Telstra 2009 Annual Report Download - page 81

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Telstra Corporation Limited and controlled entities
Remuneration Report
The LTI is provided through options that reward performance
at or above target for an RTSR measure and through restricted
shares that reward performance at or above target for an ROI
measure. RTSR measures the performance of the share price
increase of an ordinary Telstra share plus the value of any cash
dividends or other shareholder benefits relative to the other
companies in the LTI comparator group. ROI measures how
well Telstra has utilised its capital over the relevant
performance period.
The LTI plan relates to the four-year period from 1 July 2008
until 30 June 2012. Within that four-year period there are three
performance periods with measurement points at the end of
years two, three and four of the Plan as follows:
• The RTSR Options are measured over the two, three
and four-year periods ending 30 June 2010, 30 June
2011 and 30 June 2012 respectively; and
• The ROI Restricted Shares are measured over the one
year-periods ending 30 June 2010, 30 June 2011 and 30
June 2012.
At the end of each fiscal year in which performance testing is to
occur, the Board will review the company's audited financial
results and the results of the other performance measures to
determine the percentage (if any) of options and restricted
shares that vest. This method, used to assess whether the
performance measures are met, is considered the most
relevant and reliable. No reward is available under the plan for
performance below target for either RTSR or ROI.
If a Senior Executive resigns or retires and their options or
restricted shares are not yet vested, those instruments lapse on
cessation of employment. In the event of cessation for reasons
such as redundancy or contract completion, a pro rata amount
of unvested instruments will lapse relative to the Senior
Executive's service period and the remaining portion may still
vest subject to meeting the original performance measures of
the Plan. If a Senior Executive is terminated for misconduct
then all vested and unvested instruments will lapse or be
forfeited.
Relative Total Shareholder Return (RTSR) Options
50 per cent of the LTI grant is provided through options that are
subject to a RTSR measure. The options have an exercise price
of $4.36. On exercise, executives will be allocated one fully
paid ordinary share in the Company for each exercised option.
The applicable performance hurdle is based on comparing
Telstra's TSR growth against other companies in the peer group
over the relevant period. Telstra is then given a ranking in
comparison to the peer group, with the result for each
performance period separately measured. Options can only
vest where Telstra has grown its shareholder value to be at
least at the 50th percentile of the comparator group for the
relevant performance period. At the 50th percentile, 25 per
cent of options vest, increasing in a straight line to 100 per cent
of options vesting at the 75th percentile of the comparator
group.
25 per cent of options allocated against the first and second
performance periods that do not vest following the relevant
performance period will lapse. The remaining unvested
options for those periods will be retested following the end of
the third performance period and may subsequently vest if
Telstra meets or exceeds the 50th percentile and the rank
achieved in the relevant performance period (and subject to
ongoing satisfaction of other terms of grant). A vested option
cannot be exercised until after 30 June 2012 and will lapse if
not exercised before 30 June 2014.
Inclusion in the comparator group is based on the companies
being large telecommunication firms with a large market
capitalisation in developed economies to ensure an
appropriate match of Telstra Senior Executives against their
global peers. In addition to Telstra, the other companies
currently in the RTSR comparator group are: America Movil
S.A.B. de C.V.; AT&T Inc; Belgacom Group; BCE Inc; BT Group plc;
Deutsche Telekom AG; France Telecom SA; KT Corporation;
Nippon Telegraph & Telephone Corp; NTT DoCoMo Inc;
Portugal Telecom SGPS SA; Qwest Communications Int Inc;
Singapore Telecommunications Ltd; SK Telecom Co Ltd; Sprint
Nextel Corporation; Swisscom AG; Telekom Austria AG;
Telecom Italia S.p.A.; Telcom NZ Ltd; Telefonica S.A.; Telenor
ASA; Verizon Communications Inc and Vodafone Group plc.
Return on Investment (ROI) Restricted Shares
50 percent of the LTI grant is provided through restricted shares
that are subject to an ROI measure. ROI measures how well
Telstra has utilised its capital over the relevant performance
period.
ROI is calculated by dividing Earnings Before Interest and
Income Tax expense (EBIT) for a financial year by average
investment (which is the average of the sum of net debt and
shareholders' funds for the relevant period).
Until the restricted shares vest, an executive has:
• No legal or beneficial interest in the underlying shares;
• No entitlement to dividends received from the shares;
and
• No voting rights in relation to the shares.
If the performance hurdle is satisfied during the applicable
performance period, a specified number of restricted shares
will vest and will entitle the executive to beneficial ownership
of an equivalent number of restricted trust shares. The trustee
holds the restricted trust shares in trust until the shares are
transferred to them at the end of the restriction period (unless
the shares are forfeited). The restriction period generally lasts
for a minimum of four years and up to a maximum of 10 years
however, it may end earlier under the plan rules. While the
restricted trust shares are held by the Trustee, they are subject
to trading restrictions and the executive is not able to deal with
the restricted trust shares.