Air New Zealand 2013 Annual Report Download - page 71

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In order to aract and retain talented individuals, Air New Zealand’s performance and reward strategy is aligned with both the recruitment
philosophy – to source talented people, and our capability development agenda – to develop future leaders and provide succession
pipelines into key roles. The key objectives of the strategy are aracting 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incentive.
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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.
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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 60% on Company financial performance and 40% 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 for the 2013 financial year were:
• Financialperformancefallingwithinanexecutive’sspecic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.
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The Air New Zealand Long Term Incentive Plan (LTIP) is designed to align the interests of the CEO and 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:
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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 aained, one third of the executive’s aer-tax
annual performance incentive payment (40% in the case of the CEO) 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.
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LTIP participants must achieve a performance rating of on target or beer against individual STI targets to be eligible to receive a grant of
options. Any grant of options is at the discretion of the People Remuneration and Diversity Commiee (PRDC) of the Board of Directors
but, in the normal course of events, is expected to equate to a value of 55% of fixed remuneration for the CEO, or 1 times the STI earned
on individual targets for all other scheme participants (the factor for the CEO being fixed to reflect the higher proportion of STI being
based on Company performance rather than individual performance). 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.
The exercise price of the options is set three years from issue date, and is calculated by multiplying the share price of the Company’s shares
at the date of issue by the movement in an index over the three years to exercise date, decreased by any distributions made by Air New
Zealand over the same period.
The index comprises the Total Shareholder Return (TSR) for the NZSX All Gross Index and the TSR for the Bloomberg World Airline Total
Return Index in equal proportions.
The share price at the date of issue is measured as the average daily closing price of ordinary shares over the ten business days starting on
the third business day following the announcement of the Company’s annual results.
Options may be exercised at any time aer the third anniversary and before the fih anniversary of the date of issue assuming any
conditions outlined and any additional conditions set by the PRDC have been met.
Unless Air New Zealand’s share price outperforms the index as outlined above, no value will accrue to the participating executive.
Employee Remuneration (Continued)
Air New Zealand Annual Financial Results  69