Overview CITIGROUP PTY LIMITED (CPL) - APS 330 REMUNERATION DISCLOSURE YEAR ENDED 31 DECEMBER 2016 The following remuneration disclosures have been prepared in line with the prudential standard APS 330 Public Disclosure (APS 330) and Citigroup Pty Limited s (CPL) Board approved policy. The Australian Prudential Regulation Authority s (APRA s) prudential disclosures require all Authorised Deposit-taking Institutions (ADIs) meet the minimum requirements for public disclosure of qualitative and quantitative information of their remuneration practices. The qualitative remuneration disclosures cover all individuals included in the CPL Remuneration Policy, as outlined in prudential standard CPS 510 - Governance. The quantitative information relates to senior managers and material risk takers of CPL for the year ended 31 December 2016. Senior Managers for the purpose of this disclosure are the responsible persons of CPL, other than the nonexecutive directors and auditors, as defined in paragraph 19 of APRA s prudential standard CPS 520 Fit and Proper. The following employees were included: Chief Executive Officer (CEO); senior employees who report to the CEO and have direct responsibility for CPL s business; and senior employees responsible for certain corporate functions within Citi Australia, including Finance, Compliance, Risk Management, Legal, Operations and Technology, and Treasury. Material risk takers of CPL are defined as persons for whom a significant portion of total remuneration is based on performance and whose activities, individually or collectively, may affect the financial soundness of CPL. All CPL s material risk takers are included in the senior manager category of this disclosure. There were 22 individuals identified as senior managers and material risk takers for the 2016 disclosure. 1. Remuneration Governance 1.1 Remuneration Committee The CPL Board of Directors (Board) is responsible for remuneration governance. It has established the CPL Remuneration Committee (Committee), in compliance with the prudential requirements of APRA, to make recommendations to the Board regarding remuneration for senior executives and other employees, who either individually or collectively may materially impact CPL s performance and affect its financial soundness; and who have the potential negatively to impact upon the level of risk considered acceptable by CPL. As at 31 December 2016, the Committee consists of the following independent non-executive directors: Belinda Gibson, Ian Hammond, Samantha Mostyn, and Ian Watt (Chairman). Frank Ford ceased to be a member of the Board as at 31 May 2016. The Committee s key responsibilities are described in its Charter which is reviewed annually by the Board. Although the Committee makes recommendations, the Board retains discretion to adjust performance-based components of remuneration to reflect the outcomes of business activities, the risks relating to those activities and the time necessary for the outcomes of the business activities to be reliably measured. This includes adjusting variable components of remuneration downwards (to zero if appropriate) to protect the financial soundness of CPL or to respond to significant, unexpected or unintended consequences that were not foreseen by the Board. The Committee seeks to ensure that the Remuneration Policy continues adequately to support CPL s overall risk management framework. The Committee may seek advice from independent advisers or experts, including remuneration consultants where necessary, in the performance of its duties and responsibilities. No remuneration recommendations were obtained from external advisers or consultants during 2016. Citigroup Pty Limited APS 330 Remuneration Disclosure 1
The Committee met eight times during the 2016 financial year. The Chairman of the Board attends Committee meetings and receives no additional payment for this. The fees paid to the Committee during 2016 are set out below: Financial year 2016 Committee members 4 Meetings 8 Total fees including the Committees members and Committee Chairman¹ A$575,833 ¹ Committee members receive a fixed non-executive director s fee covering their separate roles as Directors of the Board including their membership of Board Committees. No additional fees are paid for serving on Board committees. 1.2 Citi s Remuneration strategy As an indirect wholly-owned subsidiary of Citigroup Inc.(Citi), CPL adopts Citi s Compensation Philosophy and global remuneration framework. This philosophy applies across the firm globally. CPL acknowledges the Final Guidance on Sound Incentive Compensation Policies (the Guidance) issued in June 2010 by the Federal Reserve and other major U.S. government offices. The Guidance is principles-based, and seeks to eliminate imprudent risk taking by bank employees through requiring "risk balanced" variable remuneration. With a goal of best practice in governance which is also responsive to the Guidance, Citi has implemented and continuously enhances its risk-balanced framework for variable remuneration. The objectives of the global framework are integrated in CPL s Remuneration Policy and performance management practices, and are consistent with Citi s risk management framework. The remuneration framework fulfils several primary objectives as shown below. Align compensation