Air New Zealand 2011 Annual Report Download - page 72

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EMPLOYEE REMUNERATION (CONTINUED)
REMUNERATION PHILOSOPHY
In order to attract and retain talented individuals, Air New Zealand’s performance and reward strategy is aligned with both the
recruitment philosophy – to source inspiring people, and our capability development agenda – to nurture future leaders and provide
succession pipelines into key roles. The key objectives of the strategy are attracting high performing individuals, providing rich
developmental opportunities and recognising achievement through targeted performance and reward initiatives.
Air New Zealand’s remuneration strategy is underpinned by a pay for performance philosophy and accordingly positions base pay for
competent performance below the market median for all Individual Employee Agreements including the Chief Executive Officer (CEO),
and uses annual performance incentives to create opportunities for everyone to achieve market competitive remuneration levels and in
the case of superior performance, total remuneration in excess of market.
The overall remuneration strategy is designed to provide remuneration based on performance against agreed targets, align actions with
shareholder interests and balance competitiveness with affordability. The CEO and executive remuneration packages are made up of
three components:
• Fixed base salary;
• Annual performance incentive; and
• Long term incentives.
FIXED BASE SALARY
Air New Zealand’s philosophy is to set fixed base salaries at 90 percent of the market median for executives who are fully competent in
their role.
ANNUAL PERFORMANCE INCENTIVE
The annual performance incentive component is delivered through the Air New Zealand Short Term Incentive Scheme (STI). The
measures used in determining the quantum of the STI are set annually. Targets relate to both Company financial performance and
individual targets. For the CEO the STI weighting is based 70% on Company financial performance and 30% on individual performance
against specific targets. For all other employees the weighting is 50% Company financial performance and 50% individual performance.
The main factors for assessment are:
• Financial performance falling within an executive’s specific responsibilities;
• Business performance;
• Strategy development and implementation; and
• People, culture and leadership performance.
At the beginning of each financial year the Board confirms a financial target for the Company for incentive payments which is set 10%
above the average Normalised Earnings before Taxation achieved by the Company over the previous five year period.
LONG TERM INCENTIVE
The Air New Zealand Long Term Incentive Plan (LTIP) is designed to align the interests of senior executives with those of our
shareholders and to incentivise participants in the plan to enhance long term shareholder value.
There are two main elements to the plan:
Mandatory Shareholding
Participants are required to commit to investing a specified amount to purchase shares in the Company, which lies in the range of 25%
to 66% of their base salary, according to seniority. Until the minimum shareholding level is attained, one third of the CEO or executives’
after-tax annual performance incentive payment is retained to purchase shares in the Company up to the point where this mandatory
shareholding level is achieved. The holding must be maintained to enable the CEO or executive to exercise any options.
Options
LTIP participants must achieve a performance rating of on target or better against individual STI targets to be eligible to receive a grant
of options. Any grant of options is at the discretion of the Performance Development and Remuneration Sub-Committee (PDRC) of the
Board of Directors but, in the normal course of events, is expected to equate to a value of 2½ times the STI earned on individual targets
for the CEO, or 1½ times the STI earned on individual targets for all other scheme participants (the factor for the CEO being higher to
reflect the lower proportion of STI based on individual performance (30% versus 50%)). The number of options to be allocated will be
determined by an independent valuation of the options carried out each year at the time of issue.
AIR NEW ZEALAND ANNUAL FINANCIAL RESULTS 2011