2. Executive Compensation Plan and theory
Remuneration Basis and components
Regulated or voluntary disclosures
Motivation of the firm’s executive
Analysis and evaluation of statistical data from annual
report
Comparison between Pharmaxis Ltd and Sigma
Pharmaceuticals Ltd
*
4. COMPONENTS OF REMUNERATION
OF EXECUTIVES
• a base salary paid in cash or packaged at the executive’s
discretion within Australia Fringe Benefit’s Tax guidelines as a
total cost package.
• superannuation of 9 percent of base salary;
• a variable cash incentive component payable annually
dependent upon achievement of performance targets set and
approved by the Remuneration and Nomination Committee.
• equity remuneration
5. Net Loss VS Remuneration
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
$50,000,000
2007 2008 2009 2010
Net Loss
Net…
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000
2007 2008 2009 2010
Remuneration
Total
Executive
6. CURRENT REMUNERATION BASIS
(PHARMAXIS)
Senior Executive Non Executive
Contract 3 years fixed term contract; 3
months notice upon termination
Retire by rotation through AGM
Salary Base salary Fixed Fee
Variable incentive; average 20%
of base salary in 2009 &
2008,average 21% of base salary
in 2010
No variable component
Incentive paid on achievement of
milestones.
2010, 80% achievement rate
2009, 80% achievement rate
Fees reviewed by external
advisors
7. CURRENT REMUNERATION BASIS
(PHARMAXIS)
Salary Review Annually on the 1st of Jan; market
review & change in responsibility.
Last increase was in 2010(4%)
Last increase in 2005/2006 based
on a review by Korn Ferry
International. Current year review
of fees paid within sector is at
best close to average
Equity Annual grant of options Sign on grant of 30,000
restricted shares
Vest over 4 years, subject to
performance
Vest at 3rd anniversary
9. Regulatory and Voluntary Disclosure
(Pharmaxis Ltd)
Equity Remuneration
The Pharmaxis Ltd Performance Rights Plan (ZEPOS)
- Will grant options with a zero grant price and a zero exercise
price
- A life of 10 years from grant date
- Dependent on performance, position and salary
- All factors unchanged, performance rights granted is
approximately 25% of traditional market based options.
- Senior Executives will be invited by the Remuneration and
Nomination Committee to participate in this plan.
10. Regulatory and Voluntary Disclosure
(Pharmaxis Ltd)
Options
Senior executives including the CEO (an executive
director) are granted options each year after a review of
performance by the Remuneration and Nomination
Committee.
Options granted to the CEO must be subsequently
approved by shareholders.
The vesting period of future option grants will change
from 25% per annum commencing on the first
anniversary of grant, to 100% vesting at the third
anniversary of grant.
Board approval will be required before the shares issued
on exercise of the options are able to be sold.
11. Regulatory and Voluntary Disclosure
(Pharmaxis Ltd)
Variable Cash Incentive
Individual and overall performance targets are set by
reference to the components of the Group’s annual
business plan for which the individual executive is
responsible (9 Key Milestones).
The typical increase in base salary as 1 January 2010
was 4%, compared to nil at 1 January 2009.
Cash Bonuses
The payment of cash bonuses is dependent on the
satisfaction of performance conditions upon the
discretion of the Remuneration Board.
12. Net Loss VS Tax Paid
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
1 2 3 4
Taxes Paid
Taxes PAID
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
$50,000,000
2007 2008 2009 2010
Net Loss
Net…
14. Remuneration Basis of Top Executives
of SIP
Non-Executive Directors
• Reflect the size and complexity of the Company’s operations
as well as the responsibilities, accountabilities and time
commitments of the Directors.
• Not linked to the performance of the Company, do not
receive any performance related remuneration and are not
entitled to receive performance shares, rights or options
over the Company’s shares.
• Consists of base fees, committee fees and superannuation
within a current aggregate fees maximum limit $1,100,000.
15. Executive Directors
• It is designed to ensure that Executive remuneration
packages accurately reflect the Executive’s level of
experience and responsibility, as well as their individual
performance and the performance of the Company.
Remuneration Basis of Top Executives
of SIP
17. • The key principles are:
Provide market competitive remuneration to attract, motivate
and retain high calibre executives
Link at-risk executive reward to the achievement of the
Company’s annual performance objectives and the creation of
longer term shareholder value
Remuneration Basis of Top Executives
of SIP
18. Motivate and reward superior performers with fair, consistent
and competitive incentives
Promote opportunities for career and professional
development
Foster a partnership between employees and other
shareholders through employee ownership of Company
shares
19. Relationship Between Remuneration
and Performance
Total Reward
Total
Employment
Cost (TEC)
Short Term
Incentive
(STI)
Long Term
Incentive
(LTI)
Total
Reward
(TR)
+ + =
Fixed At Risk
Executive Total Reward comprises Fixed Remuneration (Total
Employment Cost or TEC) and At Risk
Remuneration, which is made up of Short Term Incentives and
Long Term Incentives.
