Lendlease Annual Report 2021

Notes to Consolidated Financial Statements continued Detailed information regarding the Group’s Executive Reward strategy is provided in the Remuneration Report within the Directors’ Report. The key incentive plans are as follows: • Short Term Incentive (STI) • Short Term Award (STA) • Long Term Incentive (LTI) • Long Term Award (LTA) • Restricted Securities Award (RSA) • Distinguished Executives Award (DE Award) • Executive Deferred Award (ED Award) • Deferred Equity Award (DEA) • Pro Rata CEO Grant. a. Short Term Incentive (STI) The STI plan is an annual incentive plan whereby a number of employees receive benefits which are dependent upon the achievement of both Lendlease financial and non financial targets, and individual goals. The total value of the potential benefit varies by individual and is tested against relevant market levels for each role. • The STI plan typically comprises a cash component, which is paid in September following year end. For more senior employees, where the potential benefit is typically higher, the plan also includes a deferred component • Deferral periods are generally for one or two years. The deferred component is normally awarded as Lendlease securities and in some instances as cash. Securities are held in Lendlease employee security plan trusts on behalf of employees for the deferral period (refer to Note 29a ‘Employee Security Plans’). For employees to receive the deferred component in full, they must generally be employed by the Group at the time of vesting. b. Short Term Award (STA) The STA plan is an annual incentive plan which replaced the STI for a limited number of senior executives from 2019. It is designed to focus senior executives on priority areas for delivery in the current financial year, including key Group and regional financial targets, safety and other non financial targets aligned to the Group’s areas of focus. Whilst performance is assessed against a set of Group metrics when determining awards, the Board will assess the overall performance and contribution of individual senior executives, with a particular focus on safety. The total value of the potential benefit varies by individual and is set with reference to both internal peers and external market levels. The STA plan is intended to be awarded as cash in September following year end. c. Long Term Incentive (LTI) The LTI plan is designed to: • Motivate executives to achieve the Group’s long term strategic goals and provide reward where the Group delivers better value to securityholders than its peers • Align the interests of executives and securityholders, given that the reward received is linked to the Group’s security price and average Return on Equity performance. Arrangements for LTI Awards LTI Design How the LTI Works Performance Securities • An annual grant of ‘performance securities’ is made to a limited number of executives • The Board intends that the awards be settled in Lendlease securities, although the award may be settled in cash or other means at the Board’s discretion • On vesting, each performance security entitles executives to one Lendlease stapled security, or at the Board’s discretion, cash or other instruments of equivalent value • In the event of a change in control of the Group, the Board has the discretion to determine whether the vesting of some or all performance securities should be accelerated. Performance Period (applicable to FY17 and FY18 Grants) • 50 per cent of the performance securities are assessed over a three year period. If the performance hurdle is not fully achieved at this time, those performance securities that have not vested will lapse • The remaining 50 per cent of the performance securities are assessed after four years • If the performance hurdle is not met, the awards are forfeited • There is no retesting on any portion of the LTI grant. June 2021 June 2020 vi. Principal Actuarial Assumptions Discount rate (%) 2.0 1.5 RPI inflation (%) 3.5 3.0 Average pension increase in payments (%) 2.7 2.5 Future mortality (years): Male 25.3 24.9 Female 26.3 26.4 The liabilities are calculated using a discount rate set with reference to corporate bond yield. If assets underperform this yield, this will create a deficit. A decrease in corporate bond yield will increase the value placed on the Scheme’s liabilities, although this will be partially offset by an increase in the value of the Scheme’s corporate bond holdings. The majority of the Scheme’s benefit obligations are linked to inflation and higher inflation will lead to higher liabilities, although in most cases this will be capped to protect against extreme inflation. The majority of the assets are either unaffected by or loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit. The majority of the Scheme’s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the liabilities. The mortality assumptions are based on standard mortality tables which allow for expected future mortality improvements. The assumption is that a member aged 63 will live for a further 25.3 years (June 2020: 24.9 years) if they are male and 26.3 years if they are female (June 2020: 26.4 years). At 30 June 2021, the weighted average duration of the defined benefit obligation was 18 years (June 2020: 19 years). vii. Sensitivity Analysis Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligations by the amounts shown below: 0.1% Increase in Discount Rate $m 0.1% Decrease in Discount Rate $m 0.1% Increase RPI Inflation and Pension Payment $m 0.1% Decrease RPI Inflation and Pension Payment $m 1 Year Increase in Future Mortality $m 1 Year Decrease in Future Mortality $m June 2021 Defined benefit asset/(obligations) 22 (23) 17 (13) (37) 38 June 2020 Defined benefit asset/(obligations) 25 (26) (19) 22 (64) 63 The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Non pensioner benefits are linked to RPI in the period up to retirement. Once in payment, pension increases are linked to RPI but with a zero per cent floor and different caps applying to different periods of pensionable service. The inflation sensitivity reflects a change in RPI inflation and the associated increases in payment. Section F: Other Notes continued 34. Defined Benefit Plans continued 35. Employee Benefits 185 184 Lendlease Annual Report 2021 Financial Statements