CBA.1004.0041 .1 929 CONFIDENTIAL Commonwealth Bank of Australia AGENDA FOR THE 195TH MEETING OF THE REMUNERATION COMMITTEE TO BE HELD ON MONDAY, 8 1 H AUGUST 2016 AT 12.00PM MINUTES BUSINESS ARISING FROM THE MINUTES AGENDA ITEMS 12.00pm -12 .1 0pm 10 mins 12 .1 0pm - 12.1 5pm 5 mins 12.1 Spm - 12.25pm 10 mins 12.25pm - 12.35pm 10 mins 12.35pm - 12.45pm 10 mins 12.45pm - 12. SSpm 10 mins 12. SSpm - 1.0Spm 10 mins 1.0Spm -1 .15pm 10 mins 1.15pm -1.25 pm 10 mins GENERAL BUSINESS END QI: AflmN'OA Minutes of the 194 1 h Meeting of the Remuneration Committee held on Frid ay, 5 th August 2016 at 2.00pm 1. Final 2016 Remuneration Report Presented by Janet Linklater 2. Employee Share Acquisition Plan Presented by Janet Linklater 3. Sales Incentive Governance Fr amework Review - Progress Update Presented by EY 4. FY17 Group Executive Fi xed Remuneration and L T l Review Outcomes Presented by Ian Narev 4A. FY16 Performance Review Outcomes and Short-Term Incentive Outcomes for the Group Executives Presented by Ian Narev 5. FY17 CEO Fixed Remuneration and L Tl Review Outcomes Presented by David Turner SA FY1 6 Performance Review Outcomes and Short-Term Incentive Outcomes for the CEO Presented by David Turner 6. 2012 Group Leadership Reward Plan (GLRP) Outcomes Presented by Janet Linklater 7. 2016 GLRP - Confirmation of Performance Measurement Presented by Janet Li nklater Date of Next Meeting Monday, 10 1 h October 2016 R
Transcript
CBA.1004.0041 .1929
CONFIDENTIAL
Commonwealth Bank of Australia
AGENDA FOR THE 195TH MEETING OF THE REMUNERATION COMMITTEE TO BE HELD ON MONDAY, 81H AUGUST 2016 AT 12.00PM
MINUTES
BUSINESS ARISING FROM THE MINUTES
AGENDA ITEMS
12.00pm -12.1 0pm 10 mins
12.1 0pm - 12.1 5pm 5 mins
12.1 Spm - 12.25pm 10 mins
12.25pm - 12.35pm 10 mins
12.35pm - 12.45pm 10 mins
12.45pm - 12.SSpm 10 mins
12.SSpm - 1.0Spm 10 mins
1.0Spm -1 .15pm 10 mins
1.15pm -1.25pm 10 mins
GENERAL BUSINESS
END QI: AflmN'OA
Minutes of the 1941h Meeting of the Remuneration Committee held on Friday, 5 th August 2016 at 2.00pm
1. Final 2016 Remuneration Report Presented by Janet Linklater
2. Employee Share Acquisition Plan Presented by Janet Linklater
3. Sales Incentive Governance Framework Review - Progress Update Presented by EY
4. FY17 Group Executive Fixed Remuneration and L T l Review Outcomes Presented by Ian Narev
4A. FY16 Performance Review Outcomes and Short-Term Incentive Outcomes for the Group Executives Presented by Ian Narev
5. FY17 CEO Fixed Remuneration and L Tl Review Outcomes Presented by David Turner
SA FY1 6 Performance Review Outcomes and Short-Term Incentive Outcomes for the CEO Presented by David Turner
6. 2012 Group Leadership Reward Plan (GLRP) Outcomes Presented by Janet Linklater
7. 2016 GLRP - Confirmation of Performance Measurement Presented by Janet Linklater
Date of Next Meeting
Monday, 101h October 2016
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CONFIDENTIAL
Commonwealth Bank of Australia
Remuneration Committee 8 August 2016
Last Submitted: 19 July 2016
Final 2016 Remuneration Report
1. Purpose and Value at Stake
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Paper No. 1
1.1. For the Committee to review and recommend the fina l Remuneration Report (2016 Report) to the Board for approval.
2. Outcome Sought and Recommendations 2.1. That the Committee: 2.1.1. Considers the 2016 Report (Attachment 1 ); 2.1.2. Recommends the 2016 Report to the Board for approval at its meeting on 9
August2016; and 2.1.3. Recommends that the Board delegates authority to the Committee Chairman
to approve any changes to the 2016 Report subsequent to final Board approval.
3. Background facts 3.1. The Committee reviewed the draft 2016 Report at their meeting on 19 July
2016. 3.2. Following the meeting, alternative versions of the short-term performance
table and illustrative market practice disclosures were circu lated for review and comment.
3.3. An updated version of the 2016 Report is included at Attachment 1 with areas still to be completed highlighted in yellow. This version, with minor updates, will be circulated to Committee members for review prior to the meeting, including reference to the executive reward framework changes for FY17. Feedback received will be incorporated in the f inal version to be tabled at the meeting.
3.4. The remuneration disclosure amounts in the f inal 2016 Report have been f inalised with the exception of:
3.4.1 . 2016 CEO and Group Executive Short Term Incentive (STI) outcomes; 3.4.2. Vesting outcomes for the 2015 deferred STI awards for the CEO and Group
Executives; and 3.4.3. Vesting outcomes for the 2012 Long Term Incentive (L Tl) award that
reached the end of its four year performance period on 30 June 2016. 3.5. The outstanding information is subject to Board approval and separate
papers have been provided to the Committee at its 8 August meeting to consider these items and make recommendations to the Board. Once the STI, def erred STI and L Tl vesting outcomes have been approved by the Board, this information will be included in the final version of the 2016 Report for publication.
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3.6. PricewaterhouseCoopers (PwC) is currently auditing the numbers provided in Attachment 1. The final audit process will be completed post-August Board, once approved STI and L Tl outcomes are available.
4. Key updates to the 2016 Report 4.1. Since the July Committee meeting, key updates applied to the final draft
2016 Report include: 4.1.1. Draft message from the Committee Chairman has been included; 4.1.2. Statutory leave accruals and other benefits (car parking, taxation advice, etc)
have been updated in the statutory remuneration table;
4.1.3. Assessment of the Group's 2016 short-term performance and key achievements have been finalised with year-end results;
4.1.4. Long-term performance has been updated to reflect the key messages of the profit announcement, including;
• Final outcomes and charts for the Group Leadership Reward Plan (GLRP) performance hurdles (i.e. Total Shareholder Return (TSR) and Customer Satisfaction - Roy Morgan, DBM, and Wealth Insights) have been added; and
• TSR peer groups relating to the 2012 and 2015 GLRP awards have been updated to reflect changes to company composition.
4.1 .5. Equity holdings, loans and other transactions for Key Management Personnel (KMP) and related parties have been included; and
4.1.6. Additional refinement to the text based on feedback from key stakeholders, including members of the Committee, is incorporated.
5. Accountabilities and next steps 5.1. The Committee will recommend the final 2016 Report to the Board for
approval on 9 August 2016. 5.2. Following final Board approval, the Committee Chairman will approve any
subsequent changes to the 2016 Report. 5.3. The final 2016 Report will continue to be audited by PwC prior to the August
Committee meeting, with the final audit process completed post-August Board.
5.4. The 2016 Report will be available to shareholders from 15 August 2016.
Janet Linklater Executive General Manager Grou Performance & Reward
27 July 2016
END OF PAPER
Melanie Laing Group Executive Human Resources
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CONFIDENTIAL
Commonwealth Bank of Australia
Remuneration Committee 8 August 2016
Employee Share Acquisition Plan (ESAP)
1. Purpose and value at stake
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Paper No. 2
1.1. The Employee Share Acquisition Plan (ESAP) is a key employee benefit provided by the Group that is highly valued by our people. It helps to ensure we provide competitive employment arrangements, contributes to the attraction, retention and engagement of our people and helps to align employee and shareholder interests.
1.2. As the 3% growth in NPAT performance hurdle was achieved in FY16, a fu ll award of $1 ,000 is recommended to eligible employees under the Employee Share Acquisition Plan (ESAP) for 2016.
1.3. The performance hurdle of percentage growth in NPAT be agreed later in the year once budgets have been set and a relevant figure can be determined.
2. Outcome sought and recommendation It is recommended that the Committee endorse for Board approval a full grant of $1 ,000 of CBA shares per eligible employee under the 2016 ESAP.
