Group Remuneration Policy - Royal Commission

ACN 123 123 124

COMMONWEALTH BANK OF AUSTRALIA GROUP

Group Remuneration Policy

Executive Remuneration and Governance, Human Resources

CBA.0001.0051.3498

CBA.0001.0051.3499

Commonwealth Bank of Aust ralia Group Remuneration Policy

DOCUMENTCONTROLTABLE

Version J Date J Amendment description I review details

1.2 12/10/2009 Feedback from Group Risk on document structure included. Benefits section moved to Appendix.

1.3 27/01 /2010 Response to final APRA regulations added as approved by the Board

1.4 23/02/2010 Condensed and re-ordered section 1

1.5 10/03/2010 Removed benefits section, & included input from self-assessment.

1.6 16/03/2010 Final edits from B. Chapman and J. Linklater

2.0 03/11/2010 Annual review, including updates to People & Remuneration Committee Charter and Remuneration Delegations.

3.0 14/06/2011 Updates to Group Remuneration Policy, People & Remuneration Committee Charter in relation to remuneration regulatory reform in the UK and Malta, and Remuneration Delegations.

4.0 1/12/2011 Annual review, including updates to People & Remuneration Committee Charter and Remuneration Delegations.

5.0 1/03/2012 Review to include Bankwest in Remuneration Policy

6.0 28/06/2012 Updates to Group Remuneration Policy, the Remuneration Committee Charter and Remuneration Delegations.

7.0 29/11/2012 Annual Review of Group Remuneration Policy, the Remuneration Committee Charter and Remuneration Delegations.

7.1 08/01 /2013 Updates incorporating requirements of APRA Prudential Standard SPS 510


9.0 10/06/2014 Updates to Group Remuneration Policy, Remuneration Committee Charter and European Remuneration Supplement Policy in relation to remuneration regulatory reform in the UK and Malta.


11 09/06/2015 Updates to the Group Remuneration Policy to incorporate changes to the application of STI deferral.

12 07/12/2015 Annual Review of Group Remuneration Policy, the Remuneration Committee Charter and Remuneration Delegations.

CBA.0001.0051.3500

Commonwealth Bank of Australia Group Remuneration Policy

APPROVAL

Version I Date I Approving body or person 1

1.6 08/02/2010 People & Remuneration Committee Board of Directors

1.6 08/02/2010 CSA Board of Directors



4.0 12112/2011 People & Remuneration Committee 13/12/2011 Board of Directors

5.0 12/03/2012 People & Remuneration Committee 13/03/2012 Board of Directors

6.0 16/07/2012 Remuneration Committee 17/07/2012 Board of Directors



9.0 15/07/2013 Remuneration Committee Board of Directors




13 09/06/2015 Remuneration Committee 10/06/2015 Board of Directors

14 07/12/2015 Remuneration Committee 08/12/2015 Board of Directors

1 Also subject to subsidiary board approval.


Table of Contents

1. KEY TERMS USED IN THIS GROUP REMUNERATION POLICY 1

2. CONTEXT AND PURPOSE OF THIS POLICY 6

3. APPLICATION OF THIS POLICY 7

4. OUR REMUNERATION PHILOSOPHY & PRINCIPLES 8

5. OUR REMUNERATION FRAMEWORK 11

6. GOVERNANCE AND REVIEW OF THIS GROUP REMUNERATION POLICY 20

7. REMUNERATION APPROVAL DELEGATION FRAMEWORK 21

8. RELATED POLICIES AND REFERENCES 22

9. CONTACT 22

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1. KEY TERMS USED IN THIS GROUP REMUNERATION POLICY

APRA

The Australian Prudential Regulation Authority.

AIFM Remuneration Code

Remuneration Code for Alternative Investment Fund Managers.

Base Remuneration

Cash salary (including any salary sacrifice items) paid regularly that is not contingent upon performance conditions, excluding employer superannuation or pension equivalent.

Board

The board of directors of CBA.

CBA

Commonwealth Bank of Australia.

CEO

CBA Chief Executive Officer.

Commonwealth Bank Group Super

The Group’s default employee superannuation fund in Australia.

Corporations Act

Corporations Act 2001 (Cth), as amended from time to time.

Deferred Incentives

An incentive payment which is not paid upon allocation, but is delayed to a later date and subject to vesting conditions.

Executive Committee (ExCo)

The management committee comprising the Chief Executive Officer (CEO), Group Executives (Executives) and any other executives selected by the CEO.

Finance, Risk and Internal Control Personnel

Employees within the Group whose roles are primarily related to Risk Management, Compliance, Audit, Finance and Legal control.

Fixed Remuneration

Consists of Base Remuneration plus employer contributions to superannuation or pension benefits.

Gate-opener/modifier

Minimum level of acceptable performance in key areas such as risk. If performance does not meet minimum expectations on a gate opener/modifier, an individual’s overall performance assessment and performance based outcomes may be moderated or reduced to nil.

Global Regulated Entity

An entity within the Group subject to remuneration governance requirements under the jurisdiction in which it operates. The local regulator may determine to adjust or exclude certain prudential requirements. Global Regulated Entities are subject to change from time to time.

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Group

CBA and its subsidiaries.

Hedging

Activity that attempts to reduce the risk of adverse price movements in equity based remuneration.

HKMA

Hong Kong Monetary Authority.

Identified Employees

In line with the relevant European Remuneration regulations, Identified Employees includes all employees who have a material impact on the risk profile of the European entity or Alternative Investment Funds (AIFs) the Alternative Investment Fund Manager (AIFM) manages. For the purposes of this policy, European Remuneration regulations that categorise these individuals as “code staff” or “identified staff’ will be referred to as Identified Employees.

Incentive

Remuneration that depends on minimum performance standards being achieved within a defined period (also known as performance based remuneration and at risk remuneration).

