Compensation

Short-term compensation

The short-term variable compensation is associated with economic-financial, health and safety, sustainability and strategic initiatives goals, which were on extraordinary basis in 2019, targets exclusively linked to the remediation of the Brumadinho dam rupture. In addition to the targets set forth in the panel, the short-term variable compensation is still fully associated with the Company's cash generation, relating compensation paid to operating performance generated in the year.

In this sense, for the fiscal year 2019, 60% of executives' performance goals are based on targets focused on health and safety, sustainability, and mainly on organizational reconstruction and crisis management, to remedy environmental, social and humanitarian damages caused by the dam rupture in Brumadinho in January 2019, in addition to actions aimed at the Company's conscious actions of dam safety and stability, support for investigations, stakeholder relationship management and cultural restructuring. The remaining 40% of the 2019 targets are linked to operating cash generation (EBITDA targets).

Long-term compensation

Long-term variable compensation programs are comprised of Matching and VSP (virtual shares program) and are applicable only to the company's leadership levels, excluding Board of Directors, Fiscal Council and Advisory Committees, that would not be entitled to any type of variable compensation.

Vale's long-term compensation is associated with the performance of the common share, thus is directly related to the return given to shareholders. In the case of VSP, compensation is calculated as a direct function of Vale's Total Shareholder Return (TSR) indicator, which takes into account stock price fluctuations and dividends (or interest on equity) paid to shareholders over the plan period.

It is worth noting that, in 2019, the maintenance of share ownership was implemented, in which the executive must accumulate and hold on their Vale shares in the amount equivalent to at least thirty-six (36) honorary fees to the CEO and twenty-four (24) honorary fees for the Executive Directors. Shares may be accumulated through the share-based variable compensation programs offered by the Company.

Virtual Shares Plan (VSP)

This represents a variable long-term compensation amount, linked to the Company's performance against other large mining and similar companies, and focuses management efforts on the creation of value and wealth for Vale, aligning executives and shareholders’ interests and reinforcing the culture of sustainable performance.

The VSP payment metric consists on the Total Shareholder Return (TSR) relative to the peer group, taking into consideration the businesses and regions where Vale operates and the influence of Brazilian market fluctuations.

If Vale comes first in the ranking (P100 percentile), the value is increased by 50%; if Vale is at P25 (first quartile) or below, there is no payment; and for Vale's intermediate positions in the companies ranking (between P25 and P100), it is paid according to the performance, which may vary between 10% and 150% of the value, as follows:

In addition to the short-term compensation, the long-term compensation will include ESG indicators, to further reinforce Vale’s concern with health and safety and ESG themes.

Therefore, starting in 2020, part of the long-term variable compensation will include 10% of Health and Safety targets and 10% of Sustainability targets, showing Vale's commitment and focus on long-term sustainable development and achieving excellence in issues related to Environment, Social and Governance practices (ESG).

The Health and Safety metrics are intended to promote the effective management of high potential injuries, so that Vale can address the risks more effectively in addition to monitoring the actual frequency and severity of accidents. This marks a critical shift in the focus of indicators from a reactive to a proactive approach.

One of Vale's Safety Indicator is High Potential recordable Injuries (N2)^[1]. It is important to highlight that in the last decade, non-serious injuries and fatalities, in workplace, have decreased but fatal injuries have decreased at a much slower rate. The precursors of Fatalities and Lives changed exist in most organizations and can be identified and measured. New paradigms need to be addressed to influence the improvement of the results of changed lives and fatalities. During the case-by-case analysis of all incidents, a recurrence of systemic themes was identified by which a percentage of incidents initially reported as non-severe had potential for something significantly worse. Thus, an evaluation began not only of the actual severity, but also of the potential of accidents.

To manage serious injuries and fatalities more effectively it is important for Vale to be able to measure more than just the frequency and severity of these cases.

