Remuneration Framework
The People and Remuneration Committee (PARC) reaffirms its commitment to delivering remuneration outcomes that reflect both business performance and shareholder returns, as well as ensuring IAG is able to continue to attract and retain high quality executives.
Throughout the year the business strategy evolved, and the remuneration framework continued to support the changing needs of the business. The overall organisation results are reflected in the remuneration outcomes received by the Executive team.
Following is a summary of some key highlights for the 2016 financial year.
| Highlight | Summary |
|---|---|
| A new leadership team was appointed | In November 2015, Peter Harmer was appointed Managing Director and Chief Executive Officer; in December 2015, he appointed his Executive team. |
| Fixed pay supports remuneration principles | Fixed pay for the newly-appointed Executive team reflects their experience in the relevant roles, as well as internal and external benchmarks, supporting the key principles underpinning IAG’s remuneration framework. As a result of difficult market conditions, PARC determined in August 2015 that no fixed pay increases would be provided to the Executive team over the 2016 financial year, other than where there was a change in role. |
| Short term performance was sound | During the year, IAG undertook significant changes designed to set up the organisation for continuous growth and profitability into the future. While there were changes to leadership teams, operating models and organisational structures, IAG’s short term business performance remained sound. The business maintained a stable market position and continued to perform well at an underlying level, and IAG received some notable recognition for its leadership in the industry. Reflecting the business’ short term performance, the average Short Term Incentive (STI) payment was 67% of the maximum achievable for the Executive team. |
| IAG focuses Executives on being Closer, Braver, Faster | The IAG Spirit was introduced during this financial year, encompassing how we serve our customers, partners, shareholders, communities and each other. The IAG spirit is measured through an individual’s commitment and demonstrated behaviour to display IAG’s core values of Closer, Braver, Faster. To align Executive behaviours with the IAG Spirit, eligibility for an STI payment now depends on demonstrating the IAG Spirit. |
| IAG delivers sustained long term performance | IAG once again achieved strong long term returns, with full vesting of the Return on Equity (ROE) portion of the Long Term Incentive (LTI). IAG ranked at the 52nd percentile of its peer group and achieved 54% vesting of the Total Shareholder Return (TSR) component of the LTI. |
| ROE vesting schedule adjusted to align to market practice | A review was conducted during the 2016 financial year to assess the appropriateness of our LTI performance hurdles. The review confirmed that TSR and ROE continue to appropriately align Executives with IAG’s three to four year aspirations, and consequently the current performance hurdles will remain in place for the 2016 LTI awards. The PARC has determined that a more detailed review of the ROE hurdle will take place prior to the 2017 awards to ensure it continues to drive the desired outcomes for shareholders. |
| Shareholder interests are aligned through a mandatory shareholding requirement | As part of IAG’s philosophy of aligning the interests of Executives and Non-executive Directors (NEDs) with those of shareholders, all Executives and NEDs are required to hold a proportion of their remuneration as IAG shares. All Executives and NEDs who were required to meet their mandatory shareholding requirement at 30 June 2016 have done so. |
| Review of balanced scorecard for the 2017 financial year | IAG is reviewing its Executive remuneration framework. As part of this review, it is considering incorporating a Net Promoter Score (NPS) into the balanced scorecard. An NPS measure focuses Executives’ efforts on earning and sustaining loyal customers and vocal promoters of the business, by nurturing a business culture which IAG customers can believe in and rely upon. |