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3. NON-EXECUTIVE DIRECTORS
3.1 Remuneration Policy
Remuneration for Non-executive Directors is set according to external advice. As with executive remuneration, the remuneration for Non-executive Directors should:
- be sufficiently competitive to attract and retain a high calibre of Non-executive Director;
- be consistent with IAG’s values.
The aggregate limit of remuneration is approved by shareholders, and, currently, the maximum approved amount is $1.5 million per annum. The aggregate annual remuneration is inclusive of employer superannuation contributions paid by IAG on behalf of Non-executive Directors.
The Board has agreed that each Non-executive Director should take a minimum of 20% and up to a maximum of 90% of their annual base fee (at the time shares are allocated), on a fee sacrifice basis, in the form of IAG shares provided under the Non-Executive Directors’ Share Plan, which was approved by shareholders on 13 November 2002. IAG shares are purchased by the trustee on market and allocated to directors in December each year. Non-executive Directors may elect to restrict the disposal of these shares for a minimum period of one year and up to 10 years or until the Director retires. No other equity-based remuneration is available to Non-executive Directors.
The current elements of Non-executive Director remuneration are:
| BOARD/COMMITTEE | ROLE | FEE |
|---|---|---|
| IAG Board | Chairman | $300,000 (includes committee fees*) |
| Director | $100,000 | |
| Audit Committee | Chairman | $18,000 |
| Member | $12,000 | |
| Risk Management & Compliance Committee | Chairman | $18,000 |
| Member | $12,000 | |
| Nomination, Remuneration & Sustainability Committee | Member | $12,000 |
* The Chairman does not receive additional fees for serving on the Nomination, Remuneration & Sustainability Committee or for serving as a director of IAG Re Limited. The Chairman is, however, paid a fee for his role as Chairman of Insurance Manufacturers of Australia Pty Limited, a 70% owned subsidiary of IAG.
In addition, IAG pays a superannuation contribution of 9% of a Director’s fees into a superannuation fund nominated by the Director. Directors’ fees and superannuation contributions are paid monthly.
IAG has a Non-executive Directors’ Expenses policy. Under this policy IAG reimburses expenses reasonably incurred by Directors in connection with the discharge of their duties.
3.2 Increase to Directors’ Fees
Following an independent review of the remuneration of Non-executive Directors conducted recently, it is proposed that the maximum aggregate remuneration payable to the Non-executive Directors be increased from $1,500,000 to $2,000,000 per annum. Shareholders will be asked to approve this increase in aggregate remuneration at the 2005 Annual General Meeting.
The proposed increase takes account of the growth in board remuneration to reflect market movements and to provide the capacity to ensure that IAG can retain the best people to drive corporate performance and to deliver appropriate returns to shareholders.
The aggregate annual remuneration for Non-executive Directors of $1,500,000 has not changed since being determined in 2000 upon demutualisation of Insurance Australia Limited (formerly NRMA Insurance Limited, a wholly owned subsidiary of IAG). Since that time, IAG has grown significantly:
- gross written premium from $2.6 billion to $6.6 billion;
- insurance profit from $110 million to $1,000 million;
- total assets from $12.1 billion to $17.1 billion; and
- employees from 5,338 to 11,502 measured as full time equivalent basis.
In addition, since 2000 the demands of directors of listed companies and in particular, general insurance companies, have increased through a plethora of corporate legislation and regulation and the ensuing complexities for a general insurance business, as well as from community expectations of exemplary corporate behaviour and standards. The duties and responsibilities of Non-executive Directors have expanded significantly in response to these demands.
The Board has obtained independent advice on board remuneration from Egan Associates who have assessed the remuneration for the Company’s Non-executive Directors in comparison with the level of Non-executive Director remuneration payable by companies of comparable size. In accordance with the independent advice, the Board has determined that fees payable to Non-executive Directors should be increased with effect from 1 July 2005 as follows:
| BOARD/COMMITTEE | ROLE | FEE | ||
|---|---|---|---|---|
| IAG Board | Chairman | $360,000 (includes committee fees) | ||
| Director | $120,000 | |||
| Audit Committee | Chairman | $30,000 | ||
| Member | $15,000 | |||
| Risk Management & Compliance Committee | Chairman | $30,000 | ||
| Member | $15,000 | |||
| Nomination, Remuneration & Sustainability Committee | Member | $15,000 |
The current maximum annual aggregate remuneration of $1,500,000 would be insufficient to enable IAG to pay these increased fees to the Non-executive Directors for a full year and would limit IAG’s capacity to pay fees to attract and retain suitable candidates for the Board.
