44
CSL Limited Financial Report 2007-2008
DIrectors’ Report continued
Long-term Incentives
contingent on a qualitative hurdle which requires executives to
obtain a satisfactory (or equivalent) rating under the company’s
performance management system for the financial year prior to
exercise of the performance rights and performance options.
Long-term incentives are reserved for executives (and other
employees) who have performed to a required performance level
and who are regarded as being of strategic and/or operational
importance to the Group. These incentives are also used in order
to attract certain new employees. The Group currently offers long
term incentives in the form of:
Performance rights and performance options are issued for a term
of seven years. Current offers provide for a portion to become
exercisable, subject to satisfying the relevant performance hurdles,
after the second anniversary of the date of grant. Full vesting does
not occur until fours years post grant date.
a. Cash incentives subject to deferred settlement, the value of
which is ultimately determined via reference to the company’s
future share price. Only the Managing Director has a long term
incentive of this type.
If the portion tested at the applicable anniversary meets the
relevant performance hurdle, then those particular rights and
options vest and become exercisable until the expiry date. If
the portion tested fails to meet the performance hurdles then
those particular rights and options are carried over to the
next anniversary and retested. After the fifth anniversary, any
performance right and performance options not vested will lapse.
In any given year, where the Managing Director’s
performance generates an entitlement to a cash settled STI,
it simultaneously generates an entitlement to a further cash
based reward which is subject to deferred settlement. When
the Managing Director is eligible to receive this particular
reward, its amount is determined and payable as follows:
Performance rights
The number of performance rights granted, reflects an executives
seniority, job value and location and the relevant market conditions
in each region of the world in which CSL recruits for talent.
•
50% of the STI awarded to the Managing Director for a
given financial year’s performance (the ‘entitlement year’)
is divided by the volume weighted share price during the
last week of that financial year to give a number (‘A’).
The performance hurdle attached to performance rights is a
relative Total Shareholder Return (“TSR”) hurdle with a peer
group of the companies comprising the ASX top 100 by market
capitalisation (excluding companies with the GICS industry
codes of commercial banks, oil and gas and metals and mining).
Relative TSR was chosen as the LTI performance hurdle, as it
provides an alignment between comparative shareholder return
and potential reward for staff. The peer group for the October
•
3 years from the end of the ‘entitlement year’ (or earlier
at the Board’s discretion), and subject to his continuing
employment with the Group over the intervening period,
the Managing Director is entitled to the payment of a
cash amount equivalent to ‘A’ multiplied by the volume
weighted share price during the last week immediately
prior to the end of that 3 year period (or such earlier
period as the Board may determine).
2
2
007 performance rights allocation was established on 1 October
007, which was also the date of grant. Vesting of performance
rights will occur where the company’s TSR ranking is at or above
the 50th percentile. Subject to performance hurdles being
met over applicable vesting periods, performance rights entitle
eligible executives to an ordinary share in the company for nil
cash consideration. Prior to October 2006, the performance
hurdle for performance rights issued was defined so that 50% of
performance rights vest at the 50th percentile, with the balance
vesting on a straight line basis between the 50th and 75th
percentile, where 100% of rights vest.
b. Equity rewards. Equity rewards take the form of performance
rights and performance options and options issued under
the Senior Executive Share Ownership Plan II (“SESOP II”).
During the years ended 30 June 2008 and 2007, only
performance rights and performance options were issued to
eligible executives under the CSL Performance Rights Plan, as
approved by shareholders at the 2003 annual general meeting.
No SESOP II options were issued during the 2008 year.
Performance rights and performance options
Performance options
In October 2007 the long-term incentive grants made to executives
incorporated both Performance Rights and Performance Options.
Each long-term incentive grant generally consists of 50%
Performance options are issued for nil cash consideration with an
exercise price equal to the volume weighted average CSL share
price over the week up to and including the day of grant.
performance rights and 50% performance options. For a specified
group of Senior Leadership Executives, a mix of 40% performance
right and 60% performance options was granted. The use of a
higher proportion of the grant as performance options is consistent
with our intent of providing a higher level of at risk remuneration,
for the most senior staff in the Group. This latter group includes the
CEO and executive key management personnel.
Performance options have an earnings per share (EPS) performance
hurdle. The target is 10% compound EPS growth per annum
measured from 30 June in the financial year preceding the grant of
options until 30 June in the financial year prior to the relevant test
date. The Board considers that an EPS hurdle is appropriate since
a key approved corporate objective is the pursuit of sustainable
earnings growth.
Performance rights and performance options are subject to
different quantitative performance hurdles. The use of two types
of quantitative performance hurdles aligns long term incentive
rewards more closely with corporate performance, increases
the market competitiveness of remuneration packages and
facilitates the attraction and retention of high calibre executives.
In addition, the vesting of performance rights and options is also
Subject to the EPS performance hurdle being met over applicable
vesting periods, performance options entitle eligible executives to
purchase an ordinary share in the company at the exercise price
applicable to the option tranche.
Loans to fund the exercise of performance options are not
available.