Directors' Report

The Directors of the Commonwealth Bank of Australia submit their report, together with the financial report of the Commonwealth Bank of Australia (the ‘Bank’) and of the Group, being the Bank and its controlled entities, for the year ended 30 June 2005.

The names of the Directors holding office during the financial year and until the date of this report are set out in the Director's of the Commonwealth Bank of Australia together with details of Directors’ experience, qualifications, special responsibilities and organisations in which each of the Directors has declared an interest.

Directors' Meetings

The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the Directors of the Commonwealth Bank of Australia during the financial year were:

	Directors' Meetings
Director	No. of Meetings Held1	No. of Meetings Attended
J M Schubert	13	13
D V Murray	13	12
R J Clairs	13	13
A B Daniels	13	13
C R Galbraith	13	12
S C H Kay	13	13
W G Kent	13	13
F D Ryan	13	13
F J Swan	13	12
B K Ward	13	13
N R Adler	4	4
J T Ralph	4	4

 

	Committee Meetings
	Risk Committee		Audit Committee		People & Remuneration Committee
Director	No. of Meetings Held1	No. of Meetings Attended	No. of Meetings Held1	No. of Meetings Attended	No. of Meetings Held1	No. of Meetings Attended
J M Schubert	6	6	2	2	7	7
D V Murray	6	6
R J Clairs	6	6			8	6
A B Daniels	6	5			8	8
C R Galbraith	6	6	4	4
S C H Kay	6	6			5	5
W G Kent	6	6	4	4
F D Ryan	6	6	6	6
F J Swan	6	4
B K Ward	6	6	6	6
N R Adler	2	2	2	2
J T Ralph	2	2			3	3

Principal Activities

The Commonwealth Bank Group is one of Australia’s leading providers of integrated financial services including retail, business and institutional banking, superannuation, life insurance, general insurance, funds management, broking services and finance company activities. The principal activities of the Commonwealth Bank Group during the financial year were:

(i) Banking

The Group provides a full range of retail banking services including housing loans, credit cards, personal loans, savings and cheque accounts, and demand and term deposits. The Group has leading domestic market shares in home loans, personal loans, retail deposits and discount stockbroking, and is one of Australia’s largest issuers of credit cards. The Group also offers a full range of commercial products including business loans, equipment and trade finance, and rural and agribusiness products. For our corporate and institutional clients, we offer a broad range of structured finance, equities and advisory solutions, financial markets and equity markets solutions, transactions banking, and merchant acquiring.

The Group also has full service banking operations in New Zealand and Fiji. The Group has wholesale banking operations in London, New York, Hong Kong, Singapore and Tokyo.

(ii) Funds Management

The Group is Australia’s largest funds manager and largest retail funds manager in terms of its total value of Funds under Administration. The Group’s funds management business is managed as part of Wealth Management division. This business manages a wide range of wholesale and retail investment, superannuation and retirement funds. Investments are across all major asset classes including Australian and International shares, property, fixed interest and cash.

The Group also has funds management businesses in New Zealand, UK and Asia.

(iii) Insurance

The Group provides term insurance, disability insurance, annuities, master trusts, investment products and household general insurance.

The Group is Australia’s largest insurer based on life insurance assets held, and is Australia’s largest manager in retail superannuation, allocated pensions and annuities by Funds under Administration.

Life insurance operations are also conducted in New Zealand, where the Group has the leading market share, and throughout Asia and the Pacific.

There have been no significant changes in the nature of the principal activities of the Group during the financial year.

Consolidated Profit

Consolidated operating profit after tax and outside equity interests for the financial year ended 30 June 2005 was $3,991 million (2004: $2,542 million).

The net operating profit for the year ended 30 June 2005 after tax, and before goodwill amortisation, appraisal value uplift, shareholder investment returns and costs related to initiatives including Which new Bank was $3,466 million. This is an increase of $388 million or 13% over the year ended 30 June 2004.

In September 2003, the Group launched its Which new Bank customer service vision. This is a three year transformation program with an estimated spend of $1,480 million over the period. This includes $600 million of normal project spend, and an additional $620 million in areas of staff training, systems and process simplification and technology, and $260 million invested in the branch network.

The Bank has continued to meet all of its Which new Bank commitments and critical project milestones, with net benefits in 2005 totalling $724 million. Market shares in key business lines have improved (home loans, personal lending, funds management) or are showing signs of turnaround (business-lending, deposits). Efficiency gains are being recorded in each segment.

The principal contributing factors to the profit increase were a growth in net interest income reflecting growth across a range of lending products, combined with an increase in commissions. Underlying expenses increased by only 4%, despite higher spend on compliance and the impact of a stronger NZ dollar. Funds management and insurance income rose which reflects buoyant equity markets for most of the year, growth in Funds under Administration and growth in inforce premiums. Additionally, appraisal values of the life insurance and funds management businesses increased by $778 million reflecting the growth in Funds under Administration and improved equity markets.

Dividends

The Directors have declared a fully franked (at 30%) final dividend of 112 cents per share amounting to $1,434 million. The dividend will be payable on 23 September 2005 to shareholders on the register at 5:00 pm on 19 August 2005. Dividends paid since the end of the previous financial year:

• As declared in last year’s report, a fully franked final dividend of 104 cents per share amounting to $1,315 million was paid on 24 September 2004. The payment comprised cash disbursements of $1,069 million with $246 million being reinvested by participants through the Dividend Reinvestment Plan;
• In respect of the current year, a fully franked interim dividend of 85 cents per share amounting to $1,083 million was paid on 31 March 2005. The payment comprised cash disbursements of $883 million with $200 million being reinvested by participants through the Dividend Reinvestment Plan; and
• Additionally, quarterly dividends totalling $39 million for the year were paid on the PERLS; $34 million on the PERLS II; $42 million on the Trust Preferred Securities; $9 million on the ASB Capital preference shares; and $7 million on the ASB Capital No.2 preference shares.

Review of Operations

An analysis of operations for the financial year is set out in the Highlights and Business Overview. A review of the financial condition of the Bank is set out in the Highlights.

Changes in State of Affairs

During the year, the Bank continued to make significant progress in implementing a number of strategic initiatives under the Which new Bank program launched in September 2003.

The program is designed to ensure a better service outcome for the Bank’s customers.

Progress within the major initiatives included the following:

• ‘Commsee’, the new banking customer management platform, as well as providing frontline staff with ready access to imaged client documents and authorities, is making it easier to share customer information. More than half the branches now have CommSee operating and are averaging over 90,000 referrals per month.
• ‘CommWay’ initiatives have led to turnaround time improvements and a significant reduction in home loan and personal loan approval times, through the implementation of end-to-end systems and process improvements.
• A further 127 branches have been refurbished this year, bringing the total number of branches modernised to help provide faster, more efficient service to 253.
• The new NetBank platform was introduced in April 2005 providing enhanced functionality and greater flexibility for two million online customers.
• The Wealth Management team achieved its goal of reducing the number of product systems to seven, bringing the total number of product systems decommissioned to 10 since the beginning of Which new Bank.

The Chairman of the Commonwealth Bank of Australia, Dr John Schubert, announced on 14 June 2005 that the Board had appointed Mr Ralph Norris to take over the role of Managing Director and Chief Executive Officer on the retirement of Mr David Murray. Mr Murray will retire from the Bank on 22 September 2005. Mr Norris is currently Managing Director and Chief Executive Officer of Air New Zealand Limited.

There were no other significant changes in the state of affairs of the Group during the financial year.

