Renewed Contract for NAB CEO
October 23 2003 - 5:17AM
UK Regulatory
RNS Number:2197R
National Australia Bank Ld
23 October 2003
Group Corporate
Affairs
National Australia
Bank Limited
ABN 12004044937
500 Bourke Street
ASX Announcement Melbourne
Victoria 3000
Australia
Melbourne, Thursday 23rd October 2003
Renewed Contract for National CEO, Mr Frank Cicutto
The Chairman of National Australia Bank, Mr Charles Allen, announced today that
the Board of Directors had renewed Frank Cicutto's contract as Chief Executive
Officer and Managing Director.
Mr Allen said the terms and conditions of Mr Cicutto's new contract are in line
with industry best practice.
The key terms and conditions of the new contract include:
* a three year term until October 2006 with the option of annual renewal
thereafter;
* base salary to be fixed at the current level for the next three years;
* a greater proportion of the remuneration to be at-risk linked to the
National's performance;
* at least half of the short term at-risk remuneration to be delivered
as deferred shares which, subject to meeting
performance hurdles, the company will match on a one-for-one basis;
* continuation of existing long term incentives in the form of options
and performance rights; and
* defined termination rights and payments to ensure certainty about the
way entitlements will be treated.
Mr Allen said the Board of Directors were very pleased to renew Mr Cicutto's
contract and provide continuing certainty about the strategic direction of the
National.
"The new contract creates a stronger link between the value of executive
remuneration and the successful implementation of the National's business
strategy," Mr Allen said.
"The remuneration structure is highly performance oriented and is comparable
with other leading ASX companies and UK banking peers."
Mr Cicutto said he was delighted to accept the Board's offer and looked forward
to implementing the National's medium term growth strategy.
A summary of Mr Cicutto's new employment contract is attached. It is in line
with ASX corporate governance guidelines.
For further information, please contact:
Brandon Phillips
Group Corporate Affairs
03 8641 3857
0419 369 058
Group Corporate
Affairs
National Australia
Bank Limited
ABN 12004044937
500 Bourke Street
Melbourne
Victoria 3000
Australia
Melbourne, Thursday 23rd October 2003
National Australia Bank
Summary of the key terms and conditions of employment for the Chief Executive
Office and Managing Director, Mr Frank Cicutto
The National's remuneration philosophy is based on a pay for performance
framework. The remuneration structure is highly performance oriented and
compares favourably to other leading Australian and UK companies. Each component
of remuneration is structured to reward individual and business performance for
all employees including the CEO.
CONTRACT TERM
The CEO's new contract will commence on 23 October 2003 with a three year term.
The contract is renewable thereafter on an annual basis.
FIXED REMUNERATION
Fixed remuneration will be frozen at the current level ($2,082,000 per annum)
for the term of the contract. The National has engaged independent remuneration
experts to benchmark the level of fixed remuneration against that of Chief
Executive Officers of other leading Australian companies and UK banking peers
and considers the level of fixed remuneration to be competitive.
INCENTIVE ARRANGEMENTS
Short-term incentive Plan (STIP)
The National's STIP has been developed in conjunction with a number of
independent remuneration specialists to deliver performance-based
reward in line with emerging best practice and corporate governance principles.
The STIP has been designed to reward individual and business performance as
measured through the achievement of Key Result Areas (KRAs) and Economic Value
Added (EVA) growth over a twelve month period.
The Performance targets include:
* the annual EVA target;
* individual performance targets; and
* assessment by the Board of the CEO's contribution to the overall
development of the National Australia Bank Group (the Group).
As the fixed remuneration is frozen, the STIP target award will be reviewed
annually by the Board. Any increase in STIP target would be based on a number
factors including: the CEO's performance; the prevailing economic conditions;
and remuneration market movements. The target value of the incentive payment for
the first year will be 110% (100% 2002/03) of fixed remuneration, where
performance targets are achieved.
To establish further the direct link between the National's sustained
performance and the incentive payment, at least half of the STIP award must
be taken as National Deferred Shares.
These Deferred Shares will remain at-risk, subject to a forfeiture condition and
trading restriction for a period of up to 10 years. In the case of
Summary Termination or failure to comply with employment duties all Deferred
Shares will be forfeited.
To create further alignment between the STI award and sustainability of
performance, the National will grant one share to match each Deferred
Share (capped at the first 50% of the annual STIP award). The Matching Grant
Shares will be held on trust under essentially the same terms as
the Deferred Shares, however, dividends must be applied towards the acquisition
of further National shares.
Overall two thirds of the incentive paid will be deferred to encourage sustained
performance.
