2009 Shareholder Review

The Group's results for the 2009 financial year reflected the impact and far reaching nature of the global economic downturn, and are an important factor in determining performance payments for 2009.

Outcomes for 2009

Performance payments for the Group Chief Executive Officer and senior executives were affected as follows:

• The average Short Term Incentive (STI) amount paid to senior executives fell 22%.
• Current employees derived no value from Long Term Incentive (LTI) during the 2009 year (other than dividends).
• LTI securities held by several senior executives lapsed during the year, unvested and therefore unexercised, as performance hurdles had not been met.

In addition:

• Group Executive Committee members have volunteered to have one-half of their total STI for the 2009 financial year deferred in shares, 25% to be restricted for 12 months and 25% for 24 months.
• Non-executive Director fees have been frozen until March 2010 (there has been no change since March 2008).

The graph (located to the right) shows the average individual STI payment (as a percentage of each individual's target STI, where 100% is the target) for the senior executives, reflecting both business and individual performance.

Initiatives for 2010

The global financial crisis uncovered substantial inconsistencies in remuneration frameworks across the globe, especially in financial services organisations outside Australia. In some instances remuneration was clearly not aligned with the interests of shareholders. The remuneration frameworks of Australian financial services companies have proven to be better positioned and much of the remuneration excesses have been avoided.

We have undertaken a comprehensive internal and external assessment of our remuneration practices, and commissioned a review of our framework by external advisers. In the spirit of continuous improvement, the Board is working with management to update and further improve key aspects of the remuneration systems.

Initiatives include:

• Improving performance management systems.
• Increasing portions of STI rewards deferred, and for longer periods – reflecting the level of responsibility (including risk) and impact of the role.
• Limiting the allocation of LTI to those roles which have the ability to influence Group outcomes over the longer term.
• Increasing focus on risk metrics across all material aspects of performance and reward.

Given anticipated changes to the Corporations Act 2001 (Cth) in regard to termination benefits, the Company has conducted a review of its current policies and practices. We are satisfied that current policies can be amended to deliver appropriate benefits under the new legislation (as currently proposed) in most cases.

Non-executive director fees

The total fees paid by the Group to the Chairman and the non-executive Directors on the Board, including fees paid for their involvement on Board committees and in relation to their services to controlled entities of the Company, are kept within the total approved by shareholders from time to time. The Board decided that no review of fees would be undertaken in 2009.

Click here to view Remuneration Tables.

Key remuneration outcomes

Mr Clyne's fixed remuneration increased since 2008 to reflect his new role as Managing Director and Group CEO (effective 1 January 2009). Mr Clyne earned a reduced STI for the 2009 performance year, as his scorecard includes a significant weighting on the Group's cash earnings outcome for the year, which was less than planned due to higher bad and doubtful debts. Mr Clyne achieved all other measures on his scorecard. The Board believes strongly in Mr Clyne's ability to lead the Group through these challenging times and to improve business performance in the medium to long-term. Mr Clyne's success in doing so will be reflected in the level of vesting of his proposed LTI award for the 2009 year – which will be made on the same basis and with the same hurdles as LTI for other senior managers at NAB.

Mr Fahour left the Group during the year. The termination benefit paid under his contract, payment of a pro-rated STI award based on his outstanding achievements, the decision of the Board to allow the retention of options and rights (with vesting still subject to performance hurdles) and the release of some shares are all in line with the Group's current practice in such circumstances.

Mr Hamar left the Group during the year. The termination benefit paid under his contract, payment of a pro-rated STI award, the decision of the Board to allow the retention of options and rights (with vesting still subject to performance hurdles) and the release of some shares are all in line with the Group's current practice in such circumstances.

Mr Hooper moved to a new position as Executive Director – UK Business within the Group's UK operation as a result of the March 2009 Group restructure. His remuneration has been adjusted to reflect this new position. As is the case for Ms Peacock, Mr Hooper's STI outcome for the 2009 performance year reflects the business result for the UK banks as compared with the business plan and results for the rest of the Group.

Ms Peacock's STI outcomes for the 2009 performance year reflect the business result for the UK banks compared with business plan and results for the rest of the Group. The UK results reflect the challenging business environment in that region and the Board is pleased with the performance of our banks compared to others in the region. Operating conditions were consistent with the deepest UK recession in the post war period. The Board is satisfied that Ms Peacock's remuneration package is appropriate and reasonable, having regard to the circumstances of the Group's UK operations, Ms Peacock's role and responsibilities and market relativity for the role. The Board believes strongly in Ms Peacock's ability to lead the UK banks through these challenging times and to improve the performance of the UK business in the medium to long-term.

Mr Stewart left the Group with the approval of the Board, having extended his contract beyond the initial three-year term at the Board's request in order to further advance the Group on its cultural and business journey. Mr Stewart's achievements allowed for orderly succession to the Board's candidate, Mr Clyne. Consequently, the Board determined it was appropriate to provide a termination payment under Mr Stewart's contract, the payment of a pro-rated STI award, and to allow the retention of options and rights (with vesting still subject to performance hurdles).