3. Background facts 3.1. Under the ESAP, annual grants of shares (up to the maximum value of
$1,000) are made to eligible employees to: 3.1.1 . Reward employees for their comm itment and continuing efforts towards
achieving success for the Commonwealth Bank Group; 3.1.2. Give employees the opportunity to build a personal financial stake in the
Group and share in its future growth; and 3.1.3. Contribute to aligning employee and long-term shareholder interests.
3.2. To be eligible, an employee must have all of the following: 3.2.1. A permanent fu ll time or part time employee, or a person employed on a
specified term contract (ie a maximum or fixed term agreement) with 12 months service with the Group (including Austral ian subsidiaries to which the Board has resolved to extend ESAP participation to) as at 30 June in the year the award is being made.
3.2.2. Australian Residency (for taxation purposes); 3.2.3. Met the performance expectations for their role and not received a "not met"
risk assessment for the annual performance period to which the award relates;
3.2.4. Not been on extended leave for more than 12 months (excluding parental leave) during the financial year to which the award applies; and
3.2.5. Not be a participant in any of the Group's mandatory share plans or specialist arrangements (including deferred short-term incentive
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arrangements for General Managers and above or long-term incentive plans).
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3.3. Institutional Banking & Markets, Colonial First State Global Asset Management and support function employees located overseas participate in the International Employee Share Acquisition Plan (IESAP). This is a phantom (or cash equivalent) plan based on ESAP for employees based outside of Australia who meet all the above requirements, except Australian residency. International Financial Services (IFS) has so far elected not to participate, except for expatriate employees in those jurisdictions where IFS operates and where we are able to offer IESAP grants.
4. 2016 ESAP award 4.1. The FY16 performance hurdle for FY16 ESAP is 3% growth in NPAT. 4.2. Financial Services has confirmed that based on year-end work completed to
date, it is expected that this hurdle will be achieved. 4.3. It is proposed that a full ESAP grant of $1,000 be awarded to eligible
employees.
5. Accountabilities and next steps 5.1. Following Board approval, Ian Narev will communicate the 2016 ESAP
award in his 2016 Annual Results email to all employees. 5.2. The 2017 performance hurdle (percentage NPAT growth) will be presented
to the Committee later in the year once budgets have been set.
Janet Linklater Executive General Manager Performance & Reward
27 July 2016
END OF PAPER
Melanie Laing Group Executive Human Resources
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EY Buildin9 a better workin9 world
Ernst & Young 8 Exhibition Street Melbourne VIC 3000 Australia GPO Box 67 Melboume VIC 3001
1.1 The CBA Board engaged EY to review the Group wide sales incentive governance framework relative to best market pract ice and current regulatory requirements. EY was also engaged to review current incentive governance and practices 1 for specific sales incentive plans within Reta il Banking Services (RBS), Business and Private Banking (CommSec) and Bankwest. If appropriate, EY will recommend enhancements to the Group's governance approach.
1.2 As at 1 July 2016, EY had completed the following in relation to the project:
1.2.1 Consolidated a view of best practice governance models ("best practice models") reflecting market practices for sales incentive governance, based on global research with an emphasis on Australia and the UK. Features of best practice models are provided in Section 3.
1.2.2 Reviewed governance requirements in relation to sales incentives within the Group Remuneration Policy ("Remuneration Policy") and CBA's Group incentive plan design guidelines ("guidelines")2 against key Australian regu latory and legislative requirements 3 as well as best practice models. Preliminary findings are provided in Sections 4 and 5.
1.2.3 Completed testing for the RBS Branch Network Incentive Scheme ("the reviewed RBS plan"), and commenced testing for the CommSec Investment Advisory Variable Remuneration Plan ("CommSec plan") and Bankwest's Retail Sales Incentive Scheme ("Bankwest plan") against best practice models and the CBA guidelines. Preliminary findings are provided in Section 6.
1.3 This paper is for noting only. Preliminary findings as outlined in this paper may develop as EY completes its review of the CommSec and Bank west plans. EY will present the final paper of findings with recommendations for endorsement at the October Remuneration Committee.
2. Key findings
2.1 As reported to the Remuneration Committee by Management in June, globally, financial services regulators have increased their focus on monitoring the behavioura l impacts of front l ine sales incentive programs. In the UK, sales incentive design and practices have evolved, along with supporting governance models, and evidence suggests similar emerging practices in Australia. We understand that CBA is currently considering the purpose and philosophy for sales incentives. Sales incentive philosophy will underpin the design of the governance framework.
2.2 In banks that continue to operate sales incentives, best practice models show Boards holding strong accountability for governance of sa les incentive plans. For example:
• The Board regularly reviews and approves the bank's incentive pay philosophy.
• The Board approves plans, payments and pools that meet material ity thresholds.
• The Board delegates the governance framework to either a senior remuneration role, or a committee of control functions that includes the remuneration function, that allows for the effective oversight, design and ongoing review of incentive programs.
• The Board has strong oversight of sales incentive plans through regular reporting.
2.3 CBA's Remuneration Policy and sales incentive guidelines meet the current requirements under key Australian regulations in relation to Remuneration Committee approval requirements and risk assessment criteria. We note that the sales incentive guidelines require updating to ensure full alignment with and reflection of the current Remuneration Policy. Also, whi le the guidelines suggest that a triennial review of sales incent ives should be performed, the absence of a
1 Reference to CBA incentive programs within this paper covers sales incentive plans only. This paper does not cover governance for the Group discretionary incentive plan.
2 The Group incentive design guidelines are not policy, rather guidelines in r elation to the design and governance of sales incentive plans.
3 Global regulations in relation to sales incentive plans for all of CBA's jurisdic tions have not been reviewed to date, given that in scope plans operate in Australia
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centralised review framework weakens the Board's ability to assess the Remuneration Policy for effectiveness, which is an APRA requirement. Finally, risk assessment frameworks are defined by each business unit which. while aligned to APRA requirements, may lead to inconsistent approaches to assessing risk within plan design and operations across the Group.
2.4 The guidelines partially meet the requirements of the best practice model. There are opportunities for enhancement, in particular regarding clarifying accountability for various aspects of the governance of the sa les incentive plans, clarifying and embedding Board reporting requirements and creating a central effectiveness review program.
2.5 Based on the above points, CBA may wish to consider whether the updated guidelines should become policy.
2.6 Within RBS there is a strong, unif ied culture of "doing the right thing" where custom, and potentially complex practices have evolved in the absence of a more directive governance framework. For the reviewed RBS plan, there are robust operational requirements with strong internal accountability. In the absence of a report ing framework , there is limited central oversight of the ongoing plan operat ions and effectiveness. Initial findings on CommSec and Bankwest have so far raised broad ly simila r culture of governance to that which exists for the reviewed RBS plan. however with varying approaches for incentive design, changes. operations and effectiveness reviews.
3. Emerging market practices and "best practice model" governance framework
3.1 Governance pract ices in Australian and the UK were strengthened in the last five or more years to respond to regulation. Stronger frameworks improved central over sight, leading to understanding plan effect iveness and rationalisation of incentive programs.
3.2 More recent ly in Australia and the UK, regulatory bodies are intent on ensuring sales incentive plans for the frontline do not compromise the needs of customers or encourage adverse employee behaviour. In response to th is, banks in the UK have made specific changes to their incentive programs, including removal of sales incent ives, or moving to balanced scorecard plans with compliance gates and a greater focus on customer measures. As a result of chang ing frameworks, governance practices in the UK have evolved. Where some organisations have ceased using separate sales incentive plans, reward for the affected roles is being run under other centrally controlled frameworks. Evidence suggests that similar incentive and governance practices are emerging in Australia.
3.2. 1 In Australia, a review by the Austral ian Bankers Association is currently underway, committing banks to review sales incentives in light of promoting good customer outcomes and sound bank ing practices.
3.2.2 In light of emerging regulatory views and market practices, it may be timely for CBA to review the purpose and philosophy of it sales incentives. Purpose and philosophy will underpin the design of the governance framework.
3.3 In reviewing market practices, EY has consolidated a view of best practice governance models for banks that continue to operate sales incentives. In such models, the Board is the custodian of the bank's incentive philosophy and is accountable for ensuring a robust sales incentive governance framework is in place. Strong Board advocacy ensures that plans remain aligned to the bank's incentive philosophy, are being designed consistently and meet compliance requirements.
... Action to review and re-endorse the bank's philosophy for incent ive arrangements.
... Approve arrangements that are deemed "significant", including pools and individual payments.
... Approve plan designs and changes that may be classed as "significant".