programmes, structures and decisions with shareholder and other stakeholder interests; Reinforce a business culture based on the highest ethical standards; Manage risks to Citi by encouraging prudent decision-making; Reflect regulatory guidance in compensation programmes; and Attract and retain the best talent to lead the company to success. A full overview of Citi s Compensation Philosophy is available on Citi s website at http://www.citigroup.com/citi/investor/data/comp_phil_policy.pdf?ienocache=247 2. Remuneration Policy and Framework The CPL Remuneration Policy provides a governance framework for the structure and operation of remuneration. The objective of CPL's Remuneration Policy is to ensure that the remuneration framework and practices are prudent, balanced and aligned to responsible finance objectives, by encouraging behaviour that supports CPL s long-term financial soundness and its risk management framework. CPL leverages Citi's global remuneration framework to satisfy the APRA Prudential Standard CPS 510 - Governance requirements, and is considered appropriate in the local context. The key components of CPL s remuneration framework include: Fixed Annual Remuneration (FAR) consists of base salary, superannuation, and salary sacrificed benefits; Variable Remuneration - Discretionary Incentive and Retention Award Plan (DIRAP) and Variable Incentive Compensation (VIC) plans; Performance Management Framework the review, measurement and assessment of performance with reference to clear and relevant goals, business results, including adherence to Citi s risk and compliance requirements. This assessment informs variable remuneration awards; Adjustments to Performance Based Components; and Hedging of Unvested Equity. Citigroup Pty Limited APS 330 Remuneration Disclosure 2
The CPL Remuneration Policy is reviewed annually by the Committee and the Board, with the last review completed in November 2016. There have been no material changes to Citi s remuneration framework or policy during 2016. CPL has no foreign subsidiaries or branches. The CPL Remuneration Policy is only applicable in Australia. 3. Aligning remuneration with risk management CPL s remuneration framework aims to: enhance shareholder value through the practice of responsible finance; facilitate competitiveness by attracting and retaining the best talent; promote meritocracy by recognising employees contributions; and manage risk through sound variable remuneration practices. 3.1 Determination of global bonus pools CPL s senior managers and material risk takers participate in an annual variable bonus pool - Discretionary Incentive and Retention Award Plan (DIRAP). Bonus pools are determined and risk adjusted at a global level based on a review of a number of factors, including the achievement of financial and non-financial objectives. 3.2 Individual performance and risk assessment in award determination Part of Citi's framework for delivering risk-balanced variable remuneration is formally to document a summary of an employee s overall performance which provides the rationale for the variable remuneration award. This process is based on a rating methodology which is embedded in the annual performance management review. The performance assessment of all employees is based on individually tailored goals and an overarching goal of responsible finance, being ethical conduct that is transparent, prudent and dependable. The responsible finance part of the assessment incorporates risk and compliance behaviours. To strengthen the link between performance and prudent risk taking, senior managers and material risk takers were cascaded an additional risk based goal, designed to measure specific risk management behaviours, which formed a part of their 2016 objectives. The table below shows the key risks and measures for the 2016 year, which are updated periodically to ensure compliance with legislative standards and alignment with CPL s risk appetite. There has been no change to these measures during the reporting period. Risks Measures of risk Review of the measures Operational Risk Audit findings Operational risk measures are reviewed Fraud losses regularly and reported to management. Business Disruption & System Failure Issues are escalated within Citi's regional Business Continuity and global Operational Risk Management IT Security function and to management for action. Business practices Escalation responses Control breaches and near misses Financial Risk, including credit risk, market risk and liquidity risk Compliance with Citi s specified trigger limits for key credit, liquidity, funding, rate of return, earnings volatility, target debt rating, capital and market risk Citi manages credit, liquidity and market risks continuously, including comparison of historical performance indicators and stress testing. limits. Regular review of authority levels, delegations and approval limits. Regular governance review of key risk functions. Compliance Risk Audit findings Compliance measures are reviewed Completion of mandatory compliance regularly and reported to internal training Review of regulatory compliance breaches and near misses Citigroup Pty Limited APS 330 Remuneration Disclosure 3 management. Issues are escalated immediately to management and within Citi's regional and global Compliance function.
