CSL Ltd Annual Report 2019

Our Research and Development (R&D) cycle requires investment over the longer term, as does our capacity model. Developing a newmedical product can take more than ten years from science to market. The Board believes the outcome of these factors can be successfully measured through a ROIC performance hurdle – fit for purpose for CSL. We have a seven year rolling average ROIC to measure real achievement over an appropriate time period for our R&D investment cycle. It is simple and transparent, and measures return on all capital – both shareholder invested capital in CSL and borrowings. One of our Guiding Principles for executive reward is that our pay design is no more complicated than it needs to be. Having a simple and transparent pay design helps us focus and be accountable to our shareholders. The application of our single metric hurdle, with instalment vesting, ensures our Executive KMP are focused on the long term success of our organisation and delivering returns to our shareholders. Recognising the importance of equity in our long term remuneration framework, the pay mix focus on LTI and the instalment vesting of awards will only actually deliver reward where CSL performance has been strong over the longer term. Our LTI program is a single equity instrument, PSUs, which are hurdled. Awards are allocated using a face value methodology – an Executive KMP’s Board approved equity opportunity divided by a volume weighted average share price based on the market price of a CSL share at the time of grant. The Board establishes a ROIC hurdle for each annual grant taking into consideration the CSL budget and longer term forecast annual ROIC over the four year term of the grant, together with the historical annual ROIC achieved that will form part of the performance test over the four year annual testing period. The ROIC hurdle established is tested against market analyst consensus for reasonableness. The Board also reviews peer group ROIC numbers to ensure the performance levels we are targeting are appropriate. The award features for the grant made 1 September 2018 are as follows. Feature Description 3 Summary A ‘right’ to a CSL share (i.e. full value instrument) granted 1 September 2018. No price is payable by the Executive KMP on grant or vesting of rights Security Performance Share Unit (PSU) Performance Period Tranche 1 – 1 July 2012 to 30 June 2019; Tranche 2 – 1 July 2013 to 30 June 2020; Tranche 3 – 1 July 2014 to 30 June 2021; and Tranche 4 – 1 July 2015 to 30 June 2022 Performance Measure Return on Invested Capital Performance Target Threshold – 24.0% Target – 27.0% (maximum opportunity) Vesting Schedule Performance Level Below Threshold Outcome as a % of target opportunity 0% earned Between Threshold and Target 50% earned on achievement of threshold level performance, increasing on a straight-line basis to 100% earned on achievement of target level performance Target 100% earned Above Target Outcome capped at 100% – cannot exceed target Vesting Date 4 Tranche 1 (25% of award granted) – 1 September 2019; Tranche 2 (25% of award granted) – 1 September 2020; Tranche 3 (25% of award granted) – 1 September 2021; and Tranche 4 (25% of award granted) – 1 September 2022 Retesting No retest of any tranche Cessation of Employment A “good leaver” (such as retirement) may retain a pro-rated number of PSUs based on time elapsed since grant date, subject to original terms and conditions including test date Change of Control In the event of a change of control, the Board, in its absolute discretion, may determine that some or all of the awards vest having regard to the performance of CSL during the vesting period to the date of the change of control event. Vesting may occur at the date of the change of control event or an earlier vesting date as determined by the Board Dividends No dividends are paid on unvested awards. Executive KMP are only eligible for dividends once the PSUs have vested and shares have been allocated 3 The award granted in 2018 (grant date 1 October 2017) operates in line with this table. The performance periods are Tranche 1 – 1 July 2011 to 30 June 2018; Tranche 2 – 1 July 2012 to 30 June 2019; Tranche 3 – 1 July 2013 to 30 June 2020; and Tranche 4 – 1 July 2014 to 30 June 2021. The vesting dates are Tranche 1 (25% of award granted) – 1 September 2018; Tranche 2 (25% of award granted) – 1 September 2019; Tranche 3 (25% of award granted) – 1 September 2020; and Tranche 4 (25% of award granted) – 1 September 2021. 4 The award expiry date is five years from the date of grant. CSL Limited Annual Report 2019 65