Page 156 - Annual Report 2020

3.3.4 LTIP allocated during FY2020

Following shareholder approval at the 2019 AGMs, LTIP awards (in the form of performance rights) were granted to Mike Henry (in his role
as President Minerals Australia) and Andrew Mackenzie (in his role as CEO) on 20 November 2019. The first LTIP grant to be made to Mike
as the new CEO under the terms of the remuneration policy approved by shareholders in 2019 will be awarded in late CY2020 and will
be made on the reduced 200 per cent of base salary (face value).
The face value and fair value of the awards granted on 20 November 2019 are shown in the table below. The face value of Mike’s award is
350 per cent of his base salary of US$1.100 million at the time of grant. The face value of Andrew’s award is 400 per cent of his base salary
of US$1.700 million.
The fair value of the awards is ordinarily calculated by multiplying the face value of the award by the fair value factor of 41 per cent (for the
current plan design, as determined by the independent adviser to the Committee). The number of LTIP awards for both Mike and Andrew
as detailed below was determined based on the US$ face value of the LTIP awards and calculated using the average share price and
US$/A$ exchange rate over the 12 months up to and including 30 June 2019.
Number of Face value Face value Fair value Fair value
LTIP awards US$(‘000) % of salary US$(‘000) % of salary % of max (1)
Mike Henry 153,631 3,850 350 1,579 144 100
Andrew Mackenzie 271,348 (2) 6,800 400 2,788 164 100
(1) The allocation is 100 per cent of the maximum award that was able to be provided under the remuneration policy approved by shareholders at the 2019 AGMs.
(2) Subsequently reduced to 40,702 awards on a pro rata basis for time served.
Terms of the LTIP award
In addition to those LTIP terms set in the remuneration policy for the CEO approved by shareholders in 2019, the Remuneration Committee
has determined:
Performance period • 1 July 2019 to 30 June 2024
Performance conditions • An averaging period of six months will be used in the TSR calculations.
• BHP’s TSR relative to the weighted median TSR of sector peer companies selected by the Committee (Peer Group TSR)
and the MSCI World index (Index TSR) will determine the vesting of 67% and 33% of the award, respectively.
• Each company in the peer group is weighted by market capitalisation. The maximum weighting for any one company
is 25% and the minimum is set at 0.4% to reduce sensitivity to any single peer company.
• For the whole of either portion of the award to vest, BHP’s TSR must be at or exceed the weighted 80th percentile of the
Peer Group TSR or the Index TSR (as applicable). Threshold vesting (25% of each portion of the award) occurs where
BHP’s TSR equals the weighted 50th percentile of the Peer Group TSR or the Index TSR (as applicable). Vesting occurs
on a sliding scale between the weighted 50th and 80th percentiles.
Sector peer group • Resources (85%): Anglo American, Fortescue Metals, Freeport-McMoRan, Glencore, Rio Tinto, Southern Copper,
companies (1) (2) Teck Resources, Vale.
• Oil and gas (15%): Anadarko Petroleum , Apache, BP, Canadian Natural Res., Chevron, ConocoPhillips, Devon Energy,
(3)
EOG Resources, ExxonMobil, Occidental Petroleum, Royal Dutch Shell, Woodside Petroleum.
(1) From December 2016, BG Group and Peabody Energy were removed from the comparator group. BG Group was acquired by Royal Dutch Shell and Peabody Energy
had become a significantly less comparable peer.
(2) From November 2018, CONSOL Energy was removed from the comparator group, as due to its internal restructuring it had become a less comparable peer.
(3) Anadarko Petroleum was acquired by Occidental Petroleum in August 2019.
3.3.5 Overarching discretion and vesting underpin

The rules of the CDP, LTIP and STIP and the terms and conditions of the awards give the Committee an overarching discretion to reduce
the number of awards that will vest, notwithstanding the fact that the performance condition for partial or full vesting, as tested following
the end of the performance period, or the relevant service conditions, have been met.
This holistic, qualitative judgement, which is applied as an underpin test before final vesting is confirmed, is an important risk
management tool to ensure vesting is not simply driven by a formula or the passage of time that may give unexpected or unintended
remuneration outcomes.
The Committee considers its discretion carefully each year. It considers performance holistically over the five-year period, including a
five-year ’look back’ on HSEC performance, profitability, cash flow, balance sheet health, returns to shareholders, corporate governance
and conduct.
Having undertaken this review, the Committee considered its discretion in respect of equity awards due to vest in August 2020.
In respect of the STIP two-year deferred shares (granted in November 2018 in respect of performance in FY2018), the Committee chose
not to exercise its discretion and allowed the STIP awards to vest in full. In respect of the LTIP five-year performance shares (granted
in December 2015), the formulaic outcome of the 2015 LTIP was a 48 per cent vesting. Having undertaken the ‘look back’ review, the
Committee concluded the vesting outcome was appropriate given Group and individual performance, and chose not to exercise its
discretion and allowed 48 per cent of the LTIP awards to vest. There is no upwards discretion available to the Remuneration Committee
in respect of the LTIP, as the overarching discretion may only reduce the number of awards that may vest.

154 BHP Annual Report 2020