49 AGL Energy Limited Annual Report 2011 1.  Our remuneration policy > comply with relevant legislation and corporate governance  principles. > promote AGL as an employer of choice > meet AGL’s commitment to a diverse and inclusive workplace > meet long-term people needs through effective talent  management and succession planning > keep employees committed and motivated by providing fair  remuneration and other benefits to all employees > attract and retain key talent > align the interests of shareholders, employees, customers and  the community with AGL’s objectives and values Our remuneration policy is designed to promote excellent  performance while meeting these goals: The remuneration policy is reviewed and ratified annually by the  Board’s People and Performance Committee. AGL offers its employees participation in the following Share Plans: The number of employees participating in the Share Reward Plan  and Share Purchase Plan is 1,410 (out of 2,031), and the number of  AGL shares held is 531,179. The key principle underpinning our remuneration policy is  to promote and recognise excellence in a way that is fair to  all stakeholders. Share Plan participation AGL actively promotes employee participation in Share Plans. > A large survey containing ASX companies in industrial and service  industries. This survey is selected because it is relatively  non-volatile: it moves in a comparatively stable way, indicative of  market trends over time. > A specific survey containing ASX companies in industrial and  service industries with a market cap of greater than $5 billion.  This survey assists in identifying any significant remuneration  market issues or movements, and has the advantage of higher  perceived validity. However, due to the smaller sample size, it is  potentially more volatile from year to year. > total fixed remuneration (TFR) > short-term incentive (STI) payments > long-term incentive (LTI) payments. > 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. > 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. (Note, participants in the Share  Reward Plan are not eligible to participate in the LTIP  described above). > AGL Long-Term Incentive Plan (LTIP):  Senior Executives are  granted Share Performance Rights (SPRs) that vest when  specified applicable performance conditions are met. Total Fixed Remuneration (TFR) TFR is specified in the Senior Executive’s Service Agreement and  is in line with market rates. TFR is reviewed regularly. TFR is the non-variable component of a Senior Executive’s annual  remuneration. It consists of the base salary plus any superannuation  contributions paid to a complying super fund on the Senior  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 Senior Executive’s performance, expertise,  skills and experience. 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. Short-Term Incentive (STI) STI varies from year to year, based on performance. The PDR is used to measure the actual level of achievement of each  objective in the financial year. No STI is payable for any objective  where a minimum level of performance has not been reached. This  performance management process links the amount of STI paid  Senior Executives are eligible to be considered for an STI payment  when they have performed satisfactorily in their role, met  performance objectives and demonstrated AGL’s values,  throughout the year. This is assessed annually using the  Performance and Development Review (PDR) process (which is  used for all employees throughout AGL). STI payments align individual performance with business outcomes  in the areas of financial performance, customers, people  management and strategy development and implementation. STI payments are based on the achievement of individual  performance targets set at the start of the financial year. STI  payments are designed to motivate Senior Executives to achieve  AGL’s overall performance objectives. The CEO and Senior Executives are remunerated by a combination  of fixed remuneration and short and long-term incentives. Senior  Executive remuneration therefore has three elements: 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. 2.  Our remuneration framework The remuneration of our Senior Executives is composed of  three elements: Total Fixed Remuneration, which is fi xed; and  Short-Term and Long-Term Incentives, both of which are  variable (at risk). Independent external advisers provide relevant market data,  comparators and other analysis as part of a rigorous approach to  establishing remuneration levels for each Senior Executive. In June 2011, the Board appointed PricewaterhouseCoopers (PwC)  as its external remuneration consultant. PwC’s role in this regard is  to provide remuneration advice to AGL’s People and Performance  Committee and Board, as and when required. Two market surveys are provided by the Hay Group and considered  when reviewing remuneration for the CEO and Senior Executives.  The survey groups are: The two remaining elements of executive remuneration, STI and  LTI, are directly linked to the performance of both the Senior  Executive and the company.