Remuneration report
Long Term Incentive (LTI)—how does it work?
Description
Participation in the LTI plan is offered to the CEO and other Executive KMP and a very limited number of other employees nominated by the CEO and approved by the Board. Grants are made in the form of performance awards at no cost to the recipient. Each performance award is an entitlement to receive a Transurban stapled security, or at the Board’s discretion, an equivalent cash payment, on terms and conditions determined by the Board, subject to the achievement of vesting conditions. Performance awards do not carry dividend, distribution or voting entitlements prior to vesting.
Instrument
Performance period
LTI grants have a four-year performance period.
Opportunity
The CEO’s opportunity is 147% of TEC and the opportunity for all other Executive KMP is 80% of TEC. The minimum vesting outcome an individual can receive is 0% of the award (if the performance measures are not achieved) and the maximum vesting outcome an individual can receive is capped at 100% of the award (if performance measures are achieved). Two performance measures are ordinarily used to determine the number of awards that will vest at the end of the performance period; relative Total Shareholder Return (TSR) against a bespoke comparator group and FCF (each with an equal 50% weighting). Relative TSR is measured against a bespoke comparator group comprising companies in the transport, utilities, real estate, construction and infrastructure Global Industry Classification standards sectors of the ASX150. The companies in this group for grants made during FY24 were: Abacus Property Group, AGL Energy Limited, APA Group, Atlas Arteria, Auckland International Airport Limited, Aurizon Holdings Limited, BWP Trust, Centuria Industrial, Charter Hall Group, Charter Hall Long, Charter Hall Retail, Chorus Limited, Dexus, Goodman Group, GPT Group, Growthpoint Properties Australia, Homeco Daily Needs, Lendlease Group, Mirvac Group, National Storage REIT, Origin Energy Limited, PEXA Group Ltd, Qantas Airways Limited, Qube Holdings Limited, Region Re Ltd, Scentre Group, Spark New Zealand Limited, Stockland, Telstra Corporation Limited, TPG Telecom Limited, Transurban Group, Vicinity Centres, Worley Ltd
Performance measures
Targets
Changes to the comparator group in FY24 are as follows: • Excluded (moved out of ASX150): Cromwell Property Group • Included (moved into ASX150): Spark New Zealand Limited
FCF 3 per security targets are set by the Board utilising the annual budget and forecasts as the primary inputs (consistent with the approach taken for STI measures of Proportional EBITDA and Proportional Net Costs). Once the budget and forecast has been finalised, the Board determines the FCF targets by analysing the cash flow outcomes, ensuring sufficient stretch is incorporated. The actual FCF outcomes are reviewed in detail against targets to consider key reasons for variance and assess whether any adjustments should be made in determining management’s performance. The Board may adjust where a decision has been made, in the interests of the Transurban Group and its security holders that differs from the original budgeted assumptions. This may include factors such as significant equity raisings to fund growth opportunities or changes to the timing or quantum of anticipated capital releases. Factors that may cause FCF growth to fluctuate from year to year include activities that are intended to generate long-term value TSR is a relative, external, market-based performance measure against those companies with which the Group competes for capital. It provides a direct link between executive reward and security holder return. TSR measures total return on investment of a security, taking into account both capital appreciation and distributed and/or dividend income that was reinvested on a pre-tax basis. Growth in FCF per security reflects the Group’s continued focus on maximising available free cash. The Group seeks to consistently grow its distributions year on year and to align security holder distributions with FCF per security. for the business but may negatively impact FCF growth in the near term. The FCF calculation is included in Note B9 of the audited financial statements.
Why are these performance measures used?
Face value 4 allocation methodology.
Allocation
Vesting
Following the end of the performance period, the performance measures are tested, and the Board assesses the LTI outcome. TSR component The Group uses an independent report that sets out the Group’s TSR growth and that of each company in the bespoke comparator group. A VWAP of securities for the 20 trading days up to and including the testing date is used to calculate TSR. The level of TSR growth achieved by the Group is given a percentile ranking in relation to the Group’s performance compared to the performance of other companies in the comparator group (the highest-ranking company is ranked at the 100th percentile). The TSR performance is tested at the end of the performance period, and this ranking determines the extent to which performance awards subject to this component vest. Following testing, any awards that do not vest lapse, and any awards that vest are automatically exercised into Transurban stapled securities or settled in cash at the discretion of the Board. No price is payable on exercise. TSR vesting schedule The TSR component of performance awards vest on a straight-line basis in accordance with the following table: The Group’s relative TSR ranking in the comparator group % of performance awards that vest At or below the 50th percentile Zero Above the 50th percentile but below the 75th percentile Straight line vesting between 50 and 100 At or above the 75th percentile 100
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