Incentive Potential

The recommended maximum incentive opportunity that an employee may earn, which is contingent upon achievement against set performance objectives within a defined period of time.

Incentive Target

The incentive opportunity range that an employee may earn based on the individual, team, business unit and the Group achieving set target performance objectives within a defined period of time.

Job Family

A job family represents groups of comparable roles for which we establish a remuneration range. Examples include branch managers, relationship executives, customer service representatives, accounting job family, and marketing job family.

Key Performance Indicators (KPIs)

Are quantitative and qualitative measures, agreed at the start of the performance year, to drive performance outcomes at the Group, business unit, team and individual level.

Key Personnel

As defined by HKMA Supervisory Policy Manual, including employees whose duties or activities in the course of their employment involve the assumption of material risk or the taking on of material exposure on behalf of the Authorised Institution.

Long Term Incentive (LTI)

A performance-based remuneration arrangement which grants benefits to participating employees that may vest subject to meeting set performance hurdles and/or requirements over a period of up to four years.

Material Risk Taker

Please refer to Identified Employee.

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NED

Non-executive directors of the Board.

Performance-based Remuneration

Performance-based remuneration includes short term incentives which reward performance over the financial year or a specified/defined period within the year (for example, quarterly), and long term incentives which reward performance over a longer term.

PRA/FCA

Prudential Regulation Authority/Financial Conduct Authority, United Kingdom.

Proportionality

The Group is required to comply with local regulations in a way and to the extent that is appropriate to its size, internal organisation and the nature, the scope and the complexity of its activities when establishing and applying the total remuneration policies for Identified Employees.

Prudential Standards

“Prudential Standards” mean (i) APRA’s Cross-industry Prudential Standard CPS 510 relating to remuneration governance, made under section 11AF of the Banking Act 1959, section 230A of the Life Insurance Act 1995 and section 32 of the Insurance Act 1973 respectively; and (ii) APRA’s Prudential Standard SPS 510 relating to remuneration governance for Registrable Superannuation Entity (RSE) Licensees (RSE Licensees), made under section 34C of the Superannuation Industry (Supervision) Act 1993.

PTBC

PT Bank Commonwealth

PTCL

PT Commonwealth Life

Regulated Sub-Entity

An entity within the Group subject to relevant jurisdiction remuneration governance requirements.

Remuneration Arrangements

Remuneration arrangements include measures of performance, the mix of forms of remuneration (such as fixed and variable components, and cash and equity-related benefits) and the timing of eligibility to receive payments. All forms of remuneration are captured regardless of where, or from whom, the remuneration is sourced.

Remuneration Assurance Committee (RAC)

The RAC has responsibility in relation to remuneration arrangements within the relevant European entity and supports the CBA Remuneration Committee in delivering against their respective responsibilities pursuant to the requirements of the European regulators, as may be applicable from time to time.

Remuneration Code

A set of standards issued by a regulatory body on Remuneration.

Responsible Persons

As defined by APRA’s ‘Fit and Proper’ Prudential Standards, including Directors, executives, senior managers, Registrable Superannuation Entities (RSE) auditors, RSE actuaries, RSE secretaries and any other person(s) who make or participate in

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making decisions that affect the whole or substantial part of the APRA-regulated entity.

Retention Payments

Pre-determined future payments that are awarded at a defined future date to key employees to encourage retention.

RSE

Registrable Superannuation Entity.

Salary Sacrifice

Where available to Australian-based employees, salary sacrifice means using base remuneration on a pre-tax basis to receive certain benefits.

Senior Managers

Employees who are responsible for oversight of the firm-wide strategy or activities, or those employees who are responsible for oversight of strategy or activities of the firm’s material business lines.

Short Term Incentive (STI)

Performance-based remuneration paid with reference to the Group’s and the individual’s performance over one financial year or a specified/defined period within the year (e.g. quarterly).

Sign-on Payments

Payments offered to potential employees/candidates usually to compensate for existing incentive arrangements that they will forgo due to their termination of non-CBA employment before the end of the vesting period.

Specified Term Contract

An employment contract with a specified fixed or maximum term.

Subsidiary

As defined in the Corporations Act 2001 (Cth).

Third Party

The term third party is broadly defined to include all entities that have entered into a business relationship to provides sales or distribution activities for the Group, whether the third party is a bank or a non-bank, related or not related, regulated or non-regulated, domestic or foreign.

Total Potential Remuneration

The aggregate of fixed remuneration, short term incentive potential and any long term incentive award..

Total Target Remuneration

The total combination of fixed and performance based remuneration that an employee may receive if performance objectives for the Group, team and individual are achieved.

UK

United Kingdom.

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Variable Remuneration

Variable remuneration includes, but is not limited to:

short-term and long-term incentives; sign-on payments; retention payments; commissions; and any other performance-based remuneration.

Vesting Conditions

The criteria which must be realised in order to receive deferred incentives and long term incentives.

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2. CONTEXT AND PURPOSE OF THIS POLICY

2.1 This Group Remuneration Policy sets out:

the remuneration philosophy of the Group;

the remuneration principles that underpin our philosophy and guide the design of our remuneration framework;

the remuneration framework that delivers on our remuneration philosophy and principles; and

the policies (including all the policy supplements) used to manage remuneration within the remuneration framework and the Group’s risk management framework.

2.2 The Board has determined that the Group’s remuneration philosophy, principles, frameworks and practice will:

meet high standards of governance and all applicable regulatory requirements and guidelines;

align with the Group’s vision, values, and strategy;

be mindful of the interests of the Group’s stakeholders including shareholders, employees, customers and the community2;

be communicated to relevant stakeholders in a way that is clear and easy to understand;

support avoiding conflicts of interest; and

encourage behaviour that supports the long-term financial soundness and risk management framework of the Group.

