Directors’ Report 2012 52 Specific individual  objectives for  Executives What Result Executive’s  area of  responsibility Each Executive also has  performance objectives  related to their specific  area of responsibility for  AGL’s business in the  categories of: > Financial > Customer > People management > Strategic growth and  innovation Individual Executives  generally achieved their  specific individual key  objectives for 2011/12. Long-Term Incentive (LTI) A LTI is designed to drive performance over longer time  frames to create sustainable shareholder value. How LTI performance hurdles are set and performance  is measured How the New LTI plan works > If the balance of a participant’s bank account is negative, this  negative balance rolls forward to the following year. > If a participant ceases employment before the expiry of the  vesting period as a result of total and permanent disablement,  redundancy, retirement, death or any other exceptional  circumstances determined by the Board from time to time,  any positive balance of SPRs in a participant’s bank account  will vest or any negative balance is eliminated. > If a participant ceases employment before the expiry of the  vesting period in other circumstances, any positive balance is  forfeited or any negative balance is eliminated. > The Board has no discretion to waive performance hurdles for  the vesting of SPRs in the new LTIP. > TSR takes into account dividends, changes in share price and  capital returns. > EBIT/Funds Employed measures the return AGL is getting  from its funds invested. EBIT is calculated before the impact  of significant items and any contribution from Upstream Gas.  Funds Employed are defined as Average Total Funds Employed,  calculated on a monthly basis, adjusted to remove the impact of: (a) Derivatives balances (these balances are fair value  adjustments and do not represent Funds Employed in the  production of EBIT). (b) Tax balances (Funds Employed are pre-tax balances to make  the calculation consistent with EBIT). (c) Funds Employed associated with Upstream Gas assets  (currently these assets are intended for long term value  creation through proving up gas reserves). This adjustment  will continue to be made until such time as the investments  have matured to the point where EBIT is the most  appropriate performance measure. (d) Growth capex in excess of $50 million until the completion  date of the project. (Removing these assets until they  commence EBIT production provides the correct driver  for investing in the future). > Participants are notionally granted SPRs, at the start of the  financial year, that are banked at the end of the financial year  if applicable performance hurdles are met. > SPRs are banked in notional share bank accounts kept for each  participant – a separate notional share bank account is kept for  each performance hurdle. > If applicable performance hurdles are not met then a “clawback“  of previously banked SPRs occurs via a deduction of SPRs from  the participant’s relevant bank account. > After each year’s banking (which may be positive or negative)  40% of any positive balance of SPRs in a participant’s relevant  bank account vest and are converted to fully paid AGL shares  at no cost to the participant. Any remaining positive balance of  > TSR rewards consistent performance in the generation of  sustained shareholder value over the long term. It aligns the  interests of shareholders and Executives with the achievement  of AGL’s strategic goals; > EBIT/Funds Employed encourages the efficient use of capital in  a capital intensive industry. This hurdle correctly focuses  Executives on improving AGL’s Return on Funds Employed. AGL  has a consistent accounting policy which controls adjustments to  EBIT, whereby we do not permit significant EBIT items (or indeed  adjustments in carrying values) to influence the outcome of  this calculation. AGL has chosen these hurdles because, in conjunction with the  “clawback” mechanism: In the year ended 30 June 2012, 22 employees participated in the  LTI plan. The maximum LTI notional allocation of SPRs varies between  approximately 30% and 100% of TFR for Executives including  the CEO. LTI allocations are determined based on market practice, so that AGL  remains competitive in remuneration against its comparator group. Participants are restricted from entering into any derivative or  other financial product in relation to the SPRs to protect against an  economic exposure to price movements in AGL shares. SPRs in the participant’s bank accounts is carried forward to the  following year and may vest or be clawed back in future years. The details of actual STI received for the year ended 30 June 2012  for KMP are set out in the remuneration table in section 6 on  page 56. AGL has both an ‘Old’ or legacy LTI Plan and, since 2009, a ‘New’  LTI Plan. Both LTIs consist of Share Performance Rights (SPRs), which vest  (ie convert into AGL shares owned by the relevant Executive) over  time if specific applicable performance hurdles are met. (2012 is  the last calendar year in which SPRs from the Old Plan may vest). A SPR: > is an entitlement to one fully-paid ordinary share in AGL; > does not carry dividend or voting rights; and > is adjusted for the effect of any bonus issues, rights issues, and  reconstructions and reorganisations of the capital of AGL. The hurdles used to determine whether SPRs are banked are  selected on the basis that rewards correspond with returns that  shareholders receive. LTI is measured according to two hurdles: annual Total Shareholder  Return (TSR) and annual growth in EBIT/Funds Employed (ie EBIT  divided by Funds Employed) calculated as set out below.