Terms of Contract - CEO
BHP Billiton Limited
21 August 2003
BHP Billiton Limited is issuing this announcement to fulfil disclosure
obligations arising from its secondary listing on the London Stock Exchange.
The text of this release is identical to that issued by BHP Billiton Plc earlier.
Date 21 August 2003
Number 29/03
ANNOUNCEMENT OF TERMS OF CONTRACT - CEO
The Board of BHP Billiton today approved the terms of employment for Chief
Executive Officer, Charles (Chip) Goodyear.
In announcing details, BHP Billiton Chairman, Don Argus, said that the terms
reflected the remuneration policy of the BHP Billiton Group in that:
• Mr Goodyear's remuneration is competitive and set at the level necessary
to secure the services of a chief executive for the world's largest
diversified resources company;
• a significant portion of total potential remuneration is 'at risk' and
subject to the performance of the Group as a whole;
• demanding performance hurdles are applied to the short and long-term
incentives, which make up the 'at risk' component. If BHP Billiton performs
in the bottom 50% of peer companies, Mr Goodyear will not receive any
long-term incentives. BHP Billiton will need to perform in the top 15% of
peer companies and generate significant earnings per share growth for Mr
Goodyear to realise 100% of the long-term incentives; and
• termination rights and payments are defined, as far as possible, to ensure
that the Group, its shareholders and Mr Goodyear have certainty about the
way in which entitlements will be treated on termination and, in particular,
that payments are not made for non-performance.
Mr Argus said that in formulating the contract, the Group had the benefit of
many executive remuneration guides published recently by shareholder groups in
Australia and the United Kingdom.
A summary of the key terms of the contract is set out in the attached schedule.
Details of the contract will also be included in the Remuneration Report that
will form part of the Group's Annual Report due to be published in early
October. Shareholders will be invited to consider and approve the Remuneration
Report at the annual general meetings to be held in London on 24 October and in
Melbourne on 13 November 2003.
Further information on BHP Billiton can be found on our Internet site: http://
www.bhpbilliton.com
Australia United Kingdom
Andrew Nairn, Investor Relations Mark Lidiard, Investor & Media Relations
Tel: +61 3 9609 3952 Mobile: +61 408 313 259 Tel: +44 20 7802 4156 Mobile: +44 7769 934 942
email: Andrew.W.Nairn@bhpbilliton.com email: Mark.Lidiard@bhpbilliton.com
Tania Price, Media Relations Ariane Gentil, Media Relations
Tel: +61 3 9609 3815 Mobile: +61 419 152 780 Tel: +44 20 7802 4177
email: Tania.Price@bhpbilliton.com email: Ariane.Gentil@bhpbilliton.com
United States South Africa
Francis McAllister, Investor Relations Michael Campbell, Investor & Media Relations
Tel: +1 713 961 8625 Mobile: +1 713 480 3699 Tel: +27 11 376 3360 Mobile: +27 82 458 2587
email: Francis.R.McAllister@bhpbilliton.com email: Michael.J.Campbell@bhpbilliton.com
Summary Terms of Employment
Mr Charles (Chip) Goodyear
Chief Executive Officer - BHP Billiton
1. Term
Mr Goodyear is employed under a single contract of service with the BHP Billiton
Group with no fixed term. The contract is dated 21 August 2003 and is applicable
with effect from the date of Mr Goodyear's appointment as Chief Executive
Officer on 5 January 2003. The contract can be terminated by the Group on 12
months notice and by Mr Goodyear on 3 months notice. Payment can be made in lieu
of notice, the details of which are set out in section 5 below. Mr Goodyear's
performance will be reviewed at the end of each financial year.
2. Fixed Salary
Mr Goodyear will be paid a base salary of US$1,250,000. He will also be entitled
to receive an additional annual sum calculated at the rate of 48% of base salary
(which at the commencement of the contract will be US$600,000) in lieu of a
contribution to any pension or superannuation scheme. Mr Goodyear will be
entitled either to pay this additional sum into a superannuation or pension
scheme, or to defer receipt until retirement. If receipt of this sum is
deferred, an earnings rate equal to the US 10 year bond rate will be applied.