... Endorse effectiveness review outcomes in relation to sales incentive plans, which may include an assessment against key dashboard met rics (as per below).
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3.5 The Board assigns a delegate to oversee and manage the governance framework, which is deployed and cascaded through the organisation. The Board delegate may be a single role (e.g., senior remuneration role) or a committee of control function roles (e.g., remuneration, finance, risk, human resources, compliance).
3.6 The Board delegate is accountable for ensuring regular effectiveness reviews of sales incentive plans. which may include an assessment against dashboard metrics, for example:
.. Plan rationale: Proof and summary of how the plan has met the intended rationale and alignment to the bank incentive design principles.
.. Key per formance outcomes: Alignment of key performance outcomes as defined by management relative to incentive payment outcomes, including performance of financia l, customer, people and other key metrics, year-on-year , relative to year-on-year spend.
.. Risk assessment: Ensure plans are not encouraging bad or risky behaviour that is contrary to the bank's risk appetite. This may be achieved by confirming that risk is appropr iately mitigated in the plan design. plans operate a risk and compliance gate and that risk and compliance gates are met in ful l for individuals to receive payments under the plan.
.. Compliance and legal: Assurance that the plan continues to meet regulatory requirements and complies with group guidelines.
4 . Guidelines review against Australian regulatory requi rements
4.1 Australian regulations that impact sales incentive plans inc lude APRA Prudent ial Standards CPS510 and CPS220, Future of Financial Advice (FoFA) legislat ion and Life Insurance and Corporations Amendment (Life Insurance Remuneration Arrangements) Bil l 2016. 4
APRA
4.2
4.3
The items within the guidelines regarding the Remuneration Committee approval obligations meet requirements under APRA.
The RBS plan reviewed by EY did not trigger CBA materia lity thresholds and therefore Remuneration Committee approvals were not sought. EY understands that such approvals have occurred for significant plans (e.g. GAM incentive plan), which is consistent with APRA requirements. Some Remuneration Committee approval requ irements within the guidelines are outdated. including the requirement for the Committee to approve all sales incentive pools. Under the Remuneration Policy, the Remuneration Committee currently notes spend and significant earners following payment. There is an opportunity for CBA to update the guidel ines to align to the Remuneration Policy.
4.4 The guidelines suggest an effectiveness review of sales incentive plans every three years, complying with APRA requirements (noting that the gu idelines are currently not policy). Criteria for undertaking an effectiveness review are not defined within the guidelines. Reviews of incentive plans do occur, but as they are not centrally managed, the Board or Group remuneration do not currently receive reporting of outcomes. This weakens the Board's ability to review the effectiveness of the Remuneration Pol icy.
4.5 Risk management incentive design principles within the guidelines address APRA requirements.
ASIC
However. a Group-wide r isk assessment framework that can be used consistently across CBA may further strengthen this aspect of the guidelines.
4.6 The conf licted remuneration requirements of FoFA are addressed adequately in the guidelines.
4. 7 For completeness. CBA may wish to incorporate requirements under the Life Insu rance and Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 in the guidelines.
• The three plans in review do not cover employees who advise on life insurance products. However, this reference completeness in relation to Australian regulations.
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5. Group guidelines relative to best practice models
5.1 As stated, the f indings in this section are preliminary and may change as EY concludes its review of the CommSec and Bankwest plans.
5.2 The guidelines were developed over five years ago by Group remuneration and have been updated since on ly to reflect compliance requirements. The Board and Remuneration Committee is currently a strong sponsor of the governance framework.
While the guidelines in some parts align to best practice, EY has identified several potential areas for enhancement including:
5.2.1 Emphasise CBA's purpose and philosophy for sales incentives. We understand that a review of these aspects is currently being undertaken by management.
5.2.2 Align the guidelines to the Remuneration Policy (refer section 4.3).
5.2.3 Further simplify and streamline management approval requirements for plan design and changes. and define material ity in the context of plan changes. There is also an opportunity to confirm that effective reporting lines exist for the Remuneration Committee to approve "significant" plans.
5.2.4 Build a governance tool kit, by offering templates and spec if ic risk assessment criteria for the business case, as well as standardised requirements for funding, payments and approvals.
5.2.5 Further define requirements regarding the effectiveness review in the guidel ines. Requirements may include accountabi lity, framework for review, approval levels, frequency and reporting requirement s, to allow consistent and appropriate Board oversight of plan effectiveness.
5.2.6 Once the above points have been addressed, update the guidelines to become policy.
5.3 In the absence of central governance oversight and clearer guidance, there is the potential for inconsistent and/or over ly complex practices to evolve at the business unit level. We have identified a desire for more t ransparency and better understanding of roles and accountabilities in the business units.
6 . RBS key findings, and preliminary findings for CommSec and Bankwest
6.1 A similar approach to re-designing plans occurred for RBS, CommSec and Bankwest. where the business engaged with P&R to agree a proposal for change (noting that Bank west's engagement with P&R is evolving). To complete the business case, working groups were formed with representatives from Group control functions. Revised plans have focussed on strengthening the use of compliance gateways and reducing the possibility of plan gaming.
6.2 The RBS plan reviewed by EY was revised and piloted in the f irst half of FY 16 and was further rolled out t o all eligible employees in the second half of FY 16. Key findings were:
6.2.1 The plan design involved a number of commit tees and working groups, a potentially complex approach that evolved in the absence of a more directive governance framework. The plan's business case mostly met the requirements of the guidelines and evidence of approvals was noted. The risk assessment framework, in the absence of specific requirements. was developed by the business unit risk personnel which, while appropriate, may result in an inconsistent approach to risk assessment across the Group.
6.2.2 The business operations team has created a strong governance framework for the ongoing administration of the plan. This includes ensuring eligibility criteria and gateways are met and applied, performance is accurately measured and correlated to payment outcomes, payments are approved and made, and defer ral occurs as required.
6.2.3 An effectiveness review was initiated by the RBS P&R lead fol lowing the pilot of the plan. A number of enhancements were identi fied which have been implemented. There is. however. no central oversight of the plan's effectiveness in the absence of an effectiveness review framework and reporting requirements.
6.3 Preliminary findings for CommSec and Bankwest incent ive plans show a consistent culture of strong governance. Changes proposed for each plan were in response to the need to align plans more closely to the bank's risk profile and strategy.
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7 . Next steps
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7.1 EY to complete testing assessment of the CommSec and Bankwest plans. EY wil l collaborate with the CBA working group to develop recommendations for change regarding the sales incentive governance framework. A final report wil l be presented at the October meeting.
2016 Ernst & Young, Australia. All Rights Reserved.
Ernst & Young is a registered trademark. Our report may be relied upon by Commonwealth Bank of Australia Limited for the purpose of a progress update on the Sales incentive governance framework review pursuant to the terms of our engagement letter dated 14 October 2014.
We disclaim all responsibility to any other party for any loss or liability that the other party may suffer or incur arising from or relating to or in any way connected with the contents of our report, the provision of our report to the other party or the reliance upon our report by the other party.
Liability limi ted by a scheme approved under Professional Standards Legisla tion.
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CONFIDENTIAL
Commonwealth Bank of Australia
Remuneration Committee 8 August 2016
Paper No. 4
Annual Remuneration Review for Group Executives
1. Purpose and Value at Stake
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1.1. For the Committee to review and recommend to the Board for approval the FY17 fixed remuneration outcomes for the Group Executives, Alden Toevs, Simon Blair and Rob De Luca (collectively referred to as the "Executives").
1.2. The f inal FY17 fixed remuneration outcomes will determine the FY17 shortterm incentive (STI) targets and long term incentive (L Tl) awards for Group Executives as per the Group's target remuneration mix policy.
2. Outcome Sought and Recommendation 2.1. It is recommended that the Committee reviews and recommends to the
Board for approval: 2.1.1. FY17 fixed remuneration outcomes for the Executives; and
2.1.2. FY17 Total Target Remuneration (TTR), including STI and L Tl targets.
3. Background facts 3.1. Consideration has been given to the FY16 performance outcomes for each
Executive, in addition to the external market data and internal relativities in determining the FY17 fixed remuneration outcomes.
3.2. STI outcomes for the Group Executives and Rob De Luca were discussed by the Committee at its 5 August 2016 meeting.
3.3. GLRP invitations will be emai led in the f irst trading window following the Annual General Meeting. The performance period will commence from 1 July 2016 with vesting to be determined by the Board in August 2020.
