Air New Zealand 2014 Annual Report Download - page 71

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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 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 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 stretch 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.
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฀ 60%฀ on฀ Company฀ nancial฀ performance฀ and฀ 40%฀ on฀ individual฀ performance฀ against฀ specic฀
targets.฀ For฀ all฀ other฀ employees฀ the฀ weighting฀ is฀ 50%฀ Company฀ nancial฀ performance฀ and฀ 50%฀ individual฀ performance.
The main factors for assessment for the 2014 financial year were:
•฀ Financial฀performance฀falling฀within฀an฀executive’s฀specific฀responsibilities;
•฀ Business฀performance;
•฀ Strategy฀development฀and฀delivery;฀and
•฀ People,฀culture฀and฀leadership฀performance.
At฀ the฀ beginning฀ of฀ each฀ nancial฀ year฀ the฀ Board฀ conrms฀ a฀ nancial฀ 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
Air New Zealand’s long term incentive plan arrangements are 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. In the 2014 financial year the plan
available to executives was the Air New Zealand Long Term Incentive Plan (LTIP).
There are two main elements to the LTIP:
Mandatory฀ Shareholding
Participants฀are฀required฀to฀ commit฀to฀investing฀a฀specied฀ 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฀executive’s฀after-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.
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 People Remuneration and Diversity Committee (PRDC) of the Board of Directors
but,฀ in฀ the฀ normal฀ course฀ of฀ events,฀ is฀ expected฀ to฀ equate฀ to฀ a฀ value฀ of฀ 55%฀ of฀ xed฀ remuneration฀ for฀ the฀ CEO,฀ or฀ 1½฀ 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.
EMPLOYEE REMUNERATION (CONTINUED)
AIR NEW ZEALAND ANNUAL FINANCIAL REVIEW 2014 69