Our executive remuneration is strongly tied to the performance of the business through our short and long term incentive plans. In line with IAG’s strong performance, the value of remuneration received by Executives, particularly that which is based on long term outcomes, increased in the 2014 financial year.

IAG delivered a strong performance for the year ended 30 June 2014. GWP has grown from $7.8 billion in the year ended 30 June 2009, to $9.8 billion in the year ended 30 June 2014. Our underlying margin, the true measure of the underlying performance of the business, has more than doubled since 2009 and is now 14.2%.

Based on a number of years of strong performance, IAG exceeded our two long term financial targets of cash return on equity (ROE) and relative total shareholder return (TSR). Each of these targets is used as the measure for 50% of the Long Term Incentive (LTI) plan. Cash ROE aligns the interests of shareholders with Executives as it is used to calculate the dividend paid to shareholders. Our cash ROE has risen from 4.9% in 2009 to 23% this financial year. Similarly, IAG’s TSR met our target of top quartile results.

IAG’s executive remuneration framework has remained constant for a number of years. We give a significant weighting to long term reward within our pay mix to focus Executives’ efforts on creating long term, sustainable value for shareholders. The allocation of executive remuneration between fixed pay, Short Term Incentives (STI) and LTI has been consistent year-on-year. However, the total value of remuneration Executives have received has increased in recent years, largely due to an increase in the value of the LTI that has vested. This outcome highlights the strength of the link between the incentive outcomes for Executives and shareholder returns.

The value of LTI that vested during the 2014 financial year is significantly higher than that in previous years
as a result of:

• full vesting of the portion of the LTI plan that is subject to the cash ROE hurdle, for the first time;
• full vesting of the portion of the LTI plan that is subject to the TSR hurdle tested in the financial year, including additional vesting through retesting of the TSR portion of prior grants. Retesting was removed from grants made after July 2013; and
• the significant share price gains since the LTI eligible to vest this year was granted. Shareholders have also seen an increase in the value of their holdings as a result of the share price gain.

The Board will continue to ensure that IAG’s remuneration framework attracts quality people and rewards superior organisational performance. In the 2014 financial year, the Board engaged an external independent advisor to review IAG’s executive remuneration framework, including the LTI. The review found that long term targets of ROE and TSR are appropriate targets for Executives and are sufficiently challenging through the insurance cycle to drive the achievement of IAG’s strategy and deliver strong returns for shareholders. As a result, there were no significant changes made to the executive remuneration structure.

As part of IAG’s ongoing governance of remuneration and in line with regulations from the Australian Prudential Regulation Authority, the Board conducted an assessment to determine if any clawback of unvested or unexercised equity grants was required, and the Board is satisfied that no adjustment is necessary.

This pages contain extracts from IAG’s 2014 remuneration report. The complete remuneration report is set out on pages 26 – 47 of the 2014 annual report.

EXECUTIVE AND NON-EXECUTIVE DIRECTOR REMUNERATION

The actual remuneration paid to Executives during the current and previous financial years is set out below. IAG discloses actual remuneration voluntarily for increased transparency. Actual remuneration includes fixed remuneration, other benefits and leave accruals, termination payments and cash STI paid, as well as any deferred STI or LTI that vested in the relevant financial year. For remuneration details provided in accordance with the Accounting Standards, refer to Section E starting on page 42 of the 2014 annual report.

EXECUTIVES	FIXED PAY	OTHER BENEFITS AND LEAVE ACCRUALS	CASH STI	DEFERRED STI VESTED	LTI VESTED	TOTAL ACTUAL REMUNERATION RECEIVED
2014 2013	$000	$000	$000	$000	$000	$000
Michael Wilkins	2,077 2,039	253 229	1,796 1,679	1,243 558	6,038 1,593	11,407 6,098
Duncan Brain	679	378	347	–	–	1,404
Justin Breheny	915 898	193 294	579 577	490 230	2,222 607	4,399 2,606
Andy Cornish1	879 1,016	(54) 73	487 632	590 280	2,457 557	4,359 2,558
Peter Harmer	995 972	(26) (1)	704 659	326 84	1,672 –	3,671 1,714
Nicholas Hawkins	995 976	(11) 27	731 662	489 229	2,342 624	4,546 2,518
Jacki Johnson2	1,048 907	37 70	565 542	409 194	2,222 608	4,281 2,321
Leona Murphy	895 879	13 7	569 575	431 198	2,109 496	4,017 2,155
EXECUTIVES WHO CEASED AS KEY MANAGEMENT PERSONNEL
Alex Harrison3	218	(1)	125	–	–	342

NOTES:

¹ Remuneration received by Andy Cornish was lower in the year ended 30 June 2014 than the previous financial year as he took a three month period of unpaid leave.

² Remuneration for Jacki Johnson is determined in New Zealand dollars and reported in Australian dollars. Foreign exchange movements affect the value of remuneration disclosed. The exchange rate used to report Jacki Johnson’s remuneration in the year ended 30 June 2014 was NZ$ 1=A$ 0.90485 (2013–NZ$ 1=A$ 0.80055).

³Remuneration reported for Alex Harrison relates only to the three month period during which he was Acting Chief Executive Officer, Australia Direct. Share based remuneration provided to Alex Harrison in the current financial year did not relate to his role as the Acting Chief Executive Officer, Australia Direct and has not been disclosed.

Please refer to the notes relating to Table 1 of the remuneration report (on page 29 of the 2014 annual report) for an explanation of terms.