We must effectively measure our exposure to the types of incidents that can generate serious injuries and fatalities. This marks a critical shift in focus from lagging indicators to leading indicators for a more proactive approach to preventing serious injuries and fatalities.

The Sustainability metric is based on Vale’s 2030 commitments that encompass: (i) reduction of greenhouse gas emissions in line with the Paris Agreement; (ii) 100% of clean energy self-generation globally; (iii) reduction of new water collection by 10%; (iv) recovery and protection 500,000 ha of degraded land beyond Vale’s boundaries; (v) socioeconomic contribution to health care, education and income generation (vi) 100% of ESG Gaps completed.

[1] N2 – Number of Incidents that has real severity classified as recordable (Medical Treatment, Work Restriction and Lost time - according to OSHA) and with fatality potential (High Potential)

Matching

Although being a voluntary program for eligible leaders, participation and retention for statutory executives is mandatory. In order to adhere to the program, the executive must use their own resources to acquire common shares of the Company and keep the shares in their possession during the three-year cycle. Shares may be acquired through purchase in the market or through the use of shares already held by the executive (“free shares as long as they are not linked to other Matching cycles that are not yet closed. After 3 years, executives who are still in the Company and have held such shares receive the same number of shares originally acquired, including income taxes withheld at source. From the concessions started in 2019, the participants are entitled to receive the net amount equivalent to dividends (or interest on equity) on the shares not yet awarded, whenever there is distribution by Vale to its shareholders.

Compensation of the Board of Directors, Advisory Committees and Fiscal Council

Compensation elements for the Board of Directors, Board Committees and Fiscal Council

Compensation of the Named and Non-Named Board of Executive Officers

Compensation of the Named Executive Officers

Fixed Compensation

Pro-labore: They are entitled to receive a fixed monthly fee that has the objective of compensating the services provided by them within the scope of responsibility assigned to each one in the management of the Company.

Direct and Indirect Benefits: They are entitled to a benefits package that is also compatible with market practices and includes Medical-Hospital and Dental Care, Complementary Pension and Life Insurance. The benefits, in addition to being aligned with market practices, are intended to support executives and their dependents in key areas, such as health care and housing.

Participation in Committees: They are not entitled to compensation for participation in committees.

Variable Compensation

Bonus: It refers to Short Term Variable Compensation (annual), based on the Company's results and defined through indicators and targets, derived from the strategic planning and annual budget approved by the Board of Directors. The main purpose of the bonus is to ensure competitiveness with the market, align with shareholders' interests and focus on social and environmental issues, as well as recognize the executive's participation in the Company's performance.

This long-term portion is composed of 20% linked to the Matching Program and 26% linked to the Virtual Shares Plan (VSP).

In 2019, the maintenance of stock ownership was implemented, in which the executive shall accumulate, through the share-based compensation programs offered by the Company, and maintain ownership of the shares issued by Vale in an amount equivalent to a least thirty-six (36) times the amount of the monthly fixed installment for CEO and twenty-four (24) times the value of the monthly fixed installment for the Executive Officers.

Matching percentage of the Total Remuneration (target and maximum)

Compensation of the Non-Named Executive Officers

These are employees of the Company with an employment relationship and may be responsible for global corporate functions or business units, or for regional or local corporate functions, or for areas or operating systems in the Company's various businesses.

Fixed Compensation

Pro-labore: They are entitled to receive a monthly fixed amount, defined on the basis of the Company structure of positions, which is aligned to the market practices and the purpose of which, according to the employment agreement signed with each executive, is to remunerate the services provided within the scope of responsibility assigned to each one in the different activities of the Company.

Direct and Indirect Benefits: They are entitled to a package of benefits compatible with market practices including Medical-Hospital-Dental Care, Complementary Pension (Valia) and Life Insurance. The benefits, in addition to being aligned with market practices, are intended to support executives and their dependents in key areas, such as health care and housing.

Participation in Committees: They are not entitled to compensation for participation in committees.