3.4. As part of their contractual arrangements, Simon Blair and Alden Toevs are not eligible for STI and L Tl awards.
4. Proposed FY17 remuneration 4.1. Attachment A sets out the proposed FY1 7 fixed remuneration, STI and L Tl
targets (where applicable) for Executives. 4.2. Attachment B provides a summary of the FY16 Total Target Remuneration
for Group Executives and Rob De Luca compared with their relevant benchmarks. Market remuneration benchmarks are sourced from FY15 annual reports of other major banks and supplemented by FY16 FIRG data for the roles where disclosed market data does not provide robust benchmarks.
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5. Accountabilities and next steps 5.1. Following Board approval, the FY17 remuneration review outcomes will be
communicated to the Group Executives and Rob De Luca with all increases to be effective from 1 July 2016.
5.2. GLRP invitations will be emailed in the first trading window following the Annual General Meeting.
Ian Narev Chief Executive Officer
5 August 2016
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Attachment A - Proposed FY17 Fixed Remuneration, STI Target and LTI award for the Executives
~' ·~ ... . .. Proposed = ..
LJ ·="~c~J ••• •' ~·l FY17 Fixed I Total T•get ~-=]
.... ..___ Ci'..-:!.-. 1::1· IUilU :,i-.111•1tl I:~- •1o · ~ I e Re1111neratlon STI target LTI Re1111neratlon
(1) David Cohen's FY17 Fixed Remuneration reflects contractual arrangements following change in role effective 1 July 2016. (2) Anna Lenahan's FY17 Fixed Remuneration reflects contractual arrangements upon commencement. (3) Rob De Luca is currently under EGM remuneration arrangements, where STI is based on potential rather than target performance (4) .AJden Toevs· FY17 Fixed Remuneration reflects contractual arrangements following change in role effective 1 July 2016.
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Attachment B - Comparison of main Australian banks' group executive remuneration (FY16 Total Target Remuneration)
(2) Target remuneration shows the remuneration that an executive could earn if all performance is on plan. For CBA executives, target remuneration reffects FY16 remuneration as
approved by the Board at ~s August 2015 meeting.
(3) Target remuneration for newly appointed executives from the other major banks has been determined by applying the stated pay mix to vanous disclosed elements of pay.
Rounding has been applied where appropriate. All data has been annualised and reflects FY15 remuneration
(4) Rob De Luca is currently under EGM remuneration arrangements. where ST! is based on potential rather than target performance.
END OF PAPER
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CONFIDENTIAL
Commonwealth Bank of Australia
Remuneration Committee 8 August 2016
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Paper No. 4A
Review of Performance and Short-Term Incentives for Group Executives for FY16
1. Purpose and Value at Stake 1.1. This paper provides recommendations for the Committee's consideration
regarding performance and short-term incentive (STI) outcomes for the Group Executives and Rob De Luca, to enable the Comm ittee to make a recommendation to the Board.
2. Outcome Sought and Recommendation 2.1. I recommended that the Comm ittee reviews and endorses for Board
approval, subject to any amendments the Committee may consider appropriate:
2.1.1. my assessment of the relevant executives' performance against agreed KPls for FY16, and
2.1.2. my recommended FY16 STI outcomes for those executives, as summarised in the attachment to this paper.
3. Background facts 3.1. The Group performed well in FY16, in a more difficult external environment
than recent years. At a high level: 3.1.1 . Financial performance was reasonable in the context of the external
environment, though below plan on a PACC and NPAT basis. The only adjustments I have made to the actual outcomes were on a basis consistent with prior years, and related to XVA and FX adjustments. For example, I have not normalised at Group-level for expenses relating to the Comm Insure matter, or the loss recognition adjustments in Wealth Management. I have adjusted Wealth Management's BU financial performance for loss recognition, given its historical nature, but not for the Commlnsure related expenses. Consistent with the approach we took in 2008/9, we have also not normalised for the interest on the additional capital raised by the Group.
3.1.2. Customer satisfaction outcomes were excellent across all businesses. 3.1.3. Continuing progress was made on productivity. Within business units and
most support functions, process-level improvements led to good expense management. Costs of change and increasing regulatory costs offset these benefits to some extent.
3.1.4. Whilst overall people engagement was down as measured by the Kenexa survey, tangible progress was made on the Vision and Values dialogue, diversity metrics improved, safety performance was strong, and other measures of engagement such as turnover and sick leave were good.
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3.1.5. Continuing progress was made on the Group's strategy, at both corporate and BU level, as evidenced by the presentations made during the year to the Board.
3.1.6. The second half of the year was difficult in terms of reputation, due to the media attention on Comm Insure, and the political environment regarding banks and business generally.
3.2. The more difficult year is evidenced in my recommendations. The overall recommended pool is down on an absolute basis from last year, and would be down more if we adjusted last year's pool to take into account the fact that Vittoria Shortt was not in her role for the full year last year, and that last year did not fully reflect Rob Jesudason's remuneration increase for the Hong Kong market. Recommended STls for more than half of the team are lower than last year.
3.3. There is also a wider range of outcomes for executives. This reflects a combination of different performance, and different market condit ions for businesses.
4. Managing and assessing risk in KPls 4.1. Risk is a key factor in considering short-term performance. Each Executive
has a Risk and Reputation KPI as a Gate Opener in his or her scorecard. The financial KP Is also incorporate a risk-adjustment measure through the use of PACC, as PACC takes into account not just the profit achieved, but also the risk that was taken to achieve it.
4.2. Executives are also required to comply with the relevant Group or BU Risk Appetite Statements. STI awards are adjusted downwards where material risk issues occur.
4.3. Several risk-related matters impacted financial performance for the year (for example, remediations). I have not adjusted BU-level KPls for those matters. Weaknesses in the operational risk framework, and some aspects of issues management, have been reflected in the performance assessments for some Group Executives. I will provide some commentary on this at the meeting.
4.4. Risk is also managed through the compulsory 50% deferral of executives' STI outcomes for a period of 12 months and delivery of one-third of their total target remuneration after a four year period. Under the Group's Remuneration Policy, the Board has discretion to make adjustments to deferred remuneration in various circumstances. Adjustments can include partial reductions or complete forfeiture of deferred STI awards.
4.5. I am not aware of any reasons why deferred STI should not be paid in full to all relevant executives.
5. Proposed FY16 STI outcomes 5.1. For all Group Executives, I will have a breakdown of performance against
specific KPls at the Committee Meeting. I will be happy to discuss any detailed aspect of my assessment at the meeting.
5.2. For Rob Jesudason, his FY16 STI outcome wi ll be both determined and paid in Hong Kong dollars.
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6. Accountabilities and next steps 6.1. A separate Remuneration Committee paper on fixed remuneration
movements and L Tl grant approvals will be considered by the Comm ittee and the Board.
6.2. Following Board approval, the FY1 6 remuneration review outcomes will be communicated to the relevant executives.
6.3. Details of FY16 STI payments will be published in the 2016 CBA Annual Report on 15 August 2016.
Ian Narev Chief Executive Officer
4 August 2016
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Attachment A: Proposed FY16 STI outcomes for Group Executives
Pro~osed FY16 Performance & STI Outcomes I
Risk Gate Opener Unadjusted FY16 STI Outcomes
% ofSTI Name Currencv Modifier Rating STI Target($) Target $
Kelly Baver Rosmarin AUD Fully Met 1 050600 112% 1 172 470
Adam Bennett AUD Fully Met 980,000 113% 1,108478
David Cohen AUD Fully Met 900 000 118% 1 059187 Matthew Comyn AUD Fully Met 1,055,750 124% 1,306,385 David Craig AUD Fully Met 1 380000 118% 1624087 Robert Jesudason AUD Fully Met 1 193 421 119% 1 424 347
Melanie Lairg AUD FullY Met 845 000 114% 966 997
Vittoria Shortt AUD Fully Met 845 000 119% 1 002,909 Annabel Spring AUD FullY Met 1 055 750 101% 1 064 724 Alden Toevs AUD Fully Met 1430000 105% 1 504181 David Whiteing AUD Fullv Met 980 000 104% 1 021 038 Rob De Luca .. AUD Fully Met 1 162 800 85% 988 380
Notes: • Rob De Luca is on ST/ potential. not Target so max Is 100% not 150",{,
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CONFIDENTIAL
Commonwealth Bank of Australia
Remuneration Committee 8 August 2016
Paper No. 5
Annual Remuneration Review for the Group Managing Director and Chief Executive Officer
1. Purpose and Value at Stake 1.1. For the Committee to review and recommend to the Board for approval the
FY17 fixed remuneration outcome for the Group Managing Director and Chief Executive Officer (CEO).