If the CEO resigns without the consent of the Board all the Matching Grant
Shares issued during the three year period are forfeited. Where
employment is terminated for poor performance or failure to comply with duties
or directions, the Matching Grant Shares issued or to be
issued in the current performance year or previous year will be forfeited.
Shares acquired through the reinvestment of dividends from Matching Grant Shares
will be held on the same terms as Matching Grant Shares except that the relevant
restriction period ends on the earlier of cessation and 10 years from the issue
of the first Matching Grant Shares issued.
Long-term incentive Plan (LTIP)
In line with the National's pay for performance framework, the LTIP is designed
to reward individual contribution to long term business
performance as measured by relative total shareholder return (TSR). The LTIP
arrangements continue unchanged from previous years.
Mr Cicutto is entitled to participate in the Executive Share Option Plan No. 2
as approved by shareholders by special resolution in January 1997.
Exercise of performance options and performance rights is subject to the
satisfaction of time and TSR based performance hurdles.
Performance options and rights may not be exercised before the third anniversary
of their issue. The performance hurdle is measured after this time by comparing
the National's TSR with that of a comparator group based on the top 50 ASX
listed companies, excluding the National, determined at the date the performance
options or rights are granted. The use of this hurdle is considered
consistent with the National's objective of maximising relative shareholder
value.
The performance options and rights become exercisable depending on the
National's percentile "rank" within the comparator group.
The National must rank at the 50th percentile for any performance options or
rights to become exercisable. If the ranking is at the
50th percentile 50% of performance options or rights will be exercisable. For
each 1% increase above the 50th percentile an
additional 2% of performance options or rights will become exercisable, with
100% of performance options or rights exercisable
where the National ranks at or above the 75th percentile.
The exercise price for each performance option is the market price (the volume
weighted average price of shares on the ASX during the week up to and including
the date of grant) of the National's fully paid ordinary shares as at the date
the performance options are granted.
Performance options or rights will lapse if unexercised on or before their
expiry date or, for performance options issued prior to November 1999, if the
Board determines that the holder has acted fraudulently, dishonestly or in
breach of the holder's obligations to any entity in the Group and for options
issued after November 1999, 30 days after an executive ceases to be employed by
the Group otherwise than as a result of death or total and permanent
disablement.
The following grants of performance options and performance rights are proposed:
* Three tranches, each of 440,000 performance options, to be granted in
December 2003, 2004 and 2005.
* Three tranches of performance rights to be granted, 160,000
performance rights in December 2003 and 110,000
performance rights in December 2004 and 2005
Valuation of performance options and performance rights
The valuations for performance options and performance rights are based on a
numerical pricing method which takes into account the
probability of achieving the performance hurdle (see above) required for the
equity to vest.
The numerical pricing model applied by the Company to value performance options
and performance rights is the Black-Scholes method, modified to take into
account both (i) the probability of achieving the performance hurdle required
for the performance options or performance rights to vest and (ii) the potential
for early exercise of vested performance options or performance rights.
The Black-Scholes method is modified in order to incorporate the performance
hurdle requirements that are integral to the number of options or performance
rights vesting (which may be zero), and the option or performance rights
holder's ability to exercise the option or performance right.
The financial value of the options and performance rights used to determine the
grant value of the LTI is based on $4.74 and $21.19 respectively.
Arrangements upon termination
Provided the CEO remains with the National for the duration of the contract,
there are no provisions for severance entitlements.
If termination is initiated by the National during the term of the contract, a
six month notice period will apply and a payment equivalent to eighteen months
of fixed remuneration less superannuation will be made. Where the contract is
extended beyond the current term the amount of the termination payment will be
reduced on a pro-rata basis.
If termination is initiated by the CEO in the case of a material change of
circumstances, a six month notice period is required and
a payment equivalent to eighteen months of fixed remuneration less
superannuation will be made. Where termination is initiated
by the CEO for other reasons no additional termination payments will be made.
Arrangements after the contract period
Prior to cessation of duties as Chief Executive Officer, Mr Cicutto and the
National may enter a Consultancy
Agreement for a period of 3 years. During the period of the consultancy
agreement Mr Cicutto will provide consulting services and will be restrained
from entering employment with any of the National's competitors.
Consideration for the restraint on employment will be an amount equivalent to
twelve months of fixed remuneration less superannuation.
In the instance a Consultancy Agreement is entered into following cessation of
office by the Chief Executive Officer there are no provisions for termination.
Where no Consultancy Agreement is entered into, a restraint on employment will
apply for a period of twelve months from the date of termination and
consideration equivalent to twelve months fixed remuneration less superannuation
will be paid.
23 October 2003
This information is provided by RNS
The company news service from the London Stock Exchange
END
STRGCBDGGBDGGXX