2.3 This Group Remuneration Policy (including the policy supplements) is subject to change from time to time and does not form part of an employee’s contract of employment or any industrial instrument that applies to a Group employee.

2 Includes protecting the interests and meeting the reasonable expectations of RSE Licensee beneficiaries.

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3. APPLICATION OF THIS POLICY

3.1 The Group Remuneration Policy applies to all entities of the Group, other than ASB Bank Limited (which is subject to New Zealand regulation and has its own remuneration policy), and PTBC and PTCL (which are subject to Indonesian regulation3). The exemption for ASB Bank Limited, PTCB and PTCL does not apply to the Termination Payments Policy Supplement (see section 8).

3.2 This includes those entities subject to APRA’s requirements under the Prudential Standards and Global Regulated Entities subject to local requirements under the jurisdictions in which they operate. Where additional guidelines may apply to Global Regulated Entities, please refer to the Group Remuneration Policy - Variations (see section 8)4.

3.3 Details of the remuneration governance arrangements of Regulated Sub-Entities are set out in the APRA Regulated Sub-Entities Remuneration Governance Policy (see section 8).

3.4 The Group Remuneration Policy applies to all Group employees on individual agreements and collective agreements, and all directors of CBA and its subsidiaries.

3.5 Exempt entities of the Group listed in section 3.1 may establish alternative remuneration policies or frameworks to best serve their specific business needs. Any such alternative policies or frameworks will take into account the Group’s remuneration philosophy and principles (as set out in this policy), and where possible will align with this policy.

3.6 Special requirements exist for the following groups, in relation to the requirements of the Prudential Standards:

Responsible Persons;

Finance, Risk and Internal Control Personnel; and

Individuals with significant variable remuneration.

3.7 For all partly owned subsidiaries of the Group, it is expected that they conform with the philosophy and principles set out in section 4 of this Group Remuneration Policy.

3.8 Prior approval by the Board or its authorised delegate is mandatory for any proposed deviation from the conditions of this policy.

3 PTBC (PT Bank Commonwealth) and PTCL (PT Commonwealth Life) are partly owned subsidiaries of the Group operating in Indonesia and subject to local remuneration regulatory requirements. 4 Where there arises any conflict between the Group Remuneration Policy (including the Supplement Policies in section 8) and the remuneration-related regulation applying to the global regulated entity, the relevant remuneration-related regulation applicable to the jurisdiction will prevail.

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4. OUR REMUNERATION PHILOSOPHY & PRINCIPLES

LEVEL PHILOSOPHY PRINCIPLES

CEO & Group Execut ives

Employees below CEO & Group Executive levels

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•

•

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•

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Provide remuneration which is market • competitive, without putting upward pressure on market fixed remuneration levels.

Align rewards with shareholder interests and our business strategy.

Articulate clearly to Executives the link between individual and Group performance, and individual

•

reward. •

Reward superior and sustainable performance, while managing risks associated with delivering • and measuring that performance.

Provide flexibility to meet changing needs and emerging market practice.

Provide appropriate benefits on termination that • do not deliver any windfall payments not related to performance.

•

Performance-based remuneration includes STI and L Tl awards that reward performance over the short and longer term.

Performance is managed through a balanced scorecard approach, using financial and non-financial performance measures that are set at the beginning of the performance period, and drive the incentive outcome5 .

The incentive awards are designed to discourage excessive risk taking.

The Board and its Remuneration Committee review performance against each performance objective. They also receive advice from the Risk Committee on appropriate risk matters to be considered when assessing the performance.

An appropriate portion of STI awards is deferred . L Tl awards are deferred over four years.

The Board has discretion to reduce the deferred awards, where performance outcomes are not realised.

• Executives do not receive excessive benefits on termination.

• Motivate employees to achieve superior and sustainable performance that is consistent with the Group's vision and strategy.

• Provide remuneration structures and policies that are transparent, easy to understand, administer and communicate.

• Remuneration arrangements support the sustainable growth of revenue relative to costs.

• Remuneration posit ioning and arrangements should be established with consideration of specific employee context and requirements.

5 For shareholder alignment, performance-based remuneration takes into account the principles outlined in section 5.1, for example Group performance.

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• Provide Target Remuneration that is market competitive.

• Deliver consistent, fair and equitable remuneration outcomes.

• Provide flexibility in remuneration arrangements, including posit ioning, to meet unique and changing business needs and emerging market practice.

• Remuneration should reflect and support the Group's risk management framework.

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•

•

•

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Remuneration outcomes should be strongly differentiated and reflect both the outcomes achieved and the manner in which they are achieved.

Remuneration contributes to align ing rewards to the interests of shareholders and customers6 .

Remuneration reflects the role it can play in the overall risk management framework.

Remuneration is reviewed from a 'total reward' perspective (i.e . monetary and non-monetary benefits) and within the context of the broader employee value proposition.

Remuneration is aligned to the Job Family, impact and accountability of the role with consideration of both internal and external relativity.

• Manager discretion should be applied with consideration of objective inputs, criteria and guidelines.

• Remuneration principles, mechanics and value of elements should be communicated to and understood by employees.

• Remuneration outcomes are assessed against individual performance (taking into account financial and non-financial criteria set at the beginning of the performance period) and compliance with business unit and/or Group Risk Appetite Statements and risk conduct, and relevant policies and procedures7 .

• Ensure employees do not receive excessive benefits on termination.

6 Includes protecting the interests, and meeting the reasonable expectations of the beneficiaries of a RSE Licensee. 7 For shareholder alignment, performance-based remuneration takes into account the principles outlined in section 5.1, for example Group performance.

