Qantas 2011 Annual Report Download - page 42

THE QANTAS GROUP 40
for the year ended 30 June 2011
Directors’ Report continued
Remuneration Report (Audited) continued
— Further expansion by Jetstar in Asia, including the growth in its presence in China to nine key ports
— Increase in membership of the Qantas Frequent Flyer program to . million members, plus successful implementation of a key loyalty
partnership with Optus
— Successful achievement of the two year savings target of $ billion from the QFuture initiatives aimed at long-term and sustainable
efciency improvements
— Prompt negotiation of a commercial settlement for $ million with Rolls-Royce in relation to engine failure without needing to engage
in costly and time consuming litigation
Also, despite the difculties faced in the Qantas International business, an extension to the Joint Services Agreement with British Airways
on the key Sydney to London route was implemented for a further ve years. A plan was also developed and approved to provide Qantas
with a breakthrough approach and to provide a platform for protable growth in its International business.
As discussed above, this Underlying PBT result of $ million was achieved in spite of a number of major challenges outside the control
of Qantas Management. It exceeded the threshold set by the Board at the commencement of the year for the payment of cash bonuses
and the granting of awards under the / STIP.
In August  the Board considered the nancial performance together with performance against the other key business measures that
make up the STIP Performance Scorecard and approved a STIP scorecard result for / for Mr Joyce, Mr Evans, Ms Hrdlicka and
Mr Kella of . per cent, for Mr Buchanan of . percent, for Mr Gurney and Mr Strambi of . per cent and for Mr Hickey of . per cent.
The differential results reect the fact that while all KMP were assessed against the Group’s nancial performance, the other scorecard
measures were tailored to their specic segment, or Group measures for those in Corporate roles.
As it did last year, the Board has again taken the decision to defer the payment of bonuses to the CEO and the Senior Executives. In doing this,
the Board recognises that this year’s result represents a signicant improvement in performance versus the prior year, and compares strongly
with the results achieved by other companies in the airline industry. However, the Board considers this treatment to be appropriate in view of
the challenging trading conditions that Qantas continues to face, and given the measures that are currently being taken on a number of
important growth projects.
— The component of the STIP award that would normally be awarded in cash and paid immediately will be deferred until the end of
February . As part of the deferral, the awards (calculated in August  based on the approved STIP outcome) will, subject to
regulatory approval, be linked to the Qantas share price up until the date of vesting with their value being exposed to share price risk
through the period that the “Building a Stronger Qantas” initiatives are being launched
— The component of the STIP award that would normally be awarded in deferred shares will be awarded as deferred shares, with a  year
restriction period
This decision to defer both elements of the STIP Award is also intended as a retention initiative through this period of considerable challenge
and change initiatives, as any awards that have not yet vested are forfeited if the executive resigns.
Awards linked to share price in this way are classied for Accounting purposes as Share-based Payments, and Accounting Standards require
that such payments are expensed over the required service period. Accordingly, the value of these / STIP awards do not appear in the
remuneration tables for the current year. Their value will be disclosed as a Share-based Payment in future periods. On the other hand, the value
of deferred shares issued last year in respect of the / STIP are reported in this year’s remuneration tables as a Share-based Payment.
Qantas Performance – LTIP Outcomes in /
LTIP awards under the  Performance Rights Plan award were tested as at  June . As detailed on page , the performance
hurdles were:
— Qantas TSR performance relative to the S&P/ASX Index for half of the award
— An EPS growth hurdle for the other half of the award
The performance hurdles were not achieved and therefore all Rights lapsed and no shares were awarded.
Qantas Financial Performance History
To provide further context on Qantas’ performance, the following graphs outline a ve-year history of key nancial metrics.
Jun
2006
Dec
2006
Jun
2007
Dec
2007
Jun
2008
Dec
2008
Jun
2009
Jun
2010
Dec
2009
Dec
2010
-50
0
50
100
150
Qantas
S&P/ASX100 Index
MSCI World Airlines
Jun
2011
QANTAS TSR PERFORMANCE V PEER GROUPS %