Donaco International Limited / 2017 Annual Report Donaco International Limited / 2017 Annual Report 16 17 Directors’ Report Directors’ Report Remuneration report (audited) The remuneration report details the key management personnel remuneration arrangements for the consolidated entity, in accordance with the requirements of the Corporations Act 2001 (Cth) and its regulations. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including all directors. The remuneration report is set out under the following main headings: • principles used to determine the nature and amount of remuneration • details of remuneration • share-based compensation • additional disclosures relating to key management personnel. 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. Board oversight The Board has an established Nominations, Remuneration & 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; and • 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. The remuneration framework is aligned to shareholders’ interests, it: • 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 non-financial drivers of values • attracts and retains high-calibre executives. The remuneration framework is also aligned to program participants’ interests, because it: • rewards capability and experience • reflects competitive rewards 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. 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. 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 performance incentives • 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. Short-term incentives The short-term incentive (STI) framework provides senior executives with the opportunity to earn an annual cash bonus, up to a maximum amount of 50% of base salary. Clear key performance indicators (KPIs) have been established by the Remuneration Committee. Achievement of these KPIs gives the executive an opportunity to earn a fixed percentage of their maximum STI, subject to final review and approval by the Board. For FY17, the KPIs applied and the applicable percentage of STI were: 1. Achievement of the EBITDA target for the Donaco Group (30%) 2. Achievement of the budgeted revenue target for the Star Vegas property, in Thai baht terms (25%) 3. Achievement of the budgeted revenue target for the Aristo property, in Chinese renminbi terms (25%) 4. Achievement of a personal KPI relating to the executive’s individual areas of responsibility (20%). The objective of these KPIs is clearly designed to focus on financial criteria, including top-line revenue growth, while maintaining a focus on disciplined cost control, as expressed through the EBITDA target for the Group.