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NE Os • Provide fees that are market competit ive in • Remuneration for NEDs consists of base fees and statutory order to attract and retain a high calibre of superannuation/pension benefits to recognise their work on the CBA experienced Directors. main Board and its associated committees. Effective from 1 January

• Manage those fees within a cap approved by 2013, NED fees have been restructured to a single fixed remuneration model (i.e. base fees inclusive of

shareholders, which is set at a moderate level superannuation/pension benefits). that will not burden the Group.

Maintain a minimum shareholding of 5,000 CBA • Those NEDs who have not reached the minimum shareholding of • 5,000 CBA shares will continue to defer 20% of their post-tax annual

shares to support alignment with shareholder fees as CBA shares. The shares are restricted from sale for 1 O

interests. years (or earlier if they retire from the Board).

• In keeping with their strategic role, NEDs do not NEDs may voluntarily receive a portion of their remaining fees as receive any performance-based remuneration. •

shares (up to maximum value of AUD 5,000p.a.) or salary sacrifice to superannuation/pension8.

• From time to time, the Board and the Board Performance and Renewal Committee review the fees payable to each NED. The Board takes into account the changing workload and seeks independent advice on market practice.

• NEDs do not receive benefits on termination .

Subsidiary • Provide fees that are market competit ive in • Remuneration for subsidiary NEDs consists of base and committee Board NEDs order to attract and retain a high calibre of fees (inclusive of statutory superannuation).

experienced directors. • Subsidiary board executive directors do not receive any fees in

• Subsidiary NEDs (i.e. not employees of the relation to their roles on subsidiary boards in additional to the Group) do not receive any performance-based normal remuneration they receive as an employee of the Group. remuneration.

8 Subject to local regulation.

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5. OUR REMUNERATION FRAMEWORK

5.1 Our Approach to Pay

Setting Remuneration Levels

5.1.1 The overall remuneration structure is designed to continue to attract, retain and motivate high calibre directors and employees who can deliver on the Group’s strategy.

5.1.2 When setting and reviewing remuneration for all employees of the Group, consideration is given to:

the responsibilities of the role, and individual competencies and experience required;

internal relativity; and

external competitiveness.

5.1.3 We also recognise that gender pay equity gaps can exist and we are committed to taking active steps to identify and eliminate/rectify any identified gaps.

Internal Relativity

5.1.4 The Group has adopted a disciplined approach to managing internal relativity, to ensure that rewards are distributed in a fair and consistent manner, without causing undue upward pressure.

General Manager (or equivalent) and above roles are job sized using an internationally recognised job evaluation methodology as required.

Internal relativities for all other positions are managed through an internal Job Family framework applicable across the Group.

We recognise that some gaps may exist and these are managed appropriately.

Market Positioning

5.1.5 When setting our remuneration levels, we also consider the market for similar roles at peer organisations. To support this, we participate in a range of remuneration surveys.

5.1.6 Our goal is to always remain competitive within the context of our broader employee value proposition and market conditions. We take a segmented approach to setting remuneration levels based on objective criteria, including but not limited to, availability of talent and capability; competitor practices and market pressures; and talent strategy.

5.1.7 We also aim to avoid adding pressure to the market. This is particularly important for our most senior roles, given the small size of the market for these types of roles in Australia and New Zealand in particular.

5.1.8 The Group sets a conservative position for fixed remuneration with the target range set at ±15% (for Executive Manager level and below) and at ±20% (for General Manager level and above) of the market median. In general, Total Potential Remuneration levels are set to provide the opportunity for our best performers to be remunerated in line with the upper quartile of the market. Total Target Remuneration is designed to provide market competitive outcomes, while enabling incentive outcomes to be strongly differentiated to reflect performance.

Annual Remuneration Review

5.1.9 Funding for annual remuneration increases is reviewed and approved by the Remuneration Committee prior to the annual remuneration review. The Remuneration Committee considers a range of factors, including an analysis of market remuneration movements, market competitiveness and the Group’s capacity to pay. The Remuneration Committee also monitors remuneration costs and practices to ensure that they are in line with the Group Remuneration Policy, that these do not place the Group in financial difficulty and avoid putting upward pressure on the market.

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5.1.10 The funding calculation of annual discretionary STI awards is based on the Group’s profitability, as determined by two performance indicators:

Net Profit After Tax (NPAT); and

Profit After Capital Charge (PACC), which is a risk adjusted profit measure.

5.1.11 The Board will determine the final amount of the Group short term incentive pool on the advice of the Remuneration Committee, having regard to other performance, risk and financial factors.

5.1.12 Any discretionary short-term incentive pool will typically be allocated by ExCo to each business unit and/or team, having regard to other performance, risk and financial factors.

5.2 Fixed Remuneration

Base Remuneration

5.2.1 Base remuneration is reviewed annually in July for most employees, within parameters set by the Remuneration Committee. The remuneration review takes into account any change in the scope of the role performed by the individual, any changes required to meet the principles of the Group Remuneration Policy and our market competitiveness.

Superannuation/Pension Arrangements

5.2.2 The Group provides superannuation or pension arrangements in some jurisdictions in which it operates. These arrangements are designed to comply with all local jurisdiction requirements. These arrangements are aligned to our business strategy and are an important element of our employee proposition to attract and retain talented employees. Our superannuation or pension arrangements will be reasonable and should not put stress on the Group’s financial soundness.

5.2.3 Most employees in Australia receive employer superannuation contributions in an accumulation-style superannuation plan and the Group’s default superannuation fund is Commonwealth Bank Group Super. Employees may select another complying superannuation fund (if payroll administration requirements are reasonable).

