RNS Number:5009S
National Australia Bank Ld
26 November 2003
PART 2 (B)
The Board is comprised of a majority of independent non-executive directors.
There are two executive directors and nine independent non-executive directors.
The role of Chairman and role of Chief Executive Officer are held by two
separate individuals. The Chairman is a non-executive director and the Managing
Director and Chief Executive Officer is an executive director.
The skills, experience and expertise of the directors are set out in the report
of the directors.
Independence of directors
In judging whether a director is independent for the purposes of services on the
Board and Board committees of the Company, the Board has regard to the standards
adopted by the Board from time to time to assist it in its regular '
independence' determinations. These standards reflect the independence
requirements of applicable laws, rules and regulations, including the Australian
Stock Exchange Corporate Governance Council Principles of Good Corporate
Governance and Best Practice Recommendations and the United States
Sarbanes-Oxley Act of 2002. Directors are required to provide all relevant
information to allow a regular assessment of independence. The fundamental
premise of the standards is that an independent director must be independent of
management and free to exercise his or her unfettered and independent judgement.
The non-executive directors meet informally on a regular basis, without the
Managing Director and Chief Executive Officer, the other executive director and
other members of management being present.
The directors considered by the Board to constitute independent directors are
identified, along with their period in office, in the report of the directors.
Disclosure of related party transactions is set out in note 52 in the financial
report.
Appointment and re-election of Board members
The process for appointing a director is that, when a vacancy exists, the Board,
assisted by the Nomination Committee, identifies candidates with the appropriate
expertise and experience, using external consultants as appropriate. The most
suitable candidate is appointed by the Board but must stand for election by the
shareholders at the next annual general meeting of the Company.
The Company has formal letters of appointment for its directors setting out the
key terms and conditions of the appointments.
The process for re-election of a director is in accordance with the Company
's constitution, which requires that, each year, at least one-third of
the directors, except the Managing Director, retire from office at the annual
general meeting. The retiring directors may be eligible for re-election.
Prior to each annual general meeting, the Board will assess the performance of
each director due to stand for re-election and determine if the Board will
recommend to the shareholders that they vote in favour of the re-election, or
otherwise, of each such director.
For directors appointed after 1995, the Board has set a limit of 15 years for
which an individual may serve as a director. The Board regards this as an
appropriate period of service. Directors who have served on the Board for an
extended period of time have gained valuable experiences, insights and
historical perspectives regarding the Group that would not be easily replaced.
The retirement age for directors is fixed by the Company's constitution
at 70 years of age.
Induction and continuing education
Senior management, working with the Board, will provide an orientation program
for new directors in order to assist them in fulfilling their duties and
responsibilities. The program will include discussions with the Managing
Director and Chief Executive Officer and executives, the provision of reading
material, tutorials and workshops. These will include detail on directors
' rights, duties and responsibilities, the Group's strategic
plans, its significant financial, accounting and risk management issues, its
compliance programs, its Code of Conduct, its management structure and its
internal and external auditors.
Management will conduct additional presentations and tutorial sessions for
directors from time to time regarding the Group, the factors impacting, or
likely to impact, on its businesses, and to assist the non-executive directors
in gaining a broader understanding and knowledge of the Group. Directors are
also encouraged to keep up to date on relevant topical issues.
Board meetings
The frequency of Board meetings and directors' attendance at those
meetings is set out in the report of the directors. Directors are expected to
prepare adequately, attend and participate at Board meetings and meetings of
committees. Some on-site inspections are conducted which directors are also
expected to attend. The Board meets once each year in Europe, where the Group
has a substantial proportion of its assets, and in New Zealand where there are
significant business interests. The amount of work undertaken is considerable.
The time requirement varies depending on the number of Board committee meetings
and controlled entity board meetings a director attends.
Board performance
The Board reviews and evaluates the performance of the Board with the guidance
of the Nomination Committee. The Board receives feedback from shareholders and
executives on the performance of the Board. During the year, an external
independent expert was engaged to review many aspects of the Board's
activities and to assist in a continuous improvement process to enhance the
effectiveness of the Board.
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Remuneration of directors
The maximum aggregate amount from which non-executive directors may be
remunerated is determined by the shareholders. It is possible that this maximum
aggregate amount may not be fully utilised in any one year. From this amount,
the individual directors are remunerated based on a philosophy of compensating
the directors at around the upper quartile of the market, having regard to the
size and complexity of the Company.
The remuneration of non-executive directors involves all the non-executive
directors receiving part of their remuneration in the form of shares in the
Company.
The Compensation Committee provides guidance to the Board in respect of these
matters.
The remuneration policy for the Board and the remuneration of each director is
set out in the report of the directors.
Remuneration of senior executives
The Group's remuneration philosophy for senior executives is to reward
high levels of sustained performance and contribution through a
pay-for-performance model.
Remuneration comprises the following major components:
fixed remuneration; and
variable remuneration;
- short-term incentives; and
- long term incentives.
Variable remuneration, also known as 'at risk' remuneration,
comprises short-term incentives and long-term incentives. In general, the Group
aims to target the upper quartile of the market for remuneration to ensure the
attraction and retention of talented executives.
The Compensation Committee provides guidance to the Board in respect of these
matters.
The remuneration policy for senior executives is set out in the report of the
directors.
Conflicts of interest
Directors are expected to avoid any action, position or interest that conflicts
with an interest of the Group, or gives the appearance of a conflict. A
director who has a material personal interest in a matter that relates to the
affairs of the Group must give the other directors notice of such interest.
Such notice should be provided in writing to the Company Secretary, who is to
ensure that the notice is brought to the attention of the other directors.
The Corporations Act 2001 (Cth) together with the constitution of the Company
provide that a director who has a material personal interest in a matter that is
being considered at a directors' meeting cannot be present while the
matter is being considered at the meeting or vote on the matter, except in the
following circumstances:
* the directors who do not have a material personal
interest in the matter have passed a resolution that identifies the director,
the nature and extent of the director's interest in the matter and its
relation to the affairs of the company, which states that the remaining
directors are satisfied that the interest should not disqualify the director
from voting or being present;
* ASIC has made a declaration or order under the
Corporations Act 2001 (Cth), which permits the director to be present and vote
notwithstanding the director's material personal interest;
* there are not enough directors to form a quorum for a
directors' meeting because of the disqualification of the interested
directors, in which event one or more of the directors (including a director
with a material personal interest) may call a general meeting to address the
matter; and
* the matter is of a type which the Corporations Act
2001 (Cth) specifically permits the director to vote upon and to be present at a
directors' meeting during consideration of the matter notwithstanding
the director's material personal interest.
However, notwithstanding the exceptions permitted by the Corporations Act 2001
(Cth) and the constitution of the Company (as described above), the Group
's corporate governance standards provide that generally speaking, when
a potential conflict of interest arises, the director concerned does not receive
copies of the relevant Board papers and withdraws from the Board meeting while
such matters are considered. Accordingly, in such circumstances the director
concerned takes no part in discussions nor exercises any influence over other
members of the Board. If a significant conflict of interest with a director
exists and cannot be resolved, the director is expected to tender his or her
resignation after consultation with the Chairman.
Financial services are provided to non-executive directors under terms and
conditions that would normally apply to the public. Executive directors are
entitled to financial services under terms and conditions that would normally
apply to full-time employees. The granting of financial services to directors
is subject to any applicable legal or regulatory restrictions, including the
United States Sarbanes-Oxley Act of 2002.
Access to management
Board members shall have complete and open access to members of management
following consultation with the Chairman and the Managing Director and Chief
Executive Officer.
Access to independent professional advice
Written guidelines are in place providing for each director to have the right to
seek independent professional advice at the Company's expense, subject
to the prior approval of the Chairman.
The Board has the authority to conduct or direct any investigation required to
fulfil its responsibilities and has the ability to retain, at the Group'
s expense, such legal, accounting or other services, consultants or experts as
it considers necessary from time to time in the performance of its duties.
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Restrictions on share dealings by directors
Directors are subject to the Corporations Act 2001 (Cth) restrictions on
applying for, acquiring and disposing of securities in, or other relevant
financial products of, the Company (or procuring another person to do so), if
they are in possession of inside information. Inside information is that
information which is not generally available, and which if it were generally
available, a reasonable person would expect it to have a material effect on the
price or value of the securities in, or other relevant financial products of,
the Company.
Further, directors may only trade in the Company's securities (subject
to also complying with applicable law) during each of the eight weeks commencing
the day following each half yearly profit announcement or the date of issue of a
prospectus. Directors are further required to discuss their intention to trade
in the Company's securities with the Chairman prior to trading.
The directors are also subject to legal restrictions on insider trading in other
jurisdictions.
