CSL Limited Financial Report 2008-2009
43
At the commencement of each financial year each executive’s
performance objectives are set. The Board approves the
Managing Director’s performance objectives and ensures that
they are consistent with Board approved corporate objectives,
plans and budgets.Similarly, and in that context, the Managing
Director sets the performance objectives of his direct reports
and he reviews and approves the objectives of their staff.
Performance objectives include a blend of financial, corporate
and individual objectives and typically include targets in relation
to contribution to earnings, the successful implementation
of strategic initiatives, management of operating expenses,
customer service, risk management, market share and portfolio
management. These objectives have been adopted because the
attainment of each is likely to directly correlate to an increase
in shareholder value. Additionally each executive is expected
to conduct themselves in a manner which supports and
demonstrates behaviour, consistent with our Company values.
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 2009, 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 2009 year. As set out in section
12 of this report, it is contrary to Board policy for key
management personnel to limit exposure to risk in relation
to performance rights and options which may be granted to
them.
Performance Rights and Performance Options
In October 2008 the long-term incentive grants made
to executives incorporated both performance rights and
performance options.Grants of performance rights and
performance options to the Executive Directors at that time
were made in accordance with the resolution approved by
shareholders at the 2006 Annual General Meeting. Each long-
term incentive grant generally consists of 50% performance
rights and 50% performance options. For a specified group of
Senior Leadership Executives, a mix of 40% performance rights
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, including the Managing
Director and executive key management personnel.
A formal review of each executive’s progress against their
specific objectives is conducted twice annually, with the full
year performance review of the Managing Director’s direct
reports discussed and agreed to by the Board. The Board
has responsibility for reviewing the Managing Director’s
performance annually. Short term incentive rewards are then
paid subsequent to the completion of the financial year if
individual executives have met or exceeded their performance
objectives.
Long-term Incentives
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 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
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
vesting of the performance rights and performance options.
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.
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 and performance options which vest may
be exercised any time between their vesting date and their
expiry date.Any vested but unexercised performance rights and
options expire seven years from the date of their initial grant.
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 four years post grant date. 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 may be carried over to the next anniversary
and retested. Any performance rights and options that have not
vested on the fifth anniversary of their initial grant date lapse.
•
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’).
•
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).