Events Subsequent to Balance Date

On 7 July 2005 the Bank entered into an agreement to sell its life insurance and financial planning business in Hong Kong for approximately $600 million to Sun Life Financial. The business consisted of CMG Asia Limited, CommServe Financial Limited and Financial Solutions Limited, with a combined carrying value of $527 million under current Australian GAAP. The carrying value will be different under AIFRS, principally due to differences in discount rates used in the actuarial valuation of policyholder liabilities and differences in treatment of historic foreign exchange losses under AIFRS.

The transaction, targeted for completion within three months and together with the determination of the final profit, is subject to conditions precedent.

The Directors are not aware of any other matter or circumstance that has occurred since the end of the financial year that has significantly affected or may significantly affect the operations of the Group, the results of those operations or the state of affairs of the Group in subsequent financial years.

Business Strategies and Future Developments

Business strategies, prospects and future developments, which may affect the operations of the Group in subsequent financial years, are referred to in the Message from the Chairman, Highlights and Which new Bank Summary. In the opinion of the Directors, disclosure of any further information on likely developments in operations would be unreasonably prejudicial to the interests of the Group.

Environmental Regulation

The Bank and its controlled entities are not subject to any particular or significant environmental regulation under a law of the Commonwealth or of a State or Territory, but can incur environmental liabilities as a lender. The Bank has developed credit policies to ensure this is managed appropriately.

Directors' Shareholdings

Particulars of shares in the Commonwealth Bank or in a related body corporate are set out the Remuneration Report within this report.

Options

An Executive Option Plan (‘EOP’) was approved by Shareholders at the Annual General Meeting on 8 October 1996 and its continuation was further approved by Shareholders at the Annual General Meeting on 29 October 1998. At the 2000 Annual General Meeting, the EOP was discontinued and Shareholders approved the establishment of the Equity Reward Plan (‘ERP’). The last grant of options to be made under the ERP was the 2001 grant, with options being granted on 31 October 2001, 31 January 2002 and 15 April 2002. A total of 3,007,000 options were granted by the Bank to 81 executives in the 2001 grant. During the financial year, the performance hurdle for the 2001 ERP grant was met. All option grants have now met their specified performance hurdles. During the financial year and for the period to the date of this report 2,741,600 shares were allotted by the Bank consequent to the exercise of options granted under the EOP and ERP. Full details of the Plan are disclosed in Note 5 to the Financial Statements. No options have been allocated since the beginning of the 2001/2002 financial year.

The names of persons who currently hold options in the Plan are entered in the register of option holders kept by the Bank pursuant to section 170 of the Corporations Act 2001. The register may be inspected free of charge.

For details of the options previously granted to the Chief Executive Officer, being a Director, refer to the Remuneration Report within this report.

Directors' Interests in Contracts

A number of Directors have given written notices, stating that they hold office in specified companies and accordingly are to be regarded as having an interest in any contract or proposed contract that may be made between the Bank and any of those companies.

Directors' and Officers' Indemnity

Articles 19.1, 19.2 and 19.3 of the Commonwealth Bank of Australia’s Constitution provides:

“19. Indemnity

19.1 Persons to whom articles 19.2 and 19.4 apply

Articles 19.2 and 19.4 apply:

(a) to each person who is or has been a director, secretary or senior manager of the company; and

(b) to such other officers, employees, former officers or former employees of the company or of its related bodies corporate as the directors in each case determine, (each an “Officer” for the purposes of this article).

19.2 Indemnity

The company must indemnify each Officer on a full indemnity basis and to the full extent permitted by law against all losses, liabilities, costs, charges and expenses (“Liabilities”) incurred by the Officer as an officer of the company or of a related body corporate.

19.3 Extent of indemnity

The indemnity in article 19.2:

(a) is enforceable without the Officer having to first incur any expense or make any payment;

(b) is a continuing obligation and is enforceable by the Officer even though the Officer may have ceased to be an officer of the company or its related bodies corporate; and

(c) applies to Liabilities incurred both before and after the adoption of this constitution.”

An indemnity for employees, who are not directors, secretaries or senior managers, is not expressly restricted in any way by the Corporations Act 2001.

The Directors, as named in the Director's of the Commonwealth Bank of Australia, and the Secretaries of the Commonwealth Bank of Australia, being J D Hatton, H J Broekhuijse (resigned 12 July 2005) and C F Collingwood (appointed 12 July 2005) are indemnified under articles 19.1, 19.2 and 19.3 as are all the senior managers of the Commonwealth Bank of Australia.

Deeds of Indemnity have been executed by Commonwealth Bank of Australia consistent with articles 19.1, 19.2 and 19.3 above in favour of each Director.

Directors' and Officers' Insurance

The Commonwealth Bank has, during the financial year, paid an insurance premium in respect of an insurance policy for the benefit of those named and referred to above and the directors, secretaries, executive officers and employees of any related bodies corporate as defined in the insurance policy. The insurance grants indemnity against liabilities permitted to be indemnified by the company under section 199B of the Corporations Act 2001. In accordance with commercial practice, the insurance policy prohibits disclosure of the terms of the policy including the nature of the liability insured against and the amount of the premium.

Remuneration Report

Introduction

This report details the Bank’s remuneration policy for Directors and executives (including senior managers and company secretaries) and the links between the performance of the Bank and individual remuneration outcomes. Remuneration arrangements, including details of equity holdings, loans and other transactions for Directors and Specified Executives of the Bank, are also disclosed. In compiling this report the Bank has met the disclosure requirements of accounting standard AASB 1046, as well as those prescribed by the Corporations Act 2001.

People & Remuneration Committee

The Bank’s remuneration arrangements are overseen by the People & Remuneration Committee of the Board, which currently consists of Mr R J Clairs (Chairman), Dr J M Schubert, Mr A B Daniels and Ms S C H Kay. Prior to Mr J T Ralph’s retirement on 5 November 2004, the Committee consisted of Messrs Ralph (Chairman), Daniels and Clairs. The Committee’s activities are governed by its terms of reference which is available on the Bank’s website at http://shareholders.commbank.com.au.

The Committee considers changes in remuneration policy likely to have a material impact on the Bank and is informed of leadership performance, legislative compliance on employment issues, industrial agreements and incentive plans operating across the Bank.

The Committee also considers senior appointments and remuneration arrangements for senior management. The remuneration arrangements for the Chief Executive Officer (CEO) and Group Executives (senior direct reports to the CEO) are approved by the full Board.

The policy of the Board is that the Committee shall consist entirely of independent Non-executive Directors. The CEO attends Committee meetings by invitation but does not attend in relation to matters that can affect him.

Remuneration Policy

The Bank’s remuneration systems complement and reinforce its performance culture, and leadership and talent management systems. The remuneration systems aim to:

• Attract and retain high calibre employees;
• Align individual and Bank goals; and
• Ensure total remuneration is competitive by market standards.

For Executives, this also aims to reward with an appropriate mix of remuneration according to their level in the organisation, with a significant weighting towards both short term and long term variable (‘at risk’) pay linked to performance. This focus aims to:

• Reward Executives for Bankwide, business unit and individual performance against targets set by reference to appropriate benchmarks and against behavioural standards;
• Align the interests of Executives with those of Shareholders; and
• Link Executive reward with the strategic goals and sustainable performance of the Bank.

In determining appropriate levels of Executive remuneration, the People & Remuneration Committee engages an external consultant to provide independent advice. This ensures that the remuneration of Executives is set competitively compared to market. It also helps the Committee understand movements and trends in Executive remuneration that should be factored into considerations regarding the remuneration of Executives.

Remuneration and terms and conditions of employment are specified in an individual contract of employment with each Executive, which is signed by the Executive and the Bank.

The following diagram illustrates the annual cycle of the Bank’s remuneration arrangements for Senior Executives.

