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Commonwealth Bank of Australia

AGENDA FOR THE 203rc1 MEETING OF THE REMUNERATION COMMITTEE TO BE HELD ON TUESDAY, 11JULY2017 AT 4.00PM

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AGENDA ITEMS

4.00pm - 4.0Spm 5 mins

4.05pm -4.10pm 5 mins

4.10pm - 4.15pm 5 mins

4.1 Spm - 4.20pm 5 mins

4.20pm - 4.30pm 10 mins

4.30pm - 4.45pm 15 mins

4.45pm -5.00pm 15 mins

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Committee Matters

• Minutes of the 202nd Meeting of the Remuneration Comm ittee held on Sunday, 4 June 2017

• Matters Arising

1. APRA Review of Remuneration Practices Presented by David Abusah

2. Remuneration Arrangements for Responsible Persons Presented by David Abusah

3. Employee Equity Plan Rule Changes Presented by David Abusah

4. Final FY17 Short Term Variable Remuneration Pools Presented by Ian Narev

5. Final Draft of the 2017 Remuneration Report and Draft 2017 Notice of Meeting Remuneration Content Presented by David Abusah

6. FY18 Executive Remuneration Strategy Review Presented by David Abusah

7. Preliminary FY17 Group Executive Remuneration Review Presented by Ian Narev

GENERAL BUSINESS Date of Next Meeting

Monday, 7 August 2017 - Sydney

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CONFIDENTIAL

Commonwealth Bank of Australia

Remuneration Committee 11 July 2017

Last Submitted: 4 June 2017

Paper No. 7

Preliminary FY17 Group Executive Remuneration Review

1. Purpose and Value at Stake

CBA.1004.0041 .2652

1.1 . At its June meeting, the Committee reviewed my initial high level recommendations on FY17 performance and remuneration outcomes for current and former Group Executives (GEs). The initial recommendations did not yet include adjustments for risk and reputation issues, and this is an area in which the Comm ittee provided specific guidance.

1.2. The paper recommendations include adjustments for risk and reputation issues, based inter alia on Committee feedback, for discussion ahead of a formal approval recommendation to the Board in August.

1.3. Whilst the recommendations in this paper are now well advanced, they may still change before final recommendations are made in August, as the Group's financials for FY17 are final ised, and final customer satisfaction outcomes are released. Any such adjustments are likely to be minor.

2. Outcome Sought and Recommendation 2.1. It is recommended that the Committee: 2.1.1 . considers the following remuneration outcomes for GEs outlined in this paper,

taking into account performance, risk and reputation issues discussed at its June meeting:

2.1.1.1. FY17 Short-Term Variable Remuneration (STVR) outcomes (Attachment A); 2.1.1.2. FY18 fixed remuneration, STVR and Long-Term Variable Remuneration (L TVR)

targets (Attachment B); and 2.1.2. provides guidance as to whether reductions should apply to the following

awards after consideration of any risk and reputation issues: 2.1.2.1. deferred STVR outcomes vesting on 1 July 2017 (Attachment C); and I or 2.1.2.2. the number of reward rights that will vest, subject to the achievement of

performance hurdles determined in August for the L TVR award that reaches the end of its performance period on 30 June 2017 (Attachment D).

3. Remuneration outcomes for FY17 3.1. The key areas of guidance provided by the Comm ittee related to adjustments to

risk and reputation issues, and the range of outcomes across the team. 3.2. FY17 STVR recommendations for each GE, including risk adjustments in line

with the discussion at June Remuneration Committee, and subject to f inal customer satisfaction outcomes, are set out in Attachment A.