Directors must not trade in the shares of any other entity if inside information
on such entity comes to the attention of the director by virtue of holding
office as a director of the Company.
Shareholding requirements
Within two months after a director's appointment, the director is
required to hold at least 2,000 shares in the Company. Non-executive directors
are required to receive at least 10% and up to 40% of their annual remuneration
in the form of shares in the Company, under the National Australia Bank Staff
Share Ownership Plan, which was approved by shareholders at the Company'
s annual general meeting in 2000 and fresh approval of the non-executive
directors' share plan will be sought again at the 2003 annual general
meeting. Such shares are acquired at market prices. The executive directors
may receive share options and performance rights over shares as approved by
shareholders and, as staff members, may also receive shares in the Company.
Details of all shareholdings by directors in the Company are set out in the
report of the directors.
Confidential information
Internal control systems are monitored and employee integrity is fostered to
ensure that confidential customer information is not disclosed outside the Group
or used for financial gain of any other entity with which the director has an
association. The directors regard the confidentiality of customer information
as highly important. When the directors are serving on the boards of other
companies and undertaking private transactions, they have regard to their
confidentiality obligations at all times.
Board and committee agendas
Board and committee agendas are structured throughout the year to assist the
Board to meet its significant responsibilities. This includes the Board
's consideration of strategy and the achievement of financial and other
goals. This also includes the Board receiving a detailed overview of the
performance and significant issues confronting each business unit and support
unit and to identify major risk elements for review to ensure that assets are
properly valued and that protective strategies are in place.
Directors receive detailed financial, operational and strategy reports from
senior management during the year and management is available to discuss the
reports with the Board.
Board committees
The Board may establish committees as it considers necessary or appropriate to
assist it in carrying out its responsibilities. The Board has established the
following committees and has adopted charters setting out the matters relevant
to the composition, responsibilities and administration of these committees:
* Risk Committee;
* Audit Committee;
* Nomination Committee; and
* Compensation Committee.
Other matters of special importance in relation to which Board committees are
established include consideration of large credit facilities, borrowing
programs, projects, capital strategies, major investments and commitments,
capital expenditure, delegation of
authorities to act, and the allocation of resources.
During the year, the responsibilities of the previous Compensation and
Nomination Committee were divided and allocated between two new committees.
Risk Committee
Membership
The Risk Committee was established on August 28, 2003. There were no meetings
held during 2003.
The members of the Risk Committee at the date of this annual financial report
are:
Mr Graham J Kraehe (Chairman);
Mr Frank J Cicutto;
Mr Peter JB Duncan; and
Dr Edward D Tweddell.
It is appropriate that members of the Risk Committee have a range of different
backgrounds, skills and experiences having regard to the operations, financial
and strategic risk profile of the Group.
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Responsibilities and Risk Committee charter
The roles, responsibilities, composition and membership requirements are
documented in the Risk Committee charter, which has been approved by the Board
and may be found on the Group's website at www.nabgroup.com
The responsibilities of the Risk Committee include:
* reviewing the Group's risk profile within the
context of the Board risk/return profile determined by the Board;
* implementing and reviewing risk management and
internal compliance and control systems throughout the Group;
* reviewing the adequacy and effectiveness of the Group's
compliance management framework;
* reviewing balance sheet risk management framework and
strategies;
* overseeing the Group's credit policies;
* assessing operational risk limits;
* reviewing business risk management;
* reviewing country lines of credit; and
* reviewing the liquidity policies of the Group.
More comprehensive details on risk management appear on pages 51 to 57.
Audit Committee
Membership
The members of the Audit Committee at the date of this annual financial report
are:
Mrs Catherine M Walter (Chairman);
Mr Peter JB Duncan;
Dr Kenneth J Moss; and
Mr John G Thorn (joined on October 16, 2003).
All members of the Audit Committee must be independent, non-executive directors.
'Independence' for these purposes is determined in accordance
with the standard adopted by the Board, which reflects the independence
requirements of applicable laws, rules and regulations, including the Australian
Stock Exchange Corporate Governance Council Principles of Good Corporate
Governance and Best Practice Recommendations and the United States
Sarbanes-Oxley Act of 2002. Members are appointed for an initial term of three
years. Membership is reviewed every three years and periodic rotation is
encouraged whereby no more than one member each year can resign as a result of
periodic rotation. It is considered appropriate that members of the Audit
Committee be financially literate and have a range of different backgrounds,
skills and experiences having regard to the operations, financial and strategic
risk profile of the Group. The Board recognises the importance of the Audit
Committee having at least one member with appropriate accounting or financial
expertise, as required by applicable laws, best practice guidelines and listing
standards. There is currently a member on the Audit Committee, Mr John G Thorn,
who acts as the financial expert for United States regulatory purposes. All
members of the Audit Committee are financially literate.
The Chairman of the Board cannot be a member of the Audit Committee.
The qualifications of the Audit Committee members together with the number of
meetings attended by each member during the year may be found in the report of
the directors.
Responsibilities and Audit Committee charter
The Audit Committee's role, responsibilities, composition and membership
requirements are documented in the Audit Committee charter, which has been
approved by the Board and may be found on the Group's website at
www.nabgroup.com
The Audit Committee is responsible for review and oversight of:
* the integrity of the accounting and financial
reporting processes of the Group;
* the Group's external audit;
* the Group's internal audit; and
* compliance with applicable accounting standards to
give a true and fair view of the financial position and performance of the
Group.
The Audit Committee met on seven occasions during the year. The charter is
reviewed at least annually.
The Audit Committee has the authority to conduct or direct any investigation
required to fulfil its responsibilities and has the ability to retain, at the
Company's expense, such legal, accounting or other advisers, consultants
or experts as it considers necessary from time to time in the performance of its
duties.
External auditor
The Audit Committee is responsible for the selection, evaluation, compensation
and, where appropriate, replacement of the external auditor, subject to
shareholder approval where required. Responsibilities of this nature are a
departure from the Australian Stock Exchange Corporate Council Principles of
Good Corporate Governance and Best Practice Recommendations which provide that
the Audit Committee should recommend to the Board the appointment and removal of
the external auditor. The reason for the departure is that United States
' laws and regulations require that these responsibilities rest with the
Audit Committee.
The Audit Committee is to ensure that the external lead audit partner and
concurring review partner are rotated off the Group's audit after no
more than five years and are not reassigned to the Group's audit for at
least five years.
The Audit Committee meets with the external auditor throughout the year to
review the adequacy of the existing external audit arrangements with particular
emphasis on the scope, quality and independence of the audit. The Audit
Committee meets with internal audit, the external auditor and the consulting
actuary separately, without the presence of management, at least annually.
The Audit Committee receives certified assurances from the external auditor and
the consulting actuary that they meet the independence requirements of the
Company's global regulators.
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Non-audit services
The Group has adopted an internal policy requiring the pre-approval of any
non-audit services proposed to be undertaken by the external auditor. The
policy incorporates auditor independence requirements of applicable laws, rules
and regulations and has been promulgated throughout the Group.
Confidential financial submissions
The Audit Committee has established procedures for the receipt, retention and
treatment of complaints regarding accounting, internal accounting controls or
auditing matters. It is a responsibility of the Audit Committee to ensure that
employees can make confidential, anonymous submissions regarding such matters.
Nomination Committee
Membership
The Nomination Committee's members at the date of this annual financial
report are:
Mr D Charles K Allen (Chairman);
Mr Frank J Cicutto;
Dr J Brian Clark;
Mr Peter JB Duncan;
Mr Graham J Kraehe;
Dr Kenneth J Moss;
Mr John M Stewart;
Mr John G Thorn (joined October 16, 2003);
Mr Geoffrey A Tomlinson;
Dr Edward D Tweddell; and
Mrs Catherine M Walter,
acting in committee.
The Committee has authority from the Board to sub-delegate the authority of the
Committee to a Sub-Committee, comprised of a minimum of three members of the
Committee, to examine, review, consider and recommend such matters, relevant to
the Nomination Committee Charter, as the Committee may consider appropriate from
time to time.
The number of meetings attended by each member during the year, may be found in
the report of the directors.
Responsibilities and Nomination Committee charter
The Nomination Committee's role, responsibilities, composition and
membership requirements are documented in a Nomination Committee charter, which
has been approved by the Board, and which is available on the Group's
website at www.nabgroup.com
The responsibilities of the Nomination Committee are to:
* monitor, review and make recommendations to the Board
regarding its performance;
monitor, review and make recommendations to the Board
as necessary and appropriate regarding the objectives for and assessment of the
performance of the Managing Director and Chief Executive Officer;
* review and make recommendations to the Board as
appropriate, with regard to:
- the size and composition of the Board;
- the criteria for Board membership and desirable qualifications,
experience and domicile for individual new appointees to the Board;
- the induction program for new directors;
- the continuing education program for directors; and
- identification of potential candidates for appointment to the Board;
and
* review the Nomination Committee's charter, as
well as its composition, annually.
