Commentary - Santos

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2012 Remuneration Report (continued) Detailed Information about Linking Company Performance to Incentives Short-term incentives How are the Company’s short-term performance targets determined? What is measured in the Company’s annual performance scorecard? The Company’s short-term performance targets comprise a combination of strategic, financial and operational targets, all of which are agreed with the Board and directly related to Santos’ strategic plan. These are captured in the Company’s annual performance scorecard. The Company scorecard includes a range of Company performance measures used to drive balanced business performance. These measures include lagging indicators to assess the Company’s past performance, as well as forward-looking indicators to ensure the Company is positioning itself effectively for future growth. As described in Table 3 on page 62, the areas covered by the scorecard include: • environment, health and safety; • profitability, including production, cost of production and NPAT; • corporate sustainability; and • growth, including project delivery and reserves replacement. How is Company performance assessed? The Board believes that this scorecard is balanced and focusses CEO and Senior Executive attention on achieving the key conditions and milestones necessary to deliver Santos’ strategic plan. Company performance is formally assessed by the Committee against the overall Company scorecard at the end of each financial year and this forms the basis of a recommendation to the Board. Each metric is assessed against an agreed target and assigned a percentage weighting of the total scorecard. The actual versus target performance of each metric is assigned a score between 0% and 100%. The weightings are then applied to these scores to derive a rating for that metric. The sum of each metric’s rating is used to determine the Company’s overall performance score. How does Company performance impact the STI program? The Board believes the above method of assessment is rigorous and provides a balanced assessment of the Company’s performance. Firstly, the Company’s overall performance score sets the actual budget available for STI allocations across the organisation in respect of that performance year. This is calculated by applying the percentage performance score to the maximum potential STIs of all eligible employees. Secondly, the Company’s overall performance score contributes to the actual STI payment made to individuals in a given year. For the CEO, this Company performance outcome is the sole input for determining STI payment. For Senior Executives, the Company performance outcome determines 70% of their STI payment. The other 30% is determined through their individual performance assessment. 74
Long-term incentives How are long-term incentives linked to Company performance? How is LTI awarded? What is the performance period? What performance hurdles are applied to the LTI? Why has relative TSR been chosen as the company’s LTI performance hurdle? How is vesting determined? LTI aligns the rewards received by the CEO and Senior Executives with the longer term performance of Santos relative to other ASX 100 companies. Recipients also have the opportunity to grow the long-term value of their LTI by delivering results for the Company that increase the share price. All 2012 LTI grants are now solely performance-based, ensuring further alignment with the interests of shareholders. All LTI grants are delivered in the form of SARs, i.e. a conditional entitlement to a fully paid ordinary share at zero price, subject to satisfaction of the performance condition. Nothing is payable by executives if and when SARs vest. For LTI awards granted in 2012, the Board has discretion to settle SARs in cash. SARs issued under the annual LTI program for 2012 have a three-year performance period from 1 January 2012 to 31 December 2014. This period has been chosen as an appropriate balance between providing a genuine and foreseeable incentive to Senior Executives and fostering a long-term view of shareholder interests. Vesting of the 2012 grant is based on the Company’s relative TSR against ASX 100 companies as at 1 January 2012. The Board has discretion to adjust the comparator group, for instance to take account of takeovers, mergers and demergers that occur during the performance period. Relative TSR performance is tested by an independent third party and reviewed by the Board prior to vesting. The Board believes that relative TSR effectively aligns the interests of individual executives with that of the Company’s shareholders, as TSR is a fair measure of shareholder returns, and the ASX 100 represents the companies in which most of the Company’s shareholders could invest as an alternative to Santos. Vesting will be in accordance with the following schedule: TSR percentile ranking % of grant vesting
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Annual Report 2012 The energy to de
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World of Santos Ref Location Site/A
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Contents Overview 2 Operating and f
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Operating cash flow $1,658 million
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Review by Peter Coates and David Kn
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Our vision and strategy Our vision
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Production and sales Santos continu
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RESERVES (SANTOS SHARE) mmboe Year-
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NET PROFIT AFTER TAX $million AVAIL
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2012 key statistics GREENHOUSE GAS
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Eastern Australia Positioned for gr
Page 23 and 24:
On board the Mutineer-Exeter FPSO,
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GLNG Construction well underway on
Page 27 and 28: Pipelay underway at the Dua oil pro
Page 29 and 30: Jane Sharman Hemstritch BSc (Hons),
Page 31 and 32: DAVID KNOX Chief Executive Officer
Page 33 and 34: Principle 4 - Safeguard integrity i
Page 35 and 36: DEFINING REQUIRED SKILLS AND EXPERI
Page 37 and 38: Internal Board Review process Imple
Page 39 and 40: 2.2 Indemnity, access to informatio
Page 41 and 42: Regular meetings held with auditors
Page 43 and 44: 4.3 Examples of business risks Exam
Page 45 and 46: 4.4 Independence of auditors and no
Page 47 and 48: The Company remains committed to at
Page 49 and 50: Organisation chart BOARD COMMITTEES
Page 51 and 52: As at 31 December 2003 2004 2005 20
Page 53 and 54: Directors’ Report The Directors p
Page 55 and 56: Principal Activities The principal
Page 57 and 58: Asia Pacific Asia Pacific Business
Page 59 and 60: Dividends On 22 February 2013, the
Page 61 and 62: Shares Issued on the Exercise of Op
Page 63 and 64: The Company believes that the addit
Page 65 and 66: Remuneration Governance People and
Page 67 and 68: Long-term Incentives (“LTI”) Th
Page 69 and 70: Long-term Incentives How much annua
Page 71 and 72: Senior Executive Remuneration Overv
Page 73 and 74: Table 7: Non-executive Directors’
Page 75 and 76: Table 9 contains details of the num
Page 77: Details of the fees and other benef
Page 81 and 82: Index A Announcements 173 Annual G
Page 83 and 84: Major announcements made in 2012 13
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Commentary - Santos

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