BROADENING OUR HORIZONS - Arrium

Remuneration ReportAttribute LTI Share Plan (Former Scheme) LTI Performance Rights Plan (New Scheme)Award OneSteel shares held in Trust Rights to fully paid OneSteel ordinary sharesPerformance Period Three years Three yearsAccess to Retesting Yes, up to five years (see detailed explanation below) No retestingPerformance HurdlesVestingDividends50% of shares assessed against Relative TotalShareholder Return, measured against theS&P/ASX 200 index, excluding banks, mediaand telecommunications50% of rights assessed against RelativeTotal Shareholder Return, measured againstthe S&P/ASX 200 index, excluding consumerdiscretionary, consumer staples, financialservices, health, information technology andtelecommunications services sectors50% of shares assessed against CPI plus 5% 50% of shares assessed against compound annualgrowth in average earnings per share. Targetestablished by the Board for each allocationShares vest in proportion to the performancehurdles met (see table below)Paid from initial allocation irrespective of whethershares are vested or unvestedVoting Rights Yes NoRights vest in proportion to the performancehurdles met (see table below)No dividends payable until the rights vest andshares allotted53Performance Rights Plan (PRP) (New Scheme)Lead Team members and selected executives will be offered the opportunity to participate in an LTI which is delivered through aPerformance Rights Plan (PRP) from 1 July 2011. This replaces the previous LTI Share Plan with all future allocations to be made underthe PRP.There are two performance hurdles under the PRP with 50% of rights vesting against each hurdle. One hurdle is OneSteel’s TotalShareholder Return (TSR) relative to a Comparator Index. The second, which replaces the previous CPI-based hurdle, relates to OneSteel’sEarnings Per Share (EPS).The new LTI Plan is delivered in OneSteel performance rights (rights), over ordinary OneSteel shares, which are subject to performancehurdles over a three-year performance period. As executives are issued with rights rather than shares, there are no voting entitlementsattached, nor are any dividends paid until such time as the rights vest and the shares are allotted.These two complementary performance measures have been carefully and specifically determined by the Board so as to provideexecutives with an incentive to create shareholder wealth over a sustained period.OneSteel’s TSR performance relative to the Comparator IndexTSR measures the growth in the price of OneSteel’s ordinary shares plus dividends notionally reinvested. The relative TSR hurdle willmeasure OneSteel’s TSR ranking against entities in the TSR ranking group as at the start of the Performance Period for the TSR hurdle.The TSR ranking group will be all of the companies in the S&P/ASX 200 Index, excluding the consumer discretionary, consumer staples,financial services, health, information technology and telecommunications services sectors (approximately 115 companies in total).The benchmark companies chosen for the PRP for comparing OneSteel’s TSR are not dissimilar from the index which was adopted bythe Company under the Former Scheme (refer below). Having regard to the nature of OneSteel’s operations, its customer and supplierbase and its international reach, it was considered inappropriate for the Company’s relative TSR to be compared with local consumerfocusedbusinesses, those in financial services, healthcare, information technology or telecommunications. In adopting the balance ofthe S&P/ASX 200 index, the comparators contain all industrial companies, all materials and resources companies and significant otherswhich, in the Board’s judgement, represent a testing group of relevant comparators. For all rights to vest in respect of this performancehurdle, the Company’s TSR over the three-year period will have to out-perform more than 85 of the relevant companies (115) which theBoard believes represents an appropriate stretch performance target.For the 2011 offer, the performance period for the relative TSR hurdle will be the three-year period commencing from 1 July 2011 andending 30 June 2014 (Performance Period). For the purposes of this measurement, TSR will be calculated over a 10 consecutive tradingday period starting two months prior to the end date of the Performance Period and ending two months after the end date of thePerformance Period. The relevant 10 consecutive trading day period will be determined by that which gives the highest level of vestingachieved during the Performance Period.Fifty percent of the total rights awarded vest to participants at the end of the three-year Performance Period subject to the performanceof OneSteel’s TSR relative to the Comparator Index over the Performance Period according to the following table:TSR Performance relative to the Comparator IndexProportion of rights vesting as OneSteel ordinary sharesBelow the 50th percentileNilAt the 50th percentile 50%Between the 50th percentile and 75th percentile Pro-rata straight-line between 50% and 100%At or above the 75th percentile 100%OneSteel’s Earnings Per Share (EPS)EPS is the base EPS disclosed in OneSteel’s full year financial report. The EPS hurdle will measure OneSteel’s EPS growth (as an annualcompound percentage) between the final year of the performance period for the EPS hurdle (being the year ending 30 June 2014 forthe 2011 Offer) and the financial year ending immediately prior to the date of grant of the rights (being the year ended 30 June 2011 forthe 2011 Offer). EPS growth is then compared against the EPS targets for OneSteel as determined by the Board for the correspondingperiod. The EPS targets will comprise a minimum threshold EPS growth target and a maximum EPS growth target. For the 2011 Offer, thethreshold EPS growth target will be 5%. The maximum EPS growth target is 12%.