Succession planning
The Nomination Committee reviews the succession planning for the Board and
senior executives and reports to the Board on such issues.
Compensation Committee
Membership
The Compensation Committee's members at the date of this annual
financial report are:
Dr Kenneth J Moss (Chairman);
Dr J Brian Clark;
Mr John G Thorn (joined November 7, 2003); and
Dr Edward D Tweddell.
The number of meetings attended by each member during the year may be found in
the report of the directors.
Responsibilities and Compensation Committee charter
The Compensation Committee's role, responsibilities, composition and
membership requirements are documented in a Compensation Committee charter,
which has been approved by the Board and may be found on the Group's
website at www.nabgroup.com
The responsibilities of the Compensation Committee are to:
* monitor, review and make recommendations to the Board
as necessary and appropriate regarding:
- the compensation arrangements for the Managing Director and Chief
Executive Officer, including incentive plans, other benefits and service
contracts; and
- the remuneration arrangements for non-executive directors;
* oversee the remuneration policies of the Group generally;
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* review and approve:
- offers under existing share, option and performance rights plans from
time to time on such conditions (not inconsistent with the provisions of the
relevant plan) as the Compensation Committee thinks fit, including setting the
terms of issue of shares, options and performance rights, within the aggregate
number of securities able to be made available under the relevant plan as
approved by the Board;
- remuneration reviews and payments under current incentive plans for
senior executives and reward pools under various specialist incentive plans;
- fees for the members of the boards of controlled entities; and
- changes to the factors regarding the measurement of Economic Value
Added EVA(R); and
* review the Compensation Committee's charter,
as well as its composition, annually.
EVA(R) is a registered trademark of Stern Stewart & Co.
Performance review
The Board reviews performance and sets the remuneration package applicable to
the Managing Director and Chief Executive Officer following recommendations from
the Compensation Committee. This performance review involves meeting
established performance-based criteria structured on increasing shareholder
value.
The remuneration policy for senior executives is set out in the report of the
directors.
Controlled entities
The activities of every company in the Group are overseen by their own board of
directors.
Directors of each of these controlled entities are provided with Corporate
Governance Guidelines, which have been approved by the Board. The Corporate
Governance Guidelines set out the specific roles, duties, responsibilities and
rights of the directors of the controlled entities. Such guidelines set out the
key expectations that the Board would have of the boards of controlled entities.
The guidelines have been specifically tailored for the different types of
entities depending on the nature of their business and their activities.
Mr Geoffrey A Tomlinson is the Chairman of National Wealth Management Holdings
Limited, and certain wealth management controlled entities, due to his in-depth
background and expertise in wealth management and insurance business. Directors
of controlled entities are normally selected from among the outstanding business
people in the local market in which the entities operate. A primary
pre-requisite to the Board having confidence in the activities of a controlled
entity board is to have a high quality subsidiary board with a commitment to the
Group objectives. There is a standing invitation to all of the Board directors
to attend any board meeting of a controlled entity through consultation with the
Chairman. Such visits are undertaken to develop a broader understanding of the
Group's total operations.
Communicating with shareholders
Strategy
The Group aims to be open and transparent with all stakeholders, including the
owners of the business' the shareholders (direct and indirect). Plain
English communications and easy access to company information are important
objectives of the Company's communications strategy. Information is
communicated to shareholders regularly through a range of forums, publications
and online. These include:
* the Company's annual general meeting, which
this year will be held in Melbourne on December 19, 2003;
* notices and explanatory memoranda of annual general
meetings;
* the concise annual report (unless a shareholder has
requested not to receive this);
* the annual financial report (for those shareholders
who have requested a copy);
* disclosures to the stock exchanges in Australia,
London, Luxembourg, New York, New Zealand and Tokyo, and to the Australian
Securities and Investments Commission and the US Securities and Exchange
Commission;
* letters from the Managing Director and Chief
Executive Officer or the Chairman to specifically inform shareholders of key
matters of interest; and
* the Group's website at www.nabgroup.com,where
there is a Shareholder Centre which includes access to company announcements and
media releases and investor presentations.
In addition to the registered shareholders, there are many thousands who have
invested indirectly through the Group's funds management products, and
through the funds management products of a large number of organisations. The
Group encourages these beneficial owners to take an active interest in the
affairs of the Group by visiting the Group's website. Beneficial owners
and others may also access the Shareholder Centre.
Meetings
The notice of annual general meeting provides details of the location, time and
date of the meeting, the business to be considered by shareholders and details
about each candidate standing for election or re-election as a director of the
Company. On average, these meetings attract around 1,000 shareholders and
stakeholders. For those shareholders who are unable to attend the meeting, the
Company provides a webcast. The Company's external auditor attends this
meeting and is available to answer shareholder questions about the conduct of
the audit and the preparation and content of the auditor's report.
Continuous disclosure
The Board's policy is that shareholders are informed of all major
developments that impact on the Company. There is a detailed continuous
disclosure policy in place, which is intended to maintain the market integrity
and market efficiency of the Company's shares listed on international
stock exchanges. The Company has established written policies and procedures
designed to manage the Company's compliance with the continuous
disclosure obligations imposed by the various stock exchanges on which the
Company's securities are listed (including the ASX) and to attribute
accountability at a senior management level for that compliance.
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Ethical standards
The operations of the Group are driven by the Group's purpose, vision
statement and values. All of the Group's values are important and cover
every aspect of daily banking and financial service practices.
The Group's values include the requirement that the business be
conducted ethically, with integrity and professionalism to achieve the highest
standards of behaviour. These values are reinforced by the Company's
Code of Conduct, which requires the observance of strict ethical guidelines.
The Code of Conduct applies to all senior executives and employees of the Group,
as well as to directors, and temporary workers. In addition, the Board charter
also governs the conduct of the Board and each director. The Code of Conduct
covers:
* personal conduct;
* honesty;
* relations with customers;
* prevention of fraud;
* financial advice to customers;
* conflict of interest; and
* disclosure.
The Group regularly reviews its relationships with the external suppliers of
goods and services. Organisations with high ethical standards are favourably
considered. Where there is transition of executives between the Group and major
suppliers or customers, appropriate confidentiality and independence issues are
addressed in both principle and process.
The Board supports the code of conduct issued by the Australian Institute of
Company Directors.
In addition, the Group has adopted a code of conduct for financial professionals
which applies to the Managing Director and Chief Executive Officer, Chief
Financial Officer and all professionals worldwide serving in finance,
accounting, tax or investor relations roles.
The Company strongly supports the Code of Banking Practice 2003, recently
launched by the Australian Bankers' Association, which includes:
* major commitments and obligations to customers;
* principles of conduct; and
* the roles and responsibilities of the independent
external body, the Code of Compliance Monitoring Committee, which investigates
complaints about non-compliance.
Whistleblower Protection Program
The Group has a Whistleblower Protection Program established for the
confidential reporting of issues of unacceptable or undesirable conduct. The
system enables disclosures to be made to a Protected Disclosure Officer by the
Group's employees, or, where applicable, if the matter is highly
sensitive and the employee believes it more appropriate, direct to the Audit
Committee.
The Group does not tolerate known or suspected incidents of fraud, corrupt
conduct, adverse behaviour, legal or regulatory non-compliance, or questionable
accounting and auditing matters by its employees.
Nor does the Group tolerate taking reprisals against those who come forward to
disclose such conduct. The Group will take all reasonable steps to protect
employees who make such disclosures from any reprisal or detrimental action
following the disclosure.
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Report of the directors
The directors of National Australia Bank Limited (the Company) present their
report, together with the financial statements of the Group, being the Company
and its controlled entities, for the year ended September 30, 2003.
Directors
The Board of directors (the Board) has power to appoint persons as directors to
fill any vacancies. Other than the Managing Director, one-third (or the nearest
number to but not exceeding one-third) are required to retire by rotation at
each annual general meeting, together with any director appointed during the
year to fill any vacancy. Both the directors retiring by rotation and any
newly-appointed directors are eligible to stand for re-election or election.
Details of directors of the Company in office at the date of this report, and
each director's qualifications, experience and special responsibilities
are below:
Mr D Charles K Allen
AO, MA, MSc, FTSE, FAICD
Mr Allen was appointed Chairman in September 2001 and has been an independent
non-executive director since 1992. He is Chairman of the Nomination Committee.
