Qantas 2005 Annual Report Download - page 54

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2005 EXECUTIVE REMUNERATION PHILOSOPHY AND OBJECTIVES continued
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 a financial target determines the amount (if any) of the pool of money available for payment. The target is set with
an inherent stretch component. It is anticipated that the target would be achieved 75% of the time.
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 incentive) and the Performance Rights Plan (long-term
incentive). Both elements are designed to strengthen the alignment of the interests of the Executives with those of shareholders.
Performance Share Plan
The medium-term incentive component is delivered via deferred shares under the Terms and Conditions of the Qantas 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 of the Group against the balanced scorecard determines the amount (if any) of the pool of shares available for payment. The
Balanced Scorecard for 2005/06 contains target measures from the corporate Key Performance Indicator measures set by the Board (ie
Customer, Operational, People 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 75% of the time.
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.
Assessment of the performance of individuals against their specific annual goals and a further assessment of the relative contribution of
Executives, results in a differentiated distribution in the number of deferred shares.
Deferred shares awarded under this Plan are purchased on-market and are held subject to a holding lock for 10 years. Participants may
“call for” the shares prior to the expiration of the holding lock but not before the end of the financial year in relation to up to one-half of
the shares and the end of the following financial year in relation to the remaining shares. Generally, any shares held subject to the holding
lock are forfeited on cessation of employment.
Performance Rights Plan
The aims of the Performance Rights Plan as the long-term incentive component are to:
x align the interests of eligible Executives and of shareholders;
x provide targeted but competitive remuneration and a long-term incentive for the retention of key Executives; and
x support a culture of employee share ownership.
As a retention tool, the program is specifically targeted to Senior Executives in key roles or identified as high potential developing
Executives.
Rights granted under this Plan are subject to a performance hurdle, being Total Shareholder Return (TSR) in comparison to a basket of
listed global airlines and the largest Australian listed public companies as measured by the S&P/ASX 100 Index. The TSR will first be tested
three years after the Rights are granted and re-tested at quarterly intervals over the subsequent two-year period.
The Plan allows re-testing of the TSR hurdle because:
x the impacts of long-term decision making may not neatly coincide with a fixed three-year period; and
x a re-test of the cumulative TSR measure is more onerous than the original test.
This then provides flexibility to allow long-term decision making to flow through to corporate results within a time window, rather than
reviewing only at specific points in time.
Retention Reward Plan
Selected Executives may also be invited to participate in a deferred cash retention scheme, involving operational performance objectives
and a deferral period typically of between three and five years. A portion of the deferred reward under this Plan may be forfeited if the
retention period requirement is not met.
Spirit of Australia
~Directors’ Report~
for the year ended 30 June 2005