Qantas 2004 Annual Report Download - page 51

Directors’ Report continued
for the year ended 30 June 2004
2004 EXECUTIVE REMUNERATION PHILOSOPHY AND OBJECTIVES continued
The Chairman’s Committee (which is a Committee of the Qantas Board) plays a critical role in reviewing and recommending to the Board on
matters of remuneration policy, specific recommendations relating to Senior Executives and all matters concerning equity plans and awards.
The guiding principles in managing remuneration for Executives are that:
all elements of remuneration should be set at an appropriate level having regard to market practice for roles of similar scope and skill;
the Performance Plan should be used to differentiate rewards for high performers and to encourage continuously higher levels of
performance;
the Performance Plan should be clearly linked to appropriate goals via a robust performance management system; and
the Performance Equity Plan, comprising the Performance Share Plan and Performance Rights Plan elements of the Performance Plan,
should be used to align the interests of Executives with shareholders, support a culture of employee share ownership and act as a
retention initiative.
Overall the mix of the Remuneration program is consistent with market practice.
Fixed Annual Remuneration (FAR)
Salary decisions are based on the concept of FAR, which involves a guaranteed salary level from which superannuation and certain other
benefits, such as a maintained motor vehicle, are able to be deducted at the election of the employee on a salary sacrifice basis.
FAR is set with reference to market data, reflecting the scope of the role, the unique value of the role and the performance of the person
in the role. FAR is reviewed annually and reflects a middle of the market approach, as compared to similar comparative roles within
Australia, having particular reference to large public companies for the most senior roles.
The Performance Plan
The alignment of Executive remuneration outcomes with the performance of both Qantas and the individual is a key part of the Qantas
People Plan. Relevant performance hurdles, agreed in advance of the allocation of incentives, are a key element in an appropriately
structured Performance Plan. Vesting should be over a period that is consistent with the realisation of the short, medium and long-term
strategic objectives approved by the Board.
Performance Cash Plan
The Performance Cash Plan is designed to reward Executives when key performance measures are achieved over the 12 month business cycle.
The target reward is a percentage of FAR dependent on each individual’s level of responsibility. The actual incentive earned is based on a
combination of Qantas results and individual performance and may be greater than or less than the target amount.
Performance against target results on a company wide basis, determines the amount (if any) of the pool of money available for payment.
The measure for most Executives is the Earnings Before Depreciation Rentals Interest and Tax (EBDRIT) and, for the members of the
Executive Committee, is the Return on Total Gross Assets (RoTGA) being EBDRIT divided by Total Gross Assets. The target is set with an
inherent stretch component. It is anticipated that the target would be achieved in 3 out of every 4 years, given this level of stretch.
Once a pool has been approved, based on Qantas’ performance, the assessment of the performance of individuals against their specific
annual goals takes place along with a further assessment of the relative contribution of Executives. This results in a differentiated
distribution of the bonus pool between participating Executives.
Performance Equity Plan
The Performance Equity Plan comprises the Performance Share Plan (medium-term) and the Performance Rights Plan (long-term incentive).
Both elements are designed to strengthen the alignment of the interests of the Executives with shareholders.
Performance Share Plan
The medium-term incentive component is delivered via deferred shares under the terms and conditions of the Deferred Share Plan
(approved by shareholders at the October 2002 Annual General Meeting), subject to satisfactory results on a balanced scorecard basis.
The target reward is a percentage of FAR dependent on each individual’s level of responsibility. The actual incentive earned is based on
a combination of Qantas results and individual performance.
Performance at a company level against the balanced scorecard determines the amount (if any) of the pool of shares available for payment.
The Balanced Scorecard for 2004/05 contains target measures from the corporate Key Performance Indicator measures agreed with the Board
(i.e. People, Customer, Operational and Financial performance). The targets are approved by the Board at the beginning of the financial year
with a focus on business improvement. It is anticipated that the target would be achieved in 3 out of every 4 years.
The Board has the capacity to adjust reward outcomes based on performance, if it feels it is appropriate to recognise an extraordinary
effort in performance, or as a way of providing specific retention allocations of Deferred Shares.
Qantas Annual Report 2004 49Spirit of Australia