Directors’ report – remuneration report (audited)
C5. Long- term incentive
Table 10 - Summary of LTI Plan
What is the purpose
of the LTI Plan?
The purpose of the LTI Plan is to align Senior Executive reward with shareholder value, by tying this component of Senior
Executive remuneration to the achievement of performance conditions which underpin sustainable long-term growth.
Who participates in
the LTI Plan?
Participation is restricted to executives who are employed to make decisions which materially impact organisational
performance of the Company (the proxy being position seniority). Individuals are nominated by operational Chief Executives
with the support of the MD/CEO within the framework approved by the HR Committee.
What is the value of
the LTI opportunity?
The size of grants under the LTI plan is set as a percentage of total fixed remuneration; it ranges from 30 – 80 per cent of
total fixed remuneration for Senior Executives. The participation level for the CEO of TSI Fund is 100 per cent of his total fixed
Participants in the LTI plan will not derive any shares from their LTI grants unless performance hurdles are achieved and they
complete a minimum service period.
How is reward
delivered under the
LTI Plan?
Senior Executives and other eligible executives are granted performance rights under the TranShare Executive Performance
Award Plan (TEPAP). The number of performance rights granted from the LTI allocation is calculated based on the market
value of the Company’s shares around the time the LTI grants are approved by the HR Committee.
Each performance right is an entitlement to receive a fully-paid ordinary share in the Company on terms and conditions
determined by the Board, including vesting conditions linked to service and performance over a three to four year period.
If these conditions are satisfied, the performance rights vest and shares will be delivered to the Senior Executive upon
The performance right may generally be exercised between three and six years after the date they are granted as long as the
performance hurdles and service conditions are met.
For executives based in the United States, the LTI is delivered under a sub-plan to TEPAP to satisfy United States regulatory
requirements. The difference of this LTI arrangement is that on meeting vesting conditions, the performance rights (known
as restricted share units in the United States) automatically result in shares being delivered to the participant without the
further need for the participant to “exercise” his or her right.
Do participants pay
for the Performance
The performance rights are offered at no cost to the Senior Executive.
What rights are
attached to the
Performance Rights?
The performance rights do not carry voting or dividend rights, however shares delivered upon vesting of performance rights
will carry the same rights as other ordinary shares. Senior Executives are prohibited from hedging their unvested
performance rights (further discussed at page 61).
What are the
performance hurdles
and how are they
The performance hurdles applicable to each grant of LTI awards are subject to Board review and assessed against the
business plan and cycle.
In FY 2009/10, performance rights were granted with three sets of independent performance hurdles, being earnings per
share (EPS), relative total shareholder return (“relative TSR”) and return on funds employed (ROFE).
Prior to that and since April 2006, performance rights were granted with two sets of independent hurdles, being EPS and
relative TSR performance hurdles.
The performance hurdles for each grant of LTI awards are detailed Table 20.
i. Earnings per share
EPS is calculated by dividing the Company’s net profit by the weighted average number of ordinary shares on issue and is
expressed in cents per share.
The EPS hurdle relates to the Company achieving a minimum average compound basic EPS growth per annum over a
minimum three-year financial period. The EPS measure is based on earnings per share adjusted for capital raisings and
normalised earnings.
ii. Relative total
shareholder return
TSR represents the change in the capital value of the Company’s share price over a period, plus reinvested dividends,
expressed as a percentage of the base value. The compound growth in the Company’s TSR over the performance
measurement period is compared with the TSR performance of all other companies in the S&P / ASX 200 Industrials Index
which is the S&P / ASX 200 Index after excluding the Energy and Materials sectors.
iii. Return on funds
employed (ROFE)
ROFE is calculated by dividing the Company’s earnings before interest, tax and amortisation (EBITA) by funds employed,
calculated on an average basis over the performance period.
The ROFE hurdle relates to the Company achieving a minimum return over a three-year financial period.