5.2.4 For Australian employees, accumulation employer superannuation contributions are generally in line with the Superannuation Guarantee Contribution minimum, calculated on an employee’s ‘ordinary time earnings’ as defined by the ATO. Ordinary time earnings generally consist of base remuneration including any salary sacrifice items plus any gross STI payments, over-award payments, commissions, shift-loading and certain allowances, up to the quarterly ‘maximum contributions base’ specified under the Superannuation Guarantee (SG) legislation;

5.2.5 The Group’s superannuation policy was last updated in June 2013. A number of employees have a grandfathered arrangement whereby a dollar superannuation contribution amount will be frozen going forward (calculated as at 30 June 2013 under the previous superannuation policy. For Australian employees, any frozen superannuation will remain until such time as SG requirements exceed that dollar amount.

5.2.6 Some longer serving employees have legacy defined benefit superannuation or pension arrangements.

5.2.7 For employees based outside of Australia, pension or superannuation benefits must comply with all local jurisdiction requirements as a minimum. They must also comply with the principles set out in section 5.2.2.

5.2.8 Upon leaving the Group, it is not intended that any discretionary superannuation or pension contributions be paid to an employee, except in exceptional circumstances.

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5.3 Performance-based remuneration

5.3.1 Performance-based remuneration arrangements are underpinned by the philosophy and principles as outlined in this policy. They are designed to ensure that relevant employees are not incentivised to provide advice to retail customers that may conflict with the customer's interests. Performance-based remuneration (including the measures used to assess outcomes) is systematically reviewed and adjusted for risk. The Group offers various types of performance awards, depending on role and seniority. The Group-wide performance awards are summarised in the table below9 :

LEVEL TYPE OF PERFORMANCE PAY AWARD DEFERRAL ARRANGEMENTS VESTING CONDITIONS10

THRESHOLD

CEO & Group Executives

•

•

Annual STI awards (discretionary). Executives may receive 0% to 150% of their STI target.

L Tl awards. Current L Tl plan is the Group Leadership Reward Plan (GLRP). Details are disclosed in the Group's Remuneration Report (part of the Annual Report).

Nil (applies from AUD 1)

•

•

50% of STI award is deferred as • cash for 12 months (including interest accrued).

L Tl awards are deferred over a 4 year period and subject to set performance hurdles.

Vesting of all deferred cash and equity based STI awards are generally contingent upon:

• the employee remaining employed by the Group throughout the vesting period. On exit of a good leaver11, post 1 July 2013 deferred STI awards stay on foot;

9 There are other BU specific performance awards that are governed by the Group Incentive Plan Design Policy (see section 5 .3.5 below). Please refer to the applicable plan rules for more detail on how each of these plans operate. 10 Specific vesting conditions for L Tl awards are outlined in invitation documents to participants. 11 Deferred awards wi ll generally remain on foot for good leavers in any of the following circumstances: retirement, ill health retirement, redundancy or death.

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LEVEL TYPE OF PERFORMANCE PAY AWARD DEFERRAL ARRANGEMENTS VESTING CONDITIONS10

THRESHOLD

Executive • Annual STI awards Nil (applies • 1 /3 of total STI award deferred • actual realisation of original General (discretionary). Executives may from AUD 1) into CBA rights (or performance expected performance outcomes; Managers (EGM) receive outcomes up to their units for employees outside of

• a review of any risk and & General individual STI potential Australia). Deferred awards vest Managers (GM)12 (maximum opportunity). in three equal tranches; one, compliance issues associated

two and three years after the with any individual (see section

completion of the performance 5.7.2); and

Employees below • Annual STI awards Applies from period13. • at vesting, the release of the GM level15 (discretionary) AUD 150,000 • For offshore jurisdictions with deferred award not placing undue

(i.e. Executive • Annual STI awards (formula- annually restrictions on equity-based financial hardship on the Group.

Managers and driven) - for certain roles awards, 1/3 of the STI award • Deferred awards into CBA rights and below) across the Group. will be deferred as cash performance units are governed by

• Performance Related Pay including interest calculated the Group Rights Plan (GRP) and (PRP) - employees on the CBA from the start of the deferral Employee Share Performance Unit Group Enterprise Agreement period to the payment date. Plan (ESPUP) rules. and some other associated Deferred awards will vest in collective agreements may be three equal tranches; one, two • Formula-driven awards are based on

generally eligible for PRP as and three years after the a pre-approved formula, and

part of the annual remuneration completion of the performance individual payments are contingent

review process. period14 . upon threshold performance outcomes against a range of KPls.

12 EGM and GM deferral applies to annual STI awards, in circumstances where an alternate award is in place that meets the specified deferral arrangements these may be considered an equally equivalent deferral arrangement. 13 These arrangements apply to STI awards made from FY16 financial year onwards. The performance period is in line with the Group's financial year from 1 July to 30 June. 14 These arrangements apply to STI awards made from FY16 financial year onwards. The performance period is in line with the Group's financial year from 1 July to 30 June. 15 Applies to APRA regulated entities only.

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5.3.2 Generally, employees on casual and short term contract arrangements are not eligible to receive performance-based remuneration16.

5.3.3 For employees eligible to participate in the discretionary STI arrangements, the decision to make any STI payment remains at the sole discretion of the Group at all times. The Group also retains sole discretion to amend the discretionary STI arrangements at any time and without notice.

5.3.4 Where applicable, the STI and LTI arrangements described above are also governed by the appropriate plan rules. These plan rules provide full details of the practical application of the awards, and may change from time to time (see section 8.2). All arrangements are subject to the Board delegations framework outlined in section 7 of this policy.

5.3.5 The Group Incentive Plan Design Guidelines sets out the incentive plan design principles of the Group (including the governance process for formula-driven arrangements) and requirements for all new or reviewed incentive arrangements. These include those required to ensure that relevant employees are not incentivised to provide advice to retail customers that may conflict with the customer’s interests, as required under the Conflicted Remuneration provisions of the Corporations Act. The Group Incentive Plan Design Guidelines outlines design, approval, governance, regular review, funding, and appropriate performance measures.