20. Relationship Between Remuneration
and Performance
Level Fixed (%) STI (%) LTI (%)
CEO/Managing Director
Executives
Senior Managers
Other Employees
38%
38%
24%
24%
58% 18%
91% 9%
100% 0%
0%
0%
An appropriate target reward mix is determined for each management level with
at risk rewardsincreasing with the level of responsibility and criticality of the employee’s role
22. Short Term Incentive
• Made by Remuneration and Nomination committee
recommendation to remuneration board following approval
of the company’s annual audited statements.
• Awarded when financial goals are met
• Budgeted Profit after Tax and Key Performance Indicators
were chosen as the performance measure for short term
executive rewards
• After review the Remuneration and Nomination committee
awarded no incentive payments due to the company not
achieving the budgeted profit after tax KPI
23. Long Term Incentive Plan
CEO/MD and Executives
Performance Rights granted in Oct 2004
• The vesting of these performance rights is subjected to the
company’s absolute and relative Total Shareholder Return
(TSR).
Performance Rights granted in Nov 2006, Oct 2007, Oct 2008 and
Nov 2009
• Each of the performance right plans is subject to two separate
performance conditions, relating to relative TSR performance
and Earnings per Share (EPS).
24. An overview of the key remuneration outcomes
for the financial year are as follows:
• CEO/ MD received total remuneration payments of
$1,018,228 during the 2009/10 financial year.
• No Short Term Incentives were paid to the CEO/MD and
Executives under the Sigma Short Term Incentive Plan for the
2008/09 and 2009/10 financial years.
• Rights arising under the 2004 Long Term Incentive Plan for the
CEO/MD and the 2006 Long Term Incentive Plan for the
CEO/MD and Executive have lapsed.
25. Overview (cont.)
• Rights arising under the 2007, 2008 and 2009 Long Term
Incentive Plans for the CEO/MD and Executives have not
satisfied the performance conditions to permit payment
during 2009/10 financial year.
• CEO/MD and Executive remuneration review increases were
consistent with the rate of inflation for 2009/10 financial year.
• Non-Executive Director fees were not increased during the
2009/10 financial year and the aggregate fees maximum limit
for the Non-Executive Directors fee pool has not been
increased since the 2007 Annual General Meeting.
26. Detailed Disclosures
• For the financial year the CEO/MD and Executives have not been
awarded any Short Term Incentives payments as a result of the
company not achieving the budgeted Net Profit after Tax KPI.
• Furthermore, the CEO/MD’s 2004 Long Term Incentive Plan and the
CEO/MD and Executive 2006 Long Term Incentive Plans lapsed
during the financial year as a result of the performance measure
not being met. The CEO/MD and Executives have not and will not
receive any payment under these plans. No awards were granted
under the Long Term Incentive Plan in 2005. No performance rights
or options have vested for the CEO/MD or Executives during the
past five financial years.
28. Motivation of Executives based on
Compensation of PXS
• Variable cash incentive
• High performance to achieve high compensation
• Achievement of milestones
• 2010: Achievement rate 80%
• 2009: Achievement rate 80%
• 2008: Achievement rate 84%
• Equity remuneration
• Focus on creating sustainable long term value
29. Relationship Between Remuneration
and Performance of Sigma
Total
Employment
Cost (TEC)
Short Term
Incentive
(STI)
Long Term
Incentive
(LTI)
Total
Reward
(TR)
+ + =
Fixed At Risk
30. Disclosure by sigma
• CEO/ MD received total remuneration payments of
$1,018,228 during the 2009/10 financial year.
• No Short Term Incentives
• Rights arising
• CEO/MD and Executive remuneration review increases
• Non-Executive Director fees
31. • Short Term Incentive
• Long Term Incentive Plan
32. MOTIVATIONS OF EXECUTIVES BASED
ON COMPENSATION
• Main objective is to align the goals of the managers with the
goals of shareholders
– Short term Incentives
• Encourage Executives to meet financial goals
• Reduce agency costs
• Short term goals complementary of long term
sustainable growth
– Long term Incentives
• Encourage Sustainable growth of the company
• Reduce Agency costs
33. 1. Pharmaxis measures the executive performance based on 9
key milestone that is related to the development of new
product while Sigma measures it by company performance.
2 . There is good Corporate Governance in both companies.
Remuneration and Nomination Committee was appointed to
propose a remuneration strategy by evaluating the
performances and setting a fair amount of compensation for
the executives.
3. Short term and long term incentives were available to
motivates the executives to work towards the short term and
long term goals.