Experience
35 years in the petroleum industry including 21 years with Shell International
and 14 years as Managing Director of Woodside Petroleum Ltd until 1996.
Other directorships
Amcor Limited, The Australian Gas Light Company (AGL), Air Liquide Australia
Limited and Earthwatch Australia.
Mr Frank J Cicutto
BCom, FAIBF, FCIBS
Mr Cicutto, the Managing Director and Chief Executive Officer, was appointed to
the Board as an executive director in 1998. He is a member of the Risk
Committee and the Nomination Committee.
Experience
35 years in banking and finance in Australia and internationally. Previous
executive positions within the Group include Head of Credit Bureau, State
Manager New South Wales, Chief Executive Clydesdale Bank PLC, and Chief General
Manager, Australian Financial Services. Appointed Executive Director and Chief
Operating Officer in July 1998, and appointed Managing Director and Chief
Executive Officer in June 1999.
Other directorships
Melbourne Business School Limited.
Dr J Brian Clark
DSc
Dr Clark is an independent non-executive director and was appointed in 2001. He
is a member of the Compensation Committee and the Nomination Committee.
Experience
30 years as a research physicist and senior manager, including five years as
President of CSIR, the largest multi-disciplinary contract research organisation
in South Africa. From 1990 he has been involved in telecommunications, first as
a non-executive director of Telkom SA Limited, then as its Managing Director and
Chief Executive Officer. In 1997 he joined the Vodafone Group where he
currently serves as Chief Executive Officer of Asia Pacific and a member of the
Group's executive committee.
Other directorships
Chairman of the public company Vodafone Holdings KK in Japan and is a
non-executive director of China Mobile (Hong Kong) Limited, Chairman and Board
member of a number of Vodafone Group Companies.
Mr Peter JB Duncan
BE (Chem) (1st Class Hons), DBS (with Distinction), MAICD
Mr Duncan is an independent non-executive director and was appointed in 2001.
He is a member of the Audit Committee, the Risk Committee and the Nomination
Committee.
Experience
36 years with Royal Dutch/Shell Group of companies, including senior finance and
general management positions in Australia, New Zealand, South America, Europe
and South East Asia. He was Chairman of the Shell Group of Companies in
Australia and New Zealand. Former Chairman of the Australian Institute of
Petroleum.
Other directorships
Orica Limited, GasNet Australia Limited and Commonwealth Scientific and
Industrial Research Organisation (CSIRO). Chairman of Scania Australia Pty
Limited. President of the Australian German Association. Honorary member of
the Business Council of Australia.
Mr Graham J Kraehe
AO, BEc, FAICD
Mr Kraehe is an independent non-executive director and was appointed in 1997. He
is the Chairman of the Risk Committee and a member of the Nomination Committee.
Experience
38 years in the wine, automotive and diversified manufacturing industries.
Managing Director of Pacifica Limited from 1985 until 1994. Managing Director
and Chief Executive Officer of Southcorp Limited from 1994 until early 2001.
Other directorships
Brambles Industries Limited, Brambles Industries PLC, The News Corporation
Limited and Djerriwarrah Investments Limited. Chairman of BHP Steel Limited.
Dr Kenneth J Moss
BE, PhD, FIEAust, CPEng, FAICD
Dr Moss is an independent non-executive director and was appointed in 2000. He
is Chairman of the Compensation Committtee and is a member of the Audit
Committee and the Nomination Committee.
70
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Experience
35 years in the mining, engineering, marine and hardware industries with BHP
Limited and the Howard Smith Group, including seven years as Managing Director
of Howard Smith Limited until July 2000.
Other directorships
Adsteam Marine Limited, GPT Management Limited and Hunter Area Health Service.
Chairman of Boral Limited and Centennial Coal Company Limited.
Mr John M Stewart
BA, ACII, FCIB
Mr Stewart is an executive director and was appointed in August 2003. He is the
Managing Director and Chief Executive Officer of National Australia Group Europe
Limited and is a director of Clydesdale Bank PLC, Northern Bank Limited,
National Irish Bank Limited and Yorkshire Bank PLC. He is a member of the
Nomination Committee.
Experience
26 years in banking and finance in the United Kingdom including four years as
Group Chief Executive of Woolwich PLC until its acquisition by Barclays PLC in
2000 when he was appointed Deputy Group Chief Executive of Barclays PLC.
Mr John G Thorn
FCA, MAICD
Mr Thorn is an independent non-executive director and was appointed in October
2003. He is a member of the Audit Committee, the Compensation Committee and the
Nomination Committee. He acts as the financial expert on the Audit Committee
for United States regulatory purposes.
Experience
37 years in professional services with PricewaterhouseCoopers, over 20 years as
a partner responsible for significant international and Australian clients.
Australian National Managing Partner and a member of the Global Audit Management
Group until 2003.
Other directorships
Salmat Limited.
Mr Geoffrey A Tomlinson
BEc
Mr Tomlinson is an independent non-executive director and was appointed in 2000.
He is Chairman of National Wealth Management Holdings Limited. He is a member
of the Nomination Committee.
Experience
29 years with the National Mutual Group, six years as Group Managing Director
and Chief Executive Officer until 1998.
Other directorships
Amcor Limited and Mirrabooka Investments Limited. Chairman of Reckon Limited,
Funtastic Limited and Programmed Maintenance Services Limited. Deputy Chairman
of Hansen Technologies Limited.
Dr Edward D Tweddell
BSc, MBBS (Hons), FRACGP, FAICD
Dr Tweddell is an independent non-executive director and was appointed in 1998.
He is a member of the Compensation Committee, the Nomination Committee and the
Risk Committee.
Experience
25 years in the pharmaceutical and health care industries. Group Managing
Director and Chief Executive Officer of FH Faulding & Co Limited from 1993 to
2001.
Other directorships
Chairman of Ansell Limited. Director of Australian Postal Corporation and
Commonwealth Scientific and Industrial Research Organisation (CSIRO).
Mrs Catherine M Walter
AM, LLB (Hons), LLM, MBA, FAICD
Mrs Walter is an independent non-executive director and was appointed in 1995.
She is Chairman of the Audit Committee and is a member of the Nomination
Committee.
Experience
20 years as a solicitor and eight years as a partner in the firm Clayton Utz
until 1994, including a period as Managing Partner of the Melbourne office. She
also served as a Commissioner of the City of Melbourne.
Other directorships
Australian Stock Exchange Limited, Orica Limited, Australian Foundation
Investment Company Limited, Melbourne Business School Limited and The Walter and
Eliza Hall Institute of Medical Research.
Board changes
During the year Mr John M Stewart was appointed an executive director and in
October 2003, Mr John G Thorn was appointed a non-executive director.
Directors' and officers' indemnity
The Company's constitution
Article 21 of the Company's constitution provides:
Every person who is or has been an officer is entitled to be indemnified out of
the property of the Company to the 'relevant extent' against:
every liability incurred by the person in the
capacity as an officer (except a liability for legal costs); and
all legal costs incurred in defending or resisting
(or otherwise in connection with) proceedings, whether civil, criminal or of an
administrative or investigatory nature, in which the officer becomes involved in
that capacity,
unless:
*
the Company is forbidden by statute to indemnify the
person against the liability or legal costs; or
* an indemnity by the Company of the person against the
liability or legal costs would, if given, be made void by statute.
The reference to the 'relevant extent' means to the extent and
for the amount that the officer is not otherwise entitled to be indemnified and
is not actually indemnified.
71
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The Company may also pay, or agree to pay, whether directly or through an
interposed entity, a premium for a contract insuring a person who is or has been
an officer against liability incurred by the person in their capacity as an
officer, including a liability for legal costs, unless:
*
the Company is forbidden by statute to pay or agree
to pay the premium; or
* the contract would, if the Company paid the premium,
be made void by statute.
The Company may enter into a contract with an officer or former officer to give:
* effect to the rights of the officer or former officer
conferred by Article 21; and
* an officer or former officer access to papers,
including those documents provided from or on behalf of the Company or a related
body corporate of the Company to the officer during their appointment and those
documents which are referred to in such documents or were made available to the
officer for the purpose of carrying out their duties as an officer.
Article 21 does not limit any right the officer otherwise has. In the context
of Article 21, 'officer' means a director, secretary or
executive officer of the Company or of a related body corporate of the Company.
The existing and former directors, secretaries and executive officers of the
Company and of its related bodies corporate are indemnified in terms of Article
21.
The Company has executed deeds of indemnity in terms of Article 21 in favour of
each non-executive director of the Company and each non-executive director of a
related body corporate of the Company.
Directors' and officers' insurance
During the year, the Company, pursuant to Article 21, paid a premium for a
contract insuring all directors, secretaries, executive officers and employees
of the Company and of each related body corporate of the Company. The insurance
does not provide cover for the independent auditors of the Company or of a
related body corporate of the Company.