16 In some cases employees on short term arrangements (including employees on casual and Specified Term Contracts) may be eligible to receive variable remuneration (determined at the discretion of the business). In these circumstances, the Group Remuneration Policy will apply to these employees.

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5.4 Responsible Persons

In accordance with APRA’s Prudential Standards, remuneration arrangements and outcomes for Responsible Persons, and any other persons determined by the Board, will be reviewed and approved by the Board (or the Board of the regulated sub-entity, as applicable), upon the recommendation of the Remuneration Committee. Responsible Persons for the purpose of the Group Remuneration Policy include all the roles listed in the Group’s Fit and Proper Policy17, with the exception of the roles listed below:

NEDs (excluding NEDs of RSE Licensees18)

The Bank’s Auditor

Bankwest Responsible Persons

CIL, CMLA, AIL, CFSIL, CCSL and CMS appointed Auditors

CIL Reviewing Actuary

Chief Executive Officer ASB19

Chief Financial Officer ASB

Chief Risk Officer ASB

5.5 Risk, Legal, Finance and Audit Roles (Control Personnel):

Control Personnel includes all employees within the Group whose roles are primarily related to Risk Management, Compliance, Audit, Finance and Legal. These functions are almost always centralised to manage any conflict of interest. There are approximately 3,500 Control Personnel across the Group. In the rare case the function is not centralised, each role should have reporting line to the central function and their performance and remuneration structured appropriately.

For all Control Personnel:

KPIs must not compromise the independence of the individuals in these roles in carrying out their function.

KPIs must not be linked to the performance of the business unit they advise/review.

Financial KPIs may be linked to the Group’s performance, but not to business unit performance.

Non-financial KPIs may be linked to individual, team or business unit performance provided they are not related to areas where the employee performs a control function. Internal customer feedback may only be included as a KPI for Control Personnel where it is balanced by KPIs that measure effective risk management and governance measures.

The ratio of Performance-based remuneration to Fixed Remuneration should be appropriate.

17 Commonwealth Bank Officers’ Superannuation Corporation (CBOSC) Responsible Persons are defined separately in the CBOSC Fit and Proper Policy. 18 In accordance with paragraph 27 of APRA’s Prudential Standard SPS 510, NEDs of RSE Licensees are covered under the Group’s Remuneration Policy. 19 Responsible Persons in ASB are covered separately under their own Remuneration Policy.

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5.6 Individuals with Significant Variable Remuneration

Individuals with significant variable remuneration are required to defer a portion of their performance pay into either CBA rights or cash-based performance units (for employees outside of Australia). Deferred awards vest in three equal tranches; one, two and three years after the completion of the performance period20.

For jurisdictions outside of Australia, with restrictions on equity-based awards, 1/3 of the STI award will be deferred as cash including interest calculated from the start of the deferral period to the payment date. Deferred awards vest in three equal tranches; one, two and three years after the completion of the performance period21.Generally this group includes:

Executive General Managers and General Managers (or equivalent);

Employees who receive annual incentive awards greater than AUD 150,00022.

For additional detail on each of these groups please refer to section 5.3.

5.7 Risk Management and the Link to Performance

Managing Risk

5.7.1 The Group actively manages risks associated with delivering and measuring short term and long term performance. All our activities are carefully managed within our risk appetite, and individual incentive outcomes are reviewed and may be reduced in light of any associated risk management issues, including down to zero.

5.7.2 Risk management is also built into our remuneration framework:

All employees have a standalone Group-wide risk gate-opener/modifier included in their individual performance assessments to indicate if they have Fully, Partially or Not Met risk conduct standards. If performance does not meet minimum standards on a gate opener/modifier, an individual’s overall performance assessment and performance based outcomes may be moderated or reduced to nil. Auditable adjustments can be made to an individual’s STI outcome centrally if their risk assessment outcome is Partially or Not Met (including a reduction of up to 100%)23.

A key risk measure that impacts STI outcomes for the CEO and Group Executives and employees on the discretionary incentive is PACC. PACC is a risk-adjusted measure which takes into account not just the profit achieved, but also considers the risk to capital that was taken to achieve it.

Risk is also managed through the mandatory deferral of a substantial portion of the STI awards of the CEO, Group Executives, EGMs, GMs (or equivalent roles in each case) and employees with significant variable remuneration.

This deferral also serves as an important retention mechanism which helps us manage the risk of losing key talent.

Performance-based remuneration awards may (a) not vest, (b) not be paid or (c) be reduced (including to zero), at the discretion of the CBA Remuneration Committee where24:

20 The performance period is in line with the Group’s financial year from 1 July to 30 June. 21 The performance period is in line with the Group’s financial year from 1 July to 30 June. 22 These arrangements apply to STI awards made from FY16 financial year onwards. 23 For employees covered by a workplace agreement (including the CBA Group Enterprise Agreement), please refer to the relevant agreement. 24 Performance adjustments may be disapplied in some jurisdictions, however the principles of performance adjustment have been adopted by the Group to actively manage risks.

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such payment or vesting would not be sustainable according to the financial situation of the business unit or the Group as a whole; and/or;

such payment or vesting could not be justified according to the performance (current and prior) of the individual concerned; and/or;

such payment or vesting could not be justified according to the performance (current and prior) of the business unit or the Group as a whole; and/or

such payment or vesting may breach relevant legal, regulatory or market obligations.

This includes where significant unexpected or unintended consequences occur in respect of financial and/or non-financial outcomes.

The Board reviews risk matters based on a recommendation by the Board’s Risk Committee and the Chief Risk Officer (CRO) when determining the STI outcomes for the CEO, Group Executives and any other employees whose activities may materially impact the financial soundness of the Group.