 

Remuneration Structure

Remuneration of the Bank’s Executives consists of three key elements:

• Fixed remuneration;
• Short Term Incentive (STI); and
• Long Term Incentive (LTI).

The ‘mix’ of these components for each Executive varies according to their role, as outlined below.

Fixed Remuneration

Fixed remuneration consists of base remuneration (which is calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles), as well as employer contributions to superannuation.

Fixed remuneration is competitively set so that the Bank can attract, motivate and retain high calibre local and international Executive staff.

Fixed remuneration is reviewed annually by the People & Remuneration Committee through a process that considers relevant comparative remuneration in the market and internal and, where appropriate, external advice on policies and practices. As noted above, the Committee has access to external advice independent of management.

Variable (‘At Risk’) Remuneration

The relationship of fixed and variable remuneration (potential short term and long term incentives) is approved for each level of Executive management by the People & Remuneration Committee.

The Bank’s remuneration structure is designed to motivate employees for short and long term performance. This mix between short term and long term variable components maintains a focus on the sustainable short term performance of the Bank, whilst ensuring a clear line of sight in positioning the Bank for its longer term success.

The current target mix of remuneration components for Executives is illustrated in the following table.

Current target potential remuneration mix for Executives

	Fixed Component (Base Remuneration and Superannuation) %	STI Component %	LTI Component %
CEO	25	25	50
Group Executives	30	30	40

Where market practice requires, the structure for some specialist (high revenue-generating) roles differs from that which applies generally to Executive management. For such specialists, a greater proportion of the variable component of remuneration may be in short term rather than long term incentives but the overall mix of remuneration is still heavily weighted towards ‘at risk’ pay.

Short Term Incentive (STI) Arrangements

Employees at all levels of the Bank participate in the Bank’s STI arrangements.

Actual STI payments for executives depend on the extent to which operating targets and behaviour standards set at the beginning of the financial year are met.

Depending on the executive’s level within the organisation, any actual STI payments received are based on a combination of Bankwide, business unit and individual performance.

On an annual basis, after consideration of performance against Key Result Areas, the Board approves an overall performance rating for the Bank and each business unit. The Executive’s manager assesses individual performance based on the Bank’s Performance Feedback and Review system.

Executives receive a limited (if any) performance payment if their individual performance is not ‘meeting expectations’. Such situations would be under active performance management.

The aggregate of annual STI payments available for Executives across the Bank is subject to the approval of the People & Remuneration Committee. In the case of the CEO and Group Executives, individual payments are subject to the approval of the Board.

For payments made in recognition of performance for the year ended 30 June 2005, where STI deferral applies, the STI payments are delivered in two components:

• 50 percent made as immediate cash payment; and
• 50 percent in cash deferred for one year. Generally, the Executive will need to be an employee of the Bank at the end of the deferral period to receive this portion.

This represents a simplification from previous years where the deferral was made in shares, half of which vested after one year, and the remainder vested after two years.

Long Term Incentive (LTI) Arrangements

Under the Bank’s Equity Reward Plan (ERP), LTI grants to Executives are delivered in the form of ordinary shares in the Bank that vest in the Executive if and to the extent that a performance hurdle is met.

LTI grants are made to Executives who are able to directly influence the generation of Shareholder wealth and thus the Bank’s performance against the relevant hurdle. Participation is thus restricted to Executives who, in a reporting sense, are no more than three levels removed from the CEO.

The quantum of grants made to each Executive depends on their level within the organisation and has regard to the desired mix between fixed remuneration, short term and long term incentive as well as the performance and potential of the individual Executive.

No value will accrue to the Executive unless the Bank’s Total Shareholder Return (TSR) (which is calculated by combining the reinvestment of dividends and the movement in the Bank’s share price) at least meets the 50^th percentile of a peer comparator group of companies over a three to five year period. The percentage of shares vesting in the Executive rises with increased performance. To receive the full value of the LTI grant, the Bank’s performance must be in the top quartile of the peer group. The table below provides a summary of the ERP grants from previous years that were in operation during the year ended 30 June 2005.

 

Summary of performance hurdles for Employee Reward Plan (ERP) grants

	2001 Grant	2002 Grant	2003 Grant	2004 Grant
Performance measurement
From	3 Sept 2001	2 Sept 2002	1 Sept 2003	23 Aug 2004
To	4 Sept 2004	3 Sept 2005	2 Sept 2006	24 Aug 2007
Additional vesting opportunities	Every month	Every six months	Every six months	Every six months
	from Oct 2004	from 3 Sept 2005	from 2 Sept 2006	from 24 Aug 2007
	until Sept 2006	until 2 Sept 2007	until 1 Sept 2008	until 23 Aug 2009
Expiry Date if Exercisable	3 Sept 2006	2 Sept 2007	1 Sept 2008	23 Aug 2009
Status as at 30 June 2005	Vested on 3 Oct 04	30th percentile	68th percentile	74th percentile
Vesting Scale	< Weighted Average	< 50th percentile = Nil shares
	of Peers = 0%	50th – 67th percentile = 50% – 75% of shares
	> Weighted Average of Peers = 100%	68th – 75th percentile = 76% – 100% of shares
Performance Hurdle	TSR vs Peer Group. If the performance hurdle is not reached after three years, the options1 may nevertheless be exercisable or the shares vest, where the hurdle is subsequently reached within five years from the grant date.	TSR vs Peer Group. Where the rating is at least at the 50th percentile on the third anniversary of the grant, the shares will vest at a time nominated by the Executive, within the half yearly windows, over the next two years. The vesting percentage will be the higher of the rating determined at the third anniversary of the grant and the rating determined at the half yearly measurement point at which the Executive nominates that the shares will vest. Where the rating is below the 50th percentile on the third anniversary of grant, the shares can still vest if the rating reaches the 50th percentile at one of the half yearly measurement points prior to the fifth anniversary, but the maximum vesting will be 50%.

The use of a relative TSR based hurdle ensures an alignment between comparative shareholder return and reward for Executives.

In assessing whether the performance hurdles for each grant have been met, the Bank receives independent data from Standard & Poor’s which provides both the Bank’s TSR growth from the commencement of each grant and that of the peer group (excluding the Bank). The Bank’s performance against the hurdle is then determined as follows:

• For grants prior to 2002, the TSR of each company in the peer group is weighted by market capitalisation to form an index against which the Bank’s TSR is compared.
• For grants made from 2002 onwards, each company in the peer group and the Bank is ranked in order of TSR growth from the commencement of each grant. A weighting for each company in the peer group is determined by dividing the market capitalisation of the relevant company by the total market capitalisation of the peer group. The Bank’s percentile ranking is determined by aggregating the calculated weighting of each company ranked below the Bank.

The peer group chosen for comparison reflects the Bank’s current business mix and currently1 consists of:

Adelaide Bank	IAG
AMP	Macquarie Bank
Australia & New Zealand	National Australia Bank
Banking Group	QBE Insurance
AXA	St.George
Bank of Queensland	Suncorp-Metway
Bendigo Bank	Westpac Banking Group

Further details of the ERP may be found in Note 5 (Share Capital) to the Financial Statements.

Bank Performance

Short Term Performance - 2004/2005

The Bank’s Short Term Incentive framework is underpinned by a performance management system through which all staff are assessed on outcomes and behaviours. Staff have Key Result Areas in Customer Service, People Engagement, and Business Outcomes. Below is a description of the Bank’s performance in each of these areas.

