CSL Ltd Annual Report 2020

3.2.4 Short Term Incentive (STI) Rewarding performance over an annual period, the STI program is designed to drive business performance and the creation of shareholder value. KPIs on which Executive KMP are assessed and rewarded are challenging and not just duties expected in the normal course of their role. The key features of the program for cash awards for the year ended 30 June 2020 (to be paid in September 2020) are detailed as follows. In 2021, we will review the STI program to ensure it remains competitive and fit for purpose. Feature Description Performance Period Annual aligned with the financial year – 1 July 2019 to 30 June 2020 Performance Measures Each Executive KMP has a maximum of six KPIs. The KPIs are made up of two critical financial measures of CSL business strength, shared by all participants – Net Profit after Tax (NPAT) and Cash Flow fromOperations (CFO), plus up to four individual business building KPIs. Hurdles are set at threshold, target and maximum levels of performance and there is real difference between under achieve/achieve/over achieve targets and measures, so that a challenging but meaningful incentive is provided Financial Individual Financial growth is the foundation of long term sustainability and evidences our competitive advantage, whilst pursuing profitable growth aligns employee and shareholder objectives. The financial performance measures are NPAT measured at constant currency and CFOmeasured at the reported rate Individual performance hurdles align with strategic priorities, encourage appropriate decision making, and balance performance in non-financial priorities. The individual performance measures are based on individual responsibilities and categories include divisional performance, achievement of strategic objectives and improvement in operations, risk management, compliance, people, health and safety and quality Performance Measure Weighting The weighting of the measures in 2020 is as follows: • NPAT 35%/CFO 35%/Individual 30% – Mr Perreault, Mr Lamont and Dr McKenzie • NPAT 30%/CFO 30%/Individual 40% – Professor Cuthbertson In 2021, we will adjust the weighting of the CFOmeasure, reducing to 25% for Mr Perreault, Dr McKenzie and the new Chief Financial Officer. The change focuses our leaders on growing a sustainable business and driving cost efficiencies through their individual objectives, which will have their weighting increased accordingly Executive KMP STI Targets • Mr Perreault – 120% • Dr McKenzie – 100% • Professor Cuthbertson and Mr Lamont – 85% Vesting Below Threshold 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 Maximum 100% earned at target level performance, increasing on a straight-line basis to 150% earned on achievement of maximum level performance (capped) The above STI Outcome percentages are then multiplied by the KPI weighting and individual STI opportunity (as disclosed in Table 3 in section 5.2 below) to determine the payment amount Cessation of Employment A ‘good leaver’ (such as retirement) may receive a pro-rata payment paid in the ordinary course based on the portion of the Performance Period worked, subject to Performance Measures being met. If the Executive KMP is not a ‘good leaver’, no payment will be made 3.2.5 Long Term Incentive (LTI) Introduced in 2017, our current LTI plan was designed to align our executives’ equity interests with those of our shareholders by rewarding sustainable Return on Invested Capital (ROIC) outcomes over the longer term – a fit for purpose design to ensure the long term growth of the organisation and returns to our shareholders. The instalment vesting of awards over a four year period will only deliver reward where CSL performance has been strong over the longer term. When our target performance is achieved, we want our executives to have their LTI vest – we set targets that not only provide excellent outcomes for shareholders both absolutely and relative to the performance of our global peers, but also reward and assist us in retaining our talent. 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. CSL Limited Annual Report 2020 74 Directors’ Report