Page 22 - Suncorp_Review

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2. Remuneration – audited (continued)

2.3 Remuneration components (continued)

STI incentive deferral

Incentive deferral applies to the SLT based on a predefned threshold for all performance‑based remuneration. By deferring a portion of incentives, the alignment of incentive payments to the long‑term interests of the Suncorp Group and to shareholder interests are strengthened. Incentive deferral applies for the Group CEO with 50% of all incentives awarded deferred as cash for two years. Incentive deferral has now been introduced for Senior Executives from 2011; as a response to the APRA Remuneration Standards, 35% of all incentives awarded are deferred as cash for two years. For Senior Executives, interest is payable on the deferred amount when vested.

During the deferral period, the Board will seek to understand the long‑term impacts of decisions made and actions taken during the performance year. Signifcant adverse outcomes may give grounds for the Board to apply its discretion to adjust the original deferred incentive allocation downwards, to zero if necessary.

In the event of resignation, redundancy or retirement, the deferred incentive portion will generally vest after the termination date in accordance with the deferral period and will be subject to potential ex‑post adjustment at the end of the deferral period. Long‑term incentives (LTI)

LTI delivered in the form of performance rights are designed to recognise the contribution of the SLT to the creation of shareholder value over the long term. LTI are offered to SLT members as they have a direct impact on the Suncorp Group’s long‑term performance. LTI are provided through the EPSP. LTI recipients will only derive value from their LTI grants if challenging performance hurdles are met. What is a performance right?

A performance right entitles a participant to one fully paid ordinary share (or under limited circumstances, a cash payment, in lieu of an allocation of ordinary shares) at no cost. This entitlement arises at a set future point in time, provided specifc performance hurdles are met. How are performance rights allocated?

SLT members are offered performance rights at Board discretion. The value of LTI to be granted to the Senior Executives on 1 October 2011 is to be based on 50% of fxed remuneration, down from prior years’ grants which were based on 100% of fxed remuneration. This is in line with the change in variable remuneration mix being the reallocation of a portion of LTI to STI which is now also subject to deferral.

To determine the number of performance rights granted, the value of the LTI is divided by the fve‑day Volume Weighted Average Price (VWAP) of one ordinary share over the fve days preceding the date of grant.

When offers are made, the shares are bought on market to avoid any dilutionary impact that issuing new ordinary shares would have on the share price. The shares are acquired by the EPSP trustee and held in trust during the vesting period. After vesting, the shares remain held by the trustee until the

Senior Executive applies to the Board to remove them or until ten years have passed.

The performance hurdle – total shareholder return Performance is measured by ranking the Company’s total shareholder return (TSR) against a pre‑determined group of peer companies (Peer Comparator Group). TSR (expressed as a percentage) is the growth in share price, plus dividends reinvested over the relevant performance period. TSR represents the total return of all cash fows to an investor; it combines share price appreciation (capital gain) as well as dividends paid, to show the total return to the shareholder during the holding period of an investment. TSR will vary over time, but the relative position refects the market perception of overall performance relative to a Peer Comparator Group.

The ranking of the Company’s TSR determines the extent to which performance rights vest.

The Peer Comparator Group chosen for relative TSR performance assessment is the top 50 ASX‑listed companies in the S&P/ASX 100 Index, excluding listed property trusts and mining companies. The TSR performance measure is chosen on the basis that:

–– it offers a relevant indicator of measuring increases in shareholder value by comparing the Company’s performance against similar companies in terms of size and investment profle

–– it provides alignment between comparative shareholder return and reward for executives and a relative, market‑based performance measure against similar comparator companies

–– it enables executives to share a common target to encourage performance; and

–– it provides a direct link between SLT reward and shareholder return over the long term and minimises the impact market cycles may have. LTI vesting schedule

The extent to which performance rights will vest, and shares will be allocated, is subject to performance conditions based on the Company’s TSR measure of performance over the relevant three‑year performance period.

The SLT will not derive any value from the LTI component of their remuneration unless the Company’s performance is greater than the median performance of the Peer Comparator Group. Performance rights vest in accordance with the LTI vesting schedule represented in the table below:

PERFORMANCE MEASURE: RELATIVE TSR PERFORMANCE OUTCOME

PERCENTAGE OF AWARD THAT WILL VEST

Below the 50th percentile (below median performance)

0%

At the 50th percentile (median performance)

50%

Between the 50th and 75th percentiles

50% plus 2% for each full 1% increase in the Company’s ranking against the Peer Comparator Group

At or above the 75th percentile 100%

Directors’ Report (continued)