notice period and/or garden leave period - The Company may terminate employment with immediate effect and, in lieu of the unexpired portion of any 12-month notice period, make a series of monthly payments based on salary and benefits (or make a lump sum payment based on salary only). Any monthly payments will be reduced to take account of any salary received from alternative employment - D.1.5 Notice or contract periods should be set at one year or less. If it is necessary to offer longer notice or contract periods to new directors recruited from outside, such periods should reduce to one year or less after the initial period. - D1.5: page 126 Figure 4 Notice periods Notice periods do not exceed 12 months. Upon appointment the Committee can agree an extended Company notice period for the first year following appointment - D.2 Procedure Main Principle There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remuneration. - D2 : The Development of director remuneration policy is outlined on page 128 and includes: - whenever any significant changes are made to remuneration, the Committee seeks feedback from investors. The Committee also listens to and takes into consideration investor views throughout the year. For example, the changes described in the Committee Chairman s introductory letter reflect, in part, recent investor concerns and the Company consulted with its leading investors on these changes before finalising them - each year the Committee also reviews in detail how the arrangements for the executive directors compare to those for other members of the Group Management Committee to ensure an appropriate relationship and to support career development and succession. - Code Provisions D.2.1 The board should establish a Remuneration Committee of at least three, or in the case of smaller companies two, independent non executive directors. In addition the company Chairman may also be a member of, but not chair, the committee if he or she was considered independent on appointment as Chairman. - The Remuneration Committee should make available its terms of reference, explaining its role and the authority delegated to it by the board. Where remuneration consultants are appointed, a - D2.1: page Membership of the Committee The Committee comprised the following non-executive directors during the year ended 31 December 2013: Sir Philip Hampton (Chairman) David Challen Sir CK Chow Byron Grote Ray O Rourke Jack Thompson Peter Woicke - The full Terms of Reference of the Committee can be found on the Anglo American website and copies are available on request. - Page 141 Figure 20 sets out the external advice provided to the Committee, other services provided to the Company and the fees paid for advice to the Committee. 24

25 statement should be made available of whether they have any other connection with the company. - D.2.2 The Remuneration Committee should have delegated responsibility for setting remuneration for all executive directors and the Chairman, including pension rights and any compensation payments. The committee should also recommend and monitor the level and structure of remuneration for senior management. The definition of senior management for this purpose should be determined by the board but should normally include the first layer of management below board level. - D 2.2: page 117 Role and responsibilities of the Remuneration Committee. The Remuneration Committee (the Committee) is responsible for considering and making recommendations to the Board on: Establishing and developing the Group s general policy on executive and senior management remuneration. Determining specific remuneration packages for the chairman and executive directors. Designing the Company s share incentive schemes - Page 128 section 2.5 each year the Committee also reviews in detail how the arrangements for the executive directors compare to those for other members of the Group Management Committee to ensure an appropriate relationship and to support career development and succession. - D.2.3 The board itself or, where required by the Articles of Association, the shareholders should determine the remuneration of the non executive directors within the limits set in the Articles of Association. Where permitted by the Articles, the board may however delegate this responsibility to a committee, which might include the chief executive. - D2.3: page Figure 2 - Remuneration policy for non-executive directors The Chairman is paid a single fee for all his responsibilities The level of this fee is reviewed every two to three years by the Committee and chief executive, with reference to UK market levels (FTSE 30 companies), and a recommendation is then made to the Board (in the absence of the Chairman) - The non-executives are paid a basic fee. The chairmen of the main board committees and the senior independent director are paid an additional fee to reflect their extra responsibilities - These fee levels are reviewed every few years by the Chairman and executive directors, with reference to UK market levels, and a recommendation is then made to the Board - D.2.4 Shareholders should be invited specifically to approve all new long-term incentive schemes (as defined in the Listing Rules26) and significant changes to existing schemes, save in the circumstances permitted by the Listing Rules - D2.4 Shareholders are invited to approve a new Bonus Share plan to replace the existing plan that expires in April