Summary of Bank performance

Key Result Area	Commentary
Customer Service	The Bank’s vision is ‘to excel in customer service’. There have been substantial service improvements driven from the Which new Bank service transformation program. This result is supported by enhanced customer satisfaction readings, significant customer turnaround time improvements, the implementation of CommSee (in progress and on schedule), an upgraded NetBank, service and sales management training and more branch refurbishments. The progress in customer service reflects that the Which new Bank program is on schedule. It is expected that the impact during 2005/06 of service initiatives already completed and being implemented will add further to the Bank’s competitiveness, customer satisfaction levels and ultimately the Bank’s market share in profitable areas.
People Engagement	There have been substantial people engagement improvements driven from the Which new Bank program. This result is supported by enhanced employee satisfaction readings, key culture change measures, a continuing safety improvement focus and the implementation of enhanced leadership, performance management and talent management frameworks. This progress is reflective of the Bank’s commitment to its people and the success of the Which new Bank program assisting in the achievement of the vision through engaged people.
Business Outcomes	The Bank exceeded its net profit after tax (NPAT) targets for the year ended 30 June 2005. Cash NPAT and underlying NPAT increased by 31% and 13% respectively compared with the previous year. As part of this, the Which new Bank program has exceeded targets with net benefits in 2005 of $724 million. There were strong results in retail banking, funds management and insurance, tempered by moderate results in institutional and business banking. These results are supported by market share improvements in most products, productivity gains and return on equity increases. The Bank has improved market share in home lending (from 19.3% to 19.9%) and retail funds under administration (from 14.4% to 14.8%) in the past 12 months. The Bank has shown strong lending growth in the retail bank and stable net interest margins since 30 June 2004. It has achieved increases in average interest earning assets and home lending balances of 13.9% and 18.5% respectively.

The following graphs illustrate the Bank’s NPAT and earnings per share (EPS) performance on a cash basis over the last five years.

 

Longer Term Performance

Long term performance is measured on the Bank’s Total Shareholder Return (TSR) relative to its peers. TSR is calculated by combining the reinvestment of dividends and the movement in the Bank’s share price.

2001 LTI grant performance

The performance hurdle for the 2001 grant was reached in October 2004 with the Bank having outperformed the peer group TSR index by 7.8% over the performance period.

2002, 2003, 2004 LTI grant performance

The Bank’s performance must reach at least the 50^th percentile for 50% of the shares granted to vest. All of the shares granted will only vest if the Bank’s performance reaches the 75^th percentile.

As at 30 June 2005, the Bank’s performance was tracking under the 50^th percentile for the 2002 grant and over the 50^th percentile for the 2003 and 2004 grants.

Share price

The Bank’s share price has trended upward over the last five years, with a steeper incline since the introduction of the Which new Bank program in September 2003. Which new Bank has improved the Bank’s long term sustainable competitive positioning by enhancing customer service, people engagement and productivity.

Share price
(dollars)

 

Dividends per Share

The Bank’s dividend per share has increased each year over the last five years, with more significant increases since the introduction of the Which new Bank program.

 

Directors’ Remuneration

Mr David V Murray (Managing Director and CEO)

Summary of Remuneration Arrangements

Mr Murray’s remuneration consists of fixed and variable (at risk) components. For the year ended 30 June 2005, fixed remuneration, which comprises base remuneration (calculated on a total cost basis and includes any FBT charges related to employee benefits including motor vehicles) as well as employer contributions to superannuation, was 35% of total remuneration.

The variable (at risk) remuneration consists of short and long-term incentives.

Short Term Incentives (STIs) are delivered in two components: 50% made as an immediate cash payment and 50% in deferred cash. Performance is measured against Key Result Areas, with payment subject to the approval of the Board. The Board has assessed Mr Murray’s performance for the year and has approved a STI payment of $1,520,000.

Long Term Incentives (LTIs) are delivered in the form of Reward Shares under the Bank’s Equity Reward Plan, and no value will accrue unless the Bank’s Total Shareholder Return (TSR) at least meets the 50th percentile of the comparator group of companies. The Bank obtained shareholder approval for all LTI grants for Mr Murray.

The total variable remuneration for the year ended 30 June 2005 was 65% of total remuneration.

The Board determines Mr Murray’s remuneration, pursuant to the Constitution, as part of the terms and conditions of his appointment. Those terms and conditions are established in a contract of employment with Mr Murray which was effective from 2 July 2001 for a term of five years with remuneration subject to review annually by the Board.

As announced on 22 December 2004, Mr Murray’s remuneration arrangements were altered during the year. As a result of an independent review of Executive remuneration, the Board changed the mix of Mr Murray’s remuneration by increasing the proportion of his remuneration that is performance-based.

Mr Murray’s deferred STI arrangements changed with 50% of the STI payment being deferred in cash for one year. This is consistent with changes made that apply to executives who, in a reporting sense, are no more than two levels removed from the CEO.

Mr Murray’s remuneration arrangements are detailed in Remuneration of Directors and follow the same principles as other Executives except in relation to the Bank seeking Shareholder approval of LTI grants.

At the 2004 Annual General Meeting (AGM), the Board sought and was granted the approval of Shareholders (under ASX Listing Rule 10.14) for a maximum of 250,000 shares to be allocated to Mr Murray under the Equity Reward Plan in two tranches prior to the 2006 AGM. As communicated on 22 December 2004, 125,000 shares were granted to Mr Murray in 2004.

Retirement of Mr Murray

Mr Murray’s contract provides for a notice period of not less than six months and a pro rata payment of the average of the previous three years short term incentive payments. His arrangements also provide for him to exercise all vested options and obtain vested shares as described below.

On exit from the Bank, Mr Murray is entitled to receive his statutory entitlements of accrued annual and long service leave as well as accrued superannuation benefits. This arrangement is the same for all Bank Executives.

As announced on 15 July 2005, Mr Murray will retire from the Bank on 22 September 2005 after 39 years service, 13 of which have been as Managing Director and CEO.

Upon his departure, Mr Murray will receive payments of approximately $17.5 million. This comprises the components set out below.

Mr Murray’s payments on leaving the Bank

	Approximate Value $M
Statutory Benefits
Superannuation Benefit	11.8
Accrued Statutory Annual and Long Service Leave	2.3
Contractual Entitlements	2.4
Deferred STI Payments	1.0
Total	17.5

The Deferred STI Payments component is the total value of the deferred portions of payments determined in recognition of performance over the 2003/04 and 2004/05 financial years.

Depending on achievement of prescribed performance hurdles, Mr Murray may also be entitled to receive LTI shares granted under the Equity Reward Plan during 2002, 2003 and 2004, totalling 268,000 shares over the next four years. He may receive all, some or none of these shares, depending on the performance of each grant over the relevant periods.

The actual value of this benefit to Mr Murray is therefore contingent upon the number of shares he receives and the share price at the time (further details of the Bank’s LTI arrangements are at Long Term Incentive (LTI) Arrangements). Applying the accounting principles adopted in the Bank’s audited financial disclosures, which assumes 50% of the shares are received, the value of these shares at the time of the announcement of Mr Murray’s retirement date was approximately $5.2 million.

Appointment of Mr Norris

The Bank has appointed Mr Ralph Norris as Managing Director and CEO effective 22 September 2005. Prior to taking up appointment as Managing Director and CEO, Mr Norris will spend a period in hand over with Mr Murray to ensure a smooth transition.

Mr Norris’ remuneration will be structured in a similar manner to Mr Murray’s and will be reviewed by the Board on an annual basis.

Initially, fixed remuneration (including employer contributions to superannuation) will be $1.9 million per annum. The variable component consists of both STI and LTI.

The STI arrangements provide the opportunity to earn up to $1.9 million per annum, subject to performance against Key Result Areas as set by the Board. As was the case with Mr Murray’s arrangements, 50% of the STI is delivered as an immediate cash payment with the remaining 50% deferred in cash for one year.