In accordance with usual commercial practice, the insurance contract prohibits
disclosure of details of the nature of the liabilities covered by the insurance,
the limit of indemnity and the amount of the premium paid under the contract.
Principal activities and significant changes in nature of activities
The principal activities of the Group during the year were banking services,
credit and access card facilities, leasing, housing and general finance,
international banking, investment banking, wealth management, funds management,
life insurance, and custodian, trustee and nominee services.
Review of operations
A review of the operations of the Group during the year, and the results of
those operations are contained on pages 2 to 3, 14 to 23, and 42 to 43 of the
concise annual report 2003. For a more detailed review of the operations of the
Group, refer to pages 3 to 61 of this annual financial report.
Group results
The net profit attributable to members of the Company for the year ended
September 30, 2003 was $3,955 million, an increase of $582 million (17.3%) on
the previous year.
A detailed review of the Group results is contained on pages 42 to 43 of the
concise annual report 2003. For a more detailed review of the Group results,
refer to pages 3 to 61 of this annual financial report.
Dividends
The directors have declared a final dividend of 83 cents per fully paid ordinary
share, 100% franked, payable on December 10, 2003. The proposed payment amounts
to $1,248 million.
Dividends paid since the end of the previous financial year:
* the final dividend for the year ended September 30, 2002
of 75 cents per fully paid ordinary share, 90% franked, paid on December 11,
2002. The payment amount was $1,151 million; and
* the interim dividend for the year ended September 30, 2003
of 80 cents per fully paid ordinary share, fully franked, paid on July 2, 2003.
The payment amount was $1,104 million.
Further information on the dividends paid and declared to date is contained in
note 7 to the financial statements.
The franked portion of these dividends carry imputation tax credits at a tax
rate of 30%, reflecting the current Australian company tax rate of 30%.
The extent to which future dividends will be franked, for Australian taxation
purposes, will depend on a number of factors including the proportion of the
Group's profits that will be subject to Australian income tax and any
future changes to Australia's business tax system as a result of the
Australian Commonwealth Government's tax reform initiatives.
Significant changes in the state of affairs
On September 29, 2003, the Group raised GBP400 million through the issue by
National Capital Trust I (a controlled entity formed in Delaware) of 400,000
Trust Preferred Securities at GBP1,000 each, to be used by the Company's
London branch. Each Trust Preferred Security earns a non-cumulative
distribution, payable semi-annually in arrears until December 17, 2018 equal to
5.62% per annum and, in respect of each five year period after that date, a
non-cumulative distribution payable semi-annually in arrears at a rate equal to
the five-year benchmark UK government bond rate at the start of that period plus
1.93%.
In certain limited circumstances, the Trust Preferred Securities will be
exchanged for redeemable preference shares in the Company (TPS preference
shares). The Company also has discretion to exchange the Trust Preferred
Securities for TPS preference shares at any time. If issued, each holder of a
TPS preference share would receive, if declared, non-cumulative dividends
calculated at the same rate and payable on the same basis as apply to the Trust
Preferred Securities.
With the prior consent of APRA, the Trust Preferred Securities and the TPS
preference shares (if issued) may be redeemed in certain limited circumstances.
In some circumstances, the redemption price may include a 'make-whole
' adjustment to compensate the investor for the investment opportunity
lost by the early redemption.
72
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The Trust Preferred Securities are listed on the Luxembourg Stock Exchange and
on a winding up of the Company will generally rank equally with the holders of
other preference shares and will rank for return of capital behind all deposit
liabilities and creditors of the Company, but ahead of ordinary shareholders.
In the opinion of the directors, there have been no other significant changes in
the state of affairs during the year ended September 30, 2003.
Events subsequent to balance date
At the date of this report, the Company had not made the decision to elect to
consolidate for Australian income tax purposes. If such an election is made,
the Company would be the head entity in a tax-consolidated group comprising the
Company and all of its Australian wholly-owned subsidiaries.
The financial effects of the tax consolidation legislation cannot be estimated
reliably at this point in time and have not been brought to account in the
financial statements for the year ended September 30, 2003, except as stated in
note 23 of the financial report.
On October 1, 2003 the Company announced its intention to buy back ordinary
shares on market approximately equal to the number of shares issued under the
Company's dividend package plans and staff share and option plans. The
Company expects this to be up to approximately 25,500,000 ordinary shares. The
period of the buy-back is expected to be from November 11, 2003 until September
30, 2004.
At the Company's annual general meeting to be held on December 19, 2003,
the Company will seek shareholder approval to buy back the total of 36,008,000
fully paid non-converting non-cumulative preference shares of the Company issued
in connection with the issue of 18,004,000 Trust Units Exchangeable for
Preferred Shares TM of the Group. Approval of the buy-back will give the Group
the flexibility to redeem these capital instruments if it considers the capital
is no longer required and/or the instruments no longer offer a cost effective
source of Tier 1 capital.
No further matter, item, transaction or event of a material and unusual nature
has arisen in the interval between the end of the financial year and the date of
this report that, in the opinion of the directors, has significantly affected or
may significantly affect the operations of the Group, the results of those
operations, or the state of affairs of the Group in future financial years.
Future developments
Details of the likely major developments in the operations of the Group in
future years and the expected results of those operations are referred to on
pages 4 to 7 in the concise annual report 2003.
In the opinion of the directors, disclosure of any further information would be
likely to result in unreasonable prejudice to the interests of the Group.
Environmental regulation
The operations of the Group are not subject to any particular and significant
environmental regulation under a law of the Australian Commonwealth Government
or of a State or Territory, but the Group can incur environmental liabilities as
a lender. The Group has developed credit policies to ensure this is managed
appropriately.
Rounding of amounts
Pursuant to Class Order 98/100 made by the Australian Securities and Investments
Commission (ASIC) on July 10, 1998, the Company has rounded off amounts in this
report and the accompanying financial report to the nearest million dollars,
except where indicated.
Proceedings on behalf of the Company
There are no proceedings brought or intervened in, or applications to bring or
intervene in proceedings, on behalf of the Company by a member or other person
entitled to do so under section 237 of the Corporations Act 2001 (Cth).
Remuneration policy and relationship to Company performance
Non-executive directors
The fees paid to non-executive members of the Board are based on advice and data
from the Company's remuneration specialists and from external
remuneration advisers. This advice takes into consideration the level of fees
paid to board members of other major Australian corporations, the size and
complexity of the Company's operations, the achievements of the Company
and the responsibilities and workload requirements of Board members.
Because the focus of the Board is on the long-term strategic direction of the
Company, there is no direct link between non-executive director remuneration and
the short-term results of the Company. The long-term performance of the
Company, relative to other large corporations, is considered among other factors
in setting the fee pool, which is periodically proposed to shareholders at the
annual general meeting for approval. Shareholders will be presented with a
proposal to consider a revised fee pool at the Company's annual general
meeting to be held on December 19, 2003.
Fees are established annually for the Chairman and non-executive directors.
Additional fees are paid, where applicable, for participation in Board
committees and for serving on the boards of controlled entities. The total fees
paid to members of the Board, including fees paid for their involvement on Board
committees and controlled entity boards, are kept within the total approved by
shareholders from time to time.
At the Company's annual general meeting held in December 2000,
shareholders approved the non-executive directors' share arrangement
under the National Australia Bank Staff Share Ownership Plan. Under this
arrangement, shares are provided to non-executive directors as part of their
remuneration, rather than receiving cash. The shares are either issued or
acquired on-market on behalf of participants and allocated to non-executive
directors on dates determined by the trustee of the National Australia Bank
Staff Share Ownership Plan in its sole discretion. Shareholder approval for the
continued provision of shares in accordance with this arrangement will be sought
at the Company's annual general meeting to be held on December 19, 2003.
Agreements between the Company and certain of the non-executive directors
provide that upon, and in the consequence of, each of these directors ceasing to
be a director by reason of retirement or death, the Company shall pay a lump sum
retirement allowance. This retirement
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benefit, as approved by shareholders, is based on period of service, as follows:
* Less than 15 years
One-third of the average yearly emoluments paid by the Company to the director:
(a) during the last three years of service; or
(b) when the period of such service is less than three years, during that
period,
for each completed year of service and proportionately for part of a year, as a
non-executive director; or
15 years or more
Five times the average yearly emoluments paid by the Company to the director
during the last three years of service as a non-executive director.
