23 October 2013

Origin announces extension of contract with Managing Director

Origin Energy Limited (Origin) today announced that the Managing Director, Mr Grant King, has agreed to extend his service agreement which is due to expire on 30 June 2014.

Consistent with modern practice and ASX corporate governance guidelines, Mr King's contract is now ongoing and may be terminated by either party on 12 months notice or on a shorter notice period by agreement between the parties.

Origin Chairman, Mr Kevin McCann said, "The Board is pleased that Mr King will continue to lead the Company through the next phase of its development, where its core priorities are improving the performance of the existing business, delivering the Australia Pacific LNG project, managing the funding of Origin's investment in Australia Pacific LNG and creating growth opportunities for the future.

"The Origin Board recognises the importance of setting executive remuneration which appropriately rewards for performance. We consider that the terms of the renewed contract appropriately rewards the contribution Mr King makes to Origin and weights remuneration to Company performance, good risk management and outcomes as well as the delivery of sustainable growth in long-term shareholder value. All of these are directly aligned with shareholder interests," Mr McCann said.

The extension of Mr King's contract, together with the continued development of the management team's experience and capabilities, is important to Origin's ongoing success. Changes to the remuneration arrangements for Mr King have already been disclosed in the 2013 Annual Report, but are outlined in Attachment 1 for the benefit of shareholders.

ATTACHMENT 1

Mr Grant King's extended employment contract key terms

Term of contract

  • Takes effect from October 23, 2013
  • Is ongoing, subject to termination terms as set out in 3 below


REMUNERATION

The remuneration arrangements are consistent with those disclosed in the 2013 Annual Report, including those that have been recently changed.

A. Fixed Remuneration

  • $2.5 million
  • Reviewable annually by the Board with effect from 1 July each year


B. Short Term Incentive (STI)

  • Amendments to the STI scheme have been disclosed in the 2013 Annual Report
  • STI arrangements are as follows:
    • Maximum STI
      • 150 per cent of fixed remuneration
      • Percent reviewed annually by the Board
    • Method of payment
      • Two-thirds paid in cash in September each year
      • One-third deferred and delivered as Deferred Share Rights (DSRs)
        • DSRs are the right to own a share in the Company resulting in the value of this component of Mr King's remuneration increasing or decreasing directly with Origin's share price
        • The number of DSRs to be granted will be calculated by dividing the value of the deferred component by the fair value of each DSR, using normal Company practices
        • The calculation will occur at the same time as it is made for other executives
      • The percentage allocated between cash and DSRs may be varied by the Board.
    • Basis of Award
      • 70 percent is based on achieving group performance metrics as set by the Board each year. Currently:
        • Earnings per share
        • OCAT ratio
        • Safety record for the year
      • 30 percent is based on individual measures as set by the Board each year
      • The percent and metrics may be varied by the Board
    • Approach to vesting
      • DSRs vest in three equal tranches on the first, second and third anniversaries of the date of grant
      • No dividends are paid on DSRSs until they are converted into ordinary shares


C. LONG TERM INCENTIVE (STI)

  • Amendments to the LTI scheme have been disclosed in the 2013 Annual Report
  • LTI arrangements are as follows:
    • Maximum STI
      • 120 per cent of fixed remuneration
      • Percent reviewed annually by the Board
    • Method of payment
      • Options: 75%
      • Performance Share Rights (PSRs): 25%
      • Both are subject to a TSR performance hurdle, consistent with past practice
      • The percent allocation to PSRs and Options, as well as the hurdle, may be reviewed by the Board
    • Basis of dollar value of award
      • Allocated based on performance and potential, consistent with the approach for other executives
    • Basis for calculating the number awarded
      • The number of Options and/or PSRs will be calculated by dividing the value of the amount of the grant by the fair value of each Option and/or PSR at the same time as the same calculation is made for other executives
      • Fair value is calculated using a Black-Scholes methodology with a Monte Carlo simulation model taking into account market conditions and performance hurdles and the practices normally adopted by the Company
    • Vesting periods
      • 4 years for Options
      • 4 years for PSRs
      • The vesting periods may be reviewed by the Board

D. TIMING OF SHAREHOLDER APPROVAL

  • DSR, Option and PSR grants require shareholder approval.
  • From the 2014 financial year, approval will be sought from shareholders retrospectively, not prospectively as has been past practice.
  • If shareholder approval is not obtained for a DSR grant, it will be paid in cash, as it is in respect of an STI allocation that will have been earned.


TERMINATION ARRANGEMENTS

  • The contract can be terminated on 12 months' notice by either Mr King or Origin or on a shorter notice period by agreement between the two parties.
  • DSRs, Options and/or PSRs lapse on termination other than in cases of death, disability, bona fide redundancy or genuine retirement.
  • In the event of termination other than for cause, or by Mr King's giving 12 months' notice, an STI can be paid that reflects the extent of achievement against the objectives set for the year having regard to the part of the year that has elapsed prior to termination. In such a case, the STI payment will be made in cash.

The Managing Director maintains a significant shareholding in the Company.


Contacts

Media
Lina Melero
General Manager, External Affairs 
Ph: +61 2 8345 5217
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Investors
Peter Rice
General Manager, Capital Markets
Ph: +61 2 8345 5308
Mobile: +61 417 230 306