DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT 18 19 DONACO INTERNATIONAL LIMITED 2018 ANNUAL REPORT The executive remuneration and reward framework has three components: • fixed remuneration, consisting of base salary and non- monetary benefits, together with other statutory forms of remuneration such as superannuation and long service leave • short-term incentives, paid in cash • long-term incentives, currently consisting of restricted shares purchased on market. The combination of these components comprises the executive’s total remuneration. Fixed remuneration Fixed remuneration, consisting of base salary, superannuation and non-monetary benefits (if any), is determined by considering the scope of the executive’s responsibility, importance to the business, competitiveness in the market, and assessed potential. The total remuneration package for executives includes superannuation and other non-cash benefits to reflect the total employment cost to the company, inclusive of any fringe benefits tax. Fixed remuneration is reviewed annually by the Remuneration Committee, based on individual and business unit performance, the overall performance of the consolidated entity, and comparable market remuneration. Executives may receive their fixed remuneration in the form of cash or other fringe benefits (for example, motor vehicle benefits) where it does not create any additional costs to the consolidated entity and provides additional value to the executive. The objective of the fixed remuneration component is to attract and retain high-quality executives, and to recognise market relativities and statutory requirements. DIRECTORS’ REPORT DIRECTORS’ REPORT The remuneration framework is aligned to shareholders’ interests: • has economic profit as a core component of plan design • focuses on sustained growth in shareholders wealth, consisting of growth in share price, as well as focusing the executive on key nonfinancial drivers of values • attracts and retains high calibre executives. The remuneration framework is also aligned to program participants’ interests: • rewards capability and experience • reflects competitive reward for contribution to growth in shareholders’ wealth • provides a clear structure for earning rewards. All remuneration paid to directors and executives is valued at cost to the company and expensed. In accordance with best practice corporate governance, the structures of remuneration for non-executive directors and for executives are separate. Non-executive directors’ remuneration Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors’ fees and payments are reviewed annually by the Remuneration Committee. The Remuneration Committee may, from time to time, receive advice from independent remuneration consultants to ensure non-executive directors’ fees and payments are appropriate and in line with the market. There are no bonuses payable to non-executive directors, and there are no termination payments for non-executive directors on retirement from office, other than statutory superannuation entitlements. Non-executive directors are not granted options or shares. ASX Listing Rules require that the aggregate of non-executive directors’ remuneration be determined periodically by a general meeting. The most recent determination was at the 2013 Annual General Meeting, where the shareholders approved a maximum aggregate remuneration of $750,000 including statutory superannuation contributions. Executive remuneration The consolidated entity’s remuneration policy is to ensure that executive remuneration packages properly reflect a person’s duties and responsibilities, and that remuneration is competitive in attracting, retaining and motivating executives of the highest calibre. As a result, remuneration packages for the Managing Director/CEO and senior executives include both fixed and performance-based remuneration. Board oversight The Board has an established Nominations, Remuneration and Corporate Governance Committee (the ‘Remuneration Committee’), consisting only of non-executive directors, with a majority of independent directors. It is primarily responsible for setting the overall remuneration policy and guidelines for the company, and its functions include: • reviewing and recommending to the Board for approval, the company’s general approach towards remuneration, and to oversee the development and implementation of remuneration programs • reviewing and recommending to the Board for approval, corporate goals and objectives relevant to the remuneration of the Managing Director/CEO, and evaluating the performance of the Managing Director/ CEO in light of those goals and objectives; • reviewing and recommending to the Board for approval, remuneration programs applicable to the company executives, and ensuring that these programs differ from the structure of remuneration for non-executive directors • reviewing the remuneration of non-executive directors, and ensuring that the structure of non-executive directors’ remuneration is clearly distinguished from that of executives by ensuring that non-executive directors are remunerated by way of fees, do not participate in schemes designed for the remuneration of executives, do not receive options or bonus payments, and are not provided with retirement benefits other than statutory superannuation. Remuneration framework In consultation with external remuneration consultants when necessary (refer to the section ‘Use of Remuneration Consultants’ below), the Remuneration Committee has structured an executive remuneration framework that is market competitive and complementary to the reward strategy of the consolidated entity. The framework is designed to satisfy the following key criteria for good reward governance practices: • aligned to shareholders’ interests • competitiveness and reasonableness • performance linkage/alignment of executive compensation • transparency. For long-term incentives in FY18, the following KPI was required to be satisfied: Achievement of the budgeted EBITDA target for the Donaco Group. This KPI was not satisfied, and accordingly no long-term incentives were awarded. Shareholders should note that share price movements per se are not an applicable KPI. Share prices are affected by many factors beyond the control of management. However all of the applicable KPIs should, if achieved, have a positive impact on Donaco’s performance, which would normally be reflected in the share price, subject to any external factors. Accordingly, the remuneration framework focuses executives on matters that they can control, which are expected to provide benefits to shareholders through a higher share price. In addition, the award of restricted shares under the long- term incentive plan aligns the interests of executives with shareholders. Executives benefit directly if the share price increases, and also suffer directly if the share prices decreases. PRINCIPLES USED TO DETERMINE THE NATURE AND AMOUNT OF REMUNERATION Introduction The performance of the consolidated entity depends on the quality of its directors and executives. The remuneration philosophy is to attract and retain high-quality personnel, and motivate them to achieve high performance. The objective of the consolidated entity’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with the achievement of strategic objectives and the creation of value for shareholders, and it is considered to conform to the market best practice for the delivery of reward. 50% AT RISK 25% LTI 25% STI CASH 50% FIXED 50% FIXED FIXED VS. AT RISK CASH VS. DEFERRED EQUITY DEFERRED EQUITY 25% CASH 75% SENIOR EXECUTIVES’ REMUNERATION MIX