The following are excerpts from Oil Search’s 2008 Annual Report . For a comprehensive Remuneration report, please refer to the annual report.
Oil Search has a Remuneration Policy based upon “Reward for Performance”, where employee remuneration is differentiated based on various measures of corporate, team, and individual performance.
The objectives of the Oil Search remuneration policy are to:
The Remuneration and Nominations Committee (the “Committee”) of the Board provides advice and recommendations to the Board regarding remuneration matters. The Committee’s responsibilities for remuneration include:
The Committee comprises Messrs Warren (Chairman), Constantinou, Stitt and Igara. The Committee’s full charter is available in the Corporate Governance section.
In order to fulfil the role of the Committee set out above, the members refer to the following principles when developing recommendations to the Board regarding remuneration:
Oil Search’s remuneration structure comprises four elements:
The mix of remuneration for employees is dependent on their level and role within Oil Search, with the proportion of total remuneration being at risk as incentive based remuneration increasing with seniority.
The ranges of TFR payable for all Company positions (except those of the Managing Director, Key Management Personnel, and other Senior Executives) in the organization are 80 – 120% of competitive benchmarks derived from annual job matching surveys conducted by third parties wherever possible. An annual TFR budget is agreed by the Board that permits adjustment of the TFRs paid to individuals to ensure that their fixed remuneration remains competitive for their specific skills, competence, and value to the Company.
Each employee has the opportunity to earn an annual STI which increases with increasing seniority. An STI pool is agreed annually by the Board and is derived presently from corporate performance against operational metrics on Safety, Production, Cost, Increases in Hydrocarbon Reserves under development, and transformational metrics on Acquisition of new Hydrocarbon Resources, and Achievement of tangible value adding milestones towards Commercialisation of significant Gas Volumes. The size of the STI pool is thus directly related to corporate performance through a range of key measures that impact Shareholder Value. The STI pool is allocated to employees as individual STIs based on the performance of their Divisions of the Company and their individual performances.
Each employee also has the opportunity to earn a LTI. For the majority of employees, this takes the form of a grant of a specific number of Share Options, which are awarded to each individual provided that the individual has demonstrated an acceptable level of personal performance. Awards under the Employee Share Option Plan (ESOP) are structured as options to acquire ordinary shares in the Company after a 3 year vesting period, at a price equal to the market value of the shares on the date the option is granted.
For Key Management Personnel, and other key managers and staff approved by the Board, the LTI takes the form of a grant of Performance Rights. Awards under the Performance Rights Plan (PRP) are rights to acquire ordinary shares in the Company for nil consideration, conditional on predetermined corporate performance hurdles being met within a defined time period.
Vesting of the awards depends on Oil Search’s Total Shareholder Return (TSR) performance over a three-year period relative to peer group(s) of companies. For awards prior to 2007, a single peer group of the first 150 companies included in the ASX 200 Index was used. From 2007 onwards, Oil Search’s performance has been measured against two peer groups, with an equal weighting ascribed to each of:
To determine the level of vesting of the awards, Oil Search’s TSR over the performance period is ranked against the TSR of each peer group over the same three-year period.
For each peer group, if Oil Search’s TSR performance is:
In order to assist the Company in retaining key executives and other employees, the Company may issue them with Restricted Shares. Restricted Shares issued under this plan only vest after the employee has completed a specified period of future service with the Company.
Awards under the Restricted Share Plan are structured as grants of restricted shares for nil consideration. Restricted Shares are held on behalf of participants in trust, subject to disposal restrictions and forfeiture conditions, until released under the terms of the Plan.
Restricted Shares are held in trust prior to the Restricted Shares vesting and will be released from the trust upon vesting. Whilst the Restricted Shares are held in trust, the Restricted Shares will be subject to disposal restrictions and forfeiture conditions. Restricted Shares held in trust (whether vested or not) will be forfeited by participants who are considered by the Board to have acted fraudulently or dishonestly. Once a participant’s Restricted Shares have vested, disposal restrictions and forfeiture conditions will cease and the Restricted Shares will be released from the trust when certain events occur
The 50% deferred portion of an executive’s STI is awarded as shares under the Restricted Share Plan (See section 5 below).
Full information on the remuneration of Oil Search Directors can be found in the 2008 Annual Report .
Full information on the remuneration of Oil Search Key Management Personnel can be found in the 2008 Annual Report .