CSL Ltd Annual Report 2019

2019 CEO ‘Realised’ Remuneration The Board believes that CEO and Executive KMP ‘realised’ remuneration (or ‘take home’ pay) is a simple and transparent view of what was actually earned in 2019. We have disclosed the CEO ‘realised’ remuneration in the graph belowwith a full view of all Executive KMP ‘realised’ remuneration details in section 6.6, table 13. Mr Perreault’s ‘realised’ remuneration for 2019 was US$23,261,473 and this is a 215% increase from the prior year. This increase was mainly due to vesting of both current and legacy LTI awards in 2019, with high value outcomes for our CEO based on exceptional share price growth over the life of the awards – there was an increase in value of US$14,652,591 from the face value at grant, to the face value at vesting. Next year we expect to see significant LTI outcomes due to share price growth during the period from grant to vest. In 2020, we see the cessation of legacy programs with the final vesting under the Executive Deferred Incentive Plan. Remaining legacy plans will cease to be reported in 2021. 2019 CEO Realised Remuneration 0% 20% 40% 60% 80% 100% ● 2019 Total Fixed Reward ● Total STI Received ● LTI Received – Options (2015) ● LTI Received – Performance Rights (2014/2015) ● LTI Received – Performance Share Units (2018) ● LTI Received – Notional Shares (2016) Changes to Remuneration for 2020 Taking into consideration shareholder feedback and global market positioning, the Board has determined to make no increase to FixedReward or STI target andmaximumopportunity for the fourth year in a row to the CEO. Consistent with CSL’s guiding principles for remuneration the Board has decided to continue to rebalance the remuneration pay-mix toward the LTI. To ensure our CEO has market appropriate incentives and remains aligned with the interests of our shareholders, in 2020 he will receive an increase in his LTI target from 350% to 400% which is both time and performance hurdled. For our Executive KMP in 2020, the Board has approved an increase to base salary for one Global Leadership Group (GLG) member, not increased short term incentive targets (including maximum opportunity) for any GLG member and has increased LTI targets for five GLG at an average of 22%. These increases have been applied to address the position in market, recognise the criticality of these roles to our CSL strategy and delivery, and also recognise the breadth of knowledge, deep skills and experience Executive KMP bring to their roles. A review of Board and Committee workload and fees against the median of the ASX top 12 companies was completed. Accordingly, Board Chair and Director fees will increase by an average 1.9%. Adjustments to fees were made within the existing aggregate fee pool approved by shareholders in 2016. The Board considers that sufficient headroom remains within the existing fee pool and is not seeking shareholder approval for an increase in the pool. CSL has a Non-Executive Director Rights plan, described in more detail in this Report, which enables directors to more quickly build a meaningful level of equity in the Company and which restricts disposal of shares acquired under the plan for three to fifteen years. Shareholder Engagement and Framework Changes Over the year, many of our shareholders provided feedback on our executive remuneration framework – for this we thank you. The primary concerns raised were in respect of our LTI plan and the use of a single metric, ROIC, to measure performance over a rolling seven year period, which included a retrospective review, and a short vesting period for the first two tranches of the award. Taking this feedback into consideration, in 2019, the Board has introduced an annual threshold of ROIC performance that must be achieved before vesting can occur – the measure is the Investment Hurdle Rate (IHR). The IHR is the minimum return we require on our investments to ensure we are making sound investment decisions and appropriately manage risk and cover our cost of capital. This has been added as a provision of the LTI target to ensure that the ROIC is delivering an appropriate return each financial year as well as over the seven year rolling average period and aligns with shareholder outcomes and expectations. CSL is a long term business where developing a newmedical product can take more than ten years from science to market. The ROIC measure as the hurdle for our LTI Plan, has been chosen because it is a business critical (high ROIC equals high performance), single (preferred over two measures), and is an absolute return measure (preferred over relative), which is easily understood by shareholders and management alike. The ROIC target has been set at a high performance level both in absolute terms and relative to our peers. It gives a very good indication of our actual capacity to generate returns through utilisation of productive assets. Our vesting schedule ensures our Executive KMP have “skin in the game” earlier, building longer term economic alignment between management and shareholders, and encouraging share ownership and retention. The Board has discretion over all remuneration outcomes, including the vesting of LTI awards. The Board can adjust, including to zero, at any time. The Board wants to ensure the soundness of any outcome and that it reflects actual CSL Group performance and the experience of shareholders. Your Board believes that the reward framework remains appropriate and that outcomes for 2019 remuneration reflect the performance of the CSL Group and are fair. We will continue to regularly review the framework and will make adjustments in the future as necessary to ensure the right outcomes are being delivered and rewarded. We welcome your ongoing feedback. Thank you for supporting CSL and our patients around the world. Dr Megan Clark AC Chair Human Resources and Remuneration Committee CSL Limited Annual Report 2019 59