06 May 2009
ADDRESS BY PROFESSOR FRED HILMER AO
ANNUAL GENERAL MEETING OF WESTFIELD HOLDINGS LIMITED
AND MEETINGS OF MEMBERS OF
WESTFIELD AMERICA TRUST AND WESTFIELD TRUST
HELD ON WEDNESDAY 6 MAY 2009, 10.00AM
AT THE SOFITEL WENTWORTH HOTEL
61-101 PHILLIP STREET, SYDNEY
CHECK AGAINST DELIVERY
The Remuneration Committee spends considerable time each year on two essential tasks.
First, we formulate policies for the Group on all remuneration issues including the Groups equity linked incentive plans.
Secondly, we review proposals on the remuneration packages of the Senior Executive Team the top 20 executives in the Group – and make recommendations to the Board.
The Committees recommendations go to the full Board for endorsement.
The Group has well defined policies and governance processes which have been developed and applied consistently over the years. They are policies which reflect the working culture of the Group and its executive team.
Our remuneration policies must enable us to attract and retain the best executive talent from around the world. Westfield is a unique company. It is a global leader in its industry and the executives manage a global business from an Australian base. There are very few companies in Australia that can make a similar claim. Running a global business on the scale of the Westfield Groups business is far from easy. It demands a highly skilled, committed and flexible management team.
Over a long period, our executive team, has demonstrated the qualities and commitment which are required to get the job done even in difficult circumstances. The team is highly regarded not only by the Board, but by our competitors, our peers at home and abroad, and by the investment community and market commentators who regularly assess our performance
At Westfield, we measure the performance of our team against operational targets which are determined at the start of each year. Those targets relate to every aspect of the Groups business. Our focus is on creating and developing a business which delivers strong and sustainable returns to members over time and our performance targets reflect that.
We do not remunerate executives based on movements, up or down, in the Groups share price. We did not fall into that trap when the share price was rising and the same applies in a falling market. The Boards view is that executives should focus on driving the underlying business and not on the share price. If we encourage and reward sound operating performance and strategic decision making, members will be rewarded, over time, by superior share market performance.
How do we know that this philosophy is working? Operating performance is the best guide and we are very proud of our operating record over many years.
We get plenty of direct feedback from the global investment community which acknowledges the high standards Westfield has achieved over many years and the high regard in which the executive team is held.
The Committee also has access to independent reports which assess the performance of the executive team in a range of areas including the effectiveness of the CEO, the capability of the Senior Executive Team, the reliability of our predictions, our focus on enhancing shareholder wealth and the clarity of Groups long term growth strategy. In every one of those, your executive team ranks at or near the top when measured against other major Australian corporates.
We have not only been successful in attracting the top talent, we have been able to retain their services over a lengthy period. The average age of our Senior Executive Team is around 50 and the length of service is an average of approximately 11 years. This continuity is very important to our business.
Until recently, retention of our team has been a difficult business issue for the Group given the strong competition for top executive talent not only from our traditional competitors in Australia, but increasingly from the offshore markets where we operate and some of the developing markets in Asia and the Middle East. Our remuneration policies have enabled us to meet that challenge.
Apart from attracting and retaining talented executives, our other significant objective in setting remuneration policy is to align the interests of the Senior Executive Team with your interests as members.
We look to do this in a number of ways.
By adopting a standard remuneration package which incorporates a reasonable base salary with additional at risk rewards which are earned based on both personal performance and group performance, the Board believes that we properly incentivise our senior executives to achieve operating targets which are consistent with sustainable growth in shareholder wealth. The more senior the executive, the greater the proportion of his or her salary which is at risk and dependent on performance. We believe that is in your interests as members.
We also create a proper alignment between the Senior Executive Team and members by requiring that executives remain with the Group for up to 5 years before receiving the full value of their equity linked awards. This unusually long vesting period is a vital element in the retention of the Senior Executive Team.
Finally, the value of awards made to executives under the equity linked plans mirrors the performance of your securities on the ASX. If the share price falls, so do the value of the awards for the executive.
Those of you who have read the Remuneration Report will have noticed that the remuneration of the senior executives disclosed in the Report has reduced significantly in the current year as a consequence of the falling share price.
We are not happy that this has occurred but it does demonstrate an appropriate level of alignment between your interests as members and the remuneration of our Senior Executive Team.
The Committees recommendations to the Board are made with the benefit of independent expert advice and then we overlay commercial considerations on that.
