Telstra 2005 Annual Report Download - page 41

EPS performance measure
For rights under the EPS performance measure in fiscal 2005, 50% of the
allocation will vest if our EPS meets or exceeds the target performance
level of 5% annual compound growth for the 3 years preceding the vesting
date. If our EPS has grown annually by 10% compound for the same period,
the remaining 50% allocation will vest. The 10% annual compound growth
represents the stretch target under the LTI plan. A linear vesting scale
operates for performance between 5% annual compound growth
(gateway) and 10% annual compound growth (maximum). EPS is
calculated in accordance with AASB 1027:‘Earnings Per Share’.
Performance TSR ranking below TSR ranking at 50th TSR ranking between TSR ranking at or
50th percentile percentile (gateway) 50th and 75th above 75th percentile
percentile (maximum)
Vesting Nil 50% Progressive vesting 100%
from 51% to 99%
Figure 5: Vesting schedule for TSR performance rights
Performance EPS growth below 5% EPS growth at 5% EPS growth between EPS growth at or
(gateway) 5% and 10% above 10% (maximum)
Vesting Nil 50% Progressive vesting from 100%
51% to 99%
Figure 6: Vesting schedule for EPS performance rights
Relationship between remuneration policy and the performance of Telstra
Telstra’s remuneration policy aims to achieve a link between the remuneration
received by executives, increased earnings and the creation of shareholder
wealth. The STI is focused on achieving operational targets and the LTI is
focused on achieving long term growth in shareholder wealth.
Shareholder wealth
The total return to an investor over a given period consists of the
combination of dividends paid, the movement in the market value of their
shares over that period and any return of capital to shareholders, not
including buy-backs. During fiscal 2005 the share price has fluctuated
between a low of $4.63 and a high of $5.49.
Over the five years to 30 June 2005 we have increased our return to
shareholders through dividends by 83% including special dividends.
Our total dividends paid per share for the last five years are shown
overleaf.
In general terms, if the CEO or a senior executive:
• resigns and their performance rights are not yet exercisable, those
rights will lapse;
• retires or ceases employment due to death or total permanent
incapacity, and their performance rights are not yet exercisable, those
rights do not lapse and will be exercisable if the relevant performance
measure is met;
• is made redundant, and their performance rights are not yet
exercisable, the number of unvested rights is adjusted to reflect the
executive’s service period and will be exercisable if the relevant
performance measure is met; or
• ceases employment with Telstra for any other reason and their
performance rights are not yet exercisable, the Board will decide
whether those rights should lapse or remain available for exercise
if the relevant performance hurdle is met.
Performance measures
The Board approved a change to the LTI plan for fiscal 2005 allocations.
Of the allocation, 50% will be subject to a Total Shareholder Return (TSR)
performance measure, and 50% will be subject to a new performance
measure based on our Earnings Per Share (EPS) growth. These measures
operate independently so that if one measure is achieved only the rights
subject to that measure will vest.
The introduction of dual performance measures combines a strong
external market-based focus through share price growth and dividends
(TSR), and an internal non-market-based measure aimed at driving
improved Company results and the creation of shareholder wealth (EPS).
These performance measures are widely accepted as key drivers of
sustainable long-term organisational performance.
TSR performance measure
Rights under the TSR performance measure will vest if Telstra’s 30 day
average TSR relative to the 30 day average TSR of the peer group ranks
at or above the 50th percentile during the performance period. The
performance period runs between the 3rd and 5th anniversary of
allocation. The peer group comprises the companies in the S&P ASX200
index, excluding secondary securities and resource stocks from the Energy
sector and Metal and Mining Industry, as defined under the S&P Global
Industry Classification Standard (GICS).
If the 50th percentile is achieved in Quarter 1 of the performance period
then vesting occurs on a linear vesting scale with 50% of the allocation
vesting at a 50th percentile ranking (target) and 100% at a 75th percentile
ranking (maximum) during the performance period. The 75th percentile
represents the stretch target under the LTI plan.
If the 50th percentile is not achieved in Quarter 1 of the performance period
then 50% of the allocation will lapse. The remaining 50% will vest if a
ranking above the 50th percentile is subsequently achieved during the
performance period.
www.telstra.com.au/abouttelstra/investor 39