Executive and staff remuneration policy
The process aligns business objectives with specific and measurable individual objectives and targets. Performance by individual employees against these objectives is assessed half yearly and yearly. The Board Compensation Committee also obtains independently assessed remuneration information for comparative purposes. Salary reviews and short-term incentives (STIs) are determined by assessing performance against objectives and peer group total shareholder returns (TSR) performance. Long-term incentives (LTIs) are assessed against the company's TSR compared with that of peer group companies.
Employee remuneration is reviewed annually. Employees' rewards are influenced by three factors: individual performance, company performance and market position.
This element of remuneration is based on the employee's relative performance against the goals and individual objectives that have been set for them for the year under review.
A percentage component of total cash remuneration is based on the performance of the company measured against peer group companies TSR.
The directors believe that Alumina Limited's remuneration levels need to be competitive with those of other comparable Australian organisations so that the company can attract and retain quality people. The Board Compensation Committee appoints an external compensation adviser to advise on appropriate salary and benefits, and reviews these on an annual basis.
Executive and staff remuneration comprises:
- fixed remuneration (FAR) - this is referred to as 'fixed annual reward' (FAR) and is the component of total remuneration specified in an employee's contract of employment and subsequent periodic salary reviews. It is inclusive of superannuation contributions (both company contributions and salary sacrifice contributions).
- variable (incentive) payments - contracts for executive and professional employees include a component of remuneration linked to short-term incentives (STIs) and long-term incentives (LTIs). Policies defining STIs and LTIs are established by the Board Compensation Committee and reviewed on an annual basis.
Short-term incentives are calculated as a percentage of an employee's fixed remuneration. The Compensation Committee determines the maximum percentage that is potentially available to executives and approves, after reviewing assessments, whether short-term incentives should be paid. STI percentages payable in 2014 were limited to a maximum of $400,000 (approximately 35% of FAR) and a target award of $300,000 for the CEO. For the CFO and General Counsel/Company Secretary, their STI component is up to 70% of their FAR. 50% of the potential STI award is measured to performance against personal objectives and 50% measured against a corporate scorecard.
The short-term incentive component of 50% related to performance against individual objectives and links achievement to reward by encouraging executives and staff to meet or exceed measurable tasks and objectives in their work. These tasks and objectives ultimately support Alumina Limited's objectives and therefore shareholder interests.
Performance is measured against a scorecard of key tasks and responsibilities and agreed objectives and targets. Individual performance against the measures is assessed.
For a more detailed explanation of the workings of Alumina Limited's STI plan, please review the latest Remuneration Report that forms part of the Director's Report of the latest Annual Report.
Alumina Limited employees have the opportunity to participate in the Alumina Employee Share Plan (ESP). The ESP is designed to link employee rewards with the strategic long-term goals and performance of Alumina Limited, consistent with the generation of shareholder returns.
The ESP involves the on market purchase of the company's shares which can vest to employees provided certain performance tests are achieved. The initial grant of three tranches of shares approved by the Board in early 2003 covered a three year period with the tranche vesting dates at years 1, 2 and 3. Eligibility for vesting of these shares is tested each year commencing on 3 December 2003. Beyond the initial grant, future grants will have a three year performance period with performance tests at the end of this period. In 2014, the criteria are the company's Total Shareholder Return (TSR) performance against a comparator group of ASX100 Index companies excluding Alumina Limited and the top 20 companies by market acitalisation and property trusts (50% of the award) and an International comparator group of eight selected companies in the alumina and/or aluminium idstries that are listed on stock exchanges inside and outside Australia (50% of the award). If all of the performance criteria are not achieved then the shares which do not vest are treated as treasury shares in shareholder equity.
In 2014 the LTI for the CEO was restricted to a maximum of $400,000 (approximately 35% of FAR). For the CFO and General Counsel/Company Secretary the maximum LTI award was 40% of FAR.
Overview of performance condition
The performance test to be used to determine the number of shares that vest compares Alumina Limited's total shareholder return (TSR) performance with the TSR performance of each of the entities in a comparator group of entities and is calculated by an independent consultant engaged by the board for these purposes.
Two tests are applied and each accounts for 50% of the possible grant of shares under the ESP.
Test 1 relates to performance of Alumina Limited against a comparator group of ASX100 Australian-listed entities.
Test 2 relates to performance against a comparator group of 8 international entities listed on stock exchanges outside Australia (i.e. 8 entities excluding Alumina Limited).
