Board Policy

Appointment, re-election, independence, renewal, performance and remuneration

The policy is for the appointment of directors with the appropriate skills, knowledge and experience to contribute to the effectiveness of the board and to provide leadership and contribute to the success of the group.

This involves taking into account the Company’s strategy, which includes building a long term sustainable business founded on creating an environment that encourages customer, community and partner relationships and engagement to deliver prosperity for all stakeholders, which in turn creates prosperity for the Company.

An assessment is to be made of each of the following.

• The collective skills, knowledge and experience represented on the Board necessary to deliver the strategy of the group. This includes taking into account the benefits to the organisation of having board representation relating to strategic points of difference and having an appropriate blend of tenure and experience to ensure there is an understanding of the challenges to an organisation through economic cycles and changes in the market environment.
• The skills, knowledge and experience of current directors.
• Any skills, knowledge and experience not adequately represented by current directors.

An assessment and decision in relation to re-nomination is to be made, having regard to the following.

• The skills, knowledge and experience necessary to deliver the strategy of the group.
• The skills, knowledge and experience of the current (including retiring) directors.
• The statement provided by the director seeking re-election supporting their re-election.

The outcome of this assessment is to be included in the notice of meeting at which the retiring director seeks re-election.

8. Independence

The board is responsible for following.

1. the appointment of directors to wholly-owned subsidiary companies.
   Note: See Board charter 1.4
2. the nomination of directors for appointment to partly-owned subsidiary companies, joint venture companies and alliance companies.

In making an appointment or nomination, the board will have regard to the following.

1. the skills, knowledge and experience necessary having regard to the business activities of the relevant company; and
2. industry experience, board experience, professional skills, leadership skills, strategic ability and personal qualities of the candidates.

NEDs will only be appointed to subsidiary, joint venture and alliance boards in the following cases.

1. There is a regulatory requirement that makes the appointment necessary.
2. There is a demonstrated market demand for NEDs in the particular circumstances of the company.
3. The Governance and HR Committee recommends that it is appropriate to do so.

The board charter and Governance and HR Committee charter provide for the regular review of the skills, knowledge and experience on the board.

The composition and renewal is kept under review on an annual basis, to ensure a progressive and orderly renewal of board membership.

The board members should have a mix of tenure to ensure a periodic infusion of new members and to avoid large groups of directors retiring together. The board takes the view that having regard to the complexities of the financial services and banking industry, the development of expertise and knowledge of the industry and specifically of the Bank and the group takes time.

Also having regard to the long-term strategy to build a sustainable business, corporate memory is important and that there is a benefit in board continuity across economic cycles.

There is an expectation from directors of a reasonable period of tenure, at least 10 years, to make sure that each director is in a position to be able to make a significant contribution to the group, having regard to the expected increase in contribution over the years as the director develops expertise and knowledge of the group.

The composition of subsidiary boards, and nominee directors on joint venture and alliance boards, will be reviewed by the Governance and HR Committee and recommendations made to the board on an annual basis.

The term of appointment for directors on subsidiary boards and as nominees on joint venture and alliance boards is at the discretion of the board.

The chair, on behalf of the board, conducts interviews with each director for an evaluation of the board as a whole and individual director performance. The results of those meetings in relation to the board as a whole are then discussed in a board meeting (excluding executive directors), and any changes suggested for improvement discussed and taken forward for action if agreed. The chair also provides feedback to individual directors where appropriate on individual performance.

In relation to the chair, the board as a whole (excluding executive directors) undertakes a performance review in the absence of the Chair, led by a director nominated by the board.

The objectives of the non-executive director remuneration policy are as follows.

• To attract and retain appropriately qualified and experienced directors.
• To remunerate directors fairly having regard to their responsibilities, including providing leadership and guidance to management.
• To build sustainable shareholder value by encouraging a longer-term strategic perspective.

• Directors receive a base fee which is reviewed annually with reference to survey data and peer analysis. The chair receives twice the annual base fee in recognition of the additional time commitment.
• NEDs do not receive additional fees for committee memberships.
• The board may decide to pay additional fees for subsidiary, joint venture and alliance appointments.

The Governance and HR Committee is responsible for making recommendations to the board for decision on the above, including:

• Main board appointment and re-election
• Subsidiary, joint venture and alliance board appointment
• Performance assessment
• NED remuneration

An assessment is to be made for each director of each of the factors listed in Attachment A to APRA prudential standard APS 510 Governance and any other relevant circumstances, as set out below.

1. The director is not a substantial shareholder² of the Bank or an officer of, or otherwise associated directly with, a substantial shareholder of the Bank.
2. The director is not employed and has not been previously employed in an executive capacity by the Bank or another group member, unless a period of at least three years has elapsed between ceasing such employment and serving on the board.
3. The director within the last three years has not been a principal of a material³ professional adviser or a material consultant to the Bank or another group member, or an employee materially associated with the service provided.
4. The director is not a material supplier or customer of the Bank or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer.
5. The director has no material contractual relationship with the Bank or another group member other than as a director.
6. The director has no other connection with the Bank, another group member, a substantial shareholder, customer, supplier or competitor which may affect independence.
   Example: Family ties, cross-directorships.

² A “substantial shareholder” is a person with a substantial holding as defined in section 9 of the Corporations Act.
³ Materiality is assessed by reference to AASB 1031.

The quantitative materiality thresholds in Accounting Standard AASB 1031 are taken into account, as follows.

Quantitative threshold: AASB 1031 Section 4.1.6 says:

Quantitative thresholds used as guidance for determining the materiality of the amount of an item, of necessity, must be drawn at arbitrary levels. … The following quantitative thresholds may be used as guidance in considering the materiality of the amount of an item…

1. an amount which is equal to or greater than 10 per cent of the appropriate base amount may be presumed to be material unless there is evidence or convincing argument to the contrary; and
2. an amount which is equal to or less than 5 per cent of the appropriate base amount may be presumed not to be material unless there is evidence, or convincing argument, to the contrary

Base for the Bank: AASB 1031 Section 4.1.4 allows for the following comparison in determining whether the before tax amount of an item is material

1. the amount of an item relating to the balance sheet is to be compared to the bank’s capital base (total shareholders equity) and the appropriate asset or liability class total as at year end.
2. the amount of an item relating to the profit and loss account should be compared with the bank’s operating profit before tax and the appropriate revenue or expense category for the financial year.
3. the amount of an item relating to the statement of cashflows should be compared with the net cash provided by or used in the operating, investing or financing activities of the bank.

Base for director: AASB 1031 Section 4.1.4 allows for the following comparison in determining whether the before tax amount of an item is material (adapted to take into account individuals/firms).

1. the amount of an item (eg interest on loan or fee for service) is to be compared to the financial position/circumstances of director (eg individual receiving loan) or the director-related entity (eg firm providing service) receiving or providing the item.
2. the amount of an item (eg interest on loan or fee for service) is to be compared to the income or expenditure of the director or the director-related entity receiving or providing the item.
3. the amount of an item (eg interest on loan or fee for service) is to be compared to the cash inflow or outflow of the director or director-related entity receiving or providing the item.