annual report - Harvey Norman Company Reports & Announcements

DIRECTOR‟S REPORT (CONTINUED)
Remuneration Report (Audited) (continued)
Each of the options the subject of the Second Tranche of Options is subject to performance conditions. The performance
conditions are subject to service conditions and:
(a) as to 30% - to a financial performance condition ("2012 Financial Performance Condition"); and
(b) as to 70% - to non-financial performance conditions ("2012 Non-Financial Performance Conditions").
The 2012 Financial Performance Condition (the “2012 EPS Condition”) is:
(a) partly satisfied if the earnings per share growth is 10% per annum or more on a cumulative basis over the earnings per
share in respect of the year ended 30 June 2010 ("Base Year"); or
(b) wholly satisfied if the earnings per share growth is 15% per annum or more on a cumulative basis over the earnings per
share in respect of the Base Year; and
(c) subject to retesting in accordance with the terms and conditions of the 2010 Share Option Plan.
Earnings per share growth was selected as a performance measure in respect of the 2010 Share Option Plan for reasons
which included the following:
(i) rises (or falls) in share prices can often be attributable to general market trends, unrelated to the performance of
executives or contribution by executives to the creation of long-term shareholder values;
(ii) long-term value for shareholders is best created by requiring that the executive director team should focus on, and
achieve and execute measures, targets and initiatives critical to the execution of the strategic objectives of the
company; and
(iii) relevant measures, targets and initiatives will involve both financial and non-financial criteria , and flexibility to adjust
to changing circumstances, to avoid short-term decision-making.
The 2012 Non-Financial Performance Conditions (the “2012 Critical Success Factors”) were weighted:
(a) as to 20% relating to the achievement of key operating priorities including development of Omni Channel strategic
initiatives, improvement in customer engagement and efficiency of systems, and the maintenance, improvement
and implementation of risk management programs;
(b) as to 20% relating to the level of operating working capital, inventory control and cost control generally;
(c) as to 20% relating to the successful development and deployment of the digital platform of the Company;
(d) as to 20% relating to improvements in market share and sustainability of retailing operations; and
(e) as to 20% relating to the maintenance and growth of the retail property portfolio.
The remuneration committee may at any time reduce the number of exercisable options if there is only partial
achievement of the performance conditions.
Service conditions in respect of a grantee of the Second Tranche of Options will be deemed to be satisfied if at the time of
exercise of an option the subject of the Second Tranche of Options:
(a) the grantee has not resigned or provided notice of resignation of employment from the Company, except in order to
retire from the workplace;
(b) the Company has not terminated the employment of the grantee for cause; or
(c) the board has not determined that the relevant options should lapse as a result of any fraud, gross misconduct or
conduct of the grantee which brings the Company into disrepute.
If a grantee has died before a relevant option is exercised, but the performance conditions have been satisfied, the estate
of the grantee may exercise the relevant options.
Termination and Change of Control Provisions
Subject to ASX Listing Rules relevant options may be exercised before their specified exercise date, but only if:
(a) a change of control of the Company happens; or
(b) in special circumstances, including retirement, redundancy, death or permanent disability of the grantee.
Where a participant ceases employment prior to the vesting of their award, the options are forfeited unless the board
applies its discretion to allow vesting at or post cessation of employment in appropriate circumstances.
In the event of a change of control of the Group, the performance period end date will generally be brought forward to
the date of the change of control and awards will vest subject to performance over this shortened period, subject to
ultimate board discretion.
LTI Awards for 2012 Financial Year
The Second Tranche of Options under the 2010 Share Option Plan were granted to David Matthew Ackery, Chris Mentis and
John Evyn Slack-Smith on 29 November 2011. Details in respect of the awards are set out in table 2 on page 29 of this
report.
24