Telstra 2005 Annual Report Download - page 36

remuneration report
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The directors present the remuneration report prepared in accordance with
Section 300A of the Corporations Act 2001 for the Telstra Group for the
financial year ended 30 June 2005.
Introduction
Our remuneration policy is designed to link the remuneration of the CEO
and senior executives with our performance.
The CEO and senior executives’remuneration is linked to both our short
and long-term performance through:
• the short-term incentive (STI) plan, where individuals are assessed
against a combination of quantitative and qualitative measures of
performance over the past year; and
• the long-term incentive (LTI) plan through the use of performance
rights, all of which have long-term performance measures which ensure
the rights can only be exercised when the Company achieves previously
set targets.
The non-executive directors’ remuneration is not linked to short-term
performance, as the focus of the Board is on governance and the longer-
term strategic direction of the Company. As such, part of their remuneration
is delivered as shares, through Telstra’s Directshare plan.
In this report we explain the policy and structure of the remuneration of:
• non-executive directors; and
• the CEO and senior executives.
Each section includes an explanation of how the remuneration is
calculated as well as a table showing actual figures. For the purpose of this
report the senior executives are the Group Managing Directors reporting to
the CEO.
Non-executive directors
Remuneration policy
Non-executive directors are remunerated with fees which are not linked to
performance to preserve their independence. The total fee pool is approved
by shareholders.
Our non-executive directors are remunerated in accordance with our
constitution, which provides for the following:
• an aggregate limit of fees is set and varied only by approval of
a resolution of shareholders at the annual general meeting; and
• the Board determines how those fees are allocated among the directors
within the fee pool.
The current fee pool of $1,320,000 was approved by shareholders at the
November 2003 annual general meeting, and remains unchanged. Since
2003, there has been a significant shift in director fees in the Australian
market due to the increased time and responsibility required of non-
executive directors. Based on independent remuneration advice, these
market changes have resulted in a decline in the competitiveness of our
current fee pool over this period.
In order to maintain their independence and impartiality, the remuneration
of the non-executive directors is not linked to the performance of the
Company, except through their participation in the Directshare plan which
is explained below.
In determining the fee pool and individual director fee levels, the
Remuneration Committee makes recommendations to the Board, and in
the case of the fee pool, the Board recommends to shareholders taking
into account:
• the Company’s existing remuneration policies;
• independent professional advice;
• the fee pool of other comparable companies;
• fees paid to individual directors by comparable companies;
• the general time commitment and responsibilities involved;
• the risks associated with discharging the duties attaching to the role
of director; and
• the level of fees necessary to attract and retain directors of a suitable
calibre.
Remuneration structure 2004/05
Non-executive directors receive a total remuneration package based on their
role on the Board and committee memberships. Non-executive directors must
sacrifice at least 20% of their fees into Telstra shares to align their interests
with those of our shareholders.
The Board determines the non-executive directors’ annual fees (total
remuneration package or TRP). The TRP paid to each director is determined
according to their role on the Board and committee memberships, as set
out below.
Board fees
Board members are paid the following fees.
• Chairman $308,000
• Deputy Chairman $154,000
• Director $88,000
These amounts were approved by the Board effective 1 July 2004.
Committee fees
Board members, excluding the Chairman and Deputy Chairman, are paid
the following additional fees for service on Board committees.
• Audit Committee Chairman $50,000
• Audit Committee member $25,000
• Remuneration Committee Chairman $10,000
• Remuneration Committee member $5,000
• Nomination Committee member $5,000
• Technology Committee Chairman and member $5,000
These amounts were approved by the Board effective 1 April 2005.
The Board considers these fees appropriate given the additional time
requirements of committee members, the complex matters before these
committees and, in the case of the Audit Committee, an increased number
of committee meetings and governance requirements.
The total of all fees paid to non-executive directors in fiscal 2005 remains
within the current fee pool approved by shareholders.
Components of the total remuneration package
The Board has determined that a non-executive director’s TRP will consist
of three components: cash, shares (through the Directshare plan) and
superannuation. Each year directors are asked to specify the allocation
of their TRP between these three components, subject to the following
thresholds:
• at least 30% must be taken as cash;
• at least 20% must be taken as Directshares; and
• the minimum superannuation guarantee, where applicable.
The Board will continue periodically to review its approach to the non-
executive directors’remuneration structure to ensure it compares with general
industry practice and best practice principles of corporate governance.