During 2002, the Board decided not to enter into any new contractual obligations
to pay retirement allowance benefits to non-executive directors. For all new
non-executive directors, who would have no entitlement to a retirement allowance
benefit, their directors' fees have been set at a higher level than the
current fees payable. The new directors would then have flexibility in relation
to their remuneration, including the opportunity to set aside additional
superannuation beyond the compulsory superannuation guarantee levy, if so
desired.
It is proposed that the existing contractual arrangements will be frozen.
Current directors will move onto similar arrangements to those of new directors.
Shareholders will be asked to approve this proposal at the Company's
annual general meeting to be held on December 19, 2003.
The following table shows details of the nature and amount of each element of
the emoluments of each non-executive director of the Company for 2003. No
options or performance rights have been granted to non-executive directors
during or since the end of 2003 as part of their remuneration.
Fees, cash Fees, share Other Total Accrual of Total accumulated
component component (1) benefits remuneration retirement retirement
(1) (2) (3) allowance benefit
benefits for (4)
the
year
$ $ $ $ $ $
Non-executive
directors
D Charles K Allen 251,449 137,266 22,630 411,345 352,911 1,083,218
J Brian Clark 72,800 42,200 6,552 121,552 31,781 65,315
Peter JB Duncan 173,253 29,119 15,593 217,965 55,429 93,470
Graham J Kraehe 114,030 23,200 10,263 147,493 55,620 252,311
Kenneth J Moss 179,436 32,433 16,149 228,018 45,474 124,178
Geoffrey A Tomlinson 226,592 43,788 20,393 290,773 83,366 239,534
Edward D Tweddell 138,530 11,900 12,468 162,898 52,406 252,467
Catherine M Walter 262,615 32,950 23,635 319,200 163,096 546,862
--------------------
(1) Non-executive directors' remuneration represents fees in
connection with their roles, duties and responsibilities as non-executive
director, and includes attendance at meetings of the Board, Board committees and
boards of controlled entities and includes payments of $78,484 to Mrs Walter and
$31,218 to Mr Tomlinson in respect of services performed as non-executive
directors of subsidiary boards and committees relating to the prior year.
(2) The aggregate number of shares acquired by non-executive directors as
part of their remuneration was 13,299 shares and the average issue price was
$29.77.
(3) Reflects compulsory Company contributions to superannuation and
includes contributions of $3,320 to Mrs Walter and $531 to Mr Tomlinson in
respect of services performed as non-executive directors of subsidiary boards
and committees relating to the prior year.
(4) Excludes accumulated compulsory contributions to superannuation and
accumulated investment earnings on those contributions.
Senior executives
The Group operates in a number of countries and business segments so it is
necessary to consider remuneration for senior executives in the context of the
different geographic and specialist remuneration markets in which the Group
competes for top executive talent.
Senior executives have a direct impact on the performance of the Group and its
future prospects and the Board believes it is imperative that remuneration
levels are set to be among the leaders of major corporations, in the appropriate
remuneration markets, to ensure that the Group is able to attract and retain the
best available executive talent.
Remuneration for senior executives of the Group is determined in accordance with
remuneration structures set by the Board, following recommendations from the
Compensation Committee (previously the Nomination and Compensation Committee).
The Compensation Committee receives advice on the level and form the
remuneration should take from the Group's remuneration specialists.
This advice incorporates individual performance achievements and competitive
market data and analysis from several external remuneration advisers.
Individual performance for senior executives is assessed through a mix of
qualitative and quantitative measures using a scorecard approach. An annual
review of performance objectives is conducted by the Chief Executive Officer for
each senior executive and outcomes are distributed to the Board for noting.
Senior executive remuneration is made up of three components. For
out-performance, these amounts can exceed the median of the selected
remuneration market:
Fixed remuneration
This element reflects the scope of the role and the level of skill and
experience of the individual and is generally referenced to the median of the
applicable remuneration market;
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Short-term incentive
Short-term incentives are structured to reward achievement of individual,
business and Group annual performance targets. This is paid depending on the
annual performance of the Group (measured by the Group EVA(R) profitability
measure), the individual business unit and the individual executive. The
weighting of this component varies depending on the nature of the specific
executive role. This aspect of the reward program considers actual achievements
over the past year.
The performance of the Group and individual business units is the key factor in
setting the pools to provide these short-term rewards which generally apply to
other staff as well as senior executives; and
Long-term incentive
Long-term incentives are an integral part of the Group's remuneration
program in rewarding an individual's contribution and potential
contribution to the Group's performance. They involve the issue of
options, performance rights and shares to executives.
The current long-term incentive plan links the reward of the executive directly
to the total shareholder return (TSR) of the Company (based on share price
growth, assuming reinvestment of dividends). This aspect of the reward program
focuses the executive on the future performance of the Group over the next three
to eight years.
Performance rights were introduced in 2003 to rebalance the long-term incentive
plan. Prior to their introduction, almost all of a senior executive's
long-term incentive was provided in the form of options. From March 2003, half
of the remuneration value previously assigned to options is allocated in the
form of performance rights. The introduction of performance rights has reduced
the number of options granted annually and ensures that part of a senior
executive's long-term incentive remains active in situations where the
Group has met the assigned performance hurdles but where options have no value.
Before executive share options and performance rights can be exercised, a
performance hurdle must be met.
This hurdle compares the TSR of the Company with the TSRs of the top 50
companies in the S&P ASX100 (excluding the Company) as at the date the options
or performance rights are granted or such other date determined by the Board.
The number of options or performance rights that may be exercised, if any,
depends on the relevant ranking of the Company compared with this comparator
group. Only 50% of options and performance rights vest if the median TSR
ranking is achieved. For a more detailed description of the performance hurdle,
see 'share options and performance rights' below.
Each option and performance right granted is over one ordinary share in the
capital of the Company.
The following table shows the remuneration details for all executive directors
(including the Managing Director) and the senior executives receiving the
highest emoluments from the Company and the Group during 2003:
Executive director emoluments
Name and Salary Cash Other Total cash Deferred Allocation Total Options Performance
position package performance- benefits remuneration performance- of remuneration granted rights
(1) based (3) based fair value during granted
remuneration remuneration of 2003 during 2003
(2) (4) all (6) (7)
unvested
options and
performance
rights (5)
$ $ $ $ $ $ $ (No.) (No.)
Frank J
Cicutto
Managing 1,897, 1,293,000 153,544 3,344,251 2,586,000 1,844,375 7,774,626 300,000 100,000
Director and
Chief
Executive
Officer
John M
Stewart (8)
Managing 175,798 296,021 55,807 527,626 - 52,161 579,787 125,000 31,250
Director and
Chief
Executive
Officer,
National
Australia
Group Europe
Limited
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Senior executive emoluments (current employees at September 30, 2003)
Name and Salary Cash Other Total cash Deferred Allocation Total Options Performance
position package performance- benefits remuneration performance- of fair remuneration granted rights
(1) based 3) based value during granted
remuneration remuneration of all 2003 during 2003
(2) (4) unvested (6) (7)
options and
performance
rights (5)
$ $ $ $ $ $ $ (No.) (No.)
Peter B Scott
Executive 663,120 825,000 314,855 1,802,975 139,000 1,082,984 3,024,959 125,000 31,250
General
Manager,
Wealth
Management
Richard E
McKinnon
Chief 740,000 871,000 59,670 1,670,670 146,000 1,088,709 2,905,379 125,000 31,250
Financial
Officer
Ian G
MacDonald
Executive 636,411 762,000 51,157 1,449,568 144,000 1,030,734 2,624,302 125,000 31,250
General
Manager,
Financial
Services
Australia
Ian F Scholes
Executive 575,000 1,062,000 43,847 1,680,847 263,000 555,234 2,499,081 125,000 31,250
General
Manager,
Corporate &
Institutional
Banking
Ross E Pinney
Executive 663,002 422,000 171,340 1,256,342 128,000 857,641 2,241,983 75,000 18,750
General
Manager,
Financial
Services
Europe
Senior executive emoluments (ceased employees)
Name and position Salary Performance- Other Allocation Total Options Performance
package based benefits of emoluments granted rights
(1) remuneration (4) (9) fair value during granted
(2) of 2003 (6) during 2003
options and (7)
performance
rights (5)
$ $ $ $ $ (No.) (No.)
Joseph J Whiteside
Former Chairman and - - 2,710,517 - 2,710,517 - -
Chief Executive
Officer, HomeSide
Lending, Inc.
Stephen C Targett
Former Executive 305,397 - 158,925 - 464,322 - -
General Manager,
Financial Services
Europe
--------------------
(1) Reflects the total remuneration package consisting of both basic salary
and packaged benefits, which could otherwise be taken as cash.
