Telstra 2010 Annual Report Download - page 80

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Telstra Corporation Limited and controlled entities
Remuneration Report
The restricted shares related to RTSR will only vest
where the growth in Telstra’s shareholder value is at
least at the 50th percentile of the comparator group for
the performance period. At the 50th percentile, 25 per
cent of restricted shares vest, increasing in a straight
line to 100 per cent of restricted shares vesting at the
75th percentile of the comparator group.
To ensure an appropriate match of Telstra Senior
Executives against global peers, the comparator group
consists of large market capitalisation
telecommunications firms in developed economies.
In addition to Telstra, the entire comparator group for
the fiscal 2010 LTI Plan is: AT&T Inc; Belgacom Group;
Bell Canada Enterprises Inc; BT Group plc; Deutsche
Telekom AG; France Telecom SA; Koninklijke KPN N.V.;
KT Corporation; Nippon Telegraph & Telephone Corp;
NTT DoCoMo Inc; Portugal Telecom SGPS SA; Qwest
Communications International Inc; Singapore
Telecommunications Ltd; SK Telecom Co Ltd; Sprint
Nextel Corporation; Swisscom AG; Telekom Austria
AG; Telecom Italia Sp.A.; Telecom Corporation of New
Zealand Ltd; Telefonica S.A.; Telenor ASA; TeliaSonera
AB; Verizon Communications Inc and Vodafone Group
plc. The Board has discretion to add or change members
of the comparator group under the Plan terms.
3.4.1.3 Free Cashflow Return on Investment (FCF ROI)
FCF ROI measures the average annual Free Cashflow of
Telstra (less finance costs) over the performance
period.
FCF ROI is calculated by dividing the average annual
Free Cashflow over the entire three year performance
period by Telstra’s average investment over the same
three year period (which is the average of the sum of
net debt and shareholders’ funds as at 30 June 2009
and 30 June 2012). The method of calculation of Free
Cashflow generated over the period is determined by
the Board.
The target and stretch performance measures for FCF
ROI are detailed in the table below:
The number of restricted shares that will vest is
calculated as follows:
• If Target level performance is achieved, 50 per
cent of the FCF ROI allocation of restricted
shares for that period will vest;
• If Stretch performance level is achieved, 100 per
cent of the FCF ROI allocation of restricted
shares for that period will vest;
• If the result achieved is between Target and
Stretch, the number of vested restricted shares
for that period is scaled proportionately between
50 per cent and 100 per cent; and
• No restricted shares will vest if FCF ROI is below
Target.
3.4.2 Vesting LTI Plans in fiscal 2010
Section 5 of this Report provides full details of vesting
events that occurred during fiscal 2010 for all relevant
LTI plans.
3.5 Retention Incentives
In exceptional circumstances Telstra has put in place
structured retention plans. These are designed to
protect the Company from the loss of employees who
possess specific skill sets considered critical to the
business and where Telstra is vulnerable to losing key
personnel. Such retention plans are not restricted to
Senior Executives.
As detailed in Table 7.1, the second and final retention
payment tranche of $1 million was paid to Michael Rocca
on 1 July 2010. Michael Rocca was the only Senior
Executive in fiscal 2010 to receive a Retention Incentive
payment. There are currently no further Retention
Incentives in place for Senior Executives.
3.6 Executive Share Ownership Policy
Telstra’s Executive Share Ownership Policy requires
Senior Executives to acquire and retain a number of
shares equivalent in value to a minimum of 100 per cent
of their fixed remuneration. Telstra recognises that LTI
plans are the major means by which Senior Executives
can meet their share ownership obligations. The Policy
allows for Telstra to extend the date for assessing share
ownership levels in the event that options for the fiscal
2007 LTI Plan were not exercisable due to Telstra not
meeting the required Total Shareholder Return
gateway. Accordingly, the assessment date has been
extended by three years from 30 June 2012 to 30 June
2015 (or within five years of first appointment to Senior
Executive level).
3.7 Restrictions and Governance
Telstra implemented a policy effective from 1 October
2008 that prohibits its Directors, Senior Executives and
other designated people from using Telstra shares as
collateral in any financial transaction (including margin
loan arrangements) or any stock lending arrangement.
Directors, Senior Executives and other relevant
employees are prohibited from entering into
arrangements which effectively operate to limit the
economic risk of their security holdings in Telstra
allocated under incentive plans during the period the
shares are held in trust on their behalf by the trustee or
prior to the exercise of any security. This ensures Senior
Executives are not permitted to hedge against Telstra’s
LTI plans.
Directors, Senior Executives and other relevant
employees are required to confirm that they comply
Performance
Period Test Date FCF ROI (at Target) FCF ROI (at Stretch)
1 July 2009 to
30 June 2012
30 June 2012 17.1% 19.1%