## 1. Our remuneration policy 

## The key principle underpinning our remuneration policy is to promote and recognise excellence in a way that is fair to all stakeholders. 

Our remuneration policy is designed to promote excellent performance while meeting these goals: 

> align the interests of shareholders, employees, customers and the community with AGL’s objectives and values 

> attract and retain key talent 

> keep employees committed and motivated by providing fair remuneration and other benefits to all employees 

> meet long-term people needs through effective talent management and succession planning 

> meet AGL’s commitment to a diverse and inclusive workplace 

> promote AGL as an employer of choice 

> comply with relevant legislation and corporate governance principles. 

The remuneration policy is reviewed and ratified annually by the Board’s People and Performance Committee. 

## Share Plan participation 

## AGL actively promotes employee participation in Share Plans. 

AGL offers its employees participation in the following Share Plans: 

> AGL Long-Term Incentive Plan (LTIP): Senior Executives are granted Share Performance Rights (SPRs) that vest when specified applicable performance conditions are met. 

> AGL Share Reward Plan:  eligible employees are granted up to $1,000 worth of AGL shares each year, subject to AGL meeting specific performance hurdles. (Note, participants in the Share Reward Plan are not eligible to participate in the LTIP described above). 

> AGL Share Purchase Plan:  the Plan Trustee acquires AGL shares on-market at market price during permitted trading periods, generally for Directors and employees who have salary-sacrificed a portion of their pre-tax salary. 

The number of employees participating in the Share Reward Plan and Share Purchase Plan is 1,410 (out of 2,031), and the number of AGL shares held is 531,179. 

## 2. Our remuneration framework 

## The remuneration of our Senior Executives is composed of three elements: Total Fixed Remuneration, which is fi xed; and Short-Term and Long-Term Incentives, both of which are variable (at risk). 

The CEO and Senior Executives are remunerated by a combination of fixed remuneration and short and long-term incentives. Senior Executive remuneration therefore has three elements: 

> total fixed remuneration (TFR) 

> short-term incentive (STI) payments 

> long-term incentive (LTI) payments. 

The mix varies for individual roles and is determined by comparison with market remuneration practice, taking into account the complexity of the business and the industry. 

Independent external advisers provide relevant market data, comparators and other analysis as part of a rigorous approach to establishing remuneration levels for each Senior Executive. 

In June 2011, the Board appointed PricewaterhouseCoopers (PwC) as its external remuneration consultant. PwC’s role in this regard is to provide remuneration advice to AGL’s People and Performance Committee and Board, as and when required. 

Two market surveys are provided by the Hay Group and considered when reviewing remuneration for the CEO and Senior Executives. The survey groups are: 

> A large survey containing ASX companies in industrial and service industries. This survey is selected because it is relatively non-volatile: it moves in a comparatively stable way, indicative of market trends over time. 

> A specific survey containing ASX companies in industrial and service industries with a market cap of greater than $5 billion. This survey assists in identifying any significant remuneration market issues or movements, and has the advantage of higher perceived validity. However, due to the smaller sample size, it is potentially more volatile from year to year. 

## Total Fixed Remuneration (TFR) 

## TFR is specified in the Senior Executive’s Service Agreement and is in line with market rates. TFR is reviewed regularly. 

TFR is the non-variable component of a Senior Executive’s annual remuneration. It consists of the base salary plus any superannuation contributions paid to a complying super fund on the Senior Executive’s behalf, and the cost (including any component for fringe benefits tax) for other items, such as novated vehicle lease payments. The amount of TFR is established based on relevant market analysis, and having regard to the scope and nature of the role and the individual Senior Executive’s performance, expertise, skills and experience. 

## 3. Linking remuneration to performance 

## Remuneration is linked to performance to attract and retain high calibre executives by motivating them to achieve performance goals which are aligned to AGL’s interests. 

The two remaining elements of executive remuneration, STI and LTI, are directly linked to the performance of both the Senior Executive and the company. 

## Short-Term Incentive (STI) 

## STI varies from year to year, based on performance. 

STI payments are based on the achievement of individual performance targets set at the start of the financial year. STI payments are designed to motivate Senior Executives to achieve AGL’s overall performance objectives. 

STI payments align individual performance with business outcomes in the areas of financial performance, customers, people management and strategy development and implementation. 

Senior Executives are eligible to be considered for an STI payment when they have performed satisfactorily in their role, met performance objectives and demonstrated AGL’s values, throughout the year. This is assessed annually using the Performance and Development Review (PDR) process (which is used for all employees throughout AGL). 

The PDR is used to measure the actual level of achievement of each objective in the financial year. No STI is payable for any objective where a minimum level of performance has not been reached. This performance management process links the amount of STI paid 