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1.2. The final FY17 fixed remuneration outcome will determine the FY17 shortterm incentive (STI) target and long term incentive (L Tl) award for the CEO, as per the Group's target remuneration mix policy.
2. Outcome Sought and Recommendation 2.1. It is recommended that the Committee endorses no increase in fixed
remuneration for the CEO for FY1 7 be proposed to the Board for approval, noting this also determines the FY17 STI target and FY17 L Tl award value.
3. Background facts 3.1. Consideration has been given to the disclosed data for other major bank
CEOs, and to the expected financial environment for the Group for FY17, in determining the recommended FY17 fixed remuneration.
3.2. Attachment A provides a summary of the FY16 Total Target Remuneration for the CEO compared with disclosed information for major bank CEOs.
4. Proposed FY17 remuneration 4.1. No remuneration increase is proposed for the CEO for FY17. This will result
in a continuation of fixed remuneration of $2,650,000. Target STI and LTI award value will also continue at $2,650,000.
5. Accountabilities and next steps 5.1. Following Board approval, the FY17 remuneration review outcome will be
communicated to the CEO. 5.2. The FY17 L Tl will be awarded in November following the Annual General
Meeting. The performance period will run from 1 July 2016 to 30 June 2020.
David Turner Chairman
3 August 2016
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Attachment A - Comparison of main Australian banks' CEO remuneration (FY16 Total Target Remuneration)
Company Name Comparator Position Fixed STI Target LTI Target Total Target
CONFIDENTIAL Commonwealth Bank of Australia Paper No. 5A
Remuneration Committee 8 August 2016
CBA.1004.0041 .1972
Annual Remuneration Review of Short-Term Incentives for Group Managing Director and Chief Executive Officer for FY16
1. Purpose and value 1.1. For the Committee to review and endorse, or amend, the FY16 assessment
against KPls and short-term incentive (STI) outcome for the Group Managing Director and Chief Executive Officer (CEO) prior to Board approval.
2. Recommendation 2.1. It is recommended that the Committee 2.1.1. reviews the FY16 assessment against KPls, comments on the level of the self
assessment and takes account of the points made in paragraphs 5.6 and 5.7; and 2.1.2. determines the FY16 STI outcome for the CEO to be recommended for Board
approval.
3. Background 3.1. The appraisal of Ian's performance is conducted at a closed meeting of the Non
Executive Directors in October of each year. Last year's meeting resulted in a positive assessment of Ian's performance and this was discussed with Ian at the time.
3.2. The assessment of KPls and performance for the purpose of determining STI is independent of this process and relates to the specific targets that were set for the last financial year. However, and since the STI is discretionary, an affirmation of CEO performance overall should underpin this assessment. A Board discussion on overall CEO performance has been scheduled as part of the August 2016 Board meetings prior to the Committee meeting at which th is paper will be discussed.
3.3. The Group performed well in FY16 against most non-financial KPls, with sound financial performance which was slightly below target.
3.4. The formulaic outcomes for KP ls with quantitative measures are outlined below, in addition to my recommended outcomes for those KPls requiring qualitative assessment. The FY16 CEO scorecard is included in Attachment A.
4. Managing and assessing risk in KPls 4.1. APRA expects the Board to actively oversee the setting and assessing of KPls
from a risk perspective. 4.2. The Board has previously approved an annual risk gate opener process in relation
to reviewing the performance of the CEO and Group Executives. Under this process the Group Chief Risk Officer will provide a recommendation (by attestation) on the appropriate risk matters that need to be considered in assessing the relevant performance of the CEO (and Group Executives) to the Remuneration Comm ittee in a separate paper at its 5 August 2016 meeting.
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5. CEO Performance in FY16 5.1. The overall calculated STI for the CEO is 108% of target (rounded), which is
positioned towards the lower end of the executive team and is the mathematical result of the individual KPI outcomes shown below. The final STI outcome for FY15 was 119.6%.
5.2. The scorecard outcomes are as shown in the table below. The NPAT and PACC outcomes are metricated.
15% 75%
Productivity 10% 125%
Customer sat 20% 125%
Strategy 15% 140%
Peo le 15% 120%
Reputation 10% 50%
Total Outcome 107.6%
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5.3. Reviewing the productivity outcomes against the improvements achieved to date, Ian's self-assessed score was 125% reflecting good overall progress, despite weaker improvements in ES and Risk, offset by strong progress in the customer facing business units. Cost-to-income ratio was down another 40 basis points this year to 42.4%, with cost-to-income ratio in the retai l bank down 150 basis points to 32.6%. We also turnaround times on asset finance approval, finance approval and many others.
5.4. Ian's self-rating on customer satisfaction was at 125% of target based on an exceptional year in retail customer satisfaction where CBA ranked f irst in the Roy Morgan survey in each of the twelve months, and strong overall performance in BPB and IB&M. To some extent this is a metricated outcome.
5.5. On strategy Ian's self assessment was at 140%, a very strong outcome although a little lower than last year. The corporate strategy refresh confirmed our overall direction and good progress has been made in IFS. By all accounts, the Hong Kong move has been highly successful, and the "Bank of the future" direction being pursued by IFS is most impressive.
5.6. While the overall people engagement score was down, people outcomes have been strong on most aspects of diversity and safety and turnover metrics. The focus on vision and values has been maintained consistently throughout the year and good progress has been made on embedding. Ian's self-assessment is at 120%, lower than the FY15 outcome of 140%. This is quite harsh.
5.7. The Group's reputation has suffered this year in relation to Commlnsure. Ian has self-assessed this portion of the scorecard, which represents 10% of the total, at 50%. But for these issues Ian's performance would have been on target and assessed at 100%.
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5.8. The range of Ian's recommendations for his direct reports is 101 % to 124%. 5.9. The FY16 STI target for the CEO is $2,650,000. The overall score of 108% results
in an STI award of $2,862,000, subject to the Committee's risk review.
6. Accountabilities and next steps 6.1. A separate Remuneration Committee paper on fixed remuneration movement and
L Tl grant approval for the CEO will be considered by the Committee and the Board.
6.2. Following Board approval, the FY16 remuneration review outcome will be communicated to the CEO.
6.3. Details of the CEO's FY16 STI payment will be published in the 2016 CBA Annual Report on 15 August 2016.
David Turner Chairman
3 August 2016
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CONFIDENTIAL Attachment A- FY16 CEO scorecard
Exemplary leadership or risk culture
G t /
Soard discretion, having regard to: a e opener (a) Chief Risk Officer's assessment Sound r isk
management STI (b) Occurrence and mitigation or risk related incidents adJUStment (c) Outcomes of relevant internal and external audit reports regulatory reports, control reviews and issues management
Group Cash NPAT ($m) 15%
Group Underlying PACC ($m) 15%
Shareholder
Productivity 15%
<$g,137m
<$6,351m
$9,137m
$6,351m
Soard d iscretion with consideration of • demonstrable productivity benefits dunng FY16;
$g,488m
$6,634m
$9,663m
$6,776m
- the existence of a high quality plan for on-going productivity improvements in FY17.
$9,839m
$6,917m
- demonstrable progress in developing and implementing a more effective and efficient Gro1..P-wide process a rchitecture
08M Institutional · tn the +$300m 2nd or below for all 12 2nd o r below for any
Outright 1st for 6 Outright 1st for all 12
category (if available) or +$500m = 1st for 12 months months, category
monthS month = 1st for 6 months months
Customer Roy Morgan (6 month rolling average, four major banks)
Strategy Strategy evolution and development 15% (a) quality of overall ongoing strategy development for the Group including conS1deration of market reaction (b) progress on delivery of strategic tnitianves based on Board assessment
People
Community
Board assessment on CEOs performance on areas Including: • Ta lent development - Safety - Diversity - Engagement • Culture Chan e
Reputation
15%
10%
(c) delivery of specific One CommBank milestones for FY16 based on G roup Strategic Development plan
Soard d iscretion, having regard to: (a) Kenexa survey outcomes (b) Safety as measured by LTIFR (c) Progress against agreed diversity metrics (d) Quality of talent management ard succession planning (e) Active leadership or the Vision and Values
Board discretion, having rega rd to Brand Health Index and stakeholder feedback
Assessment of scorecard to be mad6 through a ·risk· fitter to ensure performance is not due to inappropriare risk taking
Assessment of behaviours· me Board expectatiOf'l is that me CEO shOu/d demonstrate (at a minimum) 'effectively displays' for each of the defined leadership capabilities Failure to meet this expectation may result in an adjustment to S Tl outcomes.
