Commentary - Santos

2012
Remuneration Report
The Directors of Santos Limited present this Remuneration Report for the consolidated entity for the year ended 31 December 2012. The
information provided in this report has been audited as required by section 308(3C) of the Corporations Act 2001 (Cth) (“Corporations Act”)
and forms part of the Directors’ Report.
It outlines the Company’s key remuneration activities in 2012 and remuneration information pertaining to the Company’s Directors, Chief
Executive Officer and Managing Director (“CEO”) and Senior Executives who are the key management personnel (“KMP”) of the consolidated
entity for the purposes of the Corporations Act and the Accounting Standards.
Remuneration at a Glance
In 2012:
Fixed remuneration
Short-term Incentive
(“STI”)
Long-term Incentive
(“LTI”)
LTI program changes
The CEO’s and Senior Executives’ total fixed remuneration (“TFR”) increased by an average of 4.0% in this year’s
annual remuneration review, slightly below the rest of the Company’s workforce who received 4.9% on average.
The Company met or exceeded a number of its operational and financial targets, but did not fully meet others.
This performance, as assessed by the Board, resulted in an average STI award of 68% of maximum.
The Company’s three-year total shareholder return was -15.7% which ranked at the 33rd percentile against the
ASX 100. This failure to achieve superior returns for shareholders resulted in none (0%) of the performancetested
Share Acquisition Rights (“SARs”) granted to the CEO and Senior Executives vesting.
As foreshadowed in the 2011 remuneration report, changes in 2012 included:
2012–2015
Four Year Strategy Grant
(“CEO Strategy Grant”)
• “deferred rights” that is, LTI awards that are subject to a condition consisting only of a period of service,
were discontinued as part of the regular LTI program for Senior Executives. Unlike previous years, the annual
LTI grant to the Senior Executives in 2012 was solely performance-based, ensuring alignment with the
interests of shareholders. The CEO grant continued to be entirely performance-based;
• the number of SARs awarded were determined according to their fair value instead of a volume-weighted
average price. This resulted in a larger number of SARs granted, however these SARs are entirely at risk (no
deferred rights were offered) and will not vest if the Company does not achieve superior shareholder returns.
In accordance with shareholders’ approval at the May 2012 Annual General Meeting (“AGM”), an additional
long-term equity grant was made to the CEO for the 2012–2015 period. The grant is aligned with long-term growth
in shareholder returns as the SARs will only vest if long-term strategic targets in relation to production, reserves
growth, GLNG first cargo delivery, GLNG capital expenditure and environment, health and safety are achieved.
Non-executive Directors No increases have been made to non-executive Directors’ fees since they were last adjusted in October 2011.
Realised Remuneration
In keeping with the Company’s practice since 2009, the following table shows the remuneration “actually realised” by the CEO and Senior
Executives in respect of 2012 performance. This is in addition and different to the disclosures required by the Corporations Act and
Accounting Standards, particularly in relation to LTI. As a general principle, the Accounting Standards require a value to be placed on LTI
based on probabilistic calculations at the time of grant (that is, before the SARs or Options vest and even if ultimately, they do not vest
because the performance hurdles are not met, as was the case in 2012). By contrast, this table values the LTI, in the case of SARs, only if
the SARs vest and shares are issued to the executive, on the basis of their closing price on the date of vesting. In the case of Options, a
value is attributed only if the Options vest and are exercised resulting in the issue of shares to the executive, calculated on the basis of the
difference between the exercise price and the market price on the date of exercise of the Options.
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