3.3 Performance
Directors’ performance is subject to evaluation by the Chairman at least every two years, by discussion between the Chairman and the individual Director. In these discussions, the individual Directors also evaluate the Chairman’s performance. Performance measures for Directors considered by the Chairman and Board include:
- contribution of the Director to Board teamwork;
- contribution to debates on significant issues and proposals;
- advice and assistance given to management;
- in the case of the Chairman’s performance, the fulfilment of his or her additional role as Chairman; and
- input regarding regulatory, industry and social developments surrounding the business.
The Nomination, Remuneration & Sustainability Committee has responsibility for coordinating the Board’s review of the Chairman’s performance.
A review of the performance of individual Directors was conducted in June 2005 with assistance and input from an independent expert on board performance.
3.4 Remuneration Details
(a) Remuneration of Non-executive Directors for the financial year ended 30 June 2005 was:
| PRIMARY BENEFITS |
POST-EMPLOYMENT BENEFITS |
EQUITY COMPENSATION |
TOTAL | |||
|---|---|---|---|---|---|---|
| BOARD FEES RECEIVED AS CASH | COMMITTEE FEES | SUPERANNUATION | RETIREMENT BENEFITS | BOARD FEES RECEIVED AS IAG SHARES | ||
| 2005 | $000 | $000 | $000 | $000 | $000 | $000 |
| Mr JA Strong(i) | 280 | - | 39 | - | 150 | 469 |
| Ms YA Allen(ii) | 52 | 8 | 6 | - | 12 | 78 |
| Mr JF Astbury | 80 | 30 | 12 | - | 20 | 142 |
| Mr GA Cousins | 80 | 12 | 10 | - | 20 | 122 |
| Ms DG Fisher(iii) | 18 | 4 | 4 | 259 | 18 | 303 |
| Mr ND Hamilton(iv) | 10 | 19 | 11 | - | 90 | 130 |
| Ms AJ Keating(v) | 29 | 8 | 4 | 250 | 7 | 298 |
| Mr RA Ross | 50 | 30 | 12 | - | 50 | 142 |
| Mr B Schwartz(vi) | 37 | 6 | 5 | - | 13 | 61 |
| Total remuneration | 636 | 117 | 103 | 509 | 380 | 1,745 |
Notes:
(i) Mr Strong received $130,000 for his service as Chairman of the Board of Insurance Manufacturers of Australia Pty Limited (“IMA”).
(ii) Ms Allen was appointed to the Board on 10 November 2004.
(iii) Ms Fisher retired from the Board on 10 November 2004.
(iv) Mr Hamilton received $7,000 for his services as Director of Mutual Community General Insurance Proprietary Limited (“MCGI”), a 51% owned controlled entity of IAG.
(v) Ms Keating retired from the Board on 10 November 2004. During the period, Ms Keating also received $4,000 for her services as Director of MCGI.
(vi) Mr Schwartz was appointed to the Board on 1 January 2005.
(b) Remuneration of Non-executive Directors for the prior financial year ended 30 June 2004 was:
| PRIMARY BENEFITS | POST-EMPLOYMENT BENEFITS | EQUITY COMPENSATION | TOTAL | |||
|---|---|---|---|---|---|---|
| BOARD FEES RECEIVED AS CASH | COMMITTEE FEES | SUPERANNUATION | RETIREMENT BENEFITS | BOARD FEES RECEIVED AS IAG SHARES | ||
| 2004 | $000 | $000 | $000 | $000 | $000 | $000 |
| Mr JA Strong(i) | 264 | 2 | 39 | - | 131 | 436 |
| Mr JF Astbury | 77 | 29 | 12 | - | 18 | 136 |
| Ms MC Callaghan(ii) | 8 | 2 | 2 | 269 | 3 | 284 |
| Mr GA Cousins | 77 | 12 | 10 | - | 18 | 117 |
| Ms M Easson(iii) | 9 | 2 | 1 | 276 | 2 | 290 |
| Ms DG Fisher | 39 | 12 | 10 | - | 55 | 116 |
| Mr ND Hamilton | 16 | 30 | 11 | - | 79 | 136 |
| Ms AJ Keating | 77 | 24 | 11 | - | 17 | 129 |
| Mr RA Ross | 51 | 29 | 11 | - | 44 | 135 |
| Total remuneration | 618 | 142 | 107 | 545 | 367 | 1,779 |
Notes:
(i) Mr Strong received $110,000 for his service as Chairman of the Board of IMA.