In 2008, despite the unusually difficult operating environment, we recognised the extremely strong performance of the management team which the Chairman has already referred to and I wont repeat. However, I would remind members that there were very few reporting entities which achieved operating earnings growth in 2008 as Westfield was able to achieve. The Group forecast its full year distribution in January 2008 and delivered on that forecast at the end of the year.
However, when the Committee met in October/November, we were also conscious that the global environment was deteriorating and that it was likely that 2009 would be a difficult year.
On that basis, the Remuneration Committee and the Board decided to freeze remuneration for the Board and the Senior Executive Team at 2008 levels. This meant that (subject to only a couple of exceptions):
- There was no increase in Non-Executive Directors fees.
- The 2008 performance bonuses were kept at or below the level paid in 2007.
- There were no salary increases for the Senior Executive Team in 2009.
- The freeze for 2009 was also applied to potential performance bonuses for FY09 and to all equity-linked incentives.
In short, the remuneration of the Groups top 20 executives, including the Chairman and the Group Managing Directors, was frozen at the level paid in 2008.
As the Chairman has noted, 2009 is shaping as a challenging year. The Groups performance in the current climate will be a key factor considered by the Remuneration Committee and the Board when deciding performance bonuses for 2009 and the appropriate levels of remuneration for 2010. Those are decisions that will be taken in the usual cycle in October/November of this year.
Before closing, I would like to respond to comments made by one or two commentators regarding the level of Frank Lowys remuneration as Executive Chairman and Chief Executive Officer of the Group. It is not generally our practice to discuss or debate the remuneration of individual executives beyond what is disclosed in the Remuneration Report. However, in this case, I will make an exception.
Just as Westfield is a unique company, Frank Lowy is a unique CEO. Frank oversees a global business which is managed from Australia. After almost 50 years of growth, Frank leads a global property business which is the largest, by market capitalisation, in the world. Franks knowledge of the retail property industry and industry participants both locally and internationally, as well as his status as one of Australias most respected and influential Chief Executive Officers, is not in question.
Franks remuneration today reflects both his outstanding continuing contribution to the Group and his historical remuneration arrangements. His remuneration package consists largely of a base salary and a performance bonus.
Franks base salary has been steady at $8 million since 2005. His performance bonus in 2008 was $7 million, the same amount as was paid in 2007.
Frank has not participated in the Groups equity linked incentive plans for around 20 years. Given his very significant shareholding in the Group over that time, the Board has never been concerned by any lack of alignment between his remuneration and the interests of members.
When considering Franks position last year, the Committee had 3 options for his remuneration. To increase it, to leave it flat or to reduce it.
Given the current economic conditions and the general remuneration policy for the Senior Executive Team which I have already referred to, the Committee did not consider an increase was appropriate.
In the circumstances prevailing at that time and having regard to the performance of the management team in 2008, the Committee did not consider that a decrease in base salary or performance bonus was warranted or appropriate. In view of what the Group was able to achieve in extremely difficult market conditions, the Committee took the view that to reduce the CEOs remuneration would not have been a fair reflection of his performance or the Groups performance. Nor would it have been an appropriate message to send to investors, potential investors or market observers regarding the Boards view of the Groups performance in 2008.
Taking into account external advice, the Committee formed the view that it was appropriate to freeze Franks cash remuneration for 2008 at the same level as 2007. Based on the targets set at the end of 2007, Frank was entitled to a higher bonus, but it was agreed that, in keeping with the rest of the Senior Executive Team, that bonus should be frozen. Further, Franks salary and maximum performance bonus for 2009 have also been frozen at 2007 levels. A decision on his final performance bonus for 2009 will be made later this year in light of the market conditions prevailing at that time and the performance of the Westfield Group in 2009.
Remuneration issues involve difficult judgements and policy making. I hope what I have been able to convey is a message that Westfield has a sound remuneration process, an appropriate governance structure for dealing with these issues and a willingness to adjust to market circumstances as required. Our policies are designed to align the Groups remuneration practices with your interests as members. The fact that today we have in place a world class management team and that we are navigating through these unusually difficult times far better than the industry as a whole is the best evidence that the policies are working.
We believe there is a high level of shareholder support for a remuneration philosophy which focuses on the long term and on pay for performance. We hear it in our face to face meetings with investors and it is evident today in the very high vote in favour of the Remuneration Report.