Qantas 2006 Annual Report Download - page 57

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Qantas Annual Report 2006
Directors’ Report
for the year ended 30 June 2006
2006 EXECUTIVE REMUNERATION PHILOSOPHY AND OBJECTIVES CONTINUED
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. The Performance Plan has been implemented within Qantas to
achieve these objectives.
Performance Cash Plan
The PCP 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 per cent 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 PSP (a medium-term incentive)
and the PRP (a 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 an award of
deferred shares under the Terms & Conditions of the Qantas Deferred Share
Plan (DSP) approved by shareholders at the 2002 AGM, 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 adjusted by an individual performance
factor on the same basis as the cash plan.
Performance of the Qantas Group against the balanced scorecard
determines the amount (if any) of the pool of shares available for payment.
The Balanced Scorecard for 2006/07 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 year with a focus on
business improvement. It is anticipated that the target would be achieved
75 per cent 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 or issued
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 deferred shares held subject to the holding lock are forfeited
on cessation of employment.
Performance Rights Plan
The aims of the PRP as the long-term incentive component are to:
• align the interests of eligible Executives and of shareholders;
• provide targeted but competitive remuneration and a long-term
incentive for the retention of key Executives; and
• support a culture of employee share ownership.
As a retention tool, the program is specifically targeted to Senior Executives
in key roles or other participants who have been identified as high
potential 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, if necessary, at quarterly intervals over
the subsequent two-year period.
The Plan allows for limited periodic re-testing of the TSR hurdle because:
• the impacts of long-term decision making may not neatly coincide with
a fixed three-year period; and
• it is based on an extension of the performance period, with no reduction
in the rigour and performance requirement of the original test. The re-
test recognises that the Qantas share price is more volatile in the short-
run than the long-run, when compared to the S&P/ASX 100 Index.
Retention Reward Plan
Selected Executives may also be invited to participate in a retention plan
with a required service period of three years.
The award to any individual under the Retention Reward Plan (RRP) can be
delivered either in deferred shares or by way of a deferred cash award.
Any award made under this Plan will be forfeited if the retention period
for service is not met. Satisfactory performance, including achievement
of personal key performance indicators, is a further requirement under
this Plan.
Employee Share Ownership Plan
To encourage greater share ownership, an Employee Share Ownership Plan
was approved by the Board at its July 2006 Meeting. Directors and
employees will be able to purchase shares at no discount to market price on
a salary sacrifice basis. The initial offering under this Plan will be launched
in 2006/07.
The Employee Share Ownership Plan is to operate under the Terms &
Conditions of the DSP.