The Remuneration Committee reviews risk and compliance issues in relation to the vesting of deferred awards for all other employees. Compliance is monitored throughout the vesting period by the CRO and his department, who passes the information to the Risk & Remuneration Review Committee (RRRC)25 for assessment.

Any risk or performance issues that may impact the vesting of deferred awards are then highlighted to the Remuneration Committee Chairman by the RRRC, along with any recommendations for the reduction or cancelation of any deferred awards (as appropriate). The Remuneration Committee may consider reducing the deferred award, including to zero, and recommendations are subject to final Board approval.

Hedging is Prohibited

5.7.3 Employees are prohibited from hedging, or otherwise limiting, their exposure to risk in relation to unvested securities issued under any Group equity arrangement. Full details of hedging restrictions are included in the Group Securities Trading Policy (see section 8.2).

5.7.4 This Group Securities Trading policy is a critical part of the risk management framework of the Group. It is each employee’s responsibility to review, understand and comply with the Group Securities Trading Policy. Compliance with the policy is regularly monitored, and a breach of this policy will result in disciplinary action which may include termination of employment.

5.7.5 The hedging prohibitions do not prevent an employee from hedging currency risk related to unvested securities issued or acquired under any applicable Group equity arrangements that are valued in Australian dollars but delivered in a jurisdiction outside Australia.

5.8 Other Remuneration Arrangements

Special Payments

5.8.1 One-off payments (e.g. sign on and retention payments) are non-standard components of total remuneration. Requests for such payments to employees below Group Executive level require a strong business case. All business cases must be approved by the appropriate level as set out in the remuneration delegations in section 7.

5.8.2 Sign on payments are usually intended to compensate for deferred amounts forgone upon joining the Group and as such should generally be of equal or lesser value than the deferred

25 The RRRC is made up of the CRO and senior officers in the Risk and Compliance, Finance and Human Resources functions.

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incentive forgone (evidence of forfeiture should be provided). Payments made in these circumstances will therefore not be included in the definition of “annual STI outcome” for the purposes of calculating the portion of an individual’s total award to be deferred, except where otherwise outlined (see section 8 Group Remuneration Policy - Variations for more details).

Managing Third Party Remuneration

5.8.3 All third parties are managed within the Group’s third party management policies, which provide minimum requirements for third party agreements with the Group. These minimum requirements align with the Group’s Risk Management Framework. Penalties apply where third parties do not comply with their agreements with the Group, including forfeiture of all or a portion of future commission streams or termination.

5.8.4 In addition, every final credit application established or referred by a third party, may only be approved by a Group employee. Group employees are subject to this Group Remuneration Policy, risk appetite statements, compliance frameworks and due diligence procedures.

Access to Remuneration Information

5.8.5 Access to remuneration information is generally restricted to those groups of employees who manage or report on remuneration as part of their role. Access is monitored, and reviewed annually.

Foreign Exchange

5.8.6 All currency amounts in this Group Remuneration Policy are in Australian Dollars unless otherwise indicated. In determining the application of any exchange rate, the relevant exchange rate (in line with the applicable Balance Sheet Foreign Exchange Rate Policy) will apply unless otherwise determined by the Executive General Manager Performance and Reward26.

26The relevant exchange rates are available from the Global Mobility and/or Performance and Reward team.

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6. GOVERNANCE AND REVIEW OF THIS GROUP REMUNERATION POLICY

6.1 The Board’s Remuneration Committee is responsible for reviewing the Group Remuneration Policy (including all supplement policies) at least annually, and recommending any changes to the Board for approval. This review will include an assessment of:

the application and effectiveness of the Group Remuneration Policy;

the impact of any legislative or regulatory changes impacting remuneration; and

the relevance of the Group Remuneration Policy in changing market conditions.

6.2 Compliance with this Group Remuneration Policy is monitored throughout the year and reported to the Remuneration Committee on a quarterly basis. Where required or requested, such monitoring and compliance reviews may be provided to the relevant regulator.

6.3 Under the relevant legislation or regulation, the relevant risk management and/or compliance function will have input into the annual review of the Group Remuneration Policy.

6.4 The Remuneration Committee assists the Board to fulfil its responsibilities to shareholders in relation to people and remuneration within the Group. The Remuneration Committee engages remuneration experts, who are independent of management, to advise on specific remuneration issues.

6.4.1 The Remuneration Committee is made up of independent NEDs and meets at least four times per year. The CEO and other guests may attend meetings by invitation, except where a conflict of interest may arise (for example, when items impacting them or their remuneration are being discussed).

6.4.2 The Remuneration Committee’s responsibilities are set out in the Remuneration Committee Charter, which is reviewed by the Board each year and posted on the Group’s internet site (see section 8.2).

6.4.3 Only the Remuneration Committee or the Board may engage an independent remuneration consultant to provide recommendations regarding remuneration elements or quantum for one or more Key Management Personnel27 (Remuneration Recommendations). The Chairman of the Remuneration Committee may then forward the advice (or not) to management if it is deemed appropriate.

6.4.4 Where there is any uncertainty whether any advice sought from an independent remuneration consultant constitutes a Remuneration Recommendation, the Chairman of the Remuneration Committee will be the arbiter, and failing that, the Chairman of the Board.

6.5 The Group Remuneration Policy will be provided to APRA or the relevant regulator on request. The remuneration framework forms part of a regulated institution’s risk management system as required under relevant APRA or Global Prudential/Regulatory Standard.

27 Key Management Personnel is defined in the Accounting Standards.

CBA.0001.0051.3521

CBA.0001.0051.3522


7. REMUNERATION APPROVAL DELEGATION FRAMEWORK The following framework sets out the levels of authority delegated by the Board to certain roles within CBA management to make remuneration decisions, in addition to approval of all remuneration arrangements by the Manager one removed (MoR). MoR approval is required for all individual remuneration arrangements.

