Telstra 2016 Annual Report Download - page 58

56 | Telstra Corporation Limited and controlled entities
(c) Incentive design and performance assessment
The Remuneration Committee oversees the process of setting
robust measures and targets to encourage strong Senior Executive
performance and behaviour that is aligned to our values.
STI and LTI performance measures are set at the beginning
of each year. The performance measures in the STI plan and
LTI plan have been selected as the Board believes they are the
most relevant measures to re ect our business strategy and
increase shareholder value.
Telstra uses a volume weighted average share price (VWAP) to
determine the number of Restricted Shares to be allocated under
the STI plan (refer to section 2.3(b) STI deferral), and the number
of Performance Rights to be allocated under the LTI plans.
The calculation is based on the VWAP over the  ve trading days
after the full year results announcement in the year in which the
relevant allocation is made.
If performance targets are achieved we award 50 per cent of
the total maximum potential, which is set at 200 per cent of
Fixed Remuneration. The maximum level is only paid if there is
signi cant over achievement of targets. There is no incentive
awarded unless a threshold level of performance is achieved.
At the end of each  nancial year, the Board reviews the
company’s audited  nancial results and the results of the
other non  nancial measures. The Board then determines the
percentage outcome of the STI and LTI by assessing performance
against each performance measure. The Board considers this
is the most appropriate method for assessing whether these
performance measures have been satis ed.
(d) Engagement with consultants
External consultants are required to engage directly with the
Remuneration Committee Chairman as the  rst point of contact
whenever market data for Senior Executive positions is supplied to
Telstra. To assess market competitiveness in FY16, the Committee
engaged Guerdon Associates for the provision of ASX20 market
data but did not require a remuneration recommendation.
2.2 Policy and practice
(a) Plan variation guidelines
The Board may, in its absolute discretion, amend the basis of
determining the performance results or targets of the STI and LTI plan
where an event occurs that means these are no longer appropriate.
Situations where this discretion can be applied include:
• Board approved material change to the strategic business plan
• material regulatory or legislative change
• signi cant out of plan business development such as acquisitions
and divestments.
In these circumstances the Board may also exercise discretion
to determine the outcome under the STI plan and LTI plan to take
account of the relevant events and their impacts.
During FY16 no plan terms were amended, however the Board
exercised its discretion in determining the outcome of the FY16 STI
plan and the FY14 LTI plan as outlined in 3.2(b) and 3.3(a) respectively.
(b) NBN Transaction and remuneration
From FY13 the NBN Transaction was incorporated into Telstra’s
established corporate planning processes and Senior Executives
continue to be accountable for achieving planned outcomes,
including NBN Transaction related cash  ows.
Performance measures for future STI and LTI plans will continue
to be developed using the most up to date forecasts for the
 nancial impacts of the NBN Transaction.
The Board may use its discretion as outlined in 2.2(a) if, due to
external factors, the nbn™ network rollout does not proceed
according to the nbn™ published business plan at the time the
measures are developed. The Board’s objective in considering the
exercise of this discretion is to avoid windfall gains and losses.
Adjustments for the NBN Transaction were made for both
the FY16 STI plan and the Telstra Wholesale FY16 STI plan as
outlined in 3.2(b). The NBN Transaction adjustments made in
determining the FY14 LTI plan outcome are outlined in 3.3(a).
(c) Executive Share Ownership Policy
The intent of Telstra’s Executive Share Ownership Policy is to
align a signi cant portion of executive remuneration to the
creation of longer term shareholder value. Under the policy,
Senior Executives are required to hold Telstra shares to the
value of 100 per cent of their Fixed Remuneration within  ve
years of  rst appointment to Senior Executive level.
Any Restricted Shares held by Senior Executives are included
in calculating their shareholding for the purposes of this policy.
Senior Executives must obtain Board or, in certain
circumstances, CEO or Chairman approval before they sell
shares if they have not yet met their share ownership
requirements under the policy.
Progress is monitored on an ongoing basis. Where applicable,
all Senior Executives met the shareholding requirement as at
30 June 2016.
(d) Restrictions and governance
All KMP must comply with Telstra’s Securities Trading Policy,
which includes a requirement that Telstra securities can only
be traded during speci ed trading windows and with prior
written approval. KMP must also consider how any proposed
dealing in Telstra securities could be perceived by the market
and must not deal if the proposed dealing could be perceived
as taking advantage of their position in an inappropriate way.
They are also prohibited from speculative dealing in Telstra
securities for short term gain, using Telstra securities as
collateral in any  nancial transactions, (including margin loan
arrangements), or engaging in stock lending arrangements.
KMP are prohibited from entering into any hedging arrangement
that limits the economic risk of holding Telstra securities
(including those held under Telstra equity plans). This helps
align our KMPs’ interests with shareholders’ interests.
KMP are required to con rm on an annual basis that they
comply with our Securities Trading Policy, which assists in
monitoring and enforcing our policy.
2.3 Remuneration components
(a) Remuneration mix for Senior Executives
The graph below shows the FY16 remuneration mix for Senior
Executives expressed as a percentage of Fixed Remuneration.
The variable components of STI (including any potential Restricted
Shares) and LTI are expressed at target (which is 50 per cent of
the maximum opportunity as explained in section 2.1).
CEO Other Senior
Executives
GE Telstra
Wholesale*
FR Cash STI Deferred STI LTI
25%
100%
100% 80%
40%
75% 75% 75%
100% 100%
25% 25%
125%
Equity 105%
Equity 65%
Equity
* The former GE Telstra Wholesale remuneration mix was FR: 100%, STI (cash):
56.25%, Deferred STI (equity): 18.75% and LTI (equity): 40%.