Telstra 2012 Annual Report Download - page 85

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Telstra Corporation Limited and controlled entities
Remuneration Report
2. Setting Senior Executive Remuneration
2.1 Remuneration Decisions
The Remuneration Committee consists only of independent
non-executive Directors and assists the Board in its
responsibilities by monitoring and advising on Board, CEO and
Senior Executive remuneration, giving due consideration to law
and corporate governance principles.
The Remuneration Committee also reviews and makes
recommendations to the Board on the overall remuneration
strategy, policies and practices of Telstra, and monitors the
effectiveness of Telstra's overall remuneration framework in
achieving Telstra's remuneration strategy.
Our remuneration policy and strategy is to:
• provide market competitive remuneration to attract,
motivate and retain highly skilled people;
• reinforce Telstra's values and cultural priorities;
• implement best practice programs to help drive the
achievement of our strategic and financial objectives;
and
• link a significant component of at-risk remuneration to
annual performance results and the creation of long
term shareholder value.
Telstra has adopted a protocol that requires external
consultants to engage directly with the Remuneration
Committee Chairman as the first point of contact whenever
market data for Senior Executive positions is scoped or supplied
to Telstra. To assess market competitiveness in FY 2012, the
Committee engaged Guerdon Associates for the provision of
ASX 20 market data but did not require a remuneration
recommendation and, as such, no disclosures are required
under the Corporations Act 2001.
The Committee reviews CEO and Senior Executive
remuneration packages to ensure there is a balance between
fixed and incentive pay, and that they reflect short and long-term
performance objectives appropriate to Telstra's circumstances
and goals.
Each year, the Board reviews the CEO's remuneration based on
market practice, performance against agreed measures and
other relevant factors.
The CEO undertakes a similar exercise in relation to Senior
Executives. The results of the CEO's annual performance and
remuneration review of senior management are approved by the
Board.
The Committee oversees the process of setting robust
performance measures and targets that encourage strong
Senior Executive performance and ethical behaviour. STI and
LTI performance measures are set at the beginning of each
year. At the end of each fiscal year, the Board reviews the
Company's audited financial results and the results of the other
non-financial measures. The Board then assesses performance
against each measure to determine the percentage of the STI
that is payable, and the portion of the LTI plan and, when
relevant, the CFO's performance shares that may vest. The
Board considers that it is best positioned to assess whether the
applicable measures have been met.
Each performance measure in the STI and LTI plans has been
selected in the context of achieving outcomes of the business
strategy and increasing shareholder value.
2.2 Remuneration Components
Our remuneration structure (detailed below), is designed to
support our remuneration strategy and is consistent between
the CEO and other Senior Executives in the KMP group. Some
tailoring may occur to take into account unique circumstances of
an individual role. Where this occurs, it is disclosed in this
Report.
AT RISK
Attract, motivate and retain
highly skilled people
Align to long term shareholder
value creation
Reinforce values and
cultural priorities
Reward achievement of financial
and strategic objectives
FIXED
Fixed Remuneration
Base salary including
superannuation.
Set based on market and internal
relativities, performance,
qualifications and experience.
Short Term Incentive
CASH DEFERRED
75% of STI outcome paid in
September after the financial year
end for the STI plan.
STI outcome based on Telstra’s
financial, customer satisfaction and
individual performance measures.
25% of the STI outcome is
deferred into Telstra shares.
Half of the shares are deferred for
1 year & the other half for 2 years.
The shares are forfeited unless
departure is for a permitted reason.
The shares are subject to clawback
at the discretion of the Board.
Long Term Incentive
EQUITY
Restricted shares subject to performance
conditions and restriction period over 4 years.
Performance is measured over 3 years with an
additional 1 year restriction period before
vesting and full ownership.
50% subject to Relative Total Shareholder
Return
50% subject to Free Cashflow Return on
Investment.
Encourages sustainable performance in the medium to longer term and provides a retention element
Base level of reward
competitive with the market
Section 2.2 provides a summary of the at-risk STI and LTI plan structure including clawback provisions and Section 2.3 summarises the percentage mix of fixed and at-risk components.