Subject to Shareholder approval, the LTI component provides for Mr Norris to receive a grant of shares under the Bank’s Equity Reward Plan (ERP). No value will accrue to Mr Norris under the ERP unless the Bank’s Total Shareholder Return (TSR) at least meets the 50th percentile of a peer comparator group of companies over a three to five year period. The initial LTI allocation is to the approximate value of $3.8 million.

Mr Norris’ contract provides for no end date, although he may resign at any time by giving six months’ notice. The Bank may terminate Mr Norris’ employment, in cases other than misconduct, on 12 months’ notice in his first year of service and six months’ notice thereafter. In the latter case the Bank will pay all fixed remuneration and any outstanding statutory entitlements. Any unvested STI or LTI amounts will be payable at the discretion of the Board.

There is also a provision allowing Mr Norris to terminate the agreement if a material change to his status occurs and to receive benefits as if the Bank had terminated his employment.

Non-executive Directors

Remuneration Arrangements

Remuneration for Non-executive Directors consists of base and committee fees within a maximum of $3 million per annum as approved by Shareholders at the Annual General Meeting held on 5 November 2004. No component of Non-executive Director remuneration is contingent upon performance.

On appointment to the Board, Non-executive Directors enter into a service agreement with the Bank in the form of a letter of appointment. The letter of appointment, a copy of which appears on the Bank’s website, summarises the Board policies and terms, including remuneration, relevant to the office of Director. All current Non-executive Directors have entered into a form of service agreement.

The policy of the Board is that the aggregate amount of fees should be set at a level which provides the Bank with the necessary degree of flexibility to enable it to attract and retain the services of directors of the highest calibre.

The Nominations Committee annually reviews the fees payable to individual Non-executive Directors and takes into account relevant factors and, where appropriate, receives external advice on comparable remuneration. The last review was undertaken in December 2004, at which time components of the Directors’ fees were increased to the current levels to reflect the increasing commitments and responsibilities on Directors in meeting the statutory and regulatory requirements of their office. Those increases also took account of the termination of the Directors’ Retirement Allowance Scheme.

Non-executive Directors have 20% of their annual fees applied to the mandatory on-market acquisition of shares in the Bank. They can also voluntarily participate in a plan to have up to an additional 50% of their annual fees applied to the on-market acquisition of shares in the Bank.

The Bank’s Non-Executive Directors’ fee structure provides for a base fee for all Bank Directors of $160,000, and a base Chairman’s fee of $560,000. In addition, amounts are payable where Directors are members of, or chair a Committee. Details of the breakdown of each Non-Executive Director’s fees is provided in the table: Details of Components of Non-Executive Director Fees. The Bank also contributes to compulsory superannuation on behalf of Non-Executive Directors.

Retirement Benefits

Under the Directors’ Retirement Allowance Scheme, which was approved by Shareholders at the 1997 Annual General Meeting, Directors previously accumulated a retirement benefit on a pro rata basis to a maximum of four years’ total emoluments after 12 years’ service. No benefit accrued until the Director had served three years on the Board. In 2002 the Board decided to discontinue the Directors’ Retirement Allowance Scheme without affecting the entitlements of then existing Non-Executive Directors. After that time, new Directors have not been entitled to participate in the scheme.

The Board resolved with effect from the 2004 Annual General Meeting to terminate accrual of further benefits under the scheme and freeze the entitlements of current members until their respective retirements. This approach has resulted in remuneration arrangements being expressed in a more transparent manner.

The only increment in the value of Directors’ retirement benefit entitlements shown in the tables Directors' Retirement Allowance Scheme and Remuneration of Directors for this year reflects the period up until 5 November 2004, being the date of the Annual General Meeting.

Details of Components of Non-executive Director Fees¹

	Committee Remuneration
Director	Board Remuneration $	People & Remuneration $	Audit $	Risk $	Total $
J M Schubert	560,000	20,000		20,000	600,000
R J Clairs	160,000	35,000		20,000	215,000
A B Daniels	160,000	20,000		20,000	200,000
C R Galbraith	160,000		25,000	20,000	205,000
S C H Kay	160,000	20,000		20,000	200,000
W G Kent	160,000		25,000	20,000	205,000
F D Ryan	160,000		45,000	20,000	225,000
F J Swan	160,000			35,000	195,000
B K Ward	160,000		25,000	20,000	205,000
Total	1,840,000	95,000	120,000	195,000	2,250,000

Directors’ Retirement Allowance Scheme

Non-executive Directors	Increase in Accrued Benefit in Year $	Entitlement as at 30 June 2005 $
J M Schubert	12,157	636,398
R J Clairs	18,201	202,989
A B Daniels	15,159	160,618
C R Galbraith	8,542	159,092
S C H Kay1	—	—
W G Kent	8,542	159,092
F D Ryan	12,723	168,263
F J Swan	8,087	266,173
B K Ward	17,225	370,180
N R Adler2	12,152	—
J T Ralph2	7,481	—

Individual Remuneration Details for Directors

Individual remuneration details for Directors are set out below:

	Primary Benefits			Post Employment Benefits		Equity Benefits				Other Benefits
Year ended 30 June	Cash1	Cash STI Payment	STI Deferred in Cash	Superannuation2	Retirement Allowance3	STI Deferred in Shares	LTI Options	LTI Reward Shares	NEDSP1	Termination Benefits	Total Remuneration
	Fixed	At Risk	At Risk	Fixed	Fixed	At Risk	At Risk	At Risk	Fixed
	$	$	$	$	$	$	$	$	$	$	$
J M Schubert Chairman
2005	342,987	—	—	30,869	12,157	—	—	—	85,747	—	471,760
2004	130,545	—	—	11,749	46,981	—	—	—	32,636	—	221,911
D V Murray4 Managing Director and CEO (see notes to the 'Remuneration of Specified Executives' table for details of individual items)
2005	1,757,500	760,000	760,000	142,500	—	431,250	81,284	1,563,504	—	—	5,496,038
2004	1,680,000	450,000	—	136,080	—	365,000	431,666	1,363,362	—	—	4,426,108
R J Clairs
2005	139,075	—	—	12,517	18,201	—	—	—	34,769	—	204,562
2004	86,424	—	—	7,778	38,988	—	—	—	21,606	—	154,796
A B Daniels
2005	131,831	—	—	11,865	15,159	—	—	—	32,958	—	191,813
2004	86,424	—	—	7,778	41,663	—	—	—	21,606	—	157,471
C R Galbraith
2005	130,220	—	—	11,720	8,542	—	—	—	32,555	—	183,037
2004	89,460	—	—	8,051	46,418	—	—	—	22,365	—	166,294
S C H Kay
2005	165,976	—	—	14,938	—	—	—	—	41,494	—	222,408
2004	97,482	—	—	8,773	—	—	—	—	24,370	—	130,625
W G Kent
2005	130,220	—	—	11,720	8,542	—	—	—	32,555	—	183,037
2004	89,460	—	—	8,051	46,418	—	—	—	22,365	—	166,294
F D Ryan
2005	145,398	—	—	13,086	12,723	—	—	—	36,350	—	207,557
2004	90,435	—	—	8,139	46,466	—	—	—	22,609	—	167,649
F J Swan
2005	124,478	—	—	11,203	8,087	—	—	—	31,119	—	174,887
2004	89,460	—	—	8,051	44,429	—	—	—	222,365	—	164,305
B K Ward
2005	135,831	—	—	12,225	17,225	—	—	—	33,958	—	199,239
2004	90,435	—	—	8,139	51,566	—	—	—	22,609	—	172,749
N R Adler5
2005	36,333	—	—	2,196	—	—	—	—	9,083	431,211	478,823
2004	90,435	—	—	8,318	23,717	—	—	—	22,609	—	145,079
J T Ralph5,6
2005	88,881	—	—	—	—	—	—	—	22,220	1,203,960	1,315,061
2004	245,887	—	—	—	36,479	—	—	—	61,472	—	343,838
Total Remuneration for Directors
2005	3,328,730	760,000	760,000	274,839	100,636	431,250	81,284	1,563,504	392,808	1,635,171	9,328,222
2004	2,866,447	450,000	—	220,907	423,125	365,000	431,666	1,363,362	296,612	—	6,417,119

Specified Executives’ Remuneration

AASB 1046 defines a ‘Specified Executive’ as someone who is directly accountable and responsible for the strategic and operational management of an organisation. The Bank is required to disclose details of remuneration for the five employees, excluding Directors, with the greatest authority in this area. The Bank has taken the view that all members of its Executive Committee have significant influence over the strategic direction of the Bank, and accordingly defines all nine of its Group Executives as a Specified Executive for disclosure purposes.

