The Board, through the P&CC, undertook a comprehensive review of the Group’s remuneration arrangements during the year  in the context of the industry changes and the market in which Fairfax is currently operating. The Board recognises that, at this  pivotal point in the Company’s life cycle, the remuneration and incentive framework needs, more than ever, to be generally  market competitive (to guard against key people leaving the business) and to drive a performance culture, encouraging and  rewarding the achievement of milestones in the transformation strategy. The review confirmed that the current remuneration arrangements are not appropriate to motivate executives to achieve the  transformation proposed over the coming years, the current performance metrics, in particular, do not support achievement of  the transformational objectives.  The Board, however, is acutely aware of the position of shareholders and the levels of return over recent years. Accordingly, a  key objective of the review was to achieve a remuneration framework that rewards performance, but ensures that such reward  is aligned with shareholder interests.  The key considerations and outcomes from the review in respect of remuneration arrangements for the executive KMP are set  out in the following table: The Board is confident that this new remuneration structure better aligns executive rewards with our shareholders over the  medium and longer term and provides an appropriate incentive to deliver our strategy.  REMUNERATION REPORT (AUDITED) 4. EXECUTIVE REMUNERATION CHANGES FOR 2014 34 Table 2: Findings from review REMUNERATION COMPONENT KEY CONSIDERATIONS AND FINDINGS FROM REVIEW OUTCOMES AND FY14 CHANGES Fixed remuneration •  More than ever, Fairfax needs to attract and  retain high calibre executives to transform  the Company. •  Particularly in the context of the transformation  journey that is ahead and as a result of  previous incentive grants not vesting and the  consequent retention risk, fixed remuneration  plays an even greater role in attracting and  retaining the right people. •  No fixed remuneration increases for FY14  for executive KMP. •  Key management personnel have agreed to  sacrifice 10% of their fixed 2014 remuneration into  shares in Fairfax which are restricted for two years.  At the end of two years, if participants in the salary  sacrifice plan are still employed by the Company  then the Company would provide one additional  “bonus” share for every five shares purchased from  the participants salary sacrifice. •  The salary sacrifice is intended to reduce cash  remuneration payable, while still providing a benefit  to executives aligned with shareholder benefits. incentives •  The current incentive plans are not valued  by executives and are not achieving their  purpose of providing an incentive to achieve  organisational objectives. •  A ‘fit for purpose’ incentive is required to  reward the most senior executives if they  achieve turning around the performance  of the Company. •  Steps in the transformation are designed to  translate into enhancement of shareholder  wealth over time. •  The Board recognises loss of shareholder  wealth over recent years. •  No further grants will be made under existing short  term and long term incentive plans. •  Replacing the existing plans is a single transformation  incentive scheme to be implemented for FY14  (the Fairfax Transformation Incentive Plan (“FTIP”)). •  The new scheme provides the issue of long term  options that are exercisable only if shareholder  wealth objectives are achieved. •  A smaller proportion of deferred performance  shares will be granted at the end of FY14 if specific  business metrics linked to the transformation of the  Company have been achieved. •  Rewards under the FTIP will be delivered in equity  (i.e. no cash outlay) in order to further incentivise  growth in shareholder wealth. •  Any deferred performance shares earned in initial  years are deferred, so that executives do not  become entitled to access the equity until later  in the transformation process. •  Further detail as to how the Transformation  Incentive Plan will operate is set out below.