Where quanNtat1ve or objective measures are not available. Board j udgement wilt be applied to performance assessment as follows: - 500/,, - Board assesses CEO has not mer the target level of performance. but achieved sufftelently close to target to warrant some recognition. - 100% - Board as.ses.ses CEO has met the stated performance level in all aspects - 150% - Board assesses CEO has substantially exceeded the stated performance level.
END OF PAPER
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Commonwealth Bank of Australia
Remuneration Committee 5 August 2016
CBA.1004.0041 .1976
Paper No. 2
Approval to pay 2015 deferred Sll and 2013 deferred equity awards to CEO, Group Executives and Robert De Luca.
1. Purpose and value at stake 1.1. To recommend that the Committee approves the payment of the deferred
portion of the CEO and Group Executive's (and Robert De Luca) Short Term Incentive (STI) awards.
2. Outcome sought and recommendation 2.1. It is recommended that the Committee note the 2015 deferred STI and 2013
deferred equity awards to the CEO, Group Executives (Executives) and Robert De Luca that are scheduled to vest on 1 July 2016 and endorse the vesting and the payments (Attachment A) for Board approval.
3. Background facts 3.1. The Executives are required to defer 50% of their annual STI award for 12
months. The deferred STI awards are paid in cash after 12 months (inclusive of interest).
3.2. A number of Executives also have deferred equity awards from their time as an EGM.
3.3. The Board reserves the right to reduce all or part of cash or equity deferred awards, with the following conditions considered:
3.3.1. Remaining an employee of the CBA Group up to and including the vesting date applicable to the deferred incentive award;
3.3.2. Satisfactory review of risk and compliance issues; 3.3.3. Actual realisation of expected performance outcomes on which the award
was based; and 3.3.4. Payment of award does not place the Group under financial hardship. 3.4. The Committee Chair has received assurances from the Chairman of the
Board Audit and Risk Committees that:
• Neither are aware of any performance outcomes on which the 2015 or 2013 awards were based which have been materially downgraded in the last year; or
• Any risk issues or risk behaviours that would suggest these awards should be modified from those recommended based on other achievements or results; and
• The payment of the deferred awards has been fully provisioned, and will not place the Group in financial hardship.
3.5. The Executive General Manager Performance and Reward has communicated to the Executives that the deferred payments will be made on 18 August 2016, subject to Board approval.
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4. Accountabilities and next steps 4.1. Subject to receiving Board approval, cash payments will be made on 18
August2016; and 4.2. Shares will be released in the August trading window.
Janet Linklater Executive General Manager Grau Performance & Reward
29 July 2016
END OF PAPER
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Attachment A
CEO and Group Executive 2015 Deferred STI and 2013 Deferred Equity Awards
Name Position 2015 Cash STI I 2015 Deferred STI 2013 Deferred
Awardl11 Awardl21 Equity Awardl31
t -Ian Narev Chief Executive Officer $1,590,000.00 $1,625,833.89 -Kelly Bayer Rosmarin Group Executive, Institutional Banking and Markets $612,956.50 $626,770.72 5,742
-Adam Bennett Group Executive, Business and Private Banking $253,580.00 $259,294.94 3,676 - -Simon Blair<4> Group Executive, International Financial Services $133,766.50 $1 36,781 .20 --David Cohen Group General Counsel and Group Executive, Group Corporate Affairs $582,750.00 $595,883.46 -Matt Comyn Group Executive, Retail Banking Services $618,965. 50 $632,915.15 -
1--
David Craig Group Executive , Financial Services $852,150.00 $871,354.94 -
Robert Jesudason Group Executive, Group Strategic Development AUD 362,428.89 AUD 370,596.96 -HKD 1,436,375.53 HKD 1,468,747.18
Melanie Laing Group Executive, Human Resources $495,381.50 $506,545.93 -Grahame Petersenl5> Group Executive, Business and Private Banking $370,481.50 $378,831.06 -Vittoria Shortt Group Executive, Marketing and Strategy $166,673.50 $170,429.83 2,205
Annabel Spring Group Executive , Wealth Management $662,084.00 $677,005.41 -Alden Toevs Group Chief Risk Officer $845,487.50 $864,542.28 -- - --David Whiteing Group Executive, Enterprise Services and Chief Information Officer $551,000.00 $563,417.91 --- -Robert De Luca Managing Director Bankwest - - 3,446
1. Cash STI payment made in September 2015 to the CEO and Group Executives. 2. 2015 Deferred STI award includes interest accrued at the CBA 12 month term deposit rate of 2.45%p.a. 3. Deferred portion of the 201 3 equity award arising from time as an EGM. Awards include additional rights granted under the Retail Offer (Kelly Bayer Rosmarin 13 rights, Adam Bennett
9 rights, Vittoria Shortt 5 rights and Rob De Luca 8 rights) 4. Simon Blair stepped down from this Group Executive role effective 31 October 2014 and remains eligible for the deferred portion of his 2015 STI. 5. Grahame Petersen retired from the Group effective 6 February 2015 and remains eligible for the deferred portion of his 201 5 STI.
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CONFIDENTIAL
Commonwealth Bank of Australia
Remuneration Committee 8 August 2016
Paper No. 6
2012 Group Leadership Reward Plan (GLRP)
1. Purpose and value at stake
CBA.1004.0041.1979
1.1. To determine the Committee's recommendation to the Board in relation to vesting outcomes for the 2012 Long Term Incentive (L Tl) award under the Group Leadership Reward Plan (GLRP) based on performance from 1 July 2012 to 30 June 2016.
2. Outcome sought and recommendation
2.1. It is recommended that the Committee:
2.2. Considers whether the following vesting outcomes appropriately reflect performance over the four year period:
2.2.1 . 89.5% vesting outcome for the portion of the 2012 GLRP award measured against the customer satisfaction performance hurdle;
2.2.2. 0% vesting outcome for the portion of the 2012 GLRP award measured against total shareholder return;
2.3. Determines the appropriate total vesting level for the entire 2012 GLRP award and recommends the total award to the Board;
2.4. Recommends to the Board the lapse 1,819 Reward Rights granted to Ian Narev under the 2012 GLRP Customer Satisfaction hurdle; and
2.5. Recommends to the Board that any 2012 GLRP award amounts that vest be del ivered as ordinary Commonwealth Bank of Australia (CBA) shares, except for:
• Ian Narev where it is recommended that the lesser of $200,000 worth of shares or the amount that would leave the value of the shares at vesting at $1 ,000,000 be delivered in cash, with the remainder of the vesting amount delivered in shares;
• Grahame Petersen where it is recommended that the total award be delivered in cash; and
• Simon Blair where it is recommended that the total award be delivered in cash.
3. Background facts
3.1 . The 2012 GLRP award reached the end of its four year performance period on 30 June 2016. Attachment A lists the 2012 GLRP participants.
3.2. Vesting is subject to the satisfaction of specific performance hurdles as follows:
• 75% of the award is assessed against Total Shareholder Return (TSR), which ranks the Group's TSR relative to a peer group comprising the 20 largest companies by market capita lisation listed on the Australian Securities Exchange at the beginning of the performance period, excluding resources companies and CSA Vesting occurs if CBA ranks at or above the median of the peer group, scaling from 50% vesting at the median to 100% vesting at the 75th percentile.
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• 25% of the award is assessed against Customer Satisfaction, which ranks the Group's performance relative to a peer group of ANZ, NAB, WBC and other key competitors for the wealth business. 100% vesting will occur where the business weighted average ranking for the Group over the four year period is 1st (ie 1.0); between 100% and 50% on a pro-rata straight line basis if the Group's weighted average ranking is between 1st and 2nd (ie between 1.0 and 2.0); and no vesting if the Group's weighted average ranking is lower than 2nd (ie greater than 2.0).
3.3. Key features of the 2012 GLRP and final peer group are in Attachment B.
4. Rationale for recommendation
4. 1. Performance against the hurdles 4.1.1. A summary of fina l performance against the hurdles is set out below:
Portion Notional Indicative
GLRP Hurdle of Performance as at vesting value to award
award 30 June 2016 (for each vest
hurdle)
TSR 75% 45th percentile 0% 2012 20.31 %
cs 25% 1.21 89.5%
4.1 .2. Indicative amounts to vest for each participant are provided in Attachment A and are derived from the above notional vesting for each hurdle.
4.1 .3. The Board retains final discretion to ensure that the vested awards reflect the performance of the Group over the performance period.
4.1.4. The Board may also change the number of Rights to vest where this would place undue financial hardship on the organisation or where the original expected performance outcomes have not been realised.
