Corporate Governance

Remuneration

Policy

Oil Search has a Remuneration Policy based upon “Reward for Performance”, where each individual employee’s remuneration
is differentiated based on various measures of corporate, team, and individual performance.

The objectives of the Oil Search remuneration policy are to:

  • Attract and retain the talent necessary to create value for shareholders;
  • Reward key management personnel and other employees fairly and responsibly, having regard to the performance of
    Oil Search, the competitive environment and the individual performance of each employee; and
  • Comply with all relevant legal and regulatory provisions.

Remuneration for non-executive directors is established using advice from external independent consultants and takes
into account:

  • The level of fees paid to non-executive directors of other ASX listed corporations of a similar size and complexity to Oil Search;
  • The growing international scale of Oil Search activities;
  • Responsibilities of non-executive directors; and
  • Work requirements of Board members. 

Remuneration & Nominations Committee

The Remuneration and Nominations Committee (the Committee) of the Board provides advice and recommendations to the Board
regarding remuneration matters. The Committee’s responsibilities for remuneration include:

  • Review of the ongoing appropriateness, coherence, and competitiveness of remuneration policies and practices, and
    recommendation of changes to the Board as appropriate;
  • Oversight of the implementation of remuneration policies;
  • Recommendation to the Board on the specific remuneration of executive directors, key management personnel and any other direct reports to the Managing Director;
  • Recommendation to the Board of budgets for annual remuneration awards to all other employees;
  • Recommendation to the Board on performance measures underpinning all incentive Plans;
  • Proposal to the Board of outcomes for any performance measures underlying incentive Plans;
  • Proposal to the Board on the appointment of new non executive directors;
  • Approval of terms and conditions and contracts for any new key management personnel and other direct reports of the Managing Director.

The Committee must comprise at least three non-executive directors.

Remuneration Structure

Oil Search’s remuneration structure comprises four elements:

  • Total Fixed Remuneration (TFR);
  • Short-Term Incentive (STI);
  • Long-Term incentive (LTI); and
  • Occasional Retention Awards of Restricted Shares for key/critical staff.

The mix of remuneration elements for individual employees is dependent on their level and role within Oil Search, with the proportion of “at risk” remuneration (STI and LTI elements) increasing with greater seniority.

Total Fixed Remuneration (TFR)

The ranges of TFR payable for all Company positions in the organisation, including those for key management personnel are
80% – 120% of competitive benchmarks. An independent external remuneration consultant engaged by the Committee provides
competitive benchmarks for key management personnel.

For other roles in the organisation, remuneration information is derived from annual job matching surveys conducted by
independent third parties.

An annual TFR review budget, agreed by the Board each year, is used to adjust TFRs paid to individuals to ensure that their fixed remuneration remains competitive for their specific skills, competence, and value to the Company.

Short-term Incentive (STI)

Each employee has the opportunity to earn an annual STI which is based on a percentage of his or her TFR. The STI percentage increases with seniority to ensure a higher proportion of remuneration is “at risk” for our senior employees. The actual STI earned by an employee will be based on a mix of achievement against specific company performance hurdles and his or her individual performance.

At the start of each year, the Board determines the hurdles and target levels of performance required to earn an annual STI. The hurdles are derived presently from:

 

  • Corporate performance against operational metrics which include: safety; production; costs; and development initiatives; and
  • Growth metrics which include: discovery of new hydrocarbon resources and progress towards the commercialisation of 2C gas reserves.

The size of any STI is thus directly related to corporate performance through a range of key measures that affect Shareholder Value.

Long-term Incentive (LTI)

Provided that they have demonstrated an acceptable level of personal performance, each employee also has the opportunity to participate in the Oil Search Long Term Incentive Plan (LTIP). Following changes to Australian taxation legislation with respect to employee share plans, the existing Oil Search LTI programs were reviewed in 2010. As a result of the review, the existing Employee Share Option Plan (ESOP), Performance Rights Plan (PRP) and Restricted Share Plan (RSP) were combined under the Oil Search Long Term Incentive Plan (LTIP).

The Oil Search LTIP allows the Board the flexibility to grant employees:

  • Performance Rights;
  • Share Appreciation Rights;
  • Share Options; and
  • Restricted Shares.

Further Information

For full details of Oil Search's Remuneration Report, the role of the Committee, incentive plans and the remuneration of directors and key management personnel, please refer to the Company's current Annual Report.