annual report - Harvey Norman Company Reports & Announcements

DIRECTOR‟S REPORT (CONTINUED)
Remuneration Report (Audited) (continued)
Independent Valuation of the Second Tranche of Options
The Second Tranche of Options were independently valued by Mercer (Australia) Pty Limited at grant date utilising the
assumptions underlying the Black-Scholes methodology. Under this valuation methodology, the value of each option in the
Second Tranche of Options was $0.51 per option or $1,530,000 in total.
LTI Awards for Previous Financial Years
LTI Awards for 2011 Financial Year
The First 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 2010.
Independent Valuation of the First Tranche of Options
The First Tranche of Options were independently valued by Mercer (Australia) Pty Limited at grant date utilising the
assumptions underlying the Black-Scholes methodology. Under this valuation methodology, the value of each option in the
First Tranche of Options was $0.87 per option or $2,610,000 in total.
Hedging of Equity Awards
The Company prohibits executive directors from entering into arrangements to protect the value of unvested LTI awards.
The prohibition includes entering into contracts to hedge their exposure to options awarded as part of their remuneration
package.
Adherence to this policy is monitored on an annual basis and involves each KMP signing an annual declaration of
compliance with the hedging policy.
Margin Loans
If a director or executive, acting reasonably, would believe that there will be an unmet margin call or event of default in
relation to any margin loan arrangements, the director or executive must immediately disclose to the chairman, company
secretary or chief executive officer, full and complete details of the arrangement as is necessary to ensure the Company
can comply with continuous disclosure obligations of the Company under ASX Listing Rules and the law.
Satisfaction of Performance Conditions in Respect of First Tranche of Options
The earnings per share in respect of the Company for the year ended 30 June 2011 was $0.2375c. The 2011 EPS Condition
was not satisfied but 30% of the First Tranche of Options are still eligible for further testing up to 30 June 2013, subject to the
terms and conditions, including service conditions, of the 2010 Share Option Plan.
The remuneration committee had regard to certificates and reports from officers of the Company, other board committees
and management, and own enquiries, and determined that the 2011 Critical Success Factors had been satisfied as to 54%
of the 70% weighting of those 2011 Critical Success Factors, resulting in the vesting of 37.8% of the First Tranche of Options,
subject to the terms and conditions, including service conditions, of the 2010 Share Option Plan.
Satisfaction of Performance Conditions in Respect of Second Tranche of Options
The earnings per share in respect of the Company for the year ended 30 June 2012 was $0.1624c. The 2012 EPS Condition
was not satisfied.
The remuneration committee had regard to certificates and reports from officers of the Company, other board committees
and management, and own enquiries, noted that the 2012 Critical Success Factors had been only partially satisfied, noted
that the net profit after tax of the consolidated entity was down 31.6% on the 2011 year, and determined, in accordance
with the terms and conditions of the 2010 Share Option Plan that as there had been only partial achievement of the
relevant performance conditions, to reduce the aggregate number of exercisable options in the Second Tranche of
Options to 750,000, as follows:
(a) David Matthew Ackery – 250,000 options to subscribe for 250,000 fully paid ordinary shares in the company at an issue
price of $2.03 per share, subject only to Service Conditions (as defined in the 2010 Share Option Plan);
(b) John Evyn Slack-Smith – 250,000 options to subscribe for 250,000 fully paid ordinary shares in the company at an issue
price of $2.03 per share, subject only to Service Conditions (as defined in the 2010 Share Option Plan);
(c) Chris Mentis – 250,000 options to subscribe for 250,000 fully paid ordinary shares in the company at an issue price of
$2.03 per share, subject only to Service Conditions (as defined in the 2010 Share Option Plan).
Company Performance and the Link to Remuneration
The net profit after tax of the consolidated entity in respect of the year ended 30 June 2012 was down 31.6% on the prior
year. The aggregate amount of PCI/STI target remuneration for executive directors in the year ended 30 June 2011 was
$2,250,000. The aggregate amount of PCI/STI for executive directors in respect of the year ended 30 June 2012 was
$1,455,000, a reduction of 35.3% on the prior year. That reduction in PCI/STI for 2012 resulted from the only partial
achievement of 2012 Critical Success Factors and the fact that net profit after tax for the year ended 30 June 2012 was
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