NOTES TO THE FINANCIAL STA TEMENTS for the year ended 31 December 2004 26. Specified Director and Specified Executive Disclosures (continued) (c) Remuneration of Specified Directors and Specified Executives (continued) Senior Executives Remuneration Objectives and Principles The objectives of the Company’s remuneration policy are to attract, retain and motivate appropriately qualified and experienced executives capable of discharging their respective responsibilities to enable th Company to achieve its business strategy. The principles underlying the remuneration policy are: to realistically r eflect the responsibilities of executives and other employees; to be industry competitive and reasonable; that a significant portion of remuner ation be at risk against individual and company performance and shareholder wealth creation; that performance, not failure, be rewarded so that the Company’s best performers receive more; and to encourage executives to manage from the perspective of the shareholders by rewar ding them for aligning Company and shareholder returns. The Company’s remuneration structure for its non-awar employees is based upon Target Total Remuneration (“TTR”), the components of which comprise: Remuneration Structure • a fixed component called Fixed Annual Remuneration (“FAR”); and two variable components, called: • the Short Term Incentive (“STI”) and • the Long Term Incentive (“LTI”). FAR comprises salary, superannuation and benefits; is quantified by refer ence to role and experience; and is industry benchmarked. STI is represented as a percentage of base remuneration which is “at risk”, consists of an annual cash bonus paid to reward performance based on a mix of: Company performance and individual performance measured against annual scorecards with target and stretch performance criteria determined in advance each year. LTI in relation to executive remuneration includes a long-term performan ce based component in the form of equity participation through the Santos Executive Share Option Plan (“SESOP”) and the Santos Employee Share Purchase Plan (“SESPP”). Participation is determined by the Board, on recommendation of the Remuneration Committee, and only applies to ex ecutives who are in a position to affect shareholder returns. Options and rights to shares issued under these Plans to senior executives are linked to the longer term performance of the Company and are only exercisable following the satisfaction of performance hurdles that ar e designed to maximise shareholder wealth. The amount of the award, and correspondingly the proportion of remuner ation at risk, varies between executives according to their respective levels of seniority and responsibility. The rules of the SESPP and SESOP were both approved by shareholders in 1997 and again in 2000. Having regard to contemporary best practice, the LTI program is design ed to drive superior executive performance and to reward only superior Company performance, linked to an appropriate performance benchmark. The benchmark assesses actual Company performance in terms of  long-term comparative growth of the Company and resulting shareholder value. Company performance is measured over a three year period based on th e Company’s Total Shareholder Return (“TSR”) relative to one or more comparator groups as determined by the Board at the commencement of  the performance period including, without limitation, any combination of the ASX100, energy companies in ASX100, the ASX Energy Index and in ternational exploration and production companies. If performance is below the 50th percentile, no award is made. A proportionate award is ma de for performance between the 50th to 75th percentile and the maximum award is made for performance at or above the 75th percentile. In relation to the current financial year, awards may be taken only in th e form of shares pursuant to SESPP or, at the election of an executive, options pursuant to SESOP, details of which are described in notes 18(c) and 18(d) of the financial statements. In future periods, awards may be taken in the form of rights over shares pursuant to SESPP or options gran ted under SESOP, at the election of executives. Rights to shares and options are granted at no cost to the executiveswith the number of shares awarded being determined by dividing the amount of the award by the volume weighted average price of the Company’s shar es over the five business days up to and including the award date. The number of options awarded is of equivalent value calculated by an indepen dent expert based on an acceptable valuation method. The exercise price of the options is the volume weighted average price of  the Company’s shares over the five business days up to and including the award date. The Board intends that LTI awards be made on an annual basis using a thr ee year measurement period for the applicable performance hurdles. However, the Board reserves the right to suspend or modify the LTI progr am in light of circumstances appropriate to the Company from time to time. The maximum number of shares that may be issued under all of th Company’s executive and employee share and option plans cannot exceed the limit of 5% of the issued capital, as approved by shareholders at th 2000 Annual General Meeting. The Specified Executives are entitled to a termination payment in th event of termination of their service agreement by the Company without cause. They are entitled to three months’ notice, excepting for Mr P C W asow who is entitled to six months’ notice, or payment in lieu of that notice, plus three weeks for each year of continuous service, pro rata f or part thereof, and capped at a maximum of 65 weeks of total fixed remuneration, less notional value of superannuation for that period. Annual Report 2004 76