(ii) Ms MC Callaghan and Ms M Easson retired from the Board on 1 September 2003.
3.5 Retirement Benefits
IAG decided to freeze the operation of the Non-executive Director retirement benefit scheme adopted by IAG in 2001 with effect from 1 September 2003.
The terms of the retirement benefits scheme provided for:
(i) any Non-executive Director of IAG who had completed five years’ continuous service with IAG (including service with any subsidiaries) at the date of retirement, a retirement benefit equivalent to the last three years’ Directors’ fees, employer superannuation contributions, committee fees and fees for extra services received from IAG and its subsidiaries.
(ii) a pro-rata retirement benefit for Non-executive Directors who have completed at least three years’ service but less than five years’ service at the date of their retirement, based on a specified formula.
(iii) no retirement benefit to be paid to a Non-executive Director who had served for a period of less than three years.
IAG determined that the frozen retirement benefits would be calculated as follows:
(i) Non-executive Directors joining the Board from 1 September 2003 would have no retirement benefit.
(ii) for each current Non-executive Director who had served a minimum of three years, the retirement benefit was assessed as if they had retired at 31 August 2003.
(iii) for a Non-executive Director with less than three years of service at 31 August 2003, a retirement benefit was assessed as if they had three years of service as at that date, and then reduced on a pro-rata basis based on their uncompleted period of service as a proportion of three years. The retirement benefit was not subsequently payable to such a Non-executive Director if they had less than three years of service as a Non-executive Director at the date of their retirement.
Retirement benefits of $259,000 and $250,000 were paid to Ms Fisher and Ms Keating, respectively, following their retirements from the Board on 10 November 2004.
The following table sets out the frozen retirement benefits of the remaining Directors who held office on 31 August 2003 and who have continued in office since then:
| RETIREMENT BENEFIT $000 |
|
|---|---|
| Mr JA Strong | 295 |
| Mr JF Astbury | 184 |
| Mr GA Cousins | 169 |
| Mr ND Hamilton | 248 |
| Mr RA Ross | 232 |
On retirement, Directors may also be entitled to be paid a benefit from their company funded superannuation. Such a benefit would be in addition to the Director’s frozen retirement benefit.
No amounts have been accrued in the accounts of the Group for the frozen retirement benefits of the remaining Directors who held office on 31 August 2003 and who have continued in office since, as the Board has not exercised its discretion to pay these retirement benefits.
4. OTHER BENEFITS
Remuneration does not include premiums paid by IAG for an insurance contract covering current and former Directors’ and executives’ liabilities and legal expenses incurred in respect of the relevant office, as the insurance policies do not specify premiums paid in respect of individual Directors and executives and the terms of contract specifically prohibited the disclosure of the premium paid. Insurance products provided by the Group are also available to all directors and executives on the same terms and conditions available to other employees.
During the financial year, the former Director (Mr N Whitlam) was paid additional retirement benefit payments for his period of service as chairman of IAG and its controlled entities. The payment amounted to approximately $207,000, inclusive of his company funded superannuation entitlements. Mr Whitlam was also paid interest on his entitlements.