Individual Remuneration Details for Specified Executives

The following table details the fixed and at risk remuneration for Specified Executives for the year ended 30 June 2005.

Remuneration of Specified Executives

	Primary Benefits			Post Employment Benefits		Equity Benefits			Other Benefits		Total Remuneration
Year ended 30 June	Cash1	Non Monetary2	Cash STI Payment3	STI Deferred in Cash4	Superannuation5	STI Deferred in Shares6	LTI Options7	LTI Reward Shares7	Termination Benefits8	Other Benefits9
	Fixed	Fixed	At Risk	Fixed	Fixed	At Risk	At Risk	At Risk
	$	$	$	$	$	$	$	$	$	$	$
M A Cameron Group Executive, Financial and Risk Management
2005	718,300	10,260	327,250	327,250	51,700	160,625	—	263,187	—	—	1,858,572
2004	600,000	13,000	170,000	—	243,200	99,375	—	150,325	—	—	1,275,900
L G Cupper Group Executive, People Services
2005	605,000	10,260	292,500	292,500	45,000	185,625	24,385	408,380	—	—	1,863,650
2004	580,000	13,000	156,000	—	115,200	156,875	118,642	415,022	—	—	1,554,739
S I Grimshaw Group Executive, Wealth Management
2005	932,500	10,260	425,000	425,000	67,500	275,625	32,514	548,870	—	—	2,717,269
2004	891,000	13,000	280,000	—	89,880	196,875	130,054	498,873	—	—	2,099,682
H D Harley Group Executive, Retail Banking Services
2005	783,500	10,260	357,500	357,500	56,500	207,500	16,257	397,155	—	—	2,186,172
2004	700,000	13,000	230,000	—	101,500	130,000	75,578	321,078	—	—	1,571,156
M A Katz Group Executive, Premium Business Services
2005	950,000	10,260	382,500	382,500	68,500	277,500	40,642	674,563	—	—	2,786,365
2004	910,000	13,000	290,000	—	132,100	237,500	197,736	677,520	—	—	2,457,856
R V McKinnon Group Executive, Technology Services
2005	560,000	10,260	240,000	240,000	40,000	138,750	12,193	279,410	—	—	1,520,613
2004	540,000	13,000	142,500	—	38,880	122,688	55,804	253,061	—	—	1,165,933
G L Mackrell Group Executive, International Financial Services
2005	628,000	10,260	315,000	315,000	84,985	198,125	—	403,559	—	—	1,954,929
2004	600,000	13,000	202,500	—	80,500	166,250	113,718	391,143	—	—	1,567,111
J K O'Sullivan General Counsel (commenced in role on 17 October 2003)
2005	728,000	10,260	295,000	295,000	52,000	150,000	—	253,359	—	—	1,783,619
2004	493,443	9,164	140,984	—	35,528	—	—	105,232	—	—	784,351
Mr G A Peterson Group Executive, Strategic Development (commenced in role on 17 June 2004)
2005	437,000	10,260	217,500	217,500	72,200	103,227	—	161,824	—	—	1,219,511
2004	16,716	497	4,208	—	2,762	2,960	—	2,559	—	—	29,702
Total Remuneration for Specified Executives10
2005	6,342,300	92,340	2,852,250	2,852,250	538,285	1,696,977	125,991	3,390,307	—	—	17,890,700
20049	6,661,528	119,700	2,010,454	—	1,003,282	1,502,195	966,952	3,787,051	845,000	332,848	17,229,010

Amounts in the above table reflect remuneration for the time the Executive has been in the role of a Specified Executive, i.e. pro rating is applied relative to the date the Executive commenced or ceased in the role of a Specified Executive. Remuneration earned as an Executive prior to appointment to a role as a Specified Executive is not included in the amounts shown for that Executive.

Termination Arrangements

The Bank’s Executive contracts generally provide for severance payments of up to six months in cases where termination of employment is initiated by the Bank, other than for misconduct or unsatisfactory performance. Exceptions to these arrangements apply to Messrs Grimshaw, Cupper and O’Sullivan whose contracts allow for a 12 months’ severance payment where termination is initiated by the Bank. There is also a four week notice period for either party to terminate the agreement.

The contracts for Specified Executives do not have a fixed term.

Upon exit from the Bank, Executives are entitled to receive their statutory entitlements of accrued annual and long service leave, as well as accrued superannuation benefits.

Executives who leave the Bank during a given performance year (i.e. 1 July to 30 June) will generally not receive a STI payment for that year except in the circumstances of retrenchment, retirement or death. In those circumstances, a pro rated payment may be made based on the length of service during the performance year.

Deferred cash or shares from previous STI awards are usually forfeited where the Executive resigns or is dismissed. In circumstances of retrenchment, retirement or death any cash will generally be paid and unvested shares will generally vest immediately.

LTI grants are generally forfeited where the executive resigns or is dismissed. In circumstances of retrenchment, retirement or death, the Executive or their estate may, at Board discretion, retain a pro rated grant of long term incentives. Vesting of any long term incentives retained by the Executive will still be subject to the performance hurdle relevant to that grant.

STI Allocations to Directors and Specified Executives for the Year Ended 30 June 2005

	Percentage Paid1 %	Percentage Forfeited %	Percentage Deferred2 %	Minimum Total Value $	Maximum Total Value $
D V Murray	50	—	50	760,000	1,520,000
M A Cameron	50	—	50	327,250	654,500
L G Cupper	50	—	50	292,500	585,000
S I Grimshaw	50	—	50	425,000	850,000
H D Harley	50	—	50	357,500	715,000
M A Katz	50	—	50	382,500	765,000
R V McKinnon	50	—	50	240,000	480,000
G L Mackrell	50	—	50	315,000	630,000
J K O'Sullivan	50	—	50	295,000	590,000
G A Petersen	50	—	50	217,500	435,000

 

LTI Allocations to Directors and Specified Executives (under 2004 ERP Grant) in the Year Ended 30 June 2005

	Percentage Paid1 %	Percentage Forfeited %	Percentage Deferred1 %	Number of Reward Shares Allocated	Minimum Total Value $	Maximum Total Value2 $
D V Murray	—	—	100	125,000	—	3,711,250
M A Cameron	—	—	100	28,130	—	835,179
L G Cupper	—	—	100	25,000	—	742,250
S I Grimshaw	—	—	100	37,500	—	1,113,375
H D Harley	—	—	100	35,000	—	1,039,150
M A Katz	—	—	100	43,130	—	1,280,529
R V McKinnon	—	—	100	18,750	—	556,687
G L Mackrell	—	—	100	28,130	—	835,179
J K O'Sullivan	—	—	100	25,940	—	770,158
G A Petersen	—	—	100	19,500	—	578,955

Equity Holdings of Directors and Specified Executives

Option Holdings of Directors and Specified Executives

Mr Murray is the only Director holding options in the Bank and he exercised one million options during the year ended 30 June 2005. The Bank’s Non-executive Directors do not hold any options.

