Telstra 2005 Annual Report Download - page 32

directors’ report
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Performance rights, restricted shares, and options have performance
hurdles in place which must be achieved for them to vest. If the
performance hurdle is not achieved, they will have nil value and will lapse.
Generally, deferred shares will only vest when a specified service period is
completed. Half of certain employees’short term incentive is allocated by
way of incentive shares. Generally these instruments will vest progressively
over a specified service period from the date of allocation.
For our reporting under Australian generally accepted accounting principles
(AGAAP), we recognise an expense for instruments issued when it is certain
that there is an actual cost that will be realised by Telstra. The exercise price
for performance rights, restricted shares, deferred shares and incentive
shares is nominal and we recognise an expense when the funding is
provided to purchase shares on market to underpin the instruments. When
an employee exercises options, they are required to pay the option exercise
price. As a result, when shares are purchased to underpin options, we
recognise a receivable in Telstra’s statement of financial position.
For our reporting under United States generally accepted accounting
principles (USGAAP), we expense the fair value of all instruments issued
at the time of grant. When the Australian equivalent of International
Financial Reporting Standard IFRS 2:‘Share based payment’ is adopted
as AGAAP, we will apply this standard to the accounting for our option
and employee share plans.
In fiscal 2005, we have recognised an expense of $17 million (2004:
$19 million) relating to instruments issued during the year for AGAAP
and an expense of $15 million (2004: $19 million) under USGAAP.
Refer to note 19 of the financial statements contained in our ‘Annual
Report 2005’ for a detailed explanation of all employee share plans and
the accounting treatment applied to each.
Directors’ and officers’indemnity
Constitution
Our constitution provides for us to indemnify each officer to the maximum
extent permitted by law for any liability incurred as an officer provided that:
• the liability is not owed to us or a related body corporate;
• the liability is not for a pecuniary penalty or compensation order made
by a Court under the Corporations Act 2001; and
• the liability does not arise out of conduct involving a lack of good faith.
Our constitution also provides for us to indemnify each officer, to the
maximum extent permitted by law, for legal costs and expenses incurred
in defending civil or criminal proceedings.
If one of our officers or employees is asked by us to be a director or
alternate director of a company which is not related to us, our constitution
provides for us to indemnify the officer or employee out of our property for
any liability he or she incurs. This indemnity only applies if the liability was
incurred in the officer’s or employee’s capacity as a director of that other
company. It is also subject to any corporate policy made by our chief
executive officer. Our constitution also allows us to indemnify employees
and outside officers in some circumstances. The terms ‘officer’,‘employee’
and ‘outside officer’ are defined in our constitution.
Deeds of indemnity in favour of directors, officers and employees
Telstra has also executed deeds of indemnity in favour of:
• directors of the Telstra Entity (including past directors);
• secretaries and executive officers of the Telstra Entity (other than
Telstra Entity directors) and directors, secretaries and executive officers
of our wholly owned subsidiaries;
• directors, secretaries and executive officers of a related body corporate
of the Telstra Entity (other than a wholly owned subsidiary) while the
director, secretary or executive officer was also an employee of the
Telstra Entity or a director or employee of a wholly owned subsidiary
of the Telstra Entity (other than Telstra Entity directors);
• employees of Telstra appointed to the boards of other companies as
our nominees; and
• employees (including executive officers other than directors) involved in
the formulation, entering into or carrying out, of a Telstra Sale Scheme
(as defined in the Telstra Corporation Act 1991 (Cwth)).
Each of these deeds provides an indemnity on substantially the same terms
as the indemnity provided in the constitution in favour of officers. The
indemnity in favour of directors also gives directors a right of access to Board
papers and requires Telstra to maintain insurance cover for the directors.
The indemnity in favour of employees relating to Telstra Sale Schemes is
confined to liabilities incurred as an employee in connection with the
formulation, entering into or carrying out, of a Telstra Sale Scheme.
Directors’ and officers’ insurance
Telstra maintains a directors’and officers’ insurance policy that, subject to
some exceptions, provides worldwide insurance cover to past, present or
future directors, secretaries or executive officers of the Telstra Entity and its
subsidiaries. Telstra has paid the premium for the policy. The directors’ and
officers’ insurance policy prohibits disclosure of the premium payable under
the policy and the nature of the liabilities insured.
Environmental regulation and performance
Performance in relation to particular and significant environmental legislation
Telstra’s operations are subject to some significant environmental regulation
under Commonwealth, State and Territory law, particularly with regard to:
• the impact of the rollout of telecommunications infrastructure;
• site contamination; and
• waste management.
Telstra has established procedures to monitor and manage compliance
with existing environmental regulations and new regulations as they
come into force.
The directors are not aware of any significant breaches of environmental
regulation during the financial year.
Legal and Regulatory Compliance
Telstra is committed to conducting its businesses in compliance with all of
its legal and regulatory obligations. Compliance with these obligations is
not just a legal requirement but is integral to Telstra’s commitment to its
employees, customers, shareholders and the community.
The Board is responsible for requiring appropriate compliance frameworks
and controls to be in place and operating effectively for compliance with
relevant laws, regulations and industry codes.The Audit Committee has been
delegated specific responsibility for reviewing Telstra’s approach to achieving
compliance with laws, regulations and associated industry codes in Australia
and overseas and the oversight of compliance issues. This oversight is
facilitated by the preparation of a quarterly compliance report summarising
significant compliance initiatives and issues across the Company.