Remuneration policy

The policy is structured as follows.

1. Application
   
2. Remuneration structure
   
3. Base remuneration
   
4. Variable remuneration – STI – salaried employees
   
5. Variable remuneration – STI – collective agreement employees
   
6. Variable remuneration – LTI – executives and others approved by the Board
   
7. Variable remuneration – STI and LTI – risk adjustment and hedging
   
8. Equity participation plans
   
9. Special remuneration arrangements
   
10. Governance responsibilities – Governance and HR Committee and Board
    
11. Governance responsibilities – Executive Committee and Chief Risk Officer
    
12. Related documents
    

This policy applies to Bendigo and Adelaide Bank Limited and its wholly owned subsidiaries (the Group).

Note: The policy does not apply to service contracts with third parties, which are dealt with under the Risk Management Framework.

As a sub-set of employees, this policy covers those designated in the APRA standard¹ as follows, referred to in this policy as “designated employees”.

(a) Responsible persons
For this purpose, “responsible person” is a “senior manager” as defined by APRA², namely a person (other than a non-executive director) who:

1. makes, or participates in making, decisions that affect the whole, or a substantial part, of the business of the Bank; or
2. has the capacity to affect significantly the Bank’s financial standing; or
   
3. may materially affect the whole, or a substantial part, of the business of the Bank or its financial standing through their responsibility for: (i) enforcing policies and implementing strategies approved by the Board; or (ii) the development and implementation of systems that identify, assess, manage or monitor risks in relation to the business of the Bank; or (iii) monitoring the appropriateness, adequacy and effectiveness of risk management systems.

Examples: CEO and members of Executive Committee

(b) Risk and control personnel
Risk and control personnel are persons whose primary role is risk management, compliance, internal audit or financial control.

Note: Group Assurance includes internal audit and credit risk.

(c) Additional management personnel
These are all other persons for whom a significant portion of total remuneration is based on performance and whose activities, individually or collectively, may affect the financial soundness of the institution.

Note: At the date of the policy the Board, having regard to the recommendation of the Governance and HR Committee, has set a significant portion of total remuneration as 60% of base remuneration in the form of variable remuneration.

Note: The Governance and HR Committee is responsible for making recommendations to the Board for decisions about the categories of persons included above. The People & Performance Department will maintain a list of positions covered.

For designated employees, some additional requirements under this policy apply in relation to the following.

• Participation in STI – see section 4.2.
  
• Maximum percentage of STI – see section 4.2.
  
• Allocation of STI – see section 4.5.
  
• Deferral – see section 4.6.
  
• Hedging – see section 7.2.
  
• Approval of remuneration – see section 11.5 and 11.6.

Remuneration may comprise the following components.

1. Base remuneration
   (i) Fixed – for salaried employees
   (ii) Rate of pay – for collective agreement employees
   
2. Variable remuneration
   (i) short term incentive (STI)
   (ii) long term incentive, including equity participation (LTI)
   
3. Equity participation for employees who do not participate in LTI

The following indicative settings apply to the maximum variable remuneration (including STI and LTI). The Board and Executive Committee retain a discretion to decide other settings that apply.

Other benefits may be offered from time to time. These may be changed or withdrawn or added to at the discretion of the Executive Committee.

Note: At the date of this policy, for example, these benefits included fee discretions, home loan allowance and discounts on insurance and Group products.

Base remuneration is designed to align to the value the individual provides to the Group including the following:

• Skills and competencies need to generate results.
  
• Sustained contribution to the team and Group.
  
• The value of the role and contribution of the individual in the context of the external market.

1. Salaried employees - base remuneration includes the following components:
   
   • Salary.
     
   • Salary sacrifice (to the extent that an individual chooses to take this option).
     
   • Superannuation.
     
   • Leave loading (to the extent that it applies under statute).
     
2. Collective agreement employees – base remuneration (under the terms of the Collective Agreement) includes the following components:
   
   • Fixed rate of pay
     
   • Other payments
     Examples: overtime, penalty rates and travel allowances that may apply from time to time.
     
   • Superannuation.
     
   • Leave loading.

(a) Salaried employees - there is an annual review of base remuneration for salaried employees.

The review may but will not necessarily result in an increase.

Group performance and outlook will be taken into account as well as individual circumstances in making a decision.

In the case of risk and control personnel (as described in section 1.3), the annual review recommendation must be approved by the Chief Risk Officer before being finalised.

Note: This does not replace but is in addition to other processes, for example, the GM Group Assurance remuneration is also reviewed by the Audit Committee.

The Executive Committee is responsible for setting fixed remuneration annual review parameters and outcomes.

(b) Collective agreement employees - adjustment of base remuneration for collective agreement employees from time to time will be in accordance with the terms of the collective agreement.

STI remuneration offered may include the following.

Group performance bonus plan
This may be offered to salaried employees. Whether there is a bonus, the amount of the bonus and participation is decided after the end of the financial year.

At risk plan – individual participation
This may be offered to Executive Committee members and others. The following is to be set at the start of each financial year.