3.3. The Group has a thorough process, involving this Committee, the Risk Committee and the whole board, for identifying risk and reputation issues that

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occurred during the financial year that warrant adjustments to performance­related remuneration. The quantum of those adjustments is a matter of judgement, rather than an analytic exercise. We do look at precedents, both internal and external, though external examples can be hard to find, and comparisons are inevitably difficult because all relevant facts are generally not in the public domain. But ultimately, the recommendations in this paper are based on judgement as to:

• the impact of the relevant issue on the Group's reputation, or performance in relation to any group of stakeholders;

• whether a specific decision by the relevant executive, or action contrary to the Group's values or reasonable management practice, contributed to the issue;

• whether a specific decision or inquiry by the relevant executive that could have avoided the issue or mitigated its impact should reasonably have been made, and was not made (having regard to the risks of making th is assessment with the benefit of hindsight);

• whether, once the executive became aware of the issue, he or she acted in accordance with the high standards we expect in relation to escalation, mit igation and overall accountabi lity;

• whether the issue is part of a pattern in the relative executive's area of accountability and/or personal behaviour; and

• the reasonable expectations of customers, colleagues, investors, regulators and the broader community in terms of appropriate consequences.

3.4. It should be noted that where issues have P&L consequences, no adjustments have been made to group and business unit NPAT and PACC outcomes to offset those consequences. So in those cases, there is already some (though not necessarily sufficient) direct flow-through into variable rewards.

3.5. These recommendations have regard to the feedback from the June Comm ittee meeting in the following manner:

• In respect of the issue relating to long outstanding items, I have taken the view that there is collective accountability for the Executive Committee as a team. I have therefore changed all risk rating recommendations from the Chief Risk Officer that were "fully met" to "partially met", and appl ied an across the Board reduction of 10% for all Group Executives.

• In respect of control weaknesses relating to anti-money laundering and counterterrorism financing regulation, I have deducted a further 10% for the Group Executives of RBS, BPB, IB&M and the CFO, and a further 5% for the GE IFS based on information currently available. I have not included the Chief Risk Officer or the Group Executive of Group Corporate Affa irs in this group given their newness to their roles. I note that there is some overlap here between this issue and the broader controls issue referred to above. I also note that we will revisit the adequacy of this adjustment as the regulatory implications become clearer during the course of the current f inancial year.

• In respect of the on-going service fees issue in Wealth Management, there have already been significant P&L effects that have impacted the PACC and NPAT outcomes for the division. However, in light of the on-going control

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weaknesses in relation to service fees and the reaction of management to the audit within that business, I have made a further 20% adjustment to the Group Executive's outcome. I note here that she did not have specific knowledge of the ongoing control weakness, nor did she personally act inappropriately in relation to the audit. However, she has ex officio accountability, and in th is instance I have weighted external expectations highly.

• In respect of the weaknesses in controls and effectiveness within Enterprise Services that were identified by APRA and internal audit, I have made a further 25% adjustment to the Group Executive's outcome. I note there that there is some overlap with the broader controls issue referred to above, since many of these controls require a partnership with one or more business unit. I also note that I have to some extent taken this into account in a low assessment of business performance for Enterprise Services.

• For matters related to the mandatory sharing policy issue, I have deducted a further 5% from the GE IFS which I will discuss further at the meeting.

3.6. Attachment B sets out the proposed FY18 fixed remuneration, STVR and L TVR targets (where applicable) for GEs. My recommendation is that no Group Executives receive increases to fixed remuneration for FY18, with the possible exception of Melanie Laing. I have noted that in respect of her, the recommendation is still to be decided, following a review of further market data. I will make my final recommendation in August, and it will not exceed 2.5%.

3.7. Attachment C sets out the deferred STVR awards for current and former GEs that are subject to Board risk review prior to payment I vesting on 1 July 2017.

3.8. Attachment D sets out the maximum number of reward rights for the FY14 L TVR award that reaches the end of its four year performance period on 30 June 2017. The actual number of reward rights that vest will be determined in August subject to performance outcomes. However it is recommended that the Committee consider if any further reductions should apply following consideration of any risk and reputation issues.

3.9. I will provide a verbal update regarding my recommendations for the remuneration vesting for former executives at the meeting.

4. Accountabilities and next steps 4.1. In August the Committee will recommend to the Board for approval the final

remuneration outcomes for GEs including L TVR vesting outcomes.

