EXPLANATORY NOTES
Why is Shareholder Approval
being sought?
The Company is not required to seek
this approval as shares allocated under
the Company’s DARs and EPRs Plans to
satisfy vested grants of DARs and EPRs
will continue to be bought on-market.
In the interests of transparency,
shareholder engagement and good
governance, the Company is seeking
shareholder approval for equity-based
allocations to the CEO.
Background
Under Mr Wilkins’ employment agreement
with the Company, his remuneration
includes:
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Fixed Pay (base salary plus
superannuation);
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STI entitlement payable in cash;
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deferred STI entitlement in the form
of DARs which vest in tranches over a
period of two years; and
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an LTI entitlement provided in the form
of EPRs.
The cash STI, deferred STI (DARs) and LTI
(EPRs) entitlements are “at risk”. DARs
are only awarded if Mr Wilkins meets the
targets necessary to earn an STI. Similarly,
EPRs only vest if they satisfy performance
hurdles. Both DARs and EPRs are
designed to align Mr Wilkins’ interests
with those of shareholders.
As a senior executive, Mr Wilkins has
participated in the DAR and EPR Plans
since joining the Company in 2007 and,
in his capacity as CEO, he continues to
be eligible to participate. Shareholders
last approved the issue of securities
under incentive plans to Mr Wilkins at
the 2014 AGM.
No loan has been or is intended to be
given by the Company to Mr Wilkins in
relation to proposed grants of the DARs
or EPRs described in this Resolution.
Mr Wilkins is the only Executive Director
of the Company and therefore is the only
Director eligible to participate in the
incentive plans.
An overview of these plans is provided
below and full details can be found at
Details of any securities issued to the CEO
under the incentive plans are published in
the Annual Report.
Proposed Deferred STI Arrangements –
DARs
Consistent with current STI arrangements,
the Board has set a maximum annual STI
entitlement for Mr Wilkins at 150% of
his Fixed Pay. The actual STI payment
made, if any, is determined by the Board
based on achievement of a mix of financial
and non-financial targets and an overall
assessment of performance by the Board.
The Board has currently determined that
two thirds (2/3) of any STI that is awarded
will be paid as cash and the remaining one
third (1/3) will be deferred for up to two
years. The deferred amount is provided
as a grant of DARs. Deferring a portion of
STI into DARs is designed to provide a
retention incentive and align Mr Wilkins’
interests with those of shareholders.
Each DAR is an option to acquire an
ordinary IAG share. DARs are granted for
nil consideration and a nominal exercise
price of $1 is payable for the exercise of
each allocation of DARs.
How many DARs will be granted to
Mr Wilkins?
The number of DARs will be determined
based on the value of STI awarded for
the previous financial year. The formula
used to calculate the number of DARs is
as follows:
D = (STI x Z) / S
Where:
D = the number of DARs to be offered
rounded up to the nearest 100.
STI = the dollar amount of the STI
determined by the Board for the financial
year ended 30 June 2015.
Z = the proportion of the STI that
the Board has determined will be
deferred and offered as an award of
DARs (currently 1/3).
S = the closing price of IAG shares on the
last trading day of the financial year ended
30 June 2015, being $5.58.
Subject to shareholder approval, the
Board has determined that the DARs to be
granted to Mr Wilkins under this approval
will be a maximum of 117,800.
If Resolution 2 is approved, the allocation
of DARs will be granted to Mr Wilkins
within two months of the meeting. The
Board has determined that the DARs to be
granted to Mr Wilkins will vest as follows:
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50% on 1 September 2016
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50% on 1 September 2017
Summary of the DARs Plan
Under the terms of the DARs, if Mr Wilkins
ceases employment due to retirement
redundancy, death or total and permanent
disablement, or with the approval of the
Board, the Board may determine that:
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DARs continue to become exercisable
on their scheduled vesting date; and/or
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DARs become exercisable at an earlier
date; and/or
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some DARs should lapse.
Where employment is terminated by the
Company giving notice, the early exercise
of DARs is permitted unless the Board
determines, for whatever reason, that some
or all of the DARs should lapse.
If Mr Wilkins ceases employment due to
resignation, any DARs that have not vested
and become exercisable for shares lapse on
the date employment ceases.
The early exercise of DARs may
be permitted by the Board in other
circumstances, such as a takeover or
scheme of arrangement of IAG.
Mr Wilkins’ entitlement to shares through
the exercise of DARs may be adjusted to
take account of capital reconstructions and
bonus issues.
The Board retains the discretion to adjust
any unvested DARs downwards if it
decides it is prudent to do so.
Proposed LTI Arrangements – EPRs
An LTI is provided in the form of EPRs.
The performance hurdles that must be
met before EPRs become exercisable for
shares create a direct link between the
remuneration paid to executives and
IAG’s strategic financial objectives. In the
Board’s view this supports IAG’s economic
sustainability and is in the long term
interests of shareholders.
Each EPR is an option to acquire an
ordinary IAG share (or cash, as determined
by the Board). The proposed grant of EPRs
to the CEO will be granted at no cost to
Mr Wilkins and may be exercised at no
cost if performance hurdles are met.
Performance hurdles are measured over
a three to four year period.
The performance hurdles relevant to
the grant will be:
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Total Shareholder Return (TSR)
of IAG relative to a peer group of
companies. This hurdle will apply
to 50% of the grant of EPRs; and
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Cash Return on Equity (ROE) measured
relative to IAG’s weighted average cost
of capital (WACC). This hurdle will
apply to 50% of the grant of EPRs.
7
IAG NOTICE OF MEETING 2015
