3.2.5 Long Term Incentive (LTI) CSL’s LTI plan is designed to align executives’ equity interests with those of our shareholders by rewarding sustainable Return on Invested Capital (ROIC) and Earnings per Share (EPS) growth outcomes. This approach ensures a focus on the sustainable long-term growth of the organisation and delivering returns to our shareholders. Vesting of awards will only occur where company performance has been strong over the performance period. When target performance is achieved, it follows that executives’ LTI should vest – targets are therefore set that require excellent outcomes for shareholders, both absolutely and relative to the performance of CSL’s global peers. Granted annually with vesting after three years, in 2023 (grant date of 1 November 2022), CSL’s LTI plan adopts two key performance measures of ROIC (weighted 70%) and EPS growth (weighted 30%). The three year single point vesting approach aligns with the approach taken by CSL’s global pharmaceutical/biotechnology peers – a group with which CSL competes to attract and retain talent. ROIC CSL’s Research and Development (R&D) cycle requires sustained investment over the longer term, as do major capital capacity projects, which are often multi-year investments needed to support the future growth of the organisation. Developing a new life-saving product can take more than ten years from scientific inception through to manufacturing and commercialisation. Economic returns are then generated in subsequent years. To date, CSL adopted a seven-year average ROIC to measure real achievement against this metric as a fair representation of the R&D and capital investment profile. This calculation spans four years of historical ROIC performance and three years of projected ROIC performance, thereby placing the forward ‘at-risk’ years into the context of the overall investment cycle. The ROIC calculation is Reported EBIT x (1- Effective Tax Rate)/(Average Equity + Average Net Debt) where Net debt equals cash, less interest-bearing liabilities and Average Equity and Average Net Debt is the average of the opening position on 1 July and closing position on 30 June of the respective financial year. The Board establishes a new ROIC hurdle target for each annual grant. This process considers both the CSL budget and longer-term forecast annual ROIC over the term of the grant, together with the historical annual ROIC achieved that will form part of the performance assessment over the testing period. Historical performance of the peer group and market consensus are also considered. EPS Growth EPS growth is a measure that aligns executive LTI outcomes with the returns experienced by shareholders. The EPS growth target is assessed as compound annual growth with a base of the most recent financial year’s EPS and a target based on CSL’s estimation of EPS growth over the three-year performance period. EPS is calculated as EPS = CSL reported net profit in USD/ Weighted average number of shares on issue. The Board determines the EPS growth hurdle based on past, current and expected EPS performance over the performance period and, historical performance of our peer group. A review against market consensus is also undertaken to ensure the target set is aligned with expected outcomes and appropriate vesting occurs. CSL Limited Annual Report 2022/23 93
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