annual report - Harvey Norman Company Reports & Announcements

DIRECTOR‟S REPORT (CONTINUED)
Remuneration Report (Audited) (continued)
Fixed Remuneration
Executive contracts of employment do not include any guaranteed base pay increases. TEC of executive directors is
reviewed annually by the remuneration committee. The process consists of a review of company, business unit and
individual performance, relevant comparative remuneration internally and externally and, where appropriate, external
advice independent of management.
The fixed component of the remuneration of executive directors is disclosed in Table 1 on page 28 of this report.
Variable Remuneration – Short-Term Incentive (STI)
The consolidated entity operates an annual STI program that is available to executives and awards a cash bonus or PCI,
subject to the attainment of clearly defined consolidated entity, business unit and individual measures.
The total potential STI available is set at a level so as to provide sufficient incentive to executive directors to achieve the
operational targets and such that the cost to the consolidated entity is reasonable in the circumstances.
Actual STI payments awarded to each executive director depend on the extent to which specific targets in respect of the
financial year are met. The targets consist of a number of performance measures covering both financial and nonfinancial,
corporate and individual measures of performance.
Performance measures
Financial measure:
Achievement of internal budgets
Reduce the financial accommodation to franchisees
Non-financial measures:
Operating priorities including execution of digital initiatives
Retail operations
Property
Risk management
Execution of Omni Channel strategic initiatives
22
Proportion of STI award
measure applies to
These measures were chosen as they represent the key drivers for the short-term success of the business and provide a
framework for delivering long-term value.
The aggregate of annual STI payments available for executive directors is subject to review by the remuneration
committee. On an annual basis, after consideration of performance measures, the remuneration committee confirms the
amount, if any, of the STI to be paid to each executive director. This process usually occurs within three months after the
reporting date. Payments made are delivered as a cash bonus or PCI in the following reporting period.
STI Awards for 2011 and 2012 Financial Years
For the 2011 financial year, 100% of the STI performance cash incentive of $2,250,000, as previously accrued in that period,
vested in executive directors and was paid in the 2012 financial year. There were no forfeitures. The remuneration
committee considered the STI payments for the 2011 financial year in August 2011.
For the 2012 financial year, 100% of the STI performance cash incentive of $1,455,000, as previously accrued in that period,
vested in executive directors and is to be paid in the 2013 financial year. There were no forfeitures. The remuneration
committee considered the STI payments for the 2012 financial year in September 2012.
There was no alteration to the STI performance cash incentive plan for the year, but performance measures were
expanded to include measures relating to:
Reduce the financial accommodation to franchisees
Execution of digital initiatives
Risk management
Execution of Omni Channel strategic initiatives
Variable Remuneration – Long-Term Incentives (LTI)
LTI awards are made annually to executive directors (other than Chairman, Mr. G. Harvey and CEO, Ms. K.L. Page) in order
to align remuneration with the creation of shareholder value over the long-term. LTI awards are only made to executive
directors who have an impact on the performance of the consolidated entity against relevant long-term performance
measures.
LTI – Share Options
Structure
LTI awards to select executive directors are made under the 2010 Share Option plan and are delivered in the form of share
options. Each option entitles the holder to one fully paid ordinary share in the Company. The number and terms and
conditions of each issue of options to executive directors was approved by shareholders of the Company in the annual
25%
75%