Variable Compensation

Profit sharing: Refers to Short Term Variable Compensation (annual), based on the Company’s results and defined through indicators and targets, derived from the strategic planning and annual budget approved by the Board of Directors.

Virtual Shares Program ("VSP"): The rules and conditions of the VSP offered to these stakeholders are the same as those applied to the Named Executive Officers.

Matching: The rules and conditions of Matching offered to these stakeholders are the same as those applied to the Statutory Officers except for the voluntary rule (for non-statutory leaders, participation in the program is voluntary).

Compensation of Boards, Councils and Comittees

Check the fixed and variable compensations list:

• Total compensation (%) - From 2016 to 2018
• Total compensation ($) - From 2016 to 2019
• Variable compensation ($) - Form 2016 to 2019

For more information about Vale's compensation access our Reference Form 2019

Compensation Discussion and Analysis

Total compensation budget for 2020 Total compensation budgeted for 2020 amounts to R$ 201,671,138, higher than the compensation in 2019, mainly due to the following factors:

• Board of Directors: (i) readjustment in the fees of members of the Board of Directors and Consulting Committees in accordance with the recommendation of an international consultancy, adapting them to those of the companies of same size, complexity and similar level of governance; (ii) increase in the average number of members that make up the Advisory Committees, in line with the statutory provisions; (iii) reduction in the total amount spent for the members of the Independent Extraordinary Consulting Committees to the Board of Directors, in view of the closure of the activities of the Investigation and Support and Repair Committees throughout 2020.
• Executive Board: (i) increase in the number of expected members; (ii) given the suspension of the variable remuneration in 2019, the variable remuneration scheduled for 2020 includes a portion of the suspended remuneration in 2019; (iii) forecast of hiring bonuses in 2020, for the admission of new executive(s); and (iv) impact on the labor charges (INSS) to be afforded by the Company due to the events mentioned above.

Last three years of compensation and budget for 2020

Named Executive Officers Compensation Discussion and Analysis

Fixed salary

2019 expected versus 2019 actual

Fixed salary paid in 2019, was 9% higher than the estimated fixed fee for 2019, mainly due to the higher number of executives than the previous budget. When comparing the average base salary per executive, the actual payment was in line with the estimate.

Last three years' analysis and 2020 expected fixed compensation

Fixed salaries paid in 2019 were 19% and 11% higher than in 2018 and 2017, respectively, mainly due to the higher number of executives in 2019.

When comparing the average base salary per executive, the 2019 average was 5% and 7% higher than in 2018 and 2017, respectively, following the yearly inflation rate of each year.

Fixed salary paid in 2019 is 6% lower than the budget for 2020, mainly due to the higher number of executives budgeted for 2020. When comparing the average base salary per executive, the actual payment is in line with the budget.

Variable compensation

As part of the crisis response, the Board of the Directors took the decision to suspend executive variable compensation, which was the right decision in truly exceptional circumstances. As Vale moves towards the reparation program and the investigation progresses, the Board has been able to resume the variable compensation payments of those executives who are not involved in the investigation discussions due to the dam failure.

Vale believes that executives who have been removed from the Company due to judicial reasons following the Brumadinho dam failure, should continue to have their short term and long-term variable compensation suspended until all investigations and court decisions are officially concluded. On the other hand, for employees and executives who are not involved in the investigation discussions due to the Brumadinho dam failure, the Board believes that the variable compensation payments should be made on a regular basis.

The Board highlights that 2019 was the most challenging year in Vale's history. Leaders and employees showed resilience in view of all the difficulties and the atypical crisis situation they had to face. Throughout the year, an extremely high level of collaboration, team work, dedication and commitment was clear. All the effort, energy and collaboration were used to repair the damage and contain the crisis, aspects that stood out positively in the company.