The remuneration framework is intended to complement effective risk management controls by reducing incentives to create imprudent risks for CPL and its businesses, and by rewarding a thoughtful balance of risk and return. Risks may be balanced through "ex-ante" or "ex-post" adjustments to variable remuneration: ex-ante adjustments are made before the grant of variable remuneration (such as using risk-adjusted metrics to evaluate performance); and ex-post adjustments are made after the grant (e.g. deferral periods, performance-based vesting, and clawbacks). Furthermore, CPL ensures that risk and financial control employees are remunerated independently of the businesses they oversee, as follows: Employees engaged in control functions have direct reporting lines within their own function that are separate from the business, and that are responsible for the reward of those employees, in terms of variable remuneration, salary increases and promotion. The control functions are each allocated a variable remuneration pool that is separate from the revenue generating businesses, and decisions about allocations from those pools are made within the relevant control functions themselves. Both fixed and variable remuneration for the control functions is regularly reviewed in line with external market data to gauge market positioning and competitiveness. The level of variable remuneration for control function employees is determined by reference to performance against objectives that are set and assessed within their respective functions. 4. Deferral and clawback CPL seeks to balance the need to remunerate its employees fairly and competitively (based on their contribution to group and individual performance) in order that remuneration is aligned with effective risk management principles, and performance metrics that reward long-term contributions to sustained profitability. CPL s remuneration consists of Fixed Annual Remuneration (FAR) and variable remuneration (a mix of immediate cash, deferred shares and deferred cash award). The variable remuneration structure under the Discretionary Incentive and Retention Award Plan (DIRAP) is inclusive of deferral for all employees who meet the parameters set out in the table below. Deferred amounts of variable remuneration are subject to potential clawback to encourage a longer term focus. Total Variable Remuneration (USD or local currency equivalent) Immediate Cash¹ Deferred Shares¹ Deferred Cash¹ 50,000-99,999 90% - 10% 100,000-499,999 75% 12.5% 12.5% 500,000-999,999 70% 15% 15% 1,000,000-1,999,999 65% 17.5% 17.5% 2,000,000-3,999,999 60% 20% 20% 4,000,000-4,999,999 50% 25% 25% 5,000,000+ 40% 30% 30% ¹ The vesting schedule of deferred awards is four years, with 25% vesting on each anniversary. Designated Senior Managers in higher risk categories are subject to greater deferral arrangements. For the 2016 performance year, six Senior Managers were awarded a mix of 60% immediate cash, 20% deferred shares, and 20% deferred cash. Deferred shares awarded to Senior Managers are subject to formulaic Performance Based Vesting (PBV). Citi globally applies the PBV condition before any tranche of deferred shares vests. The trigger for application of a PBV reduction of a tranche of unvested deferred shares is the emergence of pre-tax losses in the relevant business of the individual. If there are pre-tax losses in the relevant business, a portion of the deferred shares tranche is forfeited; the proportion of which is based on the extent of the losses and prior year s net profits. Citigroup Pty Limited APS 330 Remuneration Disclosure 4
Deferred cash awarded to Senior Managers is subject to discretionary performance based vesting adjustments. Citi globally applies a Material Adverse Outcome (MAO) condition before any award of deferred cash vests. If it is determined that a MAO has occurred with respect to a business activity, and that a given employee is deemed to have had significant responsibility for that MAO, then a discretionary reduction may be made to the unvested portion of any deferred cash award. Determinations of when a MAO has occurred, which (if any) employees have significant responsibility for the MAO, and what reductions to awards will be made, are all based on the relevant facts and circumstances. At CPL s discretion, the unvested deferred portion of prior and future awards may also be subject to adjustment. Employees who receive awards of both deferred shares and deferred cash are subject to the following additional adjustment provisions: (a) Deferred Shares clawback: Where