4.2. Following final Board approval, the FY17 remuneration review outcomes will be communicated to the GEs.

4. 3. Detai ls of FY17 STVR payments will be publ ished in the 201 7 CBA Annual Report on 14 August 2017.

Ian Narev Chief Executive Officer

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Attachment A - FY17 GE Preliminary SlVR outcomes including risk adjustments

-_ ....... -. . ·~· .. ""- --· . - ... :.r••• -- -m - ·- ._...... .... . . ,_ - 6 .. I~• ... , .... .. - .. IF. t • . . . - - - ' . -

~ -----.-- • ... . .. ,. ... . .. , . -.. ...- -

Kelly Bayer Rosmarin Partially Met We• Demons trated AUD 1,050,600 118% 79% AUD 1,239, 708 20% 0% 94% 63% AUD 991 ,766 -15%

Pdam Bennett Partially Met WeN Demonstrated AUD 999.600 111 % 74% AUD 1,109,556 20% 0% 89% 59".A. AUD BBT,645 ·20%

David Cohen Partially Met We• Demonstrated AUD 1,200.000 113% 75% AUD 1.356,000 10% 0% 102% 68% AUD 1,220,400 15%

MattComyn Partially Met W eN Demonstrated AUD 1,055.750 126% 84% AUD 1,330,245 20% 0% 101% 67% AUD 1,064,196 -19%

David Craig Partially Met We• Demonstrated AUD 1,380,000 120% 80% AUD 1.656,000 20% 0% 96% 64% AUD 1,324,800 -18%

Robert Jesudason Partially Met WeN Demonstrated HKD 6,747,800 120% 80% HKD 8 ,097,360 20% 0% 96% 64% HKD 6,477,888 -20%

Melanie Laing Partially Met WeN Demonstrated AUD 845,000 104% 69% AUD878,800 10% 0% 94% 62% AUD790,920 -18%

Nina lenahan<1 l Partially Met Wei Demonstrated AUD509,521 100% 67% AUDS09,521 10% 0% 90% 60% AUD469,569 n/a ,____ -- -- -\Mtoria Shortt Partially Met Wei Demonstrated AUD 861 ,900 106% 71% AUD913,614 10% 0% 95% 64% AUD822,253 -18% ,_ - ,_

-~ ,_ -- ,_

Nlnabel Spring Partially Met WeM Demonstrated AUD 1,055,750 96% 64% AUD 1,013,520 30% 0% 67% 45% AUD 709,464 -29%

David Wh~eing Partially Met WeN Demonstrated AUD 999,600 102% 68% AUD 1.019,592 35% 0% 66% 44% AUD662,735 -35%

M in 96% 64% Min 66% 44%

Max 126% 84% Max 102% 68%

Average 11 1% 74% Average 90% 60%

<1> Anna Lenahan was appointed to the Group General Counsel and Group Executive. Group Corporate Affairs role effective 28 November 2016. FY17 STVR target has been prorated to reflect her time in the role.

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Attachment B- Proposed FY18 Fixed Remuneration, STVR and L TVR targets for GEs

Group Executive

Kelly Bayer Rosmarin

Adam Bennett

David Cohen

Matt Comyn

David Craig

Robert Jesudason

Melanie Laing

Anna Lenahan

Vittoria Shortt

Annabel Spring

David Whiteing

Coenraad Jonker

Fixed Remuneration - Comments

Current

AUD 1,050,600 Last increase was in FY16 (3%).

AUD 999.600 Received a 2% increase in FY17.

AUD 1,200,000 NIA· Received a significant increase (33%) in FY17 when a inted to CRO role.

AUD 1,055,750 Last increase was in FY16 (2'%).

AUD 1,380,000 NIA- Retired from CFO role on 30 June 2017.

HKD 6,747,800 NIA· Will commence in CFO role from 1 July 2017.

AUD 845,000 Last increase was in FY15 (2%).

AUD 865,000 Commenced in the role from 28 November 2016.