(2) Reflects performance-based remuneration accrued but not yet paid in
respect of performance for the year to September 30, 2003. Previously, the
Group determined the allocation of performance-based remuneration after the
signing of the annual financial report and as such reported performance-based
remuneration in the year paid. The performance-based remuneration paid in 2003
in respect of performance for the year to September 30, 2002 was: Frank J
Cicutto $1,931,288; John M Stewart $nil; Peter B Scott $599,250; Richard E
McKinnon $773,746; Ian G MacDonald $666,450; Ian F Scholes $877,762; Ross E
Pinney $329,035; Joseph J Whiteside $nil; and Stephen C Targett $753,473.
(3) Reflects non-salary package remuneration and includes Company
contributions to superannuation, benefits received under the Group's
employee share plans as described in note 39 in the financial report and
expatriate benefits.
(4) Reflects above-target performance-based remuneration which has been
accrued but not yet paid in respect of performance for the year to September 30,
2003. This above-target remuneration is held in an 'at-risk reserve'
and is only paid when an executive has met required service and
performance conditions.
(5) Refer below for an explanation of fair value based on the guidelines
issued by ASIC.
(6) The options were granted on March 21, 2003, and with respect to John M
Stewart on August 8, 2003, at an exercise price of $30.46 each and are first
exercisable on March 21, 2006. No options have been granted to senior
executives since September 30, 2003. Refer to 'share options and
performance rights' below for an explanation of the performance hurdle
that must be achieved before the options can be exercised.
(7) A notional sum of $1.00 is payable by the holder on exercise of an
entire tranche of performance rights. The performance rights were granted on
March 21, 2003, and with respect to John M Stewart on August 8, 2003, and are
first exercisable on March 21, 2006. No performance rights have been granted to
senior executives since
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September 30, 2003. Refer to 'share options and performance rights
' below for an explanation of the performance hurdle that must be
achieved before the performance rights can be exercised.
(8) Mr John M Stewart commenced service late in 2003.
(9) Reflects payment made to Joseph J Whiteside under contract following
the sale of SR Investment, Inc. and its controlled entity, HomeSide Lending,
Inc., on October 1, 2002.
The disclosure of the allocation of fair value of options and performance rights
in the above tables has been based upon guidelines issued by ASIC in June 2003.
These guidelines have regard to the draft accounting standards ED 2 "
Share-based Payment"issued by the International Accounting Standards
Board (IASB) and ED 108 "Request for Comment on IASB ED 2 '
Share-based Payment'"issued by the Australian Accounting
Standards Board (AASB). In accordance with these guidelines, each year a
portion of the fair value of all unvested options and performance rights is
included in the remuneration of senior executives for disclosure purposes. This
portion of the fair value is based on a straight-line allocation of fair value
over the expected life of each unvested option or performance right. No
adjustments are made to reverse amounts in relation to options and performance
rights that never vest. Prior to October 1, 2002, the Company disclosed the
fair value of options granted during the financial year using a numerical
pricing model, but did not allocate those values over their expected life for
reporting emoluments. Rather, the full fair value of the grant was disclosed as
an emolument in the year of grant. As a result, included in the amounts
disclosed above as an allocation of fair value of option and performance rights
in relation to 2003, are amounts related to unvested options granted in prior
years that were disclosed as part of emoluments in the relevant prior years.
This is a result of transitioning to the reporting principles required by ASIC.
Note however, when the final accounting standards referred to above are
promulgated, they will not require all unvested options and performance rights
to be treated in this way, only those granted after November 7, 2002 that are
unvested at the date of adoption of the standards. A difference may therefore
arise between disclosure under the ASIC guidelines and the remuneration expense
recognised under the new accounting standards in the Group's financial
performance.
Options and performance rights granted as part of executive emoluments have been
valued using a numerical pricing model, which takes account of factors including
the option or performance right exercise price, the current level and volatility
of the underlying share price, the risk-free interest rate, expected dividends
on the underlying share, current market price of the underlying share, the
expected life of the option and the probability of the performance hurdle being
reached. For further details, refer to note 39 in the financial report.
Share options and performance rights
The share options and performance rights currently issued by the Company are
options and performance rights over ordinary shares granted by the Group under
the Company's National Australia Bank Executive Share Option Plan No. 2
(ESOP no. 2) and its National Australia Bank Performance Rights Plan
(performance rights plan). Note that the holders of exchangeable capital units
have the right to exchange those units for ordinary shares in the Company or, at
the Company's option, cash. Refer to note 32 in the financial report
for full details of the number and terms of exchangeable capital units issued by
the Group.
The number and terms of options and performance rights over ordinary shares
granted by the Group under the ESOP no. 2 and the performance rights plan, and
the Company's valuation of those options and performance rights at grant
date are detailed below.
During and since the end of 2003, the following share options and performance
rights were granted to 847 senior employees (including the options and
performance rights granted to senior executives referred to immediately above):
Grant date Exercise period Exercise price Held at Lapsed Granted Fair value as
(1) (2) September during at
30, 2003 the period grant date (4)
(3)
$ (No.) (No.) (No.) $
Options
March 21, 2003 March 21, 2006
-
March 20, 2011 30.46 5,949,000 29,750 5,978,750 26,964,163
August 8, 2003 March 21, 2006
-
March 20, 2011 30.46 125,000 - 125,000 563,750
October 31, 2003 March 21, 2006
-
March 20, 2011 30.98 127,500 - 127,500 559,725
Performance
rights
March 21, 2003 March 21, 2006
-
March 20, 2011 1.00 1,512,394 7,438 1,519,832 33,466,701
August 8, 2003 March 21, 2006
-
March 20, 2011 1.00 31,250 - 31,250 688,125
October 31, 2003 March 21, 2006
-
March 20, 2011 1.00 31,875 - 31,875 720,056
--------------------
(1) Share options and performance rights expire on the last day of their
exercise period.
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(2) A notional sum of $1.00 is payable by the holder on exercise of each
tranche of performance rights.
(3) These share options and performance rights lapse 30 days after the
termination of employment unless otherwise determined by the Board in accordance
with their terms.
(4) Fair values of options and performance rights are based on a numerical
pricing model. For the purposes of this table, the fair value at grant date
represents the full fair value in the year of grant and has not been allocated
over the expected life of the option or performance right. Refer above and to
note 39 in the financial report for further information
The ESOP no. 2 was approved by shareholders by special resolution in January
1997 and again at the 2002 annual general meeting. Options granted under the
plan up to September 30, 2003 are detailed in note 39 in the financial report.
The ESOP no. 2 provides for the Board to grant options to executives of the
Group to subscribe for fully paid ordinary shares in the Company. Options must
not be granted if the total number of shares issued in the last five years under
the Company's employee share or option plans and of outstanding options
and performance rights under its plans, including the proposed offer or grant,
exceeds 5% of the number of shares in the issued share capital of the Company at
the time of the proposed offer or grant. This calculation does not include
offers made or shares or options or performance rights granted as a result of an
offer or grant made to a person situated outside Australia at the time of the
offer or grant or which did not need disclosure under section 708 of the
Corporations Act 2001 (Cth) (for example, shares provided for no consideration
under the National Australia Bank Staff Share Allocation Plan), otherwise than
as a result of relief granted by ASIC.
Options are granted free of charge to participants in the ESOP no. 2. Each
option is to subscribe for one fully paid ordinary share in the Company. The
exercise price per share for an option is the market price of the Company
's fully paid ordinary shares as at the date the option was granted or
such other date determined by the Board. The market price is determined as the
weighted average of the prices at which the Company's fully paid
ordinary shares were traded on Australian Stock Exchange Limited (ASX) in the
one week up to and including the relevant day.
Generally, these options may not be exercised before the third anniversary of
their grant, and must be exercised before the fifth or eighth anniversary
(depending on the particular terms of each option) of grant. Currently options
granted under the ESOP no. 2 have a life of eight years. The Board may
determine such other terms for the grant of options consistent with the ASX
Listing Rules and the Corporations Act 2001 (Cth).
The Board may allow the option-holders to exercise the options irrespective of
the normal criteria (for example, before the third anniversary of grant and
notwithstanding the performance hurdle) where certain events occur, such as the
making of a takeover offer or announcement to the holders of fully paid ordinary
shares in the Company.
Options will lapse if unexercised on or before their expiry date or, for options
granted 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 granted 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 unless otherwise determined.
A loan may be available to executives (except for executive directors) if and
when they wish to exercise their options, subject to the provisions of
applicable laws and regulations (including the United States Sarbanes-Oxley Act
of 2002). The ESOP no. 2 rules provide that the rate of interest applicable to
such a loan be the Company's base lending rate plus any margin
determined by the Board. Dividends payable in respect of a loan share are
applied firstly towards payment of any interest which is due, and secondly
towards repayment of the principal amount outstanding under the loan.
