Telstra 2003 Annual Report Download - page 41

www.telstra.com.au/investor P.39
Upon resignation by the chief executive officer or a senior
executive, all deferred shares which have not vested to them will
lapse. If the chief executive officer or a senior executive retires, the
deferred shares may be vested. Where the chief executive officer or
a senior executive ceases employment for any other reason, the
number of the deferred shares that may vest may be adjusted
taking into account the reduced period of service.
Long-term incentive
The chief executive officer and senior executives participate in the
long-term incentive plan based on equity administered through the
Telstra Growthshare Trust. The allocation for September 2002 and
March 2003 was in the form of performance rights (allocations of
options under the equity plan have been suspended with the last
allocation in fiscal 2002). The right to exercise those performance
rights vests when a specified performance hurdle is achieved.
For fiscal 2003, the performance hurdle to achieve 50% of the vesting
entitlement of performance rights is that the Telstra 30 day average
total shareholder return (TSR) must exceed the 50th percentile of
the 30 day average TSR performance of the companies comprising
the ASX 200 industrials (“peer group”) at allocation date between
the third and fifth anniversary of allocation.
Performance rights vest on a performance scale. In order to achieve
100% of the vesting entitlement of performance rights, the TSR
must exceed the 75th percentile of the peer group in the first
quarter of the performance period or at least the 50th percentile in
quarter 1 and obtaining the 75th percentile in any of the remaining
seven quarters. If the 50th percentile is not achieved in quarter 1,
no vesting above the 50% allocation is available.
Offers to participate in the Deferred Remuneration Plan and the
Long Term Incentive Plan are made to senior executives at the
discretion of the board. For fiscal 2003, 43% of the chief executive
officer’s total reward and 34% of the senior managers’ potential
total reward was delivered through these plans.
As Telstra is not able to issue new equity, Telstra Growthshare
purchases shares on market in accordance with the allocation of
performance rights and deferred shares and forward liabilities for
all allocations, past and present.
Telstra funds the proportion of shares that are purchased to
underpin the allocation of performance rights and deferred shares
and treats these funds as an expense by the company.
Cumulatively, over a five year period, the total number of shares
and options over shares provided through Telstra Growthshare is
not expected to exceed 1% of shares on issue.
In previous equity plans where options have been issued, Telstra
provides a loan to the Telstra Growthshare Trust to fund the
purchase of shares to underpin the options which were allocated.
This loan is treated as a receivable in the Telstra statement of
financial position. The Telstra Growthshare Trust pays interest to
Telstra on the loan balance and may repay capital from time to
time. If options are exercised, the senior executive pays the original
exercise price to the Telstra Growthshare Trust and the loan is
repaid. As a result there is no direct cash expense incurred by
Telstra in relation to the options.
Telstra employee share ownership plans
All employees, including our senior managers who were classed as
“eligible employees” at 20 September 1997 and again on 27 August
1999, were eligible to participate in the Telstra Employee Share
Ownership Plans, TESOP97 and TESOP99. The terms and conditions
of participation in these plans for senior managers were the same
as for all other employees.
Telstra OwnShare
To facilitate increasing employee shareholding in Telstra, Telstra
operates a restricted share plan (Telstra OwnShare) through
which employees may state a preference to take part of their
remuneration as Telstra shares. The shares are purchased on
market, allocated at market value and held in trust for either
a three or five year period (unless the employee leaves the
Telstra Group earlier).