## 6.2 Total Fixed Remuneration and Short Term Incentive 

The remuneration of Mr Kelaher is set by the Board and is based on a market review of the level of remuneration required to attract and retain a high calibre individual suitable for the role. During the financial year ended 30 June 2012, Mr Kelaher received a remuneration package comprising fixed remuneration of $1,090,000. This amount included $65,000 annual Director’s fee paid directly by DKN Financial Group Limited prior to acquisition by the Group which has been incorporated into Mr Kelaher’s remuneration from the Group. Mr Kelaher was entitled to a total STI opportunity of up to a maximum of $870,000 based on achievement of superior performance against set targets determined by the Remuneration Committee. In July 2012 the Remuneration Committee assessed Mr Kelaher’s performance against those targets and determined an STI amount of $626,400. 

In terms of his remuneration arrangements, the STI opportunity was settled two thirds by cash and a third in the form of deferred shares. The number of deferred shares granted to Mr Kelaher was determined on the basis of the STI deferral amount divided by the five day Volume Weighted Average Price up to and including 29 June 2012, which was $5.8038. The number of deferred shares to be issued accordingly is 35,977 (capped at 75,000 annually) and there is no consideration payable for the grant of the deferred shares. 

The Board has determined that the portion of STI that will be deferred will be subject to Board ‘look back’ arrangements. This means the Board will conduct a review of Group performance in June 2013 and assess whether any significant unexpected or unintended consequences have occurred that were not foreseen by the Remuneration Committee when it made its decision in July 2012, and whether it is still appropriate to award the deferred shares. 

During June 2012, the Remuneration Committee performed a ‘look back’ review in regards to the 31,694 deferred shares issued in July 2011. The Remuneration Committee determined that all of the deferred shares were to vest in accordance with the terms of the arrangement. The 31,694 shares have since been transferred to Mr Kelaher. 

## 6.3 Performance Rights and Share Options 

As approved at the Annual General Meeting (AGM) of shareholders on 23 November 2010, Mr Kelaher is entitled to participate in an LTI program offering a maximum reward opportunity of 150,000 performance rights and 300,000 options in respect of the 2010/11 and 2011/12 financial years. 

Following shareholder approval, 150,000 performance rights and 300,000 share options were granted to Mr Kelaher on 23 November 2010 in relation to the 2010/11 financial year. An additional 150,000 performance rights and 300,000 share options were granted to Mr Kelaher on 1 July 2011. 

The performance rights and share options will be subject to a three year performance period commencing on the date of grant. They will vest after the performance period and be exercisable in the following manner: 

• 50% on the third anniversary of the grant date; 

• 25% on the fourth anniversary of the grant date; and 

• 25% on the fifth anniversary of the grant date. 

The exercise period will lapse 12 months after the fifth anniversary of the relevant grant date. The Board has the discretion to either purchase shares on market or to issue new shares. 

## 6.4 Performance rights – performance hurdles 

The Board has determined that this element of the plan will not activate unless a minimum average Return on Equity (ROE) of 5.5% per annum over the performance period has been achieved. The performance hurdle of the performance rights will be based on the Company’s Total Shareholder Return (TSR) relative to a comparator group comprising the S&P ASX200 index companies over the performance period. 

Following a review of the Company’s LTI program during the 2009 financial year, with advice being obtained from independent remuneration consultants, the Board determined that the comparator group for the 2010 and future grants should be the S&P ASX200. This comparator group provides an objective measure of performance across a range of industries and company types which compete with the Group for capital. The Board reserves the right to make changes to the peer group to allow for changing circumstances (e.g. takeover) for peer group companies. 

TSR measures the return to the shareholder over the performance period in terms of changes in the market value of the shares plus the value of the dividends paid on the shares. 

Performance rights that do not vest will lapse and will not be retested. Consistent with the Company’s hedging policy, Mr Kelaher will be prohibited from entering into hedging arrangements in respect of unvested performance rights. 

Upon exercise of the performance rights, shares will be allocated to Mr Kelaher. Shares allocated to Mr Kelaher will rank equally with all other ordinary shares on issue. Any dealing in shares resulting from performance rights that have been exercised will be subject to IOOF’s Securities and Insider Trading Policy. 