4.1.5. This discretion allows the Board to ensure the continuing financial soundness of the Group and to manage material unexpected outcomes. For example, such outcomes would include: material risk management breaches; reputation damage; regulatory non-compliance; and extreme payouts when Group performance has been poor.
4.1 .6. The Board can exercise its discretion to alter the number of GLRP Rights to vest on an individual basis, for a particular performance hurdle or a blanket approach.
4. 2. Individual arrangements 4.2.1. The number of Reward Rights granted to Ian Narev under the 2012 GLRP award
was approved by shareholders at the 2012 AGM. The methodology used to allocate rights to the TSR and customer satisfaction hurdles respectively for Ian Narev differs from that used for the allocations to the Group Executives that year (and for all other GLRP awards since 2011 ). The difference is for that allocation to Ian, total number of rights was determined using a weighted average fair value factor, and the resulting number split. All other allocations have been made by splitting the dollar allocation va lue, then allocating rights to each portion in line with the fair value factor for that portion. This did not affect the total number of rights a llocated, only the way they were split between the two performance hurdles.
4.2.2. The different allocation methodology resulted in Ian having a slightly higher portion of his Reward Rights measured against the Customer Satisfaction hurdle.
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Since the TSR vesting is nil, the overall vesting for Ian would therefore be approximately 22.4% of the total award rather than 20.3% for the Group Executives. To ensure that Ian does not receive a proportionally larger vesting value than the Group Executives it is recommend that 1,819 Reward Rights subject to the Customer Satisfaction hurdle lapse prior to the vesting percentage being applied.
4.2.3. In line with gifting L Tl awards to charity arrangements noted at the February 2013 Committee meeting, Ian Narev has elected to salary sacrifice a portion of his vested award to eligible charities, being the lesser of $200,000 worth of shares or the amount that would leave the value of the shares at vesting at $1 ,000,000 excluding dividends due.
4.2.4. This is best facilitated through cash vesting. Therefore, for the 2012 GLRP award it is proposed that the Committee determ ines and recommends to the Board that the lesser of $200,000 worth of shares or the amount that would leave the va lue of the shares at vesting at $1,000,000 of Ian's vested award be delivered in cash, with the remainder delivered in shares. The value of the award will be determined based on the share price at the time the vested shares are allocated.
4.2.5. The salary sacrifice election does not impact the accounting of the 2012 GLRP award in the 30 June 2016 financial statements. Any cash payment would be deducted against the cumulative employee compensation reserve in equity at the time of vesting.
4.2.6. Future salary sacrifice elections could impact the accounting treatment where the Board or the individual establishes a set amount or percentage that wi ll always be settled in cash. This would result in an amount being recognised as a liability on the balance sheet. The impact on the share based compensation expense will vary based on whether the cash amount is a percentage of the award or a fixed amount, as follows:
• Fixed cash amount may impact the initial fair value of the award and change the share based compensation expense.
• Fixed percentage will resu lt in this portion of the award being fair valued on an ongoing basis with changes recognised in profit or loss.
4.2.7. Grahame Petersen retired on 6 February 2015. He continues to participate in GLRP awards previously granted, with future vesting outcomes to be determined by the Board after the end of the relevant performance periods. For the 2012 GLRP award, it is proposed that the Committee determines and recommends to the Board that Grahame Petersen's vested award be delivered in cash.
4.2.8. Simon Blair ceased to be a Group Executive with effect from 31 October 2014 and currently holds the position of Global Consulting Director in the UK. He continues to participate in GLRP awards previously granted, with future vesting outcomes to be determined by the Board after the end of the relevant performance periods. For the 2012 GLRP award, it is proposed that the Committee determines and recommends to the Board that Simon Blair's vested award be del ivered in cash.
5. Accountabilities and next steps 5.1. Following Board approval the agreed vesting outcomes wi ll be communicated to
participants with vested shares delivered in the trad ing window.
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Janet Linklater Executive General Manager Performance and Reward Human Resources
27 July 2016
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Attachment A- 2012 Group Leadership Reward Plan Award Participants and Indicative Vesting Amounts
Total number Indicative Number Indicative Value of of Reward
Rights subject of Reward Rights Reward Rights to Indicative Value to Vest Based on Vest Based on 0% Name Position to the 0% TSR and TSR and 89.5% of Net Cash
performance 89.5% Customer Customer Dividend hurdle at
Satisfaction4 Satisfactions 30 June 20164 Ian Narevl1) Chief Executive Officer 78,856 16,017 $1, 182,535.11 $188,262.44 Simon Blair<2> Group Executive, International Financial Services 26,180 5,318 $392,627.94 $62,506.82
David Cohen Group General Counsel and Group Executive, Group 28,389 5,766 $425,703.78 $67,772.64 Corporate Affairs
Matt Comyn Group Executive, Retail Banking Services 30,912 6,279 $463,578.57 $73,804.00 David Craig Group Executive, Financial Services 43,529 8,841 $652, 731.03 $103,915.03 Rob Jesudason Group Executive, International Financial Services 25,235 5,126 $378,452.58 $60,245.61 Melanie Laing Group Executive, Human Resources 25,235 5,126 $378,452.58 $60,245.61 Grahame Petersen(3l Group Executive, Business and Private Banking 37,062 7,528 $555, 792.24 $88,482.63 Annabel Spring Group Executive, Wealth Management 30,912 6,279 $463,578.57 $73,804.00 Alden Toevs Group Chief Risk Officer 45,105 9,162 $676,430.46 $107,685.15 Total 371,415 75,442 $5, 569,882.86 $886, 723. 93
1. Ian Narev's vesting amounts assume 1,819 rights are forfeited from the customer satisfaction portion prior to applying the vesting percentage, to result in overall vesting of 20.3% of the total award.
2. Simon Blair ceased to be a Group Executive effective 31 October 201 4 and remains eligible for a 2012 GLRP award. 3. Grahame Petersen retired from the Group effective 6 February 2015 and remains eligible for a 2012 GLRP award. 4. The number of Reward Rights includes additional Reward Rights granted as part of the retail offer. 5. The value is calculated based on $73.83 (CBA's closing price on 1 July 2016).
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Attachment B - 2012 Group Leadership Reward Plan - Key Features and Peer Groups
Design Feature
Time Horizon 4 years, 1 July 2012 to 30 June 2016
Allocation Pool Based on target L Tl vesting equalling 100% of fixed remuneration ···--··--···--····-·-···-· .. -·-··---··Re.warcfRi9tit5.wh"ici1 .. are·eiitiiie'ments·t0··1u11y··i>aici.0rciir1a-ry- c;B;.:··5i1a·;:es-<0·r-·casi1--······-·-·--
Granted as equivalent as determined by the Board), subject to satisfaction of the performance conditions
Dual Hurdle
Customer Satisfaction Surveys
75% TSR. 25% customer satisfaction
Roy Morgan Main Financial Institution Satisfaction score, DBM Business Financial Services Monitor and Wealth Insights.
Pro-rata straight line vesting between 50% and 100%
100%
Compared against the TSR performance of the 20 largest Standard & Poors ASX companies by market capitalisation (excluding resources companies and CBA) as at 1 July 2012. Reserve Bench applied . ................................................................. _ ............. ......... ........... ______________________ ................................... _
TSR Hurdle Vesting Scale
Percentile Ranking Vesting Level
Below 501h percentile 0%
50th percentile
Between 51 st and 75th percentile
751h percentile
50%
Pro-rata stra ight line vesting between 50% and 100%
The Board will retain final discretion to ensure the rewards that result from the plan reflect the performance of the Group over the performance period.
The Board may also change the number of Rights to vest where this would place undue financial hardship on the organisation or where the original expected performance outcomes have not been realised.
This discretion allows the Board to ensure the continuing financial soundness of the Group and to manage material unexpected outcomes. For example, such outcomes would include: material risk management breaches; reputation damage; regulatory non-compliance; and extreme payouts when Group performance has been poor.
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2012 GLRP TSR Peer Group
AGL Energy Ltd GPT Group2 Suncorp Group ltd
Amcor ltd Insurance Australia Group Ltd Telstra Corp ltd
AMP ltd Macquarie Group Australia Transurban Group NPV
ANZ Banking Group Australia National Australia Bank Ltd Wesfarmers Ltd
Brambles Industries Ltd Australia Orica Ltd Westpac Banking Corp Australia
Coca-Cola Amatil Limited1 QBE Insurance Group Ltd Woolworths Ltd
CSL Ltd Stockland
1. Coca-Cola Amatil Limited was elevated from the reserve bench replacing Westfield Group following a restructure between Westfield Retail Trust and Westfield Group.