5. EQUITY AND DEBT INSTRUMENT DISCLOSURE
(a) Holding of ordinary shares
The relevant interest of each specified executive and their personally - related entities in ordinary shares of IAG are:
| SHARES HELD AT THE BEGINNING OF THE YEAR | SHARES GRANTED AS REMUNERATION DURING THE YEAR | SHARES RECEIVED ON EXERCISE OF PSRs | SHARES RECEIVED ON EXERCISE OF PSRs | NET MOVEMENT OF SHARES DUE TO OTHER CHANGES(2) | TOTAL SHARES HELD AT THE END OF THE YEAR | SHARES HELD NOMINALLY AT THE END OF THE YEAR(1) | |
|---|---|---|---|---|---|---|---|
| Mr IF Brown | 211,769 | 34,560 | - | - | 7,362 | 253,691 | 87,904 |
| Mr AM Coleman | 127,528 | - | - | - | (61,632) | 65,896 | 65,896 |
| Mr DA Issa | - | - | - | - | - | - | - |
| Mr RJ Jackson | 22,351 | - | - | - | (15,000) | 7,351 | 7,351 |
| Ms SJ Mostyn | 16,083 | - | - | - | - | 16,083 | - |
| Mr DRA Pearce | 7,806 | - | - | - | - | 7,806 | 7,806 |
| Mr MJ Pirone | 17,748 | - | 28,640 | - | (15,000) | 31,388 | 17,383 |
| Mr DJP Smith | 129,591 | - | - | - | - | 129,591 | 5,951 |
| Mr G Venardos | 146,978 | - | - | - | (108,689) | 38,289 | 34,403 |
| Executives who ceased employment during the year: | |||||||
| Ms KL Baylis | - | - | - | - | - | * | - |
| Mr LF Power | 34,134 | - | - | - | - | * | - |
| Mr RJ Wagstaffe | - | - | - | - | - | * | - |
(1) Nominally held shares are included in the column headed total shares held at the end of the year. These shares are held by the specified executives’ personally-related entities.
(2) Net movement of shares relates to acquisition and disposal transactions by the executives and their personally-related entities during the year.
* These three executives ceased employment during the financial year. Information on shares held is only disclosed up to the date of their cessation.
(b) Holdings of reset preference shares
No specified executives had any interest in reset preference shares at any time during the financial year.
(c) Holdings of reset exchangeable securities
No specified executives had any interest in reset exchangeable securities at any time during the financial year.
(d) Holdings of ordinary shares
The relevant interest of each Director and their personally-related entities in ordinary shares of IAG is:
(e) Holdings of reset preference shares
No Directors had any interest in reset preference shares at any time during the financial year.
(f) Holdings of reset exchangeable securities
In respect of the relevant interest of each Director and their personallyrelated entities in reset exchangeable securities (“RES”) of IAG Finance (New Zealand) Limited, other than Mr Hawker, no other Directors held any RES directly or through their personally-related entities.
| FOR SECTION 205G OF THE CORPORATIONS ACT 2001 |
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|---|---|---|---|---|---|---|---|---|---|---|---|
| RES HELD AT THE BEGINNING OF THE YEAR | NET MOVEMENT OF RES DUE TO OTHER CHANGES | TOTAL RES HELD AT THE END OF THE YEAR | RES HELD NOMINALLY AT THE END OF THE YEAR(1) | RES HELD DIRECTLY AT THE END OF THE YEAR(2) | RES HELD INDIRECTLY AT THE END OF THE YEAR(2) | ||||||
| Mr MJ Hawker | - | 1,000 | 1,000 | 1,000 | - | 1,000 | |||||
(1) Nominally held RES are included in the column headed total RES held at the end of the year. These RES are indirectly held by the Director’s personally-related entities.
(2) This represents the relevant interest of the Director in RES issued by IAG Finance (New Zealand) Limited, as notified by the Director to the Australian Stock Exchange in accordance with section 205G of the Corporations Act 2001. Trading in RES is covered by the IAG Group’s Continuous Disclosure & Insider Trading Policy.
ROUNDING OF AMOUNTS
Unless otherwise stated, amounts in the financial report and Directors’ report have been rounded to the nearest million dollars. The Company is of a kind referred to in the class order 98/100 dated 10 July 1998 (as amended by class order 04/667 dated 15 July 2004) issued by the Australian Securities & Investments Commission. All rounding has been conducted in accordance with that class order.
Signed at Sydney this 19th day of August 2005 in accordance with a resolution of the Directors.
Mr J A Strong
Director
Mr M J Hawker
Director