3. Benefits
In addition to his fixed salary, Mr Goodyear will receive additional benefits to
cover the cost of health insurance, life and disability insurance, costs
associated with the preparation of taxation returns and a contribution toward
the cost of relocating from the United Kingdom to Australia. Costs associated
with Mr Goodyear's relocation to the United States will be paid following
termination of the contract.
4. Incentive arrangements
Mr Goodyear will participate in the Group Incentive Scheme (GIS) that was
approved by shareholders in 2002. The GIS covers short and long-term incentive
arrangements.
Short-term
Under the rules of the GIS, Mr Goodyear is entitled to incentive awards
calculated by reference to his base salary (US$1,250,000). For performance at
the target level, which requires Mr Goodyear to meet the rigorous performance
hurdles set by the Board, including delivery of the budget, Mr Goodyear would
receive 70% of his base salary as a cash bonus. Whatever is earned as a cash
bonus would be matched with deferred shares of an equivalent value. Those shares
must be held for two years. The Remuneration Committee has discretion to allot
options instead of deferred shares.
Any deferred shares that are issued will be valued and reported each year in the
Remuneration Report that forms part of the Annual Report. The valuation will be
subject to audit by the Group's auditors.
Long-term
The long-term component is made up of performance shares. The Group will grant
the same value of entitlements to performance shares as to the deferred shares.
This means that the extent to which Mr Goodyear can participate in long-term
incentives is set by the performance of the Group in the prior year. These
shares are subject to performance hurdles measured three years after the date of
grant. There is no re-testing available.
The performance hurdles are based on total shareholder return (TSR) and earnings
per share (EPS) growth. Both TSR and EPS targets must be met for performance
shares to vest.
If BHP Billiton falls to or below the 50th percentile against peer companies on
TSR performance, no shares will vest. BHP Billiton must perform in the top 15%
for 100% of the performance shares to vest. Vesting, however, also will depend
on the Group's EPS performance.
For the EPS target to be met, BHP Billiton's compound EPS growth must be at
least equal to the greater of the increase in the Australian Consumer Price
Index or the increase in the UK Retail Price Index, plus two per cent per annum.
The grant of performance shares is subject to the approval of shareholders each
year. Once granted, any shares issued will be valued and reported in the
Remuneration Report that forms part of the Annual Report. The valuation will be
subject to audit by the Group's auditors.
5. Termination of contract
The Group retains the right to terminate the contract by giving 12 months notice
or by making payment in lieu of notice equal to 12 months base salary plus the
amount paid in lieu of a contribution to a superannuation or retirement scheme
(i.e. a total of US$1,850,000) Mr Goodyear would also be entitled to any accrued
entitlements such as earned but untaken leave.
6. Entitlements under the Group Incentive Scheme on termination
The rules of the GIS set the entitlement of participants on termination of
employment. A copy of the rules is available on the BHP Billiton website at
www.bhpbilliton.com
Resignation or termination for cause
The Rules provide that where employment is terminated by the resignation of the
executive, or by the Group for cause, a participant is not entitled to any cash
incentive for the year in question. All deferred shares or options that have
been issued but which are not yet exercisable are forfeited. Any performance
shares issued but which are not yet exercisable are also forfeited. Special
provisions relate to events described as 'uncontrollable' such as death, serious
injury and retrenchment. In those circumstances all of the deferred shares,
options and performance shares that have been awarded but which are not
exercisable become immediately exercisable by Mr Goodyear or his estate.
Termination by agreement
The Remuneration Committee of the Group retains discretion in relation to the
treatment of deferred shares, performance shares and short-term incentive
payments, where employment is terminated for other reasons.
