Telstra 2008 Annual Report Download - page 224

Telstra Corporation Limited and controlled entities
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Notes to the Financial Statements (continued)
(a) Telstra Growthshare Trust (continued)
(iii) Instruments issued between 30 June 2001 and 30 June 2005
Earnings per share (EPS) performance rights
The number of EPS performance rights that become vested EPS
performance rights, and therefore become exercisable, is based on the
following:
• if the cumulative growth in EPS from 1 July 2004 to 30 June 2007 is
equal to 15.7%, then 50% of the allocation becomes exercisable;
• if the cumulative growth in EPS is greater than 15.7% and less than
33.1%, then the number of exercisable performance rights is scaled
proportionately between 50% and 100%;
• if the cumulative growth in EPS meets or exceeds 33.1%, then 100%
of the EPS performance rights will become exercisable; or
• if Telstra does not achieve cumulative growth in EPS of 15.7%, all
EPS performance rights will lapse.
Total Shareholder Return (TSR) performance rights and options
For allocations of TSR performance rights made between 30 June 2001
and 30 June 2005, and options issued during fiscal 2002, the applicable
performance hurdle is based on comparing Telstra’s TSR with the TSRs
of the companies in the S&P/ASX 200 (Industrial) Index (peer group)
within the performance period.
The companies in the peer group are anchored at the effective date of
allocation, and this same peer group of companies are then tracked
during the performance period. At the end of each quarter during the
performance period, the 30 day average TSR is calculated for Telstra
and the companies in the peer group for each trading day during that
quarter.
Both, the number of TSR performance rights and the number of
options potentially exercisable, are based on the following.
If in the first quarter of the performance period Telstra’s percentile
ranking is the 50th percentile or above, then:
• the number of TSR performance rights and options that become
exercisable for that quarter is scaled proportionately from the 50th
percentile (at which 50% of the allocation becomes exercisable) to
the 75th percentile (at which 100% of the allocation becomes
exercisable); and
• in subsequent quarters, the number that become exercisable is
based on the same proportionate scale, but is reduced by the
number of performance rights or options that have previously
become exercisable. The percentile ranking achieved needs to be
above that achieved in previous quarters for additional
performance rights and options to become exercisable.
If in the first quarter of the performance period the percentile ranking
is less than the 50th percentile, then:
• half of the allocation will lapse; and
• in subsequent quarters, the remaining 50% of the options or
performance rights will become exercisable if the ranking is the
50th percentile or above for that quarter.
If Telstra does not achieve or exceed the 50th percentile ranking in any
quarter of the performance period, all TSR performance rights and
options will lapse.
Incentive shares
In fiscal 2005, the Board allocated the executives half of their short
term incentive payments as rights to acquire Telstra shares. These
incentive shares vest in equal parts over a period of one, two and three
years on the anniversary of their allocation date, subject to the
executives’ continued employment with any entity that forms part of
the Telstra Group. Any instruments that have not been exercised
within two years of the applicable vesting date will lapse. The
executives can exercise their vested incentive shares at a cost of $1 in
total for all of the incentive shares exercised on a particular day.
Once the vested incentive shares are exercised, Telstra shares will be
transferred to the executive. Until this time, the executive cannot use
the incentive shares (or vested incentive shares) to vote or receive
dividends. Any dividends paid by the Company prior to exercise will
increase the number of incentive shares allocated to the executive.
Deferred shares
The executives were previously provided, as part of their annual fixed
remuneration, rights to Telstra shares that vest upon completing
certain employment requirements. Generally, if an executive
continues to be employed by an entity that forms part of the Telstra
Group three years after the commencement date of the instrument,
the deferred share will become a vested deferred share.
Vested deferred shares must be exercised before the expiry date,
otherwise they will lapse. Once exercised, Telstra shares will be
transferred to the executive. Until this time, the executive can not use
the deferred shares or vested deferred shares to vote or receive
dividends. The executive may exercise the deferred shares at a cost of
$1 in total for all of the deferred shares exercised on a particular day.
27. Employee share plans (continued)