Telstra 2005 Annual Report Download - page 39

www.telstra.com.au/abouttelstra/investor 37
Fixed remuneration
Fixed remuneration is made up of guaranteed salary (including salary
sacrifice benefits and any applicable fringe benefits tax) and
superannuation. An individual’s fixed remuneration is generally set once
a year as part of the Company-wide remuneration review.
The CEO and senior executives must contribute to superannuation from
their fixed remuneration in accordance with the superannuation guarantee
legislation. They may increase the proportion of their fixed remuneration
taken as superannuation, subject to legislative requirements.
As a result of the Remuneration Committee’s periodic review during the
year ended 30 June 2004, the Board decided to change the remuneration
structure and re-balance the arrangements for the year ended 30 June 2005.
As foreshadowed last year, the practice of providing deferred remuneration,
which was regarded as fixed remuneration generally subject to continued
employment with the Company for three years, has been discontinued.
These changes resulted in the value of the ‘fixed deferred’remuneration
being distributed into fixed remuneration and the remuneration value of the
short-term incentive payment. The Board believes that these changes are in
line with contemporary Australian and global market practice, and strengthen
the link between remuneration and our performance. As a result, a greater
proportion of the total package for the CEO and senior executives is at risk.
This means that the CEO and senior executives are able to earn significant
rewards only if superior operational and organisational performance linked
to pre-determined company measures and targets are achieved.
Short-term incentive (STI)
The STI plan rewards the CEO and senior executives for meeting or
exceeding specific annual business objectives linked to the annual business
plan at the Company, business unit and individual level.
Measures and targeted achievement levels are reviewed each year to
reflect changes in business priorities for the forthcoming year. Achievement
at the stretch targets for Company, business unit and individual measures
will generally result in the maximum STI payment being received. However,
achievement of the maximum STI payment requires significant
performance above what would normally be expected by the individual
and the Company. This is discussed in more detail in the section titled
‘How rewards are linked to performance’.
Components of the STI: cash and rights
The value received under the annual STI plan is delivered half in cash and
half as rights to Telstra shares. The rights vest in equal amounts over the
following three years at 12 month intervals.
The Telstra Growthshare Trust (Trust) administers the STI Equity plan.
The Trust buys the shares on-market and holds the shares in trust until
they vest. The CEO and senior executives do not hold any beneficial
interest in the shares until they are released by the Trust.
Dividends on the shares are paid to the Trust, not to the CEO or senior
executive concerned. When shares vest the allocation is adjusted to include
an additional number of shares to reflect the dividends forgone. The
additional number of shares is calculated by using the full value of the
dividends attributable to the shares from the date of allocation to the
vesting date divided by the volume weighted average share price over
the five days prior to the date of vesting.
The Board is of the opinion that the delivery of rights will increase the focus
on the Company’s performance and by facilitating share ownership in
Telstra by the CEO and senior executives, better align their interests with
those of our shareholders.
How the STI is calculated
The STI plan is based on a range of Company financial, organisational and
individual performance measures and targets and was approved by the Board.
The plan focuses on the Company performance measures of:
• EBIT growth;
• revenue growth;
• customer retention; and
• (for the CEO) underlying EBITDA margin.
Role Fixed Maximum Maximum Maximum
remuneration STI achievable LTI achievable total package
% of fixed remuneration
Chief Executive Officer 100% 180% 120% 400%
Group Managing Directors 100% 126% 60% 286%
Corporate Group Managing Directors (1) 100% 72% 60% 232%
(1) Corporate Group Managing Directors are those responsible for internal functions of the business, namely finance and administration and regulatory, corporate and human relations.
Figure 3: Remuneration components of the CEO and senior executives for fiscal 2005
How remuneration is apportioned between fixed and ‘at risk’
remuneration
Figure 3 below shows the maximum level of reward for the CEO, Group
Managing Directors and Corporate Group Managing Directors (being our
most senior and highly remunerated executives) should they achieve the
stretch level of performance for the ‘at risk’ elements of their remuneration.
Actual remuneration received for fiscal 2005 was dependent on the actual
performance of the Company and the individual. Achievement of the
stretch level of performance requires significant high levels of performance
of the Company, and them personally.
The ‘at risk’ components of an executive’s remuneration package are
calculated by reference to their fixed remuneration. If no STI or LTI gateway
targets are passed, the executive receives 100% of fixed remuneration and
0% of their ‘at risk’ remuneration.