In the interests of providing as much certainty as possible for the Group, its
shareholders and Mr Goodyear, the Committee has resolved that where Mr
Goodyear's contract is terminated as a result of a mutual decision to depart and
Mr Goodyear has served as Chief Executive Officer for at least three years, then
the Committee will treat his entitlements under the GIS in the following way:
• any deferred shares or options that had been granted, but which were not
exercisable at the date of departure, would vest in full;
• if the performance hurdles have been met for the year in which Mr Goodyear
departs, he would be entitled to a pro rata short-term incentive for his
period of service during that year; and
• Mr Goodyear would have a right to retain entitlements to performance
shares that have been granted but that are not exercisable, pending
satisfaction of future performance hurdles. The number of entitlements Mr
Goodyear would be permitted to retain would be reduced pro rata to reflect
his period of service. These entitlements would become exercisable only if
the performance hurdles are ultimately met.
The Committee considers that if its discretion were to be used in this way it
would be consistent with the aspect of remuneration policy that provides that it
will not reward non-performance because:
• it will only operate when the Group and Mr Goodyear reach a mutual
decision to depart (i.e. it will not operate where Mr Goodyear or the Group
give notice to terminate);
• the performance conditions associated with the deferred shares or options
have already been met, except for the condition requiring Mr Goodyear to
hold the shares or options for a period of two years form the date of grant.
A mutual decision to depart makes this requirement redundant;
• there is no automatic vesting of shares that are subject to performance
hurdles. Any awards granted are pro-rated back to reflect the period of
service and then remain subject to performance hurdles. If those hurdles
ultimately are met, Mr Goodyear will participate on the same basis as other
employees, albeit in respect of a reduced number of shares;
• the cash bonus, if any, paid for the year in which he departs will be
assessed according to the applicable performance hurdles in relation to the
Group and Mr Goodyear's individual performance, and then will be pro-rated
back to reflect the period of service for the year in question; and
• Mr Goodyear must have served a minimum of three years before this
provision becomes operable.
An example of the annual remuneration Mr Goodyear might receive were his and the
Group's performance to be assessed at the target level is set out below.
Remuneration - a worked example
The example below gives an illustration of the remuneration Mr Goodyear might
receive in any one year if he and the Group performed to the 'target' level set
by the Board. To perform at that level, the budget set by the Board at the
beginning of the financial year would need to be achieved and Mr Goodyear would
need to meet his own rigorous personal performance hurdles. The extent to which
the Group performs against its pre-determined performance hurdles will be
reported each year in the Annual Report.
The value of the shares or options awarded as part of the short and long-term
incentive arrangements will vary from year to year. The company adopts a
modified Black-Scholes method of valuing shares and options and has the
application of that method audited by the Group's auditors. Those valuations
appear each year in the Annual Report.
Element Fixed remuneration 'At risk' remuneration Total potential remuneration
at target performance
Base salary US$1,250,000
Retirement benefit US$ 600,000
Short Term Incentive US$ 875,000
- Cash Bonus at target
- 70% of base salary US$ 813,7501 1
Value of deferred shares
Long Term Incentive US$ 227,500 2
Value of performance
shares
Total of fixed remuneration US$1,850,000
Estimated total of 'at risk' remuneration US$ 1,916,250
at target
Estimated total remuneration at target
level of performance
US$3,766,250
Notes:
1 At target level, 70% of base salary (US$875,000) will be converted
into deferred shares. The deferred shares have been valued using the
valuation applied for the financial year ended 30 June 2003. Valuations
will vary from year to year.
2 Performance shares cannot be awarded without the approval of
shareholders. The valuation that has been used in the example is that
applied for the year ended 30 June 2003. Valuations will vary from year
to year.
BHP Billiton Limited ABN 49 004 028 077 BHP Billiton Plc Registration number 3196209
Registered in Australia Registered in England and Wales
Registered Office: 600 Bourke Street Melbourne Registered Office: Neathouse Place London SW1V 1BH
Victoria 3000 United Kingdom
Telephone +61 3 9609 3333 Facsimile +61 3 9609 3015 Telephone +44 20 7802 4000 Facsimile +44 20 7802 4111
The BHP Billiton Group is headquartered in Australia
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