Lendlease Annual Report 2024

72 Lendlease Annual Report 2024 Response to FY23 Remuneration Report Strike At the 2023 Annual General Meeting, Lendlease securityholders signalled concerns with our remuneration outcomes for FY23, delivering a first strike against the Remuneration Report. While disappointing, the feedback was considered carefully by the Board over the course of FY24 to determine an appropriate way forward. Having regard to feedback received from securityholders, the Board determined that the fundamental structure of the Executive Reward Strategy remains fit for purpose in a ‘business as usual’ context. The ERS is a market-aligned remuneration framework that balances short and long-term business performance, with significant focus on alignment of reward to securityholder experience via the delivery of equity. However, the Board also recognises Lendlease’s current environment and context, including poor security price performance and securityholder returns as a result of structural challenges and a prolonged market downturn. From this perspective, the Board acknowledged that the FY25 framework requires greater focus and link to security price recovery and the delivery of the turnaround strategy. A key theme arising from the FY23 Remuneration Report feedback relates to the need to stregthen the alignment of KMP reward to securityholder outcomes. The below table summarises the Board response: Key Themes Board Response Alignment of KMP reward to securityholder outcomes The key focus area in responding to the FY23 strike has been to strengthen the link between executive reward and securityholder outcomes. Zero FY24 Short-Term Award (STA) Outcome Based on FY24 STA Scorecard results, the Group CEO achieved a STA outcome of 58% of target ( 42% of maximum). However, in context of Lendlease’s continued performance challenges (including provisions taken in FY24) and the impact on the security price, the Board has exercised downward discretion to reduce FY24 STA payments for the Group CEO and the Corporate Leadership Team (CLT) to zero . The exercise of discretion in this manner is prudent, reflects the securityholder experience, and recognises the accountability of the CLT for the performance of the Group as a whole. STA suspended and replaced with options plan with an Absolute TSR performance hurdle The FY25 STA will be replaced with a Transformation Award focused on security price recovery. Awards will take the form of security options, with vesting contingent on achieving a significant improvement in security price over a two-year performance period. The Board will maintain discretion around the vesting of awards in accordance with existing protocols. The Board believes the Transformation Award will support our focus on security price recovery, and allow executives to be rewarded for their success in this area over an appropriate period. At this point, the intention is for the STA to be reinstated for FY26. However, this will be considered throughout FY25. Long-term Award (LTA) The current LTA remains aligned with our performance in that no LTA awards vested in relation to the performance period ending in FY24. To improve our focus on securityholder returns, the FY25 LTA hurdles will be simplified to allocate greater weighting on just two measures of Relative Total Securityholder Return (TSR) and Statutory Return on Equity (ROE). Fixed remuneration quantum In FY24, there were no in-role executive KMP remuneration increases and none have been proposed for FY25. Lendlease have also decreased fixed remuneration quantum by 17-25% when replacing KMP roles, and will continue to ‘right size’ fixed remuneration as we turnover like-for-like KMP roles. Due to the significant decline in security price since 2020, Lendlease is no longer a Top ASX50 company. However, it needs to be acknowledged that Lendlease remains a globally significant company operating in a complex environment where our talent is highly sought. The new strategy is intended to support a recovery in security price, bringing Lendlease back closer with the ASX50 remuneration benchmark at which current structures were originally set. Disclosure transparency Lendlease will continue to improve the quality of disclosure around remuneration decisions, performance measures and targets in publishing our Remuneration Report and the Notice of Meeting (NOM). For example, Lendlease will provide detailed design and key performance conditions underpinning the Transformation Award that will replace the STA plan for Group CEO and KMP in FY25. It is also highlighted that LTA weighting on Relative TSR increased to 50 per cent and is set with greater levels of stretch compared to the prevailing market approach. The Relative TSR hurdle is dislcosed in the Remuneration Report, and the Statutory ROE hurdle will remain retrospectively disclosed at vesting.