50 Directors’ Report 2012 The key principle underpinning our remuneration policy is to  promote and recognise excellence in a way that is fair to all  stakeholders. 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. A rigorous approach to establishing remuneration levels for each  Executive is informed, in part, by relevant market remuneration  data information sourced from Hay Group, an independent external  organisation. Hay Group provided three remuneration market  survey samples for Executives, as well as three remuneration  market survey samples for the CEO which were considered when  reviewing the remuneration of the Executives and CEO. These  market survey samples were: 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 > A large survey sample containing executive positions in ASX  Industrial & Service organisations was utilised for executives.  For the CEO, only CEO positions in ASX Industrial & Service  organisations were reviewed. This remuneration benchmark is  useful because it is large, and hence, less volatile year-on-year.  As such it is more likely to track indicative market trends over  time in a more stable way. > 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. > A smaller survey sample drawn from the same Industrial  & Service organisations, but only containing positions that  represent a close functional match to each executive position  was utilised for executive positions.  > For both the CEO and executive positions, a specialist survey  sourced from disclosed market remuneration data for the  previous 12 months for ASX-listed entities ranked 10 to 50 by  market capitalisation. These entities are chosen by size as they  are 20 either side of AGL’s market capitalisation. This sample,  when used in conjunction with the other two surveys, assists  in identifying remuneration differentials due to the market  capitalisation of the organisation. > For the CEO’s position, a further specialist survey was sourced  from disclosed market remuneration data for the previous  12 months for ASX-listed entities with a market capitalisation  of between $5 billion and $10 billion. These entities are chosen  because they are each side of AGL’s market capitalisation of  $8 billion. This sample, when used in conjunction with the other  two CEO surveys, assists in identifying remuneration differentials  due to the market capitalisation of the organisation. > AGL Long-Term Incentive Plan (LTIP):  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. Shares awarded under the Plan  must be held for at least three years or until the employee ceases  employment. (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. > total fixed remuneration (TFR) > short-term incentive (STI) payments > long-term incentive (LTI) payments. The two remaining elements of executive remuneration, STI and  LTI, are directly linked to the performance of both the Executive  and the company. The CEO and Executives are remunerated by a combination of  fixed remuneration and short and long-term incentives. Executive  remuneration therefore has three elements: TFR is the non-variable component of an Executive’s annual  remuneration. It consists of the base salary plus any superannuation  contributions paid to a complying super fund on the 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  Executive’s performance, expertise, skills and experience. The number of employees participating in the Share Reward Plan  and Share Purchase Plan is 1,400 (out of 1,935) and the number  of AGL shares held is 522,033. Total Fixed Remuneration (TFR) TFR is specified in the Executive’s Service Agreement  and is in line with market rates. TFR is reviewed regularly. 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. 2.  Our remuneration framework The remuneration of our Executives is composed of three  elements: Total Fixed Remuneration, which is fixed; and  Short-Term and Long-Term Incentives, both of which are  variable (at risk). Share Plan participation AGL actively promotes employee participation in Share Plans. AGL offers its employees participation in the following Share Plans: This sample has the advantage of higher perceived relevance  when used in conjunction with the larger sample because it  assists in identifying market differentials for various positions.  However, due to the smaller sample size, it is potentially more  volatile from year to year. The People and Performance Committee (Committee) retained  PricewaterhouseCoopers (PwC) as their independent remuneration  advisor throughout the year. PwC’s role in this regard was to  provide independent remuneration advice to the Committee and  Board, as and when required. The remuneration policy is reviewed and ratified annually by the  Board’s People and Performance Committee. External Advisors 1.  Our remuneration policy