The methodology behind tests 1 and 2 is identical, apart from the difference in the comparator groups. The performance tests are defined as follows:
The TSR for each entity in the comparator group and for Alumina Limited is calculated according to a standard methodology decided upon and applied by an independent consultant engaged by the board for these purposes over the defined time period(s). The entities (or securities, as appropriate) in the comparator group are then ranked by TSR performance.
|Alumina Limited TSR compared to median of comparator group||Vesting|
|If Alumina Limited's TSR is less than the 50th percentile of the comparator TSR||0%|
|If Alumina Limited's TSR = the 50th percentile of the comparator TSR*||50%|
|If Alumina Limited's TSR is equal to or greater than TSR of entities at the 75th percentile of the comparator group*||100%|
* If Alumina Limited's TSR performance is between that of the entities (or securities, as appropriate) at the median (i.e. the 50th percentile) and the 75th percentile of the comparator group ranked by TSR performance, the number of Shares in a tranche that vest will increase by 2% for each 1% by which Alumina Limited's percentile ranking is higher than the 50th percentile.
All Alumina Limited employees within Australia are members of the Alumina Superannuation Fund, an accumulation fund. Contributions are funded at the Superannuation Guarantee Contributions rate, currently 9.5 per cent of an employee's fixed annual remuneration.
Non-executive director remuneration policy
Total remuneration for Non-Executive Directors (NED) is determined by resolution of shareholders. The maximum aggregate remuneration approved for directors is currently $1,250,000.
Alumina Limited's Non-Executive Directors receive a fee for being a director. In 2014, Non-Executive Director's base fees remained unchanged from the fee level set in 2011. In addition to the base fee, Non-Executive Directors receive fees for participation on the Board Committees and Superannuation Guarantee Contributions. NED's receive $10,000(aggregate) form membership of a Committee, $10,000 for Chairing a Committee and $15,000 for chairing the Audit & Risk Committee. Non-Executive Director fees are not performance linked.
Non-executive director retirement benefits
Non-executive directors receive a superannuation guarantee contribution required by government regulation which is currently nine per cent of their fees, and do not receive any other retirement benefits.
Non-executive director share acquisitions
Each NED is required to hold shares in the Company having a value at least equal to 50 per cent of their annual fees at the expiry of five years from appointment as directors. The requirement can be satisfied when shares are acquired during the Director's first term or at the expiry of the five years. Participation further aligns the directors' interests with those of shareholders.
Chief Executive Officer remuneration
Mr Wasow's Fixed Annual Reward upon appointment was $1,150,000 per annum, including superannuation. His FAR is unchanged for 2009.
Mr Bevan is entitled to a short term incentive of up to 100% of FAR per annum.
50% of the STI is determined by reference to performance against individual objectives, and the remaining 50% is determined by reference to a corporate scorecard.
For executives other than the CEO, 50% of any STI payment is paid in cash, and the remaining 50% of the STI payment, after tax, must be used to purchase Company shares, which must be held for three years, or until employment ceases.
Mr Wasow may be invited to participate in the Long Term Incentive Plan (LTI), which, in each year, may provide Performance Rights under the LTI Plan of up to $400,000.
Retirement and termination benefits
Mr Wasow's employment contract does not have a fixed term. Either party may terminate the contract upon giving 12 months' notice. The Company may make a payment in lieu of some or all of the 12-month notice period by payment of the fixed annual reward plus an amount equivalent to an STI payment at target performance, defined as 'base remuneration'. The base remuneration amount will be reduced pro rata to the extent the notice period is required to be served.
If Mr Wasow's employment is terminated on the basis of redundancy of the position or by Mr Wasow giving written notice to Alumina Limited in the event of a Significant Change (which is defined to be if Alumina Limited ceases to be listed on the Australian Securities Exchange, or if there is a significant change to his status and/or responsibilities which is detrimental to Mr Wasow, or if Alumina Limited decides the position is no longer required and suitable alternative employment is not offered, or Mr Wasow does not accept other employment within Alumina or another employer), then Mr Wasow is entitled to:
- statutory annual leave and long service leave entitlements (with long service leave paid pro rata if there is three years or more continuous service);
- the aggregate of a notice payment of 12 months, a severance payment of 2.5 weeks per completed year of service, and an additional severance payment of 13 weeks.
Details of Mr Wasow's contract and terms are expanded on in the most recent Remuneration Report (found in the latest Annual Report of the Company).
Remuneration approval process
The Compensation Committee recommends remuneration levels for non-executive directors, executives and staff to the Board for approval. The Committee operates under a delegation of the Board to provide oversight of the company's remuneration and compensation plans, policies and practices on behalf of the board and shareholders. The Committee has the responsibility to ensure that shareholder and employee interests are in alignment and for ensuring that executives and staff are fairly and reasonably compensated.
The Committee reviews the remuneration strategy and plans of the company, compares the strategy and plans with community and industry standards and, where possible, verifies the appropriateness of the strategy and plans by reference to external information and advice.
The Compensation Committee also determines actual payments to all directors and reviews director remuneration annually based on independent external advice with regards to market practices, relativities and the duties and accountabilities of directors.