• Eligibility to participate in the plan
  
  In the case of the CEO, direct reports of the CEO, other persons whose activities may affect the financial soundness of the institution, and any other person specified by APRA, participation is to be recommended by the Governance and HR Committee to the Board for approval.
  
  In the case of other employees, participation is to be approved by Executive Committee and provided to the Governance and HR Committee for noting.
  
• The maximum % of the at risk remuneration taking into account the base remuneration or maximum $ amount.
  
  Note: It is expected that the maximum would generally not exceed 50% of base remuneration.
  
  In the case of risk and control personnel (as described in section 1.3), this setting will be below the setting for business writers and business developers, and must be approved by the Chief Risk Officer.

The Board has a discretion whether to allocate a Group pool for distribution of STI remuneration.

If there is a pool, in deciding the amount of the pool the Board will assess the appropriate balance of the sharing of profits between employees and shareholders, and the required capital to generate the funds. Typically financial measures will account for more than half of this assessment.

The Board will have regard to the following.

• Financial measures. This includes cash earnings achieved in excess of a target minimum shareholder return and return on equity.
  
• Risk measures. The pool will be adjusted to reflect the types and levels of risk involved in the performance, and the overall risk appetite of the Group. Specific risk adjustment may include:
  
• The business mix which contributes to the Group cash earnings result versus the budgeted business mix.
  
• Prudential balance sheet metrics achieved (Tier 1 capital ratio, group leverage ratio and funding ratio) versus budget.

If a Group pool has been allocated, the Board has a discretion in the allocation of that pool to divisions.

The Executive Committee is to make recommendations to the Board on the allocation of the Group pool. In deciding the allocation of the Group pool to divisions, the Board may have regard to the following.

• Contribution of division to earnings.
  
• In the case of a business unit, assessment of risk management and compliance by the division.
  
• In the case of a support function, assessment of the contribution to risk management and compliance by the function.

Factors
The factors taken into account in setting the criteria for an STI payment and in exercising the discretion to make an STI payment for individual employees include the performance and contribution factors set out below.

1. Group financial and strategic performance
   
2. Business unit (team) financial and strategic performance
   
3. Individual contribution to team performance
   
4. Individual performance, including alignment with corporate values and meeting performance objectives
   
5. Contribution to meeting risk and compliance requirements at Group, team and individual level. Risk and compliance requirements also comprise a gateway to whether a payment is made and the size of the payment. Notwithstanding financial performance and the individual contribution and performance, if the individual, team or Group does not meet or only partially meets risk and compliance requirements, no award or a reduced award may be made.
   

Salaried employees
If a pool has been allocated for a year, line managers have a discretion about whether an employee receives an STI payment, and if so, the amount of the payment. Line managers are to provide proposed allocations to the People & Performance Department who will collate the information for Executive Committee to review the overall allocation and make any adjustments considered necessary or desirable before final allocations are advised to employees.

CEO, director reports of CEO and other specified person
In the case of the CEO, direct reports of the CEO, other persons whose activities may, in the opinion of the Governance and HR Committee, affect the financial soundness of the institution, and any other person specified by APRA, the discretion is to be exercised by the Board, having regard to the recommendations of the Governance and HR Committee.

Note: See section 1.3 above

Risk and control personnel
For riskand control personnel (as described in section 1.3) the factors given the greatest weighting are as set out in (c), (d) and (e) above. The proposed allocation for financial and control personnel must be approved by the Chief Risk Officer before being provided to the People & Performance Department.

STI remuneration will be subject to deferral as set out below.

1. The Board, having regard to the recommendation of the Governance and HR Committee, at the start of the financial year will set a threshold for STI at the start of each financial year. If an STI payment is above the threshold a component of the STI is to be deferred.
   
   Note: At the date of this policy, the Governance and HR Committee has set the following thresholds for FY10/11.
   
   
   • For Additional Management Personnel (as described in section 1.3), the amount of the STI to be paid at the end of the financial year is $30,000 or above; and
     
   • For all other employees, the amount of the STI to be paid at the end of the financial year is $60,000 or above.
     
2. If the STI payment is above the threshold, then deferral applies as follows.
   
   • One-third of the STI paid is subject to deferral.
     
   • The deferred payment is to be used to acquire shares in Bendigo and Adelaide Bank.
     
   • The shares are to be held under the terms of the plan approved by the Board for this purpose.
     
     Note: At the date of this policy the plan is the Employee Salary Sacrifice, Deferred Share and Performance Share Plan.
     
     Under the terms of the plan the participant is entitled to vote, receive notices issues to shareholders by the Company and to receive dividends paid on the shares.
     
   • Deferral is for two years from the end of the financial year in respect of which the STI is awarded.
     
3. Forfeiture of the shares acquired with the deferred payment is to occur in the following cases.
   
   • When an employee’s employment with the Group ends.
     
   • If an employee acts fraudulently or dishonestly.
     
   • In other cases decided by the Board.
     
     Example: The Board exercises its discretion under section 7.1 below.
     

An annual bonus pool will be decided for collective agreement employees in accordance with the terms of the Collective Agreement – as a group performance bonus.

