IOOF  | Annual Report 2012 Executive Remuneration Long Term Incentive Opportunity (LTI) Total Fixed Remuneration (TFR) Short Term Incentive Opportunity (STI) Deferral Arrangements Executive Remuneration includes a number of components  including total fixed remuneration (TFR), short term incentive  (STI) opportunity, deferred STI (for the Managing Director)  and long term incentives (LTI) in the form of deferred shares  (Managing Director only), performance rights and options over  ordinary shares. LTIs are subject to appropriate, pre-determined  performance hurdles. Each of these forms of remuneration is  described in detail below. TFR includes a combination of base salary, superannuation  and other fringe benefits that an individual employee could  choose to salary sacrifice (eg superannuation, motor vehicle).  TFR is based on what is appropriate to the position taking into  consideration expertise, accountability, knowledge, experience  and market competitiveness. The STI is a cash-based incentive forming part of the  executive’s total compensation opportunity, the value of  which is tied to the successful achievements of a set of  performance scorecard objectives (including financial and  strategic objectives) for the annual performance period.  Select individuals also have a deferred component to their STI  incentive (detailed further below). STI opportunities vary for  each individual. For the Managing Director, the maximum STI  is up to 80% of base salary. The other executives’ maximum  STI opportunity is up to 40% with the exception of Mr Merlicek  who has up to 100% if additional Key Performance Indicators  (KPIs) on the performance of the investment management  business are satisfied. Goals for each participant are drawn from the following  categories: Performance measures include Underlying Profit After Tax,  Total Shareholder Return and Return on Equity. Performance measures for the year ended 30 June 2012  included operational targets such as long-term structural  reductions to the cost base of the Group, balance sheet and  liquidity initiatives and improvements to the performance  of business units. Implementation of specific longer-term strategic  initiatives including platform consolidation and product  rationalisation. The Board has implemented deferral arrangements and  look back provisions on a portion of the STI and LTI for the  Managing Director in the 2011-12 year. The deferral element of  the Managing Director’s remuneration is described in detail in  Section 6 of this report. The Group engages the services of an external organisation  (Value Adviser Associates) to calculate the Group’s  performance against the TSR hurdles. The LTI element of  Managing Director’s remuneration is described in detail in the  next section of this report. The performance hurdle for current LTI plans has been linked  to Company Total Shareholder Return (TSR) compared to S&P  ASX200 companies at the date of grant. TSR represents the  change in the value of a share plus the value of dividends paid.  TSR was chosen as the most appropriate comparative measure  as it focuses on the delivery of shareholder value and is a well  understood and tested metric of performance. Early vesting may occur in certain circumstances, subject to the  performance hurdle being achieved: The Board considers a long-term performance-related  incentive component to be an important element of the  executive reward framework. The Group utilises equity based  incentives in the form of deferred shares (Managing Director  only), performance rights and options over ordinary shares.  These LTIs are subject to the achievement of appropriate  performance hurdles. The purpose of equity based  remuneration is to: •  Financial measures •  Business excellence •  Strategy •  In other circumstances where the Board determines  appropriate. (Note: such discretion has never been  exercised by the Board and would require exceptional  circumstances). •  On the termination of employee due to death or  permanent disability; or •  On a person/entity acquiring more than 20% of the voting  shares in the Company pursuant to a takeover bid that has  become unconditional; •  drive medium to long-term performance outcomes; •  link the interest of senior management to those of  shareholders; •  provide competitive rewards to attract and retain  employees; •  strengthen the link between remuneration and  performance; and •  reward senior management for improvements in the  Group’s performance. page 33