Donaco International Limited / 2017 Annual Report Donaco International Limited / 2017 Annual Report 18 The Remuneration Committee considers that the increase in the size and scale of the consolidated entity’s revenues, earnings, profits and cash flow over the past four years can be attributed in part to the adoption of performance-based compensation, and is satisfied with the upwards trend in shareholder wealth. The Remuneration Committee also considers that the remuneration framework in place will continue to increase shareholder wealth if maintained over the coming years, subject to any adjustments that are necessary or desirable to reflect the Company’s growth. Use of remuneration consultants During the financial year ended 30 June 2016, the consolidated entity received a remuneration recommendation (as defined in the Corporations Act) from Egan Associates Pty Limited, to review its existing remuneration policies and provide market benchmarking. Egan Associates was paid $25,725 plus GST for these services. An agreed set of protocols is put in place at the time of engaging remuneration consultants, to ensure that any remuneration recommendations are free from undue influence from key management personnel. The Board is satisfied that there was no undue influence. There were no remuneration consultants engaged during the financial year ended 30 June 2017. Voting and comments made at the Company’s 2016 Annual General Meeting At the Annual General Meeting (AGM) held on 24 November 2016, 93.09% of the eligible votes received supported the adoption of the remuneration report for the year ended 30 June 2016. Eligible votes received represented approximately 39% of the total voting power in the Company at that time. The Company did not receive any specific feedback at the AGM regarding its remuneration practices. Details of remuneration Amounts of remuneration Details of the remuneration of key management personnel of the consolidated entity are set out in the following tables. The key management personnel of the consolidated entity consisted of the following directors of Donaco International Limited: • Stuart James McGregor – Non-Executive Director and Chairman • Joey Lim Keong Yew – Managing Director and CEO • Benedict Paul Reichel – Executive Director, General Counsel and Company Secretary • Benjamin Lim Keong Hoe – Non-Executive Director • Robert Andrew Hines – Non-Executive Director • Ham Techatut Sukjaroenkraisri – Executive Director • Paul Porntat Amatavivadhana – Non-Executive Director (resigned 3 July 2017). And the following persons: • Kenny Goh Kwey Biaw – Deputy Chief Financial Officer and CEO of Donaco Singapore • Chong Kwong Yang – Chief Financial Officer • Att Asavanund – CEO and Deputy Chief Operating Officer (resigned 31 August 2017). 19 Directors’ Report Directors’ Report In addition, executives also maintained a focus on key non-financial criteria, relating to the personal KPI applicable to the individual executive’s area of responsibility. Long-term incentives The long-term incentive (LTI) program currently consists of restricted shares purchased on market. This plan was adopted in FY17 to replace the former option plan, which was thought to be excessively complex, and could potentially result in significant dilution of shareholders. Under the new LTI scheme, the Board has actively sought to align senior executive remuneration with shareholder interests. Shares are purchased on market and held in an employee share trust (the Trust). The shares will vest to the employees over the vesting period of three years. The aim of the scheme is to ensure that executives are motivated to think like shareholders, with a focus on taking actions that will lead to sustainable increases in the share price. The structure of the scheme also ensures that there is no dilution of shareholders. The total annual dollar value of shares to be purchased is a maximum of $1,000,000. The number of shares to be purchased each year will depend on the share price at the time that purchases take place. The scheme is executed in a similar manner to an on-market buyback, allowing the Trust to stand in the market and purchase shares at appropriate times. However, the shares will not be cancelled, but will be held in the Trust, to be distributed to employees over the vesting period of three years. LTI awards are made on an annual basis, subject to achievement of applicable KPIs. This ensures that at any given time, the executives have at risk a number of LTI awards, with different vesting periods and amounts. This helps to smooth out both the risk and the cash flow for the Company and for executives. The LTI scheme allows for an award of a maximum of 75% of base salary in the form of restricted shares, subject to achievement of applicable KPIs which are set annually. For FY17, the applicable KPI related to the achievement of the budgeted EBITDA target for the Group. During FY17 the Trust purchased 2,376,653 shares on market in September 2016, at an average price of 41.99 cents per share. Once awarded, these shares will vest over the three year vesting period commencing on 1 July 2017. The objective of the LTI component is to focus on sustainable shareholder value creation, as expressed through share price growth. Relationship between remuneration policy and company performance As detailed above, Donaco’s remuneration policy is directly linked to Company performance, particularly in relation to top-line revenue growth and cost control, to ultimately create long-term shareholder value. STI and LTI awards are dependent on defined KPIs being met, which are primarily financial in nature, and are at the discretion of the Remuneration Committee. In the three years from FY14 to FY16, Donaco’s revenue increased by a compound annual growth rate of 109%. The four-year period from FY14 to FY17 also shows a strong upward trend in revenue and EBITDA. Given the nature of Donaco’s business, revenue and earnings volatility is expected. However, over the medium term the Company has seen the transformation in earnings growth translate to share price appreciation. During FY17, the share price increased 40% and the share price has grown by an average of 15% per annum over the four years to 30 June 2017. 50% AT RISK LTI STI CASH FIXED 50% FIXED FIXED VS AT RISK CASH VS DEFERRED EQUITY DEFERRED EQUITY 25% CASH 75% SENIOR EXECUTIVES’ REMUNERATION MIX -10% 10% 20% 30% 4 YEARS DNA SHARE PRICE GROWTH PER ANNUM 15% 3 YEARS -14% 2 YEARS -12% 1 YEAR 40% -20% 0% 40% 50% FY14 FY15 FY16 FY17 Revenue EBITDA 0 20 40 60 80 100 120 140 160 A$ MILLIONS DONACO REVENUE AND EBITDA