Note: as at the date of this policy, collective agreement employees are entitled to share in an annual bonus pool of 1.5% of the collective agreement payroll.It may be in the form of cash or equity.

The distribution to the individual is discretionary

Executive Committee members and other participants decided by the Board, having regard to recommendations of the Governance and HR Committee, may be invited to participate in long term incentive plans. Participants may include managers who:

• Are in a role which requires leadership of a key organisation competency/governance requirement,
  
• The role has a direct linkage to the long term strategic success of the business, and
  
• The timing and form of any grant will be at the discretion of the Board.

Note: The form of long term incentive plan is at the discretion of the Board. Currently participation is through the Executive Incentive Plan (discontinued) and Employee Salary Sacrifice, Deferred Share and Performance Share Plan.

The Board has a discretion, having regard to the recommendation of the Governance and HR Committee, to adjust variable remuneration (including STI and LTI) to reflect the following.

1. The outcomes of business activities.
   
2. The risks related to the business activities taking account, where relevant, of the cost of the associated capital.
   
3. The time necessary for the outcomes of those business activities to be reliably measured.
   

This includes adjusting performance-based components of remuneration downwards, to zero if appropriate, in relation to persons or classes of persons, if such adjustments are necessary to:

1. protect the financial soundness of the regulated institution; or
   
2. respond to significant unexpected or unintended consequences that were not foreseen by the Board.
   

In these circumstances, this may involve the Board deciding, having regard to the recommendation of the Governance and HR Committee, to claw back an STI award or LTI grant during the deferral period. This may include the deferred component and the awarded or granted component.

The following restrictions apply.

1. Before vesting: In the case of variable remuneration that comprises equity, an employee may not enter into a transaction designed to remove the “at risk” element of the equity, before it is fully vested.
   
2. After vesting: In the case of variable remuneration that comprises equity, a Designated Employee may only enter into a transaction designed to remove the “at risk” element of an entitlement to the equity after any restriction period imposed by the Board on dealing with vested shares has ended or been lifted.
   
   An example of a transaction or arrangement designed to remove the “at risk” element of an entitlement is a hedging agreement.
   

If an employee breaches either of these restrictions the employee forfeits all variable remuneration in the form of equity that is subject to the prohibition at the time of the breach.

Employees generally will be invited to participate from time to time in appropriately structured equity participation programs.

The timing and the form of such grants will be at the discretion of the Board.

(a) The Chairman, on behalf of the Board, conducts the performance assessment of the Managing Director, having regard to objectives set the previous year, and the discussion includes setting objectives for the coming year. The Board as a whole discusses the outcomes in the absence of the Managing Director and any other executive directors, which are then communicated to the Managing Director.

(b) The Managing Director (or senior executive line manager) conducts the performance assessment for each senior executive, having regard to the operational and financial responsibilities of the executive and the contribution by the executive to the management and leadership of the business.

The Governance and HR Committee has the responsibilities set out below, including making recommendations to the Board. The Board is responsible for making decisions having regard to those recommendations.

Note: See Governance and HR Committee Charter and Board charter.

Conduct regular reviews of the policy and make recommendations to the Board.

Note: This must include an assessment of the policy’s application, effectiveness and compliance with the requirements of APS 510: Governance.

Make recommendations to the Board to form an opinion of those persons whose activities, individually or collectively, may affect the financial soundness of the institution, and for whom a significant portion of the total remuneration is based on performance.

Note: This includes deciding the criteria for a “significant” portion.

Make annual recommendations to the Board on the remuneration of other persons covered by the remuneration policy (not dealt with on an individual basis).

• Other responsible persons
  
• Risk and financial control personnel

• Make recommendations to the Board in relation to equity schemes.
  
• Exercise all the powers and discretions of the Board under any equity schemes.

In addition, the Board has the following responsibilities.

• Deciding STI divisional pools following recommendation by the Executive Committee (see section 4.4)

The Executive Committee has the following responsibilities.

• Approving an employee benefits policy and any amendments to it (see section 2.3).
  
• Setting fixed remuneration annual review parameters and outcomes (see section 3.3).
  
• Setting maximum variable remuneration (see section 2.2)
  
• Deciding participation in at risk plan (see section 4.2)
  
• Recommending STI divisional pools to the Board (see section 4.4)
  
• Review of overall STI allocations (see section 4.5)
  
• Approving any proposal for a sign on, retention or termination payment (see section 9.1).

The Chief Risk Officer must approve the following for risk and control personnel (as described in section 1.3).

• Base salary review (see section 3.3)
  
• Maximum % of at risk remuneration (see section 4.2)
  
• Risk and control personnel STI allocations (see section 4.5)

Note: This does not replace but is in addition to other processes, for example, the GM Group Assurance remuneration is also reviewed by the Audit Committee.

The following documents are relevant to this policy.

• Board charter
  
• Governance and HR Committee Charter
  
• Risk Committee charter
  
• Risk management system
  
• Trading policy
  
• Code of Conduct
  
• Collective Agreement
  
• Employee Share Grant Scheme
  
• Employee Salary Sacrifice, Deferred Share and Performance Share Plan
  
• Employee Share Plan
  
• At risk plan rules and guidelines