E. LINKING PERFORMANCE AND REWARD
I. Linking IAG's short term performance and short term reward
IAG uses a balanced scorecard approach across the organisation to set performance objectives which drive the execution of its
strategy. Executives and businesses have a strategy map, which defines their key strategic priorities and the balanced scorecard sets
out the objectives that have to be achieved to meet these priorities. All balanced scorecards use goals set against financial and non-
financial measures. The achievement of the objectives is measured and this informs the Board’s determination of STI outcomes.
The table below provides a summary of key balanced scorecard objectives and outcomes for IAG for the year ended 30 June 2015.
The objectives are agreed with the Board at the beginning of each financial year and are designed to be stretching to deliver
sustainable value for shareholders. The key measures summarised below are used to determine the STI awarded to the Group CEO. A
similar process applies for members of the Executive team.
TABLE 5 - BALANCED SCORECARD OBJECTIVES AND PERFORMANCE REQUIREMENTS
CATEGORY OBJECTIVE
WEIGHTING OUTCOME
Financial
Return on risk based
capital
25%
Did not meet target: The Group sets targets to achieve a return on its risk based
capital that require outperformance through the cycle and represents a stretch
target. This return reflects how effectively IAG uses its capital and is directly
aligned to the Group’s strategic target of achieving an ROE of 1.5 times the
weighted average cost of capital. In the year ended 30 June 2015, the Group
reported a return on risk based capital that was approximately 10% lower than
its budget.
Profitable growth 15%
Did not meet target: To grow profitably and create value for shareholders, IAG
needs to expand its products, markets and customer base. Although GWP
increased by 17% to $11.4 billion during the year ended 30 June 2015 (in 2014,
GWP increased by 3%), this did not meet IAG’s challenging target set with
consideration of the additional GWP from the integration of the former
Wesfarmers business.
Capital and risk
management
10%
Exceeded target: Managing the balance sheet to optimise the capital structure
within the context of the Group’s risk appetite is a key business objective and
vital to the stability of the Group. The Group has maintained a strong capital
position with the APRA PCA multiple at 30 June 2015 of 1.70 (compared to a
Group benchmark of 1.4 to 1.6), and a Common Equity Tier 1 multiple of 1.14
(compared to a Group benchmark of 0.9 to 1.1 times the PCA). The Group also
formed a strategic partnership with Berkshire Hathaway which provides
significantly enhanced capital flexibility. IAG has embedded risk management
strategies that align governance, risk and strategy approaches across the Group.
Non-financial Customer, partner
and employee
satisfaction
15%
Exceeded target: Customer and partner satisfaction is tracked across IAG's
businesses by measuring advocacy and/or satisfaction. IAG undertakes a range
of activities to improve customer advocacy based on feedback. IAG has worked
to introduce a consistent customer advocacy measure across the Group and
establish a baseline for future year comparisons. In the year ended 30 June
2015, customer advocacy scores improved in the Australian Personal Insurance
and Commercial Insurance divisions. Customer advocacy was stable in New
Zealand and Asia based on the collected baseline information. IAG recognises
the importance of stakeholder reputation and actively seeks feedback through
perception audits, regulator dialogue and external agency ratings. These have
demonstrated improvements in key areas.
Strategy
development and
execution
20%
Met target: In the year ended 30 June 2015, IAG focused on the realisation of
synergy benefits and cultural integration of the Australian and New Zealand
former Wesfarmers business, including the Lumley and WFI brands, as well as
the transformation of the Australian operating model. IAG also set ambitious
strategic priorities to deliver great customer experiences, creating shared value
for all of our stakeholders.
Build capability and
agility for future
value
5%
Met target: IAG focused on a number of strategic initiatives that will help deliver
a platform for future growth. IAG implemented a Human Centred Design (HCD)
approach to problem solving, dedicated resources to drive IAG’s digital strategy
and pioneered venturing initiatives.
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