Page 148 - Annual Report 2020

Remuneration component
and link to strategy Operation and performance framework Maximum (1)
LTIP Relative TSR performance condition Maximum award
The purpose of the LTIP is to focus • The LTIP award is conditional on achieving five-year relative TSR performance Face value of 200%
(3)
the CEO’s efforts on the achievement conditions as set out below. of base salary. (6)
of sustainable long-term value • The relevant comparator group(s) and the weighting between relevant
creation and success of the Group comparator group(s) will be determined by the Committee in relation
(including appropriate management to each LTIP grant.
of business risks).
It also encourages retention through Level of performance required for vesting
long-term share exposure for the • Vesting of the award is dependent on BHP’s TSR relative to the TSR of relevant
CEO over the five-year performance comparator group(s) over a five-year performance period.
period (consistent with the long-term • 25% of the award will vest where BHP’s TSR is equal to the median TSR of
nature of resources), and aligns the relevant comparator group(s), as measured over the performance period.
the long-term interests of the CEO Where TSR is below the median, awards will not vest.
and shareholders. • Vesting occurs on a sliding scale between the median TSR of the relevant
(4)
The LTIP aligns the CEO’s reward comparator group(s) up to a nominated level of TSR outperformance
with sustained shareholder wealth over the relevant comparator group(s), as determined by the Committee,
creation in excess of that of relevant above which 100% of the award will vest.
comparator group(s), through the • Where the TSR performance condition is not met, there is no retesting and
relative TSR performance condition. awards will lapse. The Committee also retains discretion to lapse any portion
Relative TSR has been chosen or all of the award where it considers the vesting outcome is not appropriate
as an appropriate measure as given Group or individual performance. This is an important mitigation against
it allows for an objective external the risk of unintended outcomes.
assessment over a sustained Further performance measures
period on a basis that is familiar • The Committee may add further performance conditions, in which case the
to shareholders. vesting of a portion of any LTIP award may instead be linked to performance
against the new condition(s). However, the Committee expects that in the
event of introducing an additional performance condition(s), the weighting
on relative TSR would remain the majority weighting.
Delivery of award
• LTIP awards are provided under the LTIP approved by shareholders at the 2013
AGMs. When considering the value of the award to be provided, the Committee
primarily considers the face value of the award, and also considers its fair value
which includes consideration of the performance conditions. (5)
• LTIP awards consist of rights to receive ordinary BHP shares in the future if
the performance and service conditions are met. Before vesting (or exercise),
these rights are not ordinary shares and do not carry entitlements to ordinary
dividends or other shareholder rights; however, a DEP is provided on vested
awards. The Committee has a discretion to settle LTIP awards in cash.
Underpin, malus and clawback
• If the specified performance conditions are satisfied in part or in full, to
ensure any vesting of LTIP awards is underpinned by satisfactory performance
through the performance period, the vesting will be subject to an underpin.
This will encompass a holistic review of performance at the end of the
five-year performance period, including a five-year view on HSEC performance,
profitability, cash flow, balance sheet health, returns to shareholders,
corporate governance and conduct.
• LTIP awards are subject to malus and clawback in section 3.2.2.
(1) UK regulations require the disclosure of the maximum that may be paid in respect of each remuneration component. Where that is expressed as a maximum annual
percentage increase that is annualised it should not be interpreted that it is BHP’s current intention to award an increase of that size in total in any one year, or in each
year, and instead it is a maximum required to be disclosed under the regulations.
(2) Pension contributions maximum column wording has been updated to reflect the leadership transition of Executive Director and CEO on 1 January 2020 and the
current application of policy with respect to pension contribution rate for Mike Henry. The FY2019 remuneration report policy table wording reflected the application
of Andrew Mackenzie’s contribution rate: ’For the existing CEO, the current pension contribution rate of 25 per cent of base salary will reduce as follows: 25 per cent
of base salary to 30 June 2020; 20 per cent of base salary from 1 July 2020; 15 per cent of base salary from 1 July 2021; 10 per cent of base salary from 1 July 2022
onwards. For a new appointment, the pension contribution rate will be 10 per cent of base salary immediately.’
(3) BHP’s TSR is a weighted average of the TSRs of BHP Group Limited and BHP Group Plc.
(4) Maximum vesting is determined with reference to a position against each comparator group.
(5) Fair value is calculated by the Committee’s independent adviser and is different to fair value used for IFRS disclosures (which do not take into account forfeiture
conditions on the awards). It reflects outcomes weighted by probability, taking into account the difficulty of achieving the performance conditions and the correlation
between these and share price appreciation, together with other factors, including volatility and forfeiture risks. The current fair value is 41 per cent of the face value
of an award, which may change should the Committee vary elements (such as adding a performance measure or altering the level of relative TSR outperformance).
(6) In order to ensure there is a fair transitional outcome for participants, the LTIP grant made in late CY2019 was based on 400 per cent face value basis in accordance
with the remuneration policy approved by shareholders in 2017, with potential vesting five years later in mid-CY2024. The first five-year deferred shares that result
from performance under the CDP for FY2020 will be granted in late CY2020 and will first vest five years later in mid-CY2025. The LTIP grant to be made in late
CY2020 will be made on the reduced 200 per cent face value basis, with potential vesting five years later also in mid-CY2025.
The Remuneration Committee’s discretion in respect of each remuneration component applies up to the maximum shown in the table
above. Any remuneration elements awarded or granted under the previous remuneration policy approved by shareholders in 2014 and
2017, but which have not yet vested or been awarded or paid, shall continue to be capable of vesting, awarded or payment made on their
existing terms.
3.2.2 Malus and clawback
The CDP, LTIP and STIP rule provisions allow the Committee to reduce or clawback awards in the following circumstances:
• the participant acting fraudulently or dishonestly or being in material breach of their obligations to the Group
• where BHP becomes aware of a material misstatement or omission in the Financial Statements of a Group company or the Group
• any circumstances occur that the Committee determines in good faith to have resulted in an unfair benefit to the participant
These malus and clawback provisions apply whether or not awards are made in the form of cash or equity, whether or not the equity
has vested, and whether or not employment is ongoing.

146 BHP Annual Report 2020