AUD 861,900 Received a 2% increase in FY17.

AUD 1,055,750 Last increase was in FY16 (3%).

AUD 999,600 Received a 2% increase in FY17.

HKD 2,987,100 Will not be eligible for an FY18 increase

Recommended FY18 remuneration

• Fixed Remuneratton "" l From 1 July 2017 l :=_ _ · $ _ J Ir % _:-

AUD 1,050.600 0.00%

AUD 999.600 0.00%

AUD 1,200,000 0.00%

AUD 1,055,750 0.00%

n/a nla

AUD 1,100,000 nla

AUD 845,000 0.00%

AUD 865,000 0.00%

AUD 861 ,900 0.00%

AUD 1,055,750 0.00%

AUD 999,600 0.00%

HKD 5,150,000 nla

Min 0.00%

Max 0.00%

Average 0.00%

STVR

$ -

AUD 1,050.600

AUD 999.600

AUD 1,200,000

AUD 1,055,750

n/a

AUD 1,100,000

AUD 845,000

AUD 865,000

AUD 861,900

AUD 1,055,750

AUD 999,600

HKD 5, 150,000

LTVR Total Target

J Remuneration $_ - s -· ..

AUD 1,050,600 AUD 3, 151 .800

AUD 999.600 AUD 2,998.800

AUD 1,200,000 AUD 3,600,000

AUD 1,055,750 AUD 3,167,250

n/a n/a

AUD 1,100,000 AUD 3,300,000

AUD 845,000 AUD 2,535,000

AUD 865,000 AUD 2,595,000

AUD 861 ,900 AUD 2,585,700

AUD 1,055,750 AUD 3,167,250

AUD999,600 AUD 2,998,800

HKD 5,150,000 HKD 15,450,000

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Attachment C - Deferred GE STVR outcomes vesting 1 July 2017

The below table sets out the deferred STVR outcomes for GEs that are scheduled to vest on 1 July 2017, subject to outcomes of Board risk review.

Current Executives

Kelly Bayer Rosmarin AUD 586,235 AUD 12,951 AUD 599,186 2,610

Adam Bennett AUD 554,239 AUD 12,244 AUD 566,483 3,464

David Cohen AUD 529,594 AUD 11 ,700 AUD 541 ,293

Matt Comyn AUD 653,193 AUD 14,430 AUD 667,623

David Craig AUD 812,044 AUD 17,939 AUD 829,983

Robert Jesudason HKD 4,026,747 HKD 88,958 HKD 4,115,705

Melanie Laing AUD 483,499 AUD 10,681 AUD 494,180

Vittoria Shortt AUD 501 ,455 AUD 11 ,078 AUD 512,533 2,681

Annabel Spring AUD 501,481 AUD 11 ,079 AUD 512,560

David Whiteing AUD 510,519 AUD 11 ,278 AUD 521,797 1,946

Former Executives

Alden Toevs AUD 752,091 AUD 16,615 AUD 768,706

Robert De Luca AUD 64,667 AUDO AUD 64,667

<1> Reflects 50% portion of the FY16 STVR. <2> Interest accrued at the CBA 12 month term deposit rate of 2.5% p.a. No interest is payable on the

FY16 deferred STVR for Rob De Luca in line with termination arrangements approved by the Board.

<3> Reflects FY14 deferred STVR (granted under Group Rights Plan) awarded prior to GE appointment under Executive General Manager arrangements .

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Attachment D - FY14 L TVR Award (performance period ends 30 June 2017)

The below table sets out the maximum number of rights that will vest to GEs for the L TVR award that reaches the end of its performance period on 30 June 2017, subject to the achievement of performance hurdles and outcomes of Board risk review.

Kelly Bayer Rosmarin 12,963

David Cohen 22,058

Matt Comyn 24,508

David Craig 33,821

Robert Jesudason 20,220

Melanie Laing 20,220

Annabel Spring 24,508

Simon Blair 20,832

Grahame Petersen 28,797

Alden Toevs 34,968

END OF PAPER

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