Exercise of the options is subject to satisfaction of a performance hurdle. The
performance hurdle for options granted after November 1999 is measured after the
first three years by comparing the performance of the Company with the
performance of other companies in which shareholders may potentially invest.
Options become exercisable depending on the maximum total shareholder return
(based on share price growth assuming reinvestment of dividends) of the Company
relative to the total shareholder return of a group of companies during the
relevant performance period. This group of companies is based on the top 50
companies in the S&P ASX100 (excluding the Company), determined at the date when
the options are granted or such other date determined by the Board. If the
relative performance of the Company during the relevant vesting period (years
three to eight) does not exceed the 49th percentile at any time, then no options
will vest with the holder (or be exercisable). If the relative performance of
the Company reaches or exceeds the 75th percentile during the performance period
at any time, then all options will be exercisable by the holder. If the
relative performance of the Company reaches between the 50th and 74th percentile
then a formula is applied resulting in a percentage of between 50% and 74%, of
the total options granted being exercisable by the holder.
The performance rights plan was approved by shareholders at the 2002 annual
general meeting and performance rights granted under this plan are shown in the
table above.
The performance rights plan provides for the Board to grant performance rights
to executives of the Group to subscribe for fully paid ordinary shares in the
Company. Performance rights cannot be granted under the performance rights plan
if the number of shares to be received on exercise of those performance rights
together with all shares granted under the Company's employee incentive
plans over the last five years and the number of outstanding options and
performance rights granted under those plans exceeds 5% of the Company's
issued share capital. This calculation does not include offers or grants made
or shares, options or performance rights granted as a result of an offer or
grant made to a person situated outside Australia at the time of the offer or
grant or which did not need disclosure under section 708 of the Corporations Act
2001 (Cth) (for example, shares provided for no consideration under the National
Australia Bank Staff Share Allocation Plan), otherwise than as a result of
relief granted by ASIC.
Performance rights cannot be transferred and are not quoted on ASX. Each
performance right is to subscribe for one fully paid ordinary share in the
Company. Executives do not need to pay any amounts to the Company for the
performance rights they receive; however, the holder of performance rights must
pay a nominal exercise price to exercise the performance rights. The total
exercise price payable by a holder for the exercise of performance rights on a
particular day is $1.00, irrespective of the number of rights exercised on that
day.
Generally, performance rights may not be exercised before the third anniversary
of their grant, and must be exercised before the eighth anniversary of grant.
The Board may determine such other terms for the
78
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grant of performance rights consistent with the ASX Listing Rules and the
Corporations Act 2001(Cth).
The Board may allow performance rights holders to exercise the performance
rights irrespective of the normal criteria (for example, before the third
anniversary of grant and notwithstanding the performance hurdle) where certain
events occur, such as the making of a takeover offer or announcement to the
holders of fully paid ordinary shares in the Company.
Exercise of the performance rights is subject to substantially the same vesting
schedule and performance hurdle as options granted under the ESOP no. 2. A
performance right not exercised will lapse in similar circumstances to an
unexercised option granted under the ESOP no. 2.
The Group does not recognise an expense in its profit and loss account for
options or performance rights. The IASB is currently finalising the drafting of
a standard for accounting for share-based payments (including employee share
options and their repricing). The Company intends to adopt the new standards in
relation to accounting for share options once promulgated by the IASB and the
AASB.
There were 6,395,000 fully paid ordinary shares of the Company issued during the
year as a result of options granted being exercised, for a total consideration
of $135,215,445. There were 77,900 fully paid ordinary shares of the Company
issued since the end of the year as a result of options granted being exercised,
for a total consideration of $1,890,331. No performance rights were exercised
during the relevant time. The amount paid on issue of each of these shares is
set out in note 39 to the financial statements in this annual financial report.
There are currently 46,296,100 options and 1,575,269 performance rights
outstanding under the respective plans.
No person holding an option has or had, by virtue of the options, a right to
participate in a share issue of any body corporate other than the Company.
Directors' meetings
The table below shows the number of directors' meetings held (including
meetings of Board committees) and number of meetings attended by each of the
directors of the Company during the year:
Directors' meetings Audit Committee meetings
of the Company of the Company
Directors Scheduled Scheduled Unscheduled Unscheduled Meetings Meetings
meetings meetings meetings meetings attended held
attended held (1) attended held (2) (2)
(2) (3)
DCK 10 10 6 6 7 (4) 7 (4)
Allen
FJ 10 10 6 6 6 (4) 6 (4)
Cicutto
JB Clark 10 10 3 (3) 6 - -
PJB 10 10 5 (3) 6 7 7
Duncan
GJ 10 10 4 (3) 6 7 7
Kraehe
KJ Moss 10 10 6 6 7 7
JM 1 (2) 1 (2) 4 4 - -
Stewart
(5)
GA 10 10 5 (3) 6 1 (4) 1 (4)
Tomlinson
ED 10 10 6 6 - -
Tweddell
CM 10 10 6 6 7 7
Walter
Compensation and Directors' meetings of Additional
Nomination Committee controlled entities meetings (8)
meetings of the Company (6)
Directors Meetings Meetings Meetings Meetings Meetings
attended held (2) attended held (2) attended (8)
DCK Allen 4 4 8 8 21
FJ Cicutto 3 (1) 3 (1) 14 14 13
JB Clark - - 7 7 7
PJB Duncan - - 18 18 13
GJ Kraehe - - 7 7 14
KJ Moss 3 4 14 14 7
JM Stewart (5) - - - - -
GA Tomlinson - - 29 36 9
ED Tweddell 4 4 7 7 31
CM Walter - - 15 18 34
(1) Scheduled Board meetings span two days.
(2) Reflects the number of meetings held during the time the director held
office during the year. Where a controlled entity holds board meetings in a
country other than the country of residence of the director, or where there may
be a potential conflict of interest, then the number of meetings held is the
number of meetings the director was expected to attend, which may not be every
board meeting held by the controlled entity during the year.
(3) Where a director is unable to attend an unscheduled Board meeting
called at short notice, the director is provided with a separate briefing on the
matters to be considered at the meeting, and the views of the director are
obtained.
(4) Reflects the number of committee meetings attended, even though the
director is not a member of the committee.
(5) Mr John M Stewart became a director on August 11, 2003.
(6) At the meeting of the Board held on September 4, 2003, the
Compensation and Nomination Committee was divided into two separate committees.
(7) At the meeting of the Board held on August 28, 2003, the Risk
Committee was established.
(8) Reflects the number of additional formal meetings attended during the
year by each director, including committee meetings (other than Audit Committee,
Compensation Committee or Nomination Committee) where any two directors are
required to form a quorum.
Subsequent to the end of the year, Mr John G Thorn was appointed as an
independent non-executive director.
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Directors' interests
The table below shows the interests of each director in the issued ordinary
shares and National Income Securities of the Company, and in registered schemes
made available by the Group as at the date of this report. No director held an
interest in the Trust Preferred Securities, the Trust Units Exchangeable for
Preferred SharesTM or exchangeable capital units of the Group. Trust Units
Exchangeable for Preferred SharesTM is a trademark of Merrill Lynch & Co., Inc.
Directors Fully paid ordinary Options over fully Performance National Income
shares paid rights Securities
of the Company ordinary shares of
the
Company
D Charles K Allen (1) 22,261 - -
Frank J Cicutto (2)(3) 241,122 1,700,000 100,000 -
J Brian Clark (1) 4,825 - -
Peter JB Duncan (1) 4,854 - -
Graham J Kraehe (1) 15,638 - 670
Kenneth J Moss (1) 4,957 - -
John M Stewart - 125,000 31,250 -
John G Thorn (4) 2,000 - -
Geoffrey A Tomlinson (1) 19,204 - 500
Edward D Tweddell (1) 4,168 - -
Catherine M Walter (1) 18,011 - -
--------------------
(1) Includes shares held under National Australia Bank Staff Share
Ownership Plan.
(2) Includes National Australia Bank Staff Share Allocation Plan issues.
(3) There were no shares acquired as a result of options exercised.
(4) Mr John G Thorn became a director on October 16, 2003.
There are no contracts, other than those disclosed above, to which directors are
a party, or under which the directors are entitled to a benefit and that confer
the right to call for or deliver interests in a registered scheme made available
by the Company or a related body corporate.
All of the directors have disclosed interests in organisations not related to
the Group and are to be regarded as interested in any contract or proposed
contract that may be made between the Company and any such organisations.
Signed in accordance with a resolution of the directors:
/s/ D Charles K Allen /s/ Frank J Cicutto
D Charles K Allen Frank J Cicutto
Chairman Managing Director
November 11, 2003
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