 

Option holdings of Directors and Specified Executives

				Vested and Exercisable at 30 June 20051
Name	Balance 1 July 2004	Options Exercised	Balance 30 June 2005	Number	Exercise Price $
Directors
D V Murray	1,250,000	(1,000,000)	250,000	250,000	30.12
Total for Directors	1,250,000	(1,000,000)	250,000	250,000	30.12
Specified Executives
L G Cupper	150,000	(75,000)	75,000	75,000	30.12
S I Grimshaw	100,000	—	100,000	100,000	30.12
H D Harley	87,500	—	87,500	50,000	30.12
				37,500	26.97
M A Katz	250,000	—	250,000	125,000	30.12
				125,000	26.97
R V McKinnon	62,500	(25,000)	37,500	37,500	30.12
G L Mackrell	232,500	(232,500)	—	—	—
Total for Specified Executives	822,500	(332,500)	550,000	387,500	30.12
				162,500	26.97

 

Shareholdings of Directors and Specified Executives

Shareholdings of Directors

All shares were acquired by Directors on normal terms and conditions or through the Non-executive Directors’ Share Plan (or in the case of Mr Murray the Equity Reward Plan, the previous Executive Option Plan or the Equity Participation Plan). Mr Murray exercised 1,000,000 options during the year, leaving his total holdings of options at 250,000 under the Equity Reward Plan. (No further options will be granted under the Equity Reward Plan. The Executive Option Plan was discontinued in 2000.)

Mr Murray was also awarded rights to 125,000 shares under the Equity Reward Plan and 15,078 shares under the Equity Participation Plan during the year. He has a total holding of 325,000 shares under the Equity Reward Plan and 21,866 shares under the Equity Participation Plan.

Shares awarded under the Equity Reward Plan and Equity Participation Plan are registered in the name of the Trustee. The transfer of legal title to Mr Murray is subject to vesting conditions, and, in the case of the Equity Reward Plan, is conditional on the Bank achieving a prescribed performance hurdle over a minimum three year period. For further details of the Non-executive Directors’ Share Plan, Equity Reward Plan, previous Executive Option Plan and Equity Participation Plan refer to Note 5 (Share Capital) to the Financial Statements.

In addition, Mr Ralph holds an investment of $101,754 with Commonwealth Property Securities Fund and an investment of $619,753 in Colonial First State Diversified Hedge Fund. Both holdings are held beneficially. Dr Schubert holds an investment of $738,636 in Colonial First State Wholesale Diversified Fund.

Mr Daniels beneficially holds an investment of $53,058 in Colonial First State Global Health and Biotech Fund. A related party of Mr Daniels holds an investment of $307,591 in Colonial First State Future Leaders Fund and $292,712 in Colonial First State Imputation Fund.

Details of shareholdings of Directors and Specified Executives (or relatives or entities controlled or significantly influenced by
them) are as follows:

Shareholdings of Directors

Name	Class	Balance 1 July 2004	Acquired/ Granted as Remuneration1	On Exercise of Options	Net Change Other2	Balance 30 June 2005
Directors
J M Schubert	Ordinary	16,268	1,658	—	582	18,508
D V Murray	Ordinary	280,833	—	1,000,000	(957,195)	323,638
	Deferred STI	19,427	15,078	—	(12,639)	21,866
	Reward Shares	242,000	125,000	—	(42,000)	325,000
R J Clairs	Ordinary	12,631	726	—	—	13,357
A B Daniels	Ordinary	16,392	695	—	582	17,669
C R Galbraith	Ordinary	7,689	672	—	463	8,824
S C H Kay	Ordinary	2,980	689	—	—	3,669
W G Kent	Ordinary	14,522	672	—	92	15,286
F D Ryan	Ordinary	6,671	759	—	—	7,430
F J Swan	Ordinary	4,996	645	—	304	5,945
B K Ward3	Ordinary	4,914	719	—	133	5,766
N R Adler	Ordinary	9,490	203	—	97	9,790
J T Ralph	Ordinary	23,861	496	—	345	24,702
Total for Directors	Ordinary	401,247	7,934	1,000,000	(954,597)	454,584
	Deferred STI	19,427	15,078	—	(12,639)	21,866
	Reward Shares	242,000	125,000	—	(42,000)	325,000

Shareholdings of Specified Executives

Name	Class	Balance 30 June 2004	Acquired/ Granted as Remuneration1	On Exercise of Options	Net Change Other2	Balance 30 June 2005
M A Cameron	Ordinary	—	—	—	—	—
	Deferred STI	4,797	5,696	—	(2,399)	8,094
	Reward Shares	32,300	28,130	—	—	60,430
L G Cupper	Ordinary	27,206	—	75,000	(57,666)	44,540
	Deferred STI	8,409	6,534	—	(5,558)	9,385
	Reward Shares	70,000	25,000	—	(11,000)	84,000
S I Grimshaw	Ordinary	256	—	—	16,109	16,365
	Deferred STI	9,503	9,382	—	(4,752)	14,133
	Reward Shares	90,300	37,500	—	(14,000)	113,800
H D Harley	Ordinary	13,711	—	—	12,141	25,852
	Deferred STI	6,816	7,707	—	(4,282)	10,241
	Reward Shares	57,700	35,000	—	(7,000)	85,700
M A Katz3	Ordinary	407,386	—	—	(103,638)	303,748
	Deferred STI	12,706	9,717	—	(8,362)	14,061
	Reward Shares	114,000	43,130	—	(18,000)	139,130
R V McKinnon	Ordinary	9,292	—	25,000	9,699	43,991
	Deferred STI	6,507	4,775	—	(4,199)	7,083
	Reward Shares	45,500	18,750	—	(5,500)	58,750
G L Mackrell	Ordinary	21,088	—	232,500	(226,269)	27,319
	Deferred STI	8,619	6,785	—	(5,270)	10,134
	Reward Shares	66,100	28,130	—	(11,000)	83,230
J K O'Sullivan	Ordinary	5,565	—	—	—	5,565
	Deferred STI	—	6,702	—	—	6,702
	Reward Shares	33,500	25,940	—	—	59,440
G A Petersen	Ordinary	2,756	—	—	5,816	8,572
	Deferred STI	4,086	3,701	—	(2,610)	5,177
	Reward Shares	19,000	19,500	—	(3,000)	35,500
Total for Specified	Ordinary	487,260	—	332,500	(343,808)	475,952
Executives	Deferred STI	61,443	60,999	—	(37,432)	85,010
	Reward Shares	528,400	261,080	—	(69,500)	719,980

 

Shares and Options Vested During the Year

			Shares Granted on Exercise of Options
Name	Deferred STI Vested	Reward Shares Vested	Number	Exercise Price $	Value in Excess of Exercise Price1 $	Total Value of Options Exercised2 $
Directors
D V Murray	12,639	42,000	1,000,000	23.84	6.61	6,610,000
Total Directors	12,639	42,000	1,000,000	NA	NA	6,610,000
Specified Executives
M A Cameron	2,399	—	—	—	—	—
L G Cupper	5,558	11,000	75,000	26.97	8.92	669,000
S I Grimshaw	4,752	14,000	—	—	—	—
H D Harley	4,282	7,000	—	—	—	—
M A Katz	8,362	18,000	—	—	—	—
R V McKinnon	4,199	5,500	25,000	26.97	4.28	107,000
G L Mackrell	5,270	11,000	100,000	23.84	7.61	761,000
			57,500	26.97	4.85	278,875
			75,000	30.12	5.77	432,750
G A Petersen	2,610	3,000	—	—	—	—
Total for Specified Executives	37,432	69,500	332,500	NA	NA	2,248,625

 

Loans to Directors and Specified Executives

ASIC Class Order

Australian banks, parent entities of Australian banks and controlled entities of Australian banks have been exempted, subject to certain conditions, under an ASIC Class Order No. 98/110 (as amended by ASIC Class Order No. 04/665), from making disclosures of any loan made, guaranteed or secured by a bank to related parties (other than for Directors, Specified Executives and entities controlled or significantly influenced by them) and financial instrument transactions (other than shares and share options) of a bank where a Director, or a Specified Executive, of the relevant entity is not a party and where the loan or financial instrument transaction is lawfully made and occurs in the ordinary course of banking business and either on an arm’s length basis or with the approval of a general meeting of the relevant entity and its ultimate parent entity (if any). The exemption does not cover transactions that relate to the supply of goods and services to a bank, other than financial assets or services.

