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Auckland Airport CEO Incentives

Friday 8th July 2011

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The New Zealand shareholders Association said today that following constructive talks with AIA Chair Joan Withers, it was satisfied that the new long term incentive plan for AIA CEO Simon Mouter was adequately aligned with shareholder interests. We like the fact that the Airport Company has been up-front in announcing the payments rather than trying to hide them in the annual report, said NZSA Chairman John Hawkins. Such transparency should be the norm and we will continue to criticise directors who fail to fully inform shareholders about these kinds of arrangements..

"While we have reservations about total shareholder return (TSR) being the most appropriate measure to use, we are pleased that some significant performance hurdles must be met for these incentives to be vested", he said. Hawkins also noted that the company had resisted the temptation to alter Mouter's existing scheme which was well under water. “This is a lead that several other companies could well note”.

The Association felt the phantom option scheme (which results in cash payments being made) was an improvement on a number of share based option schemes as these dilute other shareholders. “However, we still prefer to see long term incentives paid out with shares purchased on-market. We think this gives the best alignment with shareholders”, he said.

The Association was less enthusiastic about the $750,000 retention payment also announced by AIA. Hawkins said “although we note that performance hurdles are built into this payment, we have told AIA that we do not expect to see a similar deal in the future”.

Succession planning was very important and companies risked being held to ransom by senior executives if they did not give this sufficient priority. Research has clearly demonstrated that with few exceptions, internal promotion achieved the best results, and this is the succession path the NZSA would like to see most companies following.

If retention schemes were to become common, Hawkins said the Shareholders Association would be pushing for a New Zealand version of the recently introduced two strikes rule which forces all directors to resign if sufficient shareholders reject two remuneration reports.


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