Directors’ report (continued)
Remuneration report (continued)
Remuneration of senior executives
Objective
The company aims to reward executives with a level and mix of remuneration
commensurate with their position and responsibilities within
the company so as to:
•
Reward executives for company, business unit and individual performance against
targets
•
Align the interests of executives with those of shareholders
•
Link rewards with the strategic goals and performance of the company
•
Ensure total remuneration is competitive by market standards
Remuneration structure
The remuneration of senior executives is governed by policies and programs approved by the Board of Directors upon recommendation by
the O&R Committee.
During the course of the year, advice was received from various remuneration
consultants on non-executive Director remuneration,
executive remuneration, market remuneration practices and long term incentive
plan design and administration. All advisors are
independent and were retained on the basis on their competency in the field.
There are two components to senior executive remuneration:
•
The fixed remuneration component is defined as Total Employment Cost (TEC),
comprised of base salary and benefits which may
include superannuation, vehicle benefits and any associated Fringe Benefit
Tax.
•
The variable remuneration or “at risk” component, comprised of
an annual short-term incentive plan and a long-term incentive plan.
Both plans provide for remuneration subject to performance. Variable remuneration
is the at-risk component and aligns individual
executive performance to Wattyl’s performance.
The remuneration structure is designed to provide an appropriate balance between
fixed and variable remuneration. Wattyl’s executive
remuneration policy is designed so that the fixed component of the remuneration
package should be between the 50th and the 60th
percentile in the relevant market sector. The addition of the maximum short-term
and long-term incentives can bring remuneration into the
top quartile of the relevant market for exceptional performers.
Remuneration mix
The relative weighting between fixed and variable remuneration is as follows:
% of total
Remuneration at risk
Name
06/07 05/06
John Nolan – Managing Director 60% 60%
Urs Meyerhans – Finance Director 55% 41%
John Foyle – Group Sales & Marketing Manager 55% 41%
James Fuller – General Manager, Wattyl New Zealand 50% n/a
Martin Robb – Group Operations Manager 50% 33%
Rebecca Roberts – Group Human Resources Manager 50% 33%
Paul Breeze – National Technical Manager 45% n/a
The % of total remuneration at risk seen above falls between the guidelines
agreed by the O&R Committee, being between 45% and 55%
for senior executives and 60–65% for the Managing Director. These guidelines
were based on competitive practice and independent advice.
Remuneration review process
Senior executive remuneration is reviewed annually. Remuneration data is derived
for key positions via market benchmarking surveys that
compare roles with similar responsibilities. The O&R Committee approves
Senior Executives’ increases based on recommendations from
the Managing Director with reference to market data.
The O&R Committee recommends and the Board approves all elements of the
Managing Director’s remuneration, including base salary and
benefits, short-term incentive payment and long-term incentive participation.
The Managing Director does not participate in either the O&R
Committee’s or the Board’s deliberations on his remuneration.
The Managing Director reviews his direct reports’ remuneration (including
short-term incentive payments and participation in the long-term
incentive plan), and makes recommendations to the O&R Committee for submission
to the Board for approval.
Remuneration components
Details of each remuneration component are shown below.
Fixed remuneration
Fixed remuneration is structured as a Total Employment Cost (TEC) package,
which may be taken as a mix of cash (e.g. base pay) and
benefits. TEC is determined by reference to appropriate external benchmark
information taking into account the individual executive’s
responsibilities, performance, size of role, competencies displayed, qualifications
and experience. External remuneration consultants are
asked to provide analysis and advice on a regular basis to ensure that the
TEC reflects the market for comparable roles. TEC is reviewed
annually to ensure the executive’s pay is competitive with the market.
An executive’s TEC is also reviewed on promotion.
There are no guaranteed TEC increases in any senior executives’ contracts.
Variable remuneration
The Board believes that well-designed and managed short-term and long-term
incentive plans are important elements of remuneration,
providing tangible incentives for executives to strive to improve Wattyl’s
short and long-term performance to benefit shareholders. Participation
in these plans encourages Wattyl’s executives to commit to and share
in the future growth, viability and profitability of the company.
Senior executives’ variable remuneration opportunities are in line with
market and industry practices and proportionate to the executive’s
responsibilities, performance and contribution.
• Short-term Incentive Plan (STI)
The STI is designed to directly link variable remuneration to key indicators
of financial and non-financial performance that supports the
implementation and achievement of Wattyl’s business strategy. The STI
is integral to a high performance culture and is linked to driving
continuous performance improvement in each of Wattyl’s key functions
and across the business. It rewards senior executives for successful
achievement of individual, business unit and total group performance over the
financial year.
Each executive has a target STI opportunity depending on the accountabilities
of their role and its impact on business performance
based on financial measures and individual key performance indicators (KPIs).
For direct reports to the Managing Director the maximum
STI opportunity is between 50% to 70% of total TEC.
The O&R Committee annually reviews STI proposals and recommends for Board
approval, financial targets relating to key performance
measures for the financial year, both for the Managing Director and his direct
reports. This year STI financial measures were based on
earnings before interest and tax (EBIT). The Managing Director & Finance
Director’s financial targets also included reduction in working
capital, and the General Manager, Wattyl NZ had EBIT targets for both New Zealand
and the group.
Individual strategic KPIs for senior executives are recommended by the Managing Director and approved by the O&R Committee. The
strategic KPIs for the Managing Director are approved by the Board.
Incentive payments are linked to performance against these targets and are
payable in cash during September each year after Board
approval. The Board has the discretion to adjust individual STI awards.
• Long-term Incentive Plan (LTI)
Prior to the financial year ending June 30, 2004, Wattyl granted share options
to senior executives and other key employees. This practice
ended in 2003, in anticipation of the development, design and implementation
of the Wattyl Executive Stock Ownership Plan (WESOP) in
January 2004.
Long-term incentives may be provided to senior executives through the WESOP, which was approved by shareholders at Wattyl’s 2003
Annual General Meeting.
The WESOP was established to reward senior executives based on the company’s
longer term performance and allows for Performance
Rights (Rights) to be awarded to senior executives. LTIs are provided in addition
to STIs in order to motivate senior executives to adopt
strategies and make decisions which have a positive and enduring impact on
the drivers of shareholder value over the longer term. They
are also provided as a motivation and retention tool for key senior executives.
The Board considers the allocation of the Rights annually. Participation in the Plan is by invitation from the Board, based on the impact of
the executive’s role on the performance and profitability of Wattyl
and its business units.
Rights cannot be sold or used as security for a loan and do not entitle the
holder to receive any dividends or to vote. Rights can only be
exercised on the exercise date (which falls on the third anniversary of the
grant date) if the employee to whom they are allocated has been
employed for three successive years by Wattyl.
The percentage of Rights which vest and may be exercised is currently based
on Wattyl’s Total Shareholder Return (TSR) over the
year performance period relative to the companies in the S&P/ASX 200 Industrials
Accumulation Index (the “comparator group”).
The percentage of Rights vesting to plan participants is calculated in accordance
with a ‘sliding scale’ (see below):
Wattyl’s TSR ranking in S&P/ASX 200
industrials accumulation index Percentage of rights vesting and exercisable
Below 51st percentile
Nil
51st percentile
50%
Greater than 51st percentile and less than 75th percentile
Calculated on a pro-rata basis between 51% and 100%
depending on Wattyl’s percentile performance ranking
(rounded down to the nearest whole number)
75th percentile and above
100%
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