The Class Order does not apply to a loan or financial instrument transaction which any Director, or a Specified Executive, of the relevant entity should reasonably be aware that if not disclosed would have the potential to adversely affect the decisions made by users of the financial statements about the allocation of scarce resources.

A condition of the Class Order is that the Bank must lodge a statutory declaration, signed by two Directors, with the Australian Securities and Investments Commission accompanying the annual report. The declaration provides confirmation that the Bank has systems of internal control and procedures to provide assurance that any financial instrument transactions of a bank, which are not entered into on an arm’s length basis, are drawn to the attention of the Directors so that they may be disclosed.

 

Individual Loans to Directors and Specified Executives

Total Loans to Directors and Specified Executives

Year Ended 30 June	Balance 1 July $000	Interest Charged $000	Interest Not Charged $000	Write-off $000	Balance 30 June $000	Number in Group at 30 June
Directors
2005	2	—	—	—	3	1
2004	36	3	—	—	22	2
Specified Executives
2005	8,706	523	—	—	8,803	6
2004	4,633	377	—	—	8,829	6
Total Directors and Specified Executives
2005	8,708	523	—	—	8,806	7
2004	4,669	380	—	—	8,851	8

Details of individuals with loans above $100,000 in the reporting period are as follows:

Individual Loans above $100,000 to Specified Executives

	Balance 1 July 2004 $000	Interest Charged $000	Interest Not Charged $000	Write-off $000	Balance 30 June 2005 $000	Highest Balance in Period $000
Directors
Not Applicable
Specified Executives
S I Grimshaw	1,543	90	—	—	1,485	1,543
H D Harley	335	24	—	—	332	338
	202	11	—	—	—	202
	272	10	—	—	—	343
	185	10	—	—	—	185
	250	13	—	—	243	252
	321	26	—	—	347	347
M A Katz	175	12	—	—	175	175
	175	8	—	—	175	175
	—	14	—	—	500	500
G L Mackrell	58	2	—	—	—	190
	295	12	—	—	—	296
	—	<1	—	—	1,080	1,080
	146	4	—	—	—	147
J K O'Sullivan	1,500	97	—	—	1,500	1,500
	200	13	—	—	392	395
	861	53	—	—	696	861
	258	15	—	—	208	268
G A Petersen	900	40	—	—	400	900
	800	52	—	—	800	800

Terms and Conditions of Loans

All loans to Directors and Specified Executives (or related entities controlled or significantly influenced by them) have been provided on an arm’s length commercial basis including the term of the loan, security required and the interest rate (which may be fixed or variable).

Other Transactions of Directors, Specified Executives and Other Related Parties

Financial Instrument Transactions

Financial instrument transactions (other than loans and shares disclosed above) of Directors and Specified Executives with the Bank and other banks that are controlled entities occur in the ordinary course of business of the banks on an arm’s length basis.

Under the Australian Securities and Investments Commission Class Order referred to above, disclosure of financial instrument transactions regularly made by a bank is limited to disclosure of such transactions with a Director, Specified Executive and entities controlled or significantly influenced by them.

All such financial instrument transactions that have occurred between the banks and their Directors and Specified Executives have been trivial or domestic and were in the nature of normal personal banking and deposit transactions.

Transactions other than Financial Instrument Transactions of Banks

All other transactions with Directors, Specified Executives and their related entities and other related parties are conducted on an arm’s length basis in the normal course of business and on commercial terms and conditions. These transactions principally involve the provision of financial and investment services by entities not controlled by the Bank.

The interests of Mr Ralph, Dr Schubert and Mr Daniels in investment funds managed by Colonial First State are detailed above. Additionally, Mr Galbraith is a partner in the law firm, Allens Arthur Robinson, which acted for the Bank in the provision of legal services during the financial year. The fees for these services amounted to $2,290,323.

All other such transactions that have occurred with Directors, Specified Executives and their related entities and other related parties have been trivial or domestic and were principally in the nature of lodgement or withdrawal of deposit, unit funds and superannuation monies.

Audit

Certain disclosures required by AASB 1046 have been made in this Remuneration Report. 'Director and Executive Disclosures by Disclosing Entities' on pages 33 to 45 of this report have been audited as required.

Non-Audit Services

Amounts paid or payable for non-audit services to Ernst & Young are as follows:

	$000
Regulatory audits, reviews, attestations and assurances for Group entities – Australia	1,245
Regulatory audits, reviews, attestations and assurances for Group entities – Offshore	204
Financial and other audits, reviews attestations and assurances for Group entities – Australia	145
Financial and other audits, reviews attestations and assurances for Group entities – Offshore	8
Assurance services relating to Sarbanes-Oxley legislation compliance	417
Agreed upon procedures and comfort letters in respect of financing, debt raising and related activities	58
Due diligence and transactional services	220
Taxation services	10
Other	113
Total	2,4201

Amounts paid or payable for audit services to Ernst & Young totalled $7,921,000 and to other auditors totalled $114,000.

The Bank has in place an Independent Auditor Services Policy, details of which are set out in the Corporate Governance section of this Concise Annual Report, to assist in ensuring the independence of the Bank’s external auditor.

The Audit Committee has considered the provision, during the year, of non-audit services by Ernst & Young and has concluded that the provision of those services did not compromise the auditor independence requirements of the Corporations Act.

The Audit Committee advised the Board accordingly and, after considering the Committee’s advice, the Board of Directors agreed that it was satisfied that the provision of the non-audit services by Ernst & Young during the year, was compatible with the general standard of independence imposed by the Corporations Act.

The reasons for the Directors being satisfied that the provision of the non-audit services during the year, did not compromise the auditor independence requirements of the Corporations Act are:

• The operation of the Independent Auditor Services Policy during the year to restrict the nature of non-audit services engagements, to prohibit certain services and to require Audit Committee pre-approval for all such engagements; and
• The relative quantum of fees paid for non-audit services compared to the quantum of audit fees.

The above Directors’ statements are in accordance with the advice received from the Audit Committee.

Auditor’s Declaration of Independence

We have obtained the following independence declaration from our auditors, Ernst & Young.

 

Roundings

The amounts contained in this report and the financial statements have been rounded to the nearest million dollars unless otherwise stated, under the option available to the Company under ASIC Class Order 98/100 (as amended by ASIC Class Order 04/667).

Incorporation of Additional Material

This report incorporates the Message from the Chairman, Highlights, Which new Bank Summary, Corporate Governance, Business Overview and Shareholding Information sections of this Concise Annual Report.

Signed in accordance with a resolution of the Directors.

J M Schubert
Chairman

D V Murray
Managing Director
Chief Executive Officer

10 August 2005

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