2. GPT Group was elevated from the reserve bench replacing Westfield Retail Trust following a restructure between Westfield Retail Trust and Westfield Group.
END OF PAPER
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Commonwealth Bank of Australia
Remuneration Committee 8 August 2016
Paper No. 7
Group Leadership Reward Plan 2016 - Confirmation of Performance Measurement
1. Purpose and Value at Stake
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1.1. One third of the CEO and Group Executives' remuneration is awarded in the form of a long-term incentive (L Tl ) under the Group Leadership Reward Plan (GLRP). GLRP awards represent around $15m of P&L expense each year, and deliver a strong message to stakeholders about what performance areas the Board considers to be of primary importance.
1.2. For the award to be made in November 2016, which will complete its performance period in 2020, the performance areas will be total shareholder returns (TSR), customer satisfaction and selected focus areas under the overall heading of people and community. This is a new component of the plan in 2016 and will likely be of interest to stakeholders when the details become public in the Notice of Meeting for the AGM and the Remuneration Committee Chairman's message in the 2016 Annual Report.
1.3. The overall design of the new plan was approved by the Comm ittee in April, and this paper recommends final details for the 2016 award, some of which will be included in the Notice of Meeting.
2. Outcome Sought and Recommendation 2.1. That the Committee recommends the following 2016 GLRP design details for
Board approval: 2.1.1 . the TSR peer group and reserve bench outlined in attachment 1 of th is paper
to apply to the 2016 GLRP award; 2.1.2. the 2016 GLRP customer satisfaction hurdle definition and methodology
proposed in Section 5, with performance assessed by a weighted average ranking against defined peer groups, measured by the Roy Morgan, DBM, and Wealth Insights surveys. Award outcomes for this GLRP component will be determined by the vesting scale proposed in Section 5.5;
2.1.3. the proposed approach for determining the number of Reward Rights for each participant outlined in Section 7, being a fa ir value approach, so that the value awarded is equal to a target of 100% of the executive's fixed remuneration; and
2.2. notes the current baseline performance measures that may be used to assist the Board in determining the outcome against the People and Community hurdle and the current 'baseline' position.
3. Background facts 3.1. The GLRP has been used to provide LTI awards to the CEO and Group
Executives in the form of Reward Rights since 2009. 3.2. From 2016 the LTI award is divided into three performance components,
50% will be subject to relative TSR (which is split into two tranches, Tranche 1 will have a three-year performance period and Tranche 2 a four-year performance period), 25% wi ll be subject to a Customer Satisfaction hurdle over a two-year performance period, and 25% will be subject to a People and Community hurdle (determined by the Board) over a four-year period.
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3.3. The Reward Rights vest after a four year period.
3.4. Each Reward Right that vests entitles the participant to receive one Commonwealth Bank of Australia (CBA) ordinary share or a cash equivalent as determined by the Board.
4. TSR peer group 4.1. The TSR peer group is set at the start of the performance period (1 July). As
in past years, it comprises the top 20 organisations by market capitalisation listed on the Australian Securities Exchange (ASX), excluding resources companies and CBA.
4.2. A "reserve bench" of companies is created to replace any peer group companies that delist during the performance period.
4.3. Details of the peer group and reserve bench are set out in the Attachment 1.
5. Customer satisfaction hurdle 5.1. It is proposed that the customer satisfaction peer group and vesting scale
remain the same as for last year's award, with performance tested after two years.
5.2. For each of Retail Banking Services and Business Banking, the monthly survey rankings among the four major banks (Roy Morgan and DBM respectively) will be straight-l ine averaged over the performance period.
5.3. For Wealth Management, the annual Wealth Insights survey rankings will be straight-line averaged over the performance period. The peer group includes the major banks, AMP/AXA and Macquarie, and the ranking for each organisation is calculated after weighting the outcomes for its surveyed platforms by funds under adm inistration.
5.4. The average rankings for each survey over the performance period will then be weighted by each area's relative contribution to CBA NPAT (at the beginning of the performance period) to give an overall weighted Group ranking for the period.
5.5. This component of the award will vest at 50% if customer satisfaction averages second (ie 2.00) over the term of the award, 100% if customer satisfaction averages first (ie 1.00) and a linear slid ing scale for performance in between these two points.
6. Measuring the people and community component 6.1. Rather than a formulaic calculation, the Board will determine vesting for th is
portion based on the Company's overall progress in diversity and inclusion, sustainability and culture over the four-year performance period. The Board will consider relevant outcomes over time, including the proportion of women in senior roles, proportion of culturally diverse employees in senior roles, CBA's progress in the Dow Jones Sustainability Indices (DJSI) and relevant evidence of strengthening of the Group's culture and values.
6.2. The measures considered and the corresponding performance will be disclosed by the Board after it determines the outcome in 2020.
6.3. As at 1 July 2016, CBA's position against initially identif ied measures was:
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Focus Measure 1July2016
Gender Percentage of senior Just over 35% diversity management who are female
(EM and above).
Cultural CommBank Cultural Diversity CBA EM+ (excludes IFS) diversity Index (CCDI) - an indicator of 0.49
(ethnicity) the cultural diversity within Australian population CBA's EM and above 0.59 population. Current index created from 2015 P&C survey and 2011 Australian census data. Higher index scores represent more diversity.
Dow Jones Companies must score above CBA's score (Aug 2015): Sustainability a threshold to be included in 85% Index the index, which is separately Current minimum tota l
measured globally, regionally score for inclusion: and by industry. Index is World Index: 81 % produced annually in August. • An additional measurement of • Australian Index: 94%
sustainabi lity for future Average Index scores:
consideration is progress in the • World Index: 84% 'Opportunity Initiatives' being managed by GCA. • Australian Index: 94%
Culture Measures may include culture Details will be developed survey findings; brand health; in conjunction with the progress on embedding vision vision and values work. and values; and customer complaints.
7. Approach to allocating reward rights 7.1. Awards are made based on a fair value approach, so that the va lue awarded
is equal to a target of 100% of the executive's fixed remuneration.
7.2. The fair value of the TSR portions will be determined by a Monte Carlo simulation methodology in line with the relevant accounting standards, as in previous years. The va lue of rights with a three year TSR performance period will be different from the value of rights with a four year TSR performance period.
7.3. The fair value of the customer satisfaction portion is determined based on the probability of the award vesting.
7.4. The fair value of the people and community portion of the award wi ll equal the face value, as there is no objective basis on which to determine the probabilistic expected vesting level.
7.5. The dollar value of each executive's award wil l be divided by four. Each quarter will be converted to a whole number of rights based on the values described above for the three year TSR portion, the four year TSR portion, the customer satisfaction portion and the people and community portion respectively.
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8. Accountabilities and next steps 8.1. The details of the 2016 GLRP awards will be communicated to participants
through their invitation documents.
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8.2. Updates on and developments in the People and Community performance measures will be reported to the Committee twice yearly together with performance updates on TSR and Customer Satisfaction. The Board will be required to determine the likelihood of the People and Community measure vesting at the end of the performance period annually in June.
Janet Linklater Executive General Manager Performance and Reward Human Resources
27 July 2016
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Attachment 1
For the 2016 GLRP award, the TSR peer group includes the following companies:
Company Name Sector
1. Amcor Limited Materials I Paper packaging
2 . AMP Limited Financia ls 3. Australia and New Zealand
Banking Group Limited Financials
4 . Brambles Lim ited Industrials
5. CSL Limited Health Care
6. Insurance Australia Group Limited Financials
7 . Macquarie Group Limited Financia ls
8 . National Australia Bank Limited Financials
9. QBE Insurance Group Limited Financials
10. Ramsay Health Care Limited Health Care
11 . Scentre Group Financials
12. Suncorp Group Limited Financials
13. Sydney Airport Transport Infrastructure
14. Telstra Corporation Limited Industrials
15. Transurban Group Telecommunications Services
16. V icinity Centres Real Estate/Investments
17. Wesfarmers Limited Consumer Staples
18. Westfield Corporation Financials
19. Westpac BankinQ Corporation Financials
20. Woolworths Limited Consumer Staples
The reserve bench includes the following companies:
Replacement Company Name Sector Order
1 AGL Energy Limited Util ities 2 Goodman Group Real Estate Investment Trusts 3 Stockland Real Estate Investment Trusts 4 APA Group Util ities 5 Aurizon Hold ings Limited Transport Infrastructure
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The ASX companies excluded from the TSR peer group and reserve bench are:
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