CSL Ltd Annual Report 2019

2.2 Remuneration Structure The structure of Total Reward for Executive KMP is described below and detailed explanations are provided in the remainder of this section 2. Remuneration Component Operation Fixed Reward (FR) Attract, retain and engage key talent to deliver our CSL strategy Reviewed annually, FR is determined based on the scope, complexity and responsibilities of the role, experience of the Executive KMP and performance. The Board sets FR based on market comparisons – global pharmaceutical/biotechnology peers, general industry or a hybrid approach depending on role (desired positioning at the median) and internal relativities Performance – STI Reward performance against annual Key Performance Indicators (KPIs) – maintaining a focus on underlying value creation within the business operations is critical to the success of CSL in the long-term KPIs, weightings and targets are set at the start of the performance year, incentivising Executive KMP to work together to achieve a small group of key short term objectives that really matter, providing themwith the latitude to identify and manage the actions needed to build the business, without competing objectives KPIs include two critical measures of business strength, shared by all, Net Profit after Tax (NPAT) and Cash Inflow fromOperations (CFO), plus up to four business building KPIs (individual, business unit, operations, function or research related) – with the majority weighting on the financial KPIs Threshold, target and maximum performance levels are established for each KPI STI is an annual cash payment and is subject to the Clawback and Malus Policy. The Board has discretion over and approves KPIs and all outcomes at the end of the performance year Alignment – LTI Alignment to longer term performance and strategy of CSL, building economic alignment between Executive KMP and shareholders over the long term Performance Share Units (PSUs) are granted to Executive KMP at Face Value with one CSL share delivered for each PSU that vests. The Board has selected the performance measure of Return on Invested Capital – measured on a seven year rolling return in the year the award vests Instalment vesting occurs over a four year period – 25% each year. The Board has discretion over all outcomes and awards are subject to the Clawback and Malus Policy Benefits Provides market competitive benefits, both during and post- employment, to attract and retain key talent Participation in a pension plan or superannuation fund and aligned with the arrangements of the broader workforce in country of residence Additional benefits may include, but are not limited to, accident, disability and death insurance, health insurance, car parking and participation in local benefit programs. Where an Executive KMP is required to relocate to another CSL location, relocation benefits are payable. In the case of international assignees, tax return preparation, health insurance, language training, and school fee benefits may be offered The Board has the discretion to apply a ‘Leading and Managing’ modifier to both the Performance and Alignment outcomes – formally recognising the importance of CSL’s culture including leadership behaviours, values and diversity objectives. The modifier allows for the Board to adjust in exceptional circumstances +20% / -50% of short term annual incentive earned, and/or long term equity incentive opportunity granted 2.2.1 How Remuneration is Determined 1 The global pharmaceutical/biotechnology industry peer group serves as a primary reference group for remuneration benchmarking, created such that CSL falls in the middle of the group with respect to market capitalisation and revenue. The group represents global industry peers and is updated annually. The peer group in 2019 included: Alexion Pharmaceuticals, Inc.; Allergan plc; AstraZeneca PLC; Bayer Aktiengesellschaft; Biogen Inc.; BioMarin Pharmaceutical Inc.; Celgene Corporation; Eli Lilly and Company; Endo International plc; Gilead Sciences Inc.; Grifols, S.A.; Incyte Corporation; Jazz Pharmaceuticals Public Limited Company; Merck Kommanditgesellschaft auf Aktien; Novo Nordisk A/S; Regeneron Pharmaceuticals, Inc.; Shire plc; UCB SA; United Therapeutics Corporation; Vertex Pharmaceuticals Incorporated. For the 2020 year, GlaxoSmithKline plc is added to the peer group and Endo International plc and United Therapeutics Corporation have been removed. In addition, four general industry reference groups representing Australia, North America, the United Kingdom and Europe (focused on Germany and Switzerland) also helps us ensure we pay appropriately to reward senior talent and may be used as a primary, or hybrid, data set for certain Executive KMP dependent on role and location. The Board has discretion across each element of Executive KMP reward and considers business performance, individual performance and shareholder experience before setting and approving reward outcomes. Remuneration recommendations – Reviewed on an annual basis and using the Guiding Principles described in section 2.1, the CEOmakes a recommendation to the Human Resources and Remuneration Committee (HRRC) for Executive KMP, with the HRRC recommending to the Board for the CEO, any change to fixed reward and STI and LTI targets for the year ahead. Recommendations take into consideration market conditions, position in market within the global pharmaceutical/biotechnology peer group 1 , individual performance, role responsibilities and internal relativity. Remuneration is reviewed in the context of Total Reward. There is a higher proportion of Total Reward in the form of performance related variable pay. STI outcomes – A formal review of Executive KMP progress against objectives is conducted twice annually by the CEO and annually by the Board for the CEO. Regular performance conversations are held during the year. Following the full year performance review, the CEOmakes recommendations in respect of Executive KMP to the HRRC. The HRRC and the Board assess individual performance against objectives at the end of the financial year, and approve the actual STI payments to be made. The Board believes this is the most appropriate method of measurement. LTI outcomes – The HRRC assess performance against the hurdle measures set at grant by the Board. Following this, the HRRC undertakes a review to ensure the remuneration outcomes are aligned with overall business performance and the shareholder experience and, submits outcomes to the Board for approval. The Board believes this is the most appropriate method of measurement. CSL Limited Annual Report 2019 62 Directors' Report