Role/Remuneration item Parameter Consultation Approval1.2

1.

2.

3.

4.

5.

Roles requiring Board approval in RC (a) All remuneration including TPR, sign-on and any other payments or benefits. Remuneration Committee Charter

(a) Proposed Base Remuneration and/or TPR is above the benchmark range by up to 20% or by less than AUD 50,000 Head of BU Rem/ Exec

Other roles Base Rem and EGM BU HR

Remuneration and Total Potential (b) Proposed Base Remuneration and/or TPR is up to 50% and more than AUD 50,000 above the benchmark range3

EGM P&R via Head of Remuneration (TPR) BU Rem/ Exec Rem

(c) Proposed Base Remuneration and/or TPR is more than 50% and more than AUD 50,000 above the benchmark range3

Other roles sign-on (a) Proposed award is 50% or more of Base Remuneration AND less than AUD 500K Head of BU Rem/ Exec awards, retention (b) Proposed award is 50% or more of Base Remuneration AND neither (a) or (c) apply Rem and EGM BU HR4

awards and any other non-standard award (c) Proposed award is 150% or more of Base Remuneration AND greater than AUD 1 M EGM P&R +GE BU4

(a) New and/or materially amended5 incentive arrangements not covered by (b) or (c) EGM P&R via Head of BU Rem/ Exec Rem

(b) New or materially amended5 arrangements (as determined by EGM P&R) where the incentive plan: . distributes equity; Other roles Incentive . applies to a significant population (as determined by the EGM P&R); Schemes CEO . provides for individual payments that could exceed AUD 1 M; . provides for aggregate annual payouts that could exceed AUD 10M; or . varies from the requirements in the Group Remuneration Policy or Incentive Plan Design Policy

(c) Materially amended5 incentive plans under (b), where aggregate spend increase is less than 10%. EGM P&R

(a) Total assignment cost is between 20% to 50% above the standard cost projection7 under the Group's Global Mobility Head of BU Rem and

Other roles expatriate Policy Global Mobility

assignments

(b) Total assignment cost is more than 50% above the standard cost projection7 under the Group's Global Mobility Policy Head of BU Rem and Global Mobility

1. Approval shown 1s requred 1n addition lo MoR approval, 1f MoR ts less sen10fthan approver shown. 2. Executive General Manager and above amingemenls must be reviewed by Exec Rem when initialed and before approval. Additional approvals may be requred for Responsible Persons and Global employees. 3. The benchmark range means both the ranges fOf Base Remuneration and Total Potential Remuneration fOf the role, in line wilh the applicable job family framework Of individual market benchmark. 4. Perlonnance and Reward is consulted and is typically required lo endOfse any such awards. Where any such award is considered in jurisdiction outside of Australia consultation with the relevant Risk and Compliance team is recommended. 5. Materiality lo be determined as per Group Incentive Plan Design Policy. 6. CEO has aw011al delegation for CFSGAM profit share plans similar lo the eqlilies prolil share plans apprOlled in 2010. 7. Standard cost projection includes all aDowanceslbenefils and is inclusive of mandatory, recommended and optional ~ems. For further detail of all costs that fonn part of the standard cost projection, please refer lo EM Global Mobility.

KEY TERMS

CEO GEHR GE BU

EGMP&R Exec Rem

Chief Executive Officer Group Exewtive Human Resouires Group Exewtive of S...iness Unit Executive General M"1age< Petlormance & Reward Executive Rem\l'tef'ation & Governance T earn

Head ol BU Rem MoR

RC TPR

EGMBUHR EGMBU

Head of Business Unit Remuneration Manager One RelllO"ed (for administrative drect reports to GEs, t'1e GE HR is t'1e MoR) Remuneration Conmittee Total Potential Remunera1ion (comprising Fixed Remu..,.afun, STI potential and l TI target ij appficallle) Executive Ge..,.al Manage< Bus;ness Unit Human Resow<:es Executive Ge..,.al Manage< Bus;ness Unit (or equivalent)

Board

BU EGM

GE BU +GE HR

CEO

BU EGM

GE BU

CEO

GEHR GE BU

Board6

GEHR

EGMBU

GE BU

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8. RELATED POLICIES AND REFERENCES

8.1 Supplement Policies to the Group Remuneration Policy

Group Remuneration Policy - Variations

Termination Payments

APRA Regulated Sub-Entities Remuneration Governance Policy

8.2 Other Related Group Documents

Remuneration Committee Charter

(access via the internet at: www.commbank.com.au/about-us/shareholders/corporate-profile/corporate-governance/)

Group Incentive Plan Design Policy (available from Business Unit Remuneration teams)

Group Leadership Reward Plan (GLRP) (available from Employee Share Plan team)

Group Employee Rights Plan (GERP), Employee Share Plan (ESP), Group Rights Plan (GRP) and Employee Share Performance Unit Plan (ESPUP) rules (access via HR Intranet > Pay & Leave > Pay>Employee Share Plans)

Bankwest HR Policies (available from Bankwest Human Resources)

Group Securities Trading Policy (access via intranet: Group Services > Secretariat > Policies)

Group and Business Unit Risk Appetite Statements (access via intranet: Risk Management > Frameworks & Policies > Risk management framework > Risk appetite)

Commonwealth Bank of Australia Remuneration Reports (access via the internet at: www.commbank.com.au/about-us/shareholders/financial-information/annual-reports/)

Balance Sheet Foreign Exchange Rate Policy (available from Global Mobility team)

9. CONTACT

Melinda Dolph Executive Manager, Executive Remuneration & Governance Ann-Marie Ditchburn/Nicole Dobson Managers, Executive Remuneration & Governance

CBA.0001.0051.3523

Group Remuneration Policy - Royal Commission

Documents

Transcript of Group Remuneration Policy - Royal Commission