Air New Zealand 2016 Annual Report Download - page 63

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AIR NEW ZEALAND GROUP
Employee Remuneration (continued)
There are two main elements to the LTIP:
Performance Rights
LTIP participants are eligible to receive a grant of performance rights. Any grant of performance rights 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 fixed remuneration for the CEO, and between 40% and 20% of fixed remuneration for Executives depending on their seniority.
The number of performance rights to be allocated will be determined by an independent valuation of the performance rights carried out each
year at the time of issue.
In three years’ time, if the Air New Zealand share price has outperformed the performance hurdle, a proportion of the performance rights will
convert to shares. The performance hurdle comprises an index made up in equal proportions of the NZSX All Gross Index and the Bloomberg
World Airline Total Return Index in equal proportions.
The proportion of performance rights that convert to shares will depend on the extent to which the Air New Zealand share price has
outperformed the index. In particular:
Performance against index Percent of Rights Vesting
<100 % nil
100% 50%
101% – 119% Addition 2.5% vesting per 1% increment, up to
120% 100% (maximum)
If vesting is not achieved on the third anniversary of the issue date, 50 percent of performance rights will lapse. For the remaining 50 percent,
there will be a further 6 month opportunity for the performance rights to vest.
Unless Air New Zealand’s share price outperforms the index as outlined above, no value will accrue to the participating Executive.
Mandatory Shareholding
Participants are required to commit to investing a specified amount to purchase shares in the Company, The amount is set at 55% of fixed
remuneration for the CEO, and between 40% and 20% of fixed remuneration for other participants depending on their seniority.
Until participants have attained this target, any shares issued to them from vested performance rights must be retained as part of the mandatory
shareholding. This holding must be maintained while continuing to participate in the LTIP.
CEO Remuneration
Fixed Remuneration
Over the course of the 2016 financial year, the CEO, Christopher Luxon, earned fixed remuneration of $1,470,000 (2015 financial year: $1,400,000).
Annual Performance Incentive
The annual value of the STI scheme for the CEO is set at 55% of fixed remuneration if all performance targets are achieved. If a performance
rating of unsatisfactory is achieved, no STI is payable. Up to 110% of fixed remuneration is payable for outstanding performance.
For the 2016 financial year, the CEO earned a total STI payment to the value of $1,617,000 (2015 financial year: $1,540,000). This payment will
be made in the 2017 financial year.
Long-Term Incentive
The CEO has access to two long-term incentives schemes:
• The Air New Zealand Long-Term Incentive Performance Rights Plan (LTIP) as outlined above; and
• The Air New Zealand CEO Restricted Share Rights Plan (CRSRP).
Long-Term Incentive Performance Rights Plan
The CEO was granted 706,731 performance rights under the LTIP in the 2016 financial year valued independently at $1.144 each, for a total
value of $808,500 (2015 financial year: 749,027 performance rights with a total value of $770,000).
Restricted Share Rights Plan
The CRSRP is a restricted share rights scheme and has a six year time horizon. It was established as a further incentive to retain the
services of the current CEO for an extended period.
The CEO restricted share rights plan commenced in the 2016 financial year and the issue of rights will cease in the 2021 financial year.
Each year, at the absolute discretion of the Board, and on condition of the CEO achieving the performance hurdles set for the previous
financial year, restricted share rights can be issued to the CEO based on 50% of the CEO’s fixed remuneration.
Share rights issued under this scheme are not earned nor do they vest unless the CEO remains employed by Air New Zealand at vesting
milestones across the period from 2017 to 2021. If this condition is met a proportion of the rights will immediately vest to the CEO on this date.
Under the CRSRP the CEO received a grant of 292,398 restricted share rights in the 2016 financial year at a face value of $2.394 each,
for a total value of $700,000.
Mandatory Shareholding
The CEO owns or has a beneficial interest in 1,676,307 shares of which 618,504 are held as part of the mandatory shareholding
(2015 financial year: 522,440 shares). This holding must be maintained to enable the CEO to exercise any options or performance rights
issued under the LTIP.