C. EXECUTIVE REMUNERATION GOVERNANCE
The Board is responsible for ensuring that the Group’s remuneration framework is aligned to the short and long term interests of IAG
and its shareholders. The PARC makes recommendations to the Board regarding Group remuneration policy including remuneration
for the Executives. The Board independently considers these recommendations before making executive remuneration decisions.
I. Role of the PARC
The PARC endeavours to ensure that remuneration policies balance IAG’s objectives with performance, retention, attraction and
shareholder expectations. While maintaining stability in the remuneration structure is important, the PARC actively considers
modifications that can better align stakeholder interests and drive performance, and makes recommendations to the Board where
appropriate. A copy of the PARC's charter is available on the IAG website at
.
The Group CEO, Chief Strategy Officer and Group General Manager, People & Culture attend PARC meetings to assist the committee in
its deliberations. Divisional Executives and the respective heads of human resources attend PARC meetings by invitation to provide
updates on the human resources strategy and initiatives in their divisions. This process provides an open channel of communication
between the divisions and the PARC.
The Chairman of the PARC regularly presents updates to the Board on remuneration related issues and seeks approval of initiatives
and outcomes.
II. Remuneration guiding principles
IAG's remuneration practices have been designed to achieve the following objectives:
to align remuneration with the interests of IAG’s shareholders;
to motivate employees to achieve superior and sustainable performance and discourage underperformance;
to remain market competitive to attract and retain high quality people;
to clearly communicate the remuneration policy; and
to encourage constructive behaviours and prudent risk taking that support long term financial soundness.
III. Use of remuneration consultants
The PARC engages remuneration consultants to provide advice that ultimately assists the Board in making remuneration decisions.
The PARC did not engage external remuneration consultants during the 2015 financial year, as an extensive market benchmarking
exercise was conducted in 2014. In 2014, the then Chairman of the PARC engaged 3 degrees consulting to provide advice regarding
the appropriateness of the LTI plan, additional insights on market trends and market data in relation to CEO and senior executive
remuneration levels. Based on IAG’s research, these insights remain relevant in 2015.
IV. Mandatory shareholding requirements
As part of IAG’s philosophy of aligning the interests of Executive and Non-Executive Directors with those of shareholders, all Executive
and Non-Executive Directors are required to hold a proportion of their remuneration as IAG shares.
The Group CEO is required to accumulate and hold IAG ordinary shares with a value of two times his base salary, and the Executive
team one times their respective base salaries. Executives have four financial years from their date of appointment as an Executive to
meet their requirement. Holdings are assessed annually at the end of each financial year, using the closing share price at 30 June
and the executive’s base salary from four years prior. The shareholding includes Executives' directly held shares and rights vested
and unexercised as at 30 June, for entities controlled, jointly controlled or significantly influenced by the Executive. Shares held by the
Executives' domestic partner and dependants are not included in the mandatory shareholding requirement. Executives appointed
prior to 30 June 2011 were required to meet the mandatory shareholding requirement at 30 June 2015 and all have done so.
Non-Executive Directors are required to hold IAG shares with a value equal to their annual Board fee. The Non-Executive Directors
have three years from the date of their appointment to the Board to meet their required holding. This requirement is assessed
annually at the close of each financial year using the closing share price at 30 June and the Non-Executive Directors’ Board fee from
three years prior.
Non-Executive Directors appointed prior to 30 June 2012 were required to meet the mandatory shareholding requirement at 30 June
2015 and all have done so.
Refer to Section J Related Party Interests for further information.
V. Adjustment policy
From 2010, IAG introduced a discretionary provision to enable variable remuneration under the DAR and EPR Plans to be adjusted to:
protect the financial soundness of IAG or an operating segment;
respond to significant unexpected or unintended consequences that were not foreseen by the Board; or
respond to other circumstances where the Board determines an adjustment is necessary to ensure that an inappropriate reward
outcome does not occur.
Each year, an investigation is conducted to assess whether adjustment of remuneration is required. This assessment requires the
Group CEO, the Chief Risk Officer, the Chief Financial Officer, Chief Strategy Officer and each divisional CEO to attest as to whether an
adjustment is necessary to the remuneration of any individual or group of employees. The PARC and Board separately consider these
attestations in conducting their own assessment of whether adjustment to variable remuneration is appropriate.
In the year ended 30 June 2015, this investigation did not reveal any requirement for the Board to adjust remuneration for the
purposes discussed above.
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