Directors’ report (continued)
Remuneration report (continued)
In determining the extent to which Rights will vest at the end of the performance
period, the company receives data from an external firm
which provides Wattyl’s TSR relative to the ranking of the companies
in the peer group. Participants may choose to exercise their vested
Rights and convert these into shares in the company. Any Rights not vesting
at the end of the period will lapse. Shares resulting from the
exercise of the Rights must be retained for a further two years until at least
the fifth anniversary of the grant date of the performance rights.
Information on the current Wattyl Executive Option Scheme and the Wattyl Executive
Stock Ownership Plan is set out in Note 29.
When the WESOP was established in 2003, TSR was chosen as the key indicator
of shareholder value creation. Vesting of Rights is based
on Wattyl’s TSR over the three-year performance period relative to the
companies in the S&P/ASX 200 Industrials Accumulation Index (the
comparator group).
During the year, the O&R Committee conducted a review of the current Long
Term Incentive plan (WESOP) with the objective of ensuring
the plan meets the requirements of the shareholders and continues to motivate
and reward senior executives. The O&R Committee is
concerned to ensure a direct line of sight for senior executives between performance
and reward and are aware that a number of
companies over the last two years have adopted a second performance hurdle
in addition to TSR.
Following a market review by independent remuneration consultants, we believe
the overall interests of shareholders is best served using
two performance hurdles, that is, by retaining TSR for relative Total Shareholder
Return and introducing a new measure – underlying
earnings per share (EPS) growth.
TSR
TSR measures changes in the market value of the Company’s shares over
a three-year test period. TSR was originally chosen as a
performance measure because it:
• ensures alignment between the return to shareholders and executive
remuneration;
• provides a comparative, externally focused performance benchmark with
which to measure Wattyl’s relative performance; and
• is a performance measure widely used in long-term incentive plans adopted
by Australian companies.
TSR performance is currently compared with the TSR performance of the S&P/ASX
200 index, over discrete three-year periods. Wattyl is
no longer in this index, so we are proposing to adopt the S&P/ASX 300 index,
of which Wattyl is now a member, as the comparator group
for any FY2008 grant.
EPS
EPS is a measure of earnings of profits that accrued to each shareholder and
is calculated by dividing Wattyl’s underlying net profit after tax
by the weighted average number of shares on issue during the year. An underlying
profit figure is used and reflects reported profit after tax
excluding certain non-recurring items of income and expenditure.
EPS has been chosen as a conditional performance measure because it:
• like TSR, remains a fundamental indicator of financial performance,
both internally and externally;
• links directly to Wattyl’s long-term objective of growing earnings;
and
• provides a clear line of sight between performance and reward to motivate
participants
EPS performance would be assessed at the end of each discrete three-year period.
Performance Rights would vest if the EPS over the
three-year period exceeded target EPS. The O&R Committee would set the
target EPS growth for each grant which would range from a
minimum threshold target where 50% of Performance Rights vest to a full target
where 100% of the Performance Rights vest. If the
Company’s EPS is between the minimum required EPS and the maximum required
EPS, the number of rights which may be exercised will
be calculated on a straight line basis.
We believe that the use of these two performance hurdles applied equally facilitates
the achievement of our two key objectives for the
plan, that is, ensuring growth in shareholder value for the longer term, and
the motivation and retention of key senior executives which is
also an imperative to the ongoing success of the Company.
Our intention is to introduce EPS as an additional performance measure with
the new comparator group for the next Performance Rights
grant in FY2008.
Relationship of variable remuneration to Wattyl's financial performance
Relationship to Company earnings (unaudited)
In FY2007, the Company’s underlying EBIT increased by 47% to $30.6 million. Key Management Personnel’s remuneration reflects actual
performance against this financial measure as well as performance against
individual KPIs.
Wattyl’s Shareholder Return in recent periods has also improved with
the Total Shareholder Return (TSR) increasing from the 26th
percentile to the 52nd percentile during the Performance Period September 29,
2006 to June 30, 2007.
Remuneration of non-executive directors
Non-executive director’s remuneration policy and fees
Non-executive directors’ fees are determined within an aggregate directors’ fee
pool limit, which is periodically recommended for approval by
shareholders. Shareholders at the 2004 Annual General Meeting of the company
approved the maximum amount of remuneration to be
shared in the aggregate by the non-executive directors to be $800,000 per annum.
Total emoluments disclosed as primary benefits are subject
to this limit.
Fees and payments made to non-executive directors reflect the nature and demands
of the role and the responsibilities of the directors. No
directors’ fees are paid to executive directors. Non-executive directors’ fees
are reviewed annually by the Board. The Board seeks the advice
of independent remuneration consultants to ensure that non-executive directors’ fees
and payments are appropriate and aligned with the
market. The Chairman’s fees are determined independently to the fees
of non-executive directors based on comparative roles in the external
market. The Chairman does not receive any additional fees for committee membership.
The Chairman is not present at discussions relating
to determination of his own remuneration.
A market review of non-executive directors’ fees was conducted by independent
remuneration consultants in January 2007. It was agreed
that the current annual fee structure (fixed remuneration, inclusive of any
superannuation contributions) be retained with no increases to
non-executive directors’ fees this year.
Non-executive directors’ fees will continue to be reviewed in January
each year. Any adjustments recommended and agreed to, will be
effective from the subsequent July 1st.
The current fees are reflected in the table below.
Chairman $235,000
Non Executive Director $ 94,000
Chair – Audit Committee $ 17,000
Chair – O&R Committee $ 14,000
Member – Audit Committee $ 8,500
Member – O&R Committee $ 7,000
No element of the remuneration of any non-executive director is dependent on the satisfaction of a performance condition. However the
performance of the Board is assessed on an annual basis.
Non-executive directors do not receive any benefits. However, at the Board Meeting held on June 24, 2003, the Board resolved to
“grandfather” the then existing retirement benefits scheme which had been approved and adopted at the 1990 Annual General Meeting, to
existing Board members and not offer the scheme to new directors. As of October 31, 2005, the Board agreed to fix the retirement
benefits of Mr John Ingram with the fixed benefit invested on his behalf until his retirement from the Board.
Details of remuneration
Details of the remuneration of the directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of
Wattyl Limited and the Wattyl Limited Group are set out in the following tables.
The key management personnel of Wattyl Limited, the parent entity, includes the directors as per page 24 and the following executive
officers, which are also the highest paid executives of the entity:
Rebecca Roberts – Group Human Resources Manager
Jennifer Waldegrave – Company Secretary and Group Financial Controller
The above executives, along with Dr J.D. Nolan (Managing Director) and U.B. Meyerhans (Finance Director), are the only executive officers
of Wattyl Limited.
The key management personnel of the Group, comprising Wattyl Limited and its
subsidiaries, are the directors of Wattyl Limited (see page
24) and those executives that report directly to the Managing Director. This
includes the 5 continuing group executives who received the
highest remuneration for the year ended 30 June 2007. The executives are:
John Foyle – Group Sales and Marketing Manager
Martin Robb – Group Operations Manager
James Fuller – General Manager, Wattyl New Zealand
Rebecca Roberts – Group Human Resources Manager
Paul Breeze – National Technical Manager
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