the employee received the award based on materially inaccurate audited publicly reported financial statements; or Where the employee knowingly engaged in providing materially inaccurate information relating to audited publicly reported financial statements; or Where the employee materially violated any risk limits established or revised by senior management and/or risk management; or Where the employee engaged in gross misconduct. (b) Deferred Cash clawback: Where the employee engaged in behaviour constituting misconduct or exercised materially imprudent judgement that caused harm to any of Citi s business operations, or that resulted or could result in regulatory sanctions; or Where the employee failed to supervise or monitor individuals engaging in, or failed properly to escalate behaviour constituting, misconduct (whether or not gross misconduct) in accordance with Citi s policies regarding the reporting of misconduct, or the participant exercised materially imprudent judgement that caused harm to any of Citi s business operations; or Where the employee failed to supervise or monitor individuals engaging in, or failed properly to escalate, behaviour that resulted or could result in regulatory sanctions. Certain Senior Managers are subject to an additional global independent risk review process under which the control functions (i.e. Compliance, Finance, Risk, Internal Audit and Legal) provide an evaluation of each individual s risk behaviour. The global independent risk review process is included in the performance evaluation system to inform the performance review. Citigroup Pty Limited APS 330 Remuneration Disclosure 5
5. Quantitative remuneration disclosure The following tables have been prepared in accordance with the quantitative requirements outlined in APS 330. Table a) provides a breakdown of the values of fixed and variable remuneration for senior managers and material risk takers for the year ended 31 December 2016. Table b) provides a summary of deferred cash and equity-based remuneration, including total outstanding awards, and those that vested during the 2016 financial year, including any reductions due to ex-post explicit and implicit adjustments. a) Total value of remuneration awards 2016 2015 Total value of remuneration awards Unrestricted Deferred Unrestricted Deferred Fixed Remuneration (non-deferred) A$ A$ A$ Cash-based 1 7,386,345 6,800,192 - Shares and share linked instruments - - - Other 2 1,058,195 213,415 - Variable Remuneration Cash-based (non-deferred) 3 4,962,376 3,857,002 - Shares and share linked instruments (deferred) Shares 4 Cash 4 - - 1,895,269 666,755 ¹ Represents actual fixed remuneration received, including employer superannuation contributions and salary sacrificed benefits. Year-on-year movements in remuneration were impacted by changes in role incumbents, and pro-rated remuneration for part-year. - - 938,293 956,368 ² Includes annual leave and long service leave accruals, termination payments and additional salary payments in relation to relocation costs. A total of four senior managers and material risk takers exited CPL during the 2016 financial year, with termination payments totalling $791,270, as per contractual arrangements.. ³ This value represents the cash award earned under the DIRAP for 18 of 22 senior mangers and material risk takers during the 2016 financial year. There was one guaranteed cash bonus paid totalling $1,885,740. ⁴ Variable remuneration (shares and cash) awarded in 2016. These awards are subject to a deferred vesting period, performance conditions and clawback. There was one guaranteed bonus awarded in deferred shares totalling $1,257,160. b) Deferred remuneration 2016 2015 Deferred 1 Deferred 1 Outstanding Remuneration A$ A$ Cash-based 2,435,084 2,374,135 Shares and share linked instruments 3,672,284 3,368,458 Other Cash In Lieu of Equity 2 737,537 25,582 Total outstanding deferred remuneration which vested during the 2016 financial year Deferred Cash 3 Shares Total amount of reductions during the 2016 financial year due to ex-post explicit adjustments Total amount of reductions during the 2016 financial year due to ex-post implicit adjustments 969,026 1,345,996 677,597 1,646,575 - - - - ¹ All deferred remuneration is exposed to ex-post explicit and implicit adjustments. This includes the sum of all outstanding deferred cash equity awards as at 31 December 2016. ² Equity buy-out from previous employer. ³ Includes interest accrued in relation to deferred cash awards vested during 2016. Citigroup Pty Limited APS 330 Remuneration Disclosure 6