Page 15 - Suncorp_Review

Suncorp Group Limited Annual Report 2010/11 13

–– the establishment of Suncorp Group Limited – the Non‑Operating Holding Company (NOHC) –– delivery of the Building Blocks Program, including establishing single pricing and claims systems for both Motor and Home Insurance; consolidating fnance and customer data systems and providing uniform employment terms and conditions through the One Team program; and –– improvements in the internal management of Suncorp Group capital.

The successful completion of these key projects has occurred during a once in a lifetime series of major events across Australia and New Zealand which impacted all operating businesses. During the year to June 2011, the Suncorp Group managed more than 100,000 food, cyclone, earthquake and other natural hazard claims at an estimated gross cost of approximately $4 billion. Despite this, all operating businesses delivered solid proft contributions.

Changes introduced in response to the regulatory environment

The Board implemented a number of changes to the Suncorp Group’s remuneration framework for the 2011 performance year. These changes were made to improve the governance of our remuneration practices and to align with the Australian Prudential Regulation Authority (APRA) Remuneration Standards released in November 2009. The key remuneration framework changes implemented were:

–– a deferral of an element of short‑term incentive remuneration for all executives and for other employees earning signifcant performance‑based remuneration. The deferral is for two years, which is the period of time deemed appropriate for validating the integrity of scorecard results as assessed at the end of the performance period.

–– a change in pay mix for executives to facilitate the introduction of deferred incentive remuneration payments, achieved by transferring a discounted portion of the LTI into STI. The amount transferred into STI was discounted by 50% to account for the increased potential for STI to vest relative to LTI vesting.

–– the introduction of ex‑post adjustment provisions for all deferred STI and LTI. Ex‑post adjustment is the act of clawing back (reducing or eliminating) withheld remuneration where risk outcomes that are outside the Suncorp Group’s risk appetite are uncovered during the deferral period; and

–– a tightening of risk management practices:

–– functional oversight of performance planning, reviews and remuneration recommendations, for employees in risk and fnancial control roles; and

–– the incorporation of risk behaviour into remuneration arrangements achieved primarily through the balanced scorecard process and the Suncorp Group remuneration policy.

These changes continued to strengthen the linkages between risk management, performance and remuneration.

Other changes introduced

The re‑testing provision in the LTI was removed for future grants. Previously executives could elect to extend the measurement period of LTI grants for two years. However, LTI grants made from 2011 (for awards granted in October 2010) onwards will have one performance test date. This improves the alignment with shareholders, and is in keeping with preferred market practice.

In addition, the peer comparator group against which TSR is measured for LTI grants was updated to exclude mining companies. This allows the Suncorp Group’s performance to be compared against similar companies in terms of investment profle.

2011 Actual remuneration outcomes

Fixed remuneration

Fixed remuneration increases for the SLT were based on independent benchmarking against peer comparator groups, the intention being to keep executive remuneration in line with competitive market practices.

Short‑term incentives (STI)

While the 2011 fnancial results were impacted by natural disasters, the achievement of non‑fnancial performance objectives contributed to the long‑term fnancial soundness of the Suncorp Group. To this end, the Board applied its discretion to ensure both balanced scorecard and remuneration outcomes appropriately refect executive performance in building a sound platform for the Suncorp Group’s long‑term fnancial prospects.

In balancing fnancial and non‑fnancial performance outcomes the Board has determined a ‘below target’ Suncorp Group STI pool.

Long‑term incentives (LTI)

As the TSR performance hurdles were not met during 2011 there is no vesting of LTI. Current SLT members derive no value this year through the vesting of relevant performance rights.

1.2 Remuneration earned by the SLT in 2011

The table below is presented in order to provide greater visibility to shareholders of an executive’s remuneration in the current year, as it can be diffcult to determine this from statutory disclosures. The table is intended to provide a total view of actual remuneration in relation to 2011, and sets out: –– past remuneration awarded in previous years that vested during 2011 (left hand side). No deferred STI was due to vest in 2011 as deferral was introduced in 2010 for the Group CEO and in 2011 for the other SLT members. No LTI vested in 2011, as performance of the 2007 grant did not meet the hurdle at 30 September 2010 and participants therefore elected to re-test outcomes through extending the performance period for a further two years; –– fxed salary and STI earned and received in 2011 (middle section); and

–– remuneration (LTI and deferred STI) awarded in 2011 that may be received in future years, subject to potential ex‑post adjustment.