The tragedy that happened in Brumadinho was a critical moment which, nonetheless, has brought important opportunities to improve the way Vale operates. Vale's leadership has demonstrated full engagement with the construction of a better company and commitment to the cultural transformation, showing conviction in Vale's future.

In this sense, the payment of the 2019 variable remuneration in 2020 would be a way of thanking and rewarding those who contributed, and continue to contribute, to Vale.

Annual bonus targets

The Annual Bonus panel for 2019 was composed of 40% of metrics related to organizational reconstruction and crisis management, to remedy environmental, social and humanitarian damage caused by the dam rupture in Brumadinho.

The EBITDA indicator in 2019 was not achieved, considering Vale had provisions regarding Brumadinho event.

The Sustainability indicator in 2019 was composed by annual targets of the 2030 goals, especially to lead the transition to low carbon mining, reinforcing the commitments made by Vale and guaranteeing accurately tracking the long-term performance. In 2019, the Sustainability metric was achieved.

The Health and Safety indicator in 2019 was composed of three objectives: (i) health, reduction in the absolute number of recordable injuries with critical or catastrophic potential severity; (ii) safety, reduction in the number of employees exposed to dangerous chemicals; (iii) risk, reduction of the safety risk scenarios classified as high and extremely high. In 2019, the Health and Safety target was not achieved, as demonstrated in the panel above.

For 2020, Vale segregated the Health and Safety target from the Risk Management target, in line with Vale's conservative risk approach.

2019 expected versus 2019 actual

Variable compensation paid in 2019 was 6% lower than the estimated variable compensation for 2019, mainly due to lower amounts expensed in termination of positions. Share-based compensation, linked to Virtual Shares Plan, was paid in January 15, 2019. The Board suspended the variable remuneration in January 27, 2019, two days after the dam rupture. For this reason, annual bonus and matching were not paid in 2019.

Last three years' analysis and 2020 expected variable compensation

Variable compensation paid in 2019 was 65% and 63% lower than in 2018 and 2017, respectively, totaling R$ 47,462,149.

As Vale reports the compensation on a cash basis, the total variable compensation for 2019 normalized totaled R$ 77,241,477, including the annual bonus (R$ 17,661,400), Matching (R$ 8,585,648) and Others (R$ 3,532,280) related to 2019 fiscal year but as a cash outflow from 2020.

As Vale reports the compensation on a cash basis, the total variable compensation for 2020 budget for payment totaled R$ 130,170,677, due to the fact that R$ 29,799,328 are related to the fiscal year of 2019, thus the total normalized 2020 budget, ie. what actually relates to the 2020 fiscal year, amounts to R$ 100,391,349.

Normalizing to fiscal year values, the budget for 2020 is 30% higher than in 2019 and 25% and 21% lower than in 2018 and 2017, respectively.

Expenses for Others, mainly composed of the social contribution charges under Vale's responsibility (INSS), increased 224% in the 2020 budget versus the 2019 amount paid, mainly due to the fact that the actual payment of the annual bonus and Matching of 2019, and their respective INSS were executed in 2020. Normalizing to fiscal year values, the expenses for Others increased 22%.

Virtual Share Program

The Virtual Shares Program remuneration paid (vested) in 2019 and the budget for 2020, were heavily impacted by the high number of shares and low share price granted in 2016 and in 2017.

2020 Annual Bonus Panel

The objective and focus of the Crisis Management target, initiated in 2019 following the Brumadinho dam failure, remain on the 2020 targets panel, especially with regards to the strengthening of risk management and continuity of reparation actions.

As a reflection of this work, Vale implemented a change in variable remuneration for the Health, Safety, Geotechnics and Reparation department: these professionals will no longer have the variable based on the company’s financial and production results. This measure represents Vale’s focus on Risk Management as a priority, leaving employees in these areas fully involved in the mission of reducing and mitigating operational risks, without suffering the impact of the financial results. These aspects should not override the integrity of our employees or those directly involved in this work.

Policy

Executive Directors Compensation Policy