2014

BASEL IIIPILLAR 3
DISCLOSURE

AS AT 30 SEPTEMBER 2014
REM DISCLOSURE

ANZ Basel III Pillar 3 disclosure

September 2014

Important noticeThis document has been prepared by Australia and New Zealand Banking Group Limited (ANZ) to meetits disclosure obligations under the Australian Prudential Regulation Authority (APRA) ADI Prudential
Standard (APS) 330: Public Disclosure.
This disclosure was prepared as at 30 September 2014. ANZ has a continuous disclosure policy, underwhich ANZ will immediately notify the market of any material price sensitive information concerning theGroup, in accordance with legislative and regulatory disclosure requirements.

1ANZ Basel III Pillar 3 disclosure

September 2014

Remuneration Disclosure
Basis of DisclosureThis document presents the 2014 financial year (2014) remuneration disclosures of Australia and New
Zealand Banking Group Limited (ANZ), as required by the Australian Prudential Regulation Authority(APRA) ADI Prudential Standard (APS) 330: Public Disclosure.
The disclosures contained in this document are based on information that is consistent with information
provided to ANZ’s external auditor. However, the information provided is for regulatory disclosure
purposes, rather than statutory financial reporting disclosures, and may not be comparable to otherinformation disclosed by ANZ. Additional information on ANZ’s remuneration policies and structures iscontained in the ANZ 2014 Annual Report.
Bodies that oversee Remuneration
The ultimate responsibility for the sound and prudent management of remuneration at ANZ rests with theANZ Board. The Board is assisted in overseeing remuneration matters, including adherence to ANZ
remuneration policies and practices, by the Board Human Resources Committee (HRC).
The HRC met five times during the 2014 financial year. Committee fees for the HRC chair for the 2014
financial year were $55,000 and for HRC members were $25,000.
The purpose, powers and duties of the HRC are set out in the HRC Charter. The HRC pays particularattention to the remuneration of the senior executive population, the highest paid individuals, individuals
who could have a material impact on ANZ’s financial soundness, the remuneration structures ofindividuals who perform a risk and financial control role and adherence to the ANZ Remuneration Policy.
The ANZ Remuneration Policy applies to all ANZ employees globally, including:Senior Managers
Senior Managers are the Responsible Person roles as detailed in ANZ’s Remuneration Policy.
ANZ’s current Responsible Persons are the CEO, Management Board members and other key
roles identified in ANZ’s Fit and Proper Policy. For 2014, ANZ had a total of 22 Senior Manager
roles (25 individuals due to movement in roles).



Material Risk Takers
Material Risk Takers (MRT) are any other persons (not covered by the Senior Manager definition
above), for whom a significant portion of total remuneration is based on performance and whoseactivities, individually or collectively, may affect the financial soundness of ANZ. For ANZ theseare Senior Executives who can influence the Group’s capital, funding and liquidity, market risk,underwriting risk, and/or credit and counterparty risk. For 2014 ANZ had a total of 8 Material
Risk Taker roles (9 individuals due to movement in roles).

As at 30 September 2014, the HRC consisted of three members, all of whom are independent NonExecutive Directors1.
Throughout the course of the year the HRC has made all remuneration-related decisions andrecommendations to the Board independently of Management. The HRC also has free and unfetteredaccess to ANZ employees and to relevant external advisors, when required.
During 2014, management commissioned information, which was provided to the HRC, from external
advisors including Aon Hewitt, EY, Hay Group, Herbert Smith Freehills, McLagan, Mercer Consulting(Australia) Pty Ltd and PricewaterhouseCoopers. Information received from external advisors related toremuneration market data and analysis, market practice on the structure and design of incentive
programs, legislative requirements and interpretation of governance and regulatory requirements.
Design and Structure of Remuneration Processes
The ANZ Remuneration Policy provides the HRC and management with a consistent framework formanaging remuneration and remuneration-related matters.
The framework addresses:
Remuneration mix and market positioning;
Fixed and variable remuneration;
Shareholding guidelines and hedging prohibitions;
1

ANZ Board Chairman is an ex-officio member of the Committee and does not receive a Committee member fee.

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ANZ Basel III Pillar 3 disclosure

September 2014

Independence of Risk and Financial Control Personnel;
Requirements for other ANZ APRA Regulated Entities and Registered Superannuation Entity
Licensees and United Kingdom based employees; andEngagement of remuneration consultants.

The primary objectives of the ANZ Remuneration Policy are:
creating and enhancing value for all ANZ stakeholders;emphasising the ‘at risk’ components of total rewards to increase alignment with shareholders
and encourage behaviour that supports both the long term financial soundness and the risk
management framework of ANZ, and deliver superior long term total shareholder returns;differentiating rewards in line with ANZ’s culture of rewarding for outperformance anddemonstration of values led behaviours; and
providing a competitive reward proposition to attract, motivate and retain the highest quality
individuals in order to deliver ANZ’s business and growth strategies.
Performance and remuneration outcomes for all Risk and Financial Control Personnel are determined by
the appropriate reporting manager within these functions directly, and not the business that theindividual supports. This ensures individuals are remunerated independently of the business theyoversee.
The HRC last reviewed the ANZ Remuneration Policy in February 2014 with minor updates approved by
the Board at the time.
Remuneration at ANZ
ANZ’s short term incentive spend is adjusted each year to reflect ANZ’s performance outcomes, and isapproved by the Board. Individual remuneration at ANZ is comprised of fixed remuneration and variable
remuneration.
Fixed remuneration: Fixed remuneration is designed to reward individuals for their skills andexperience, and the accountability of their role. Fixed remuneration is reviewed annually with regard tolocal market practices and affordability.
Variable remuneration: ANZ’s variable remuneration opportunity provides relevant employees with “atrisk” reward component(s) designed to drive performance in the short term and the medium to longterm.
The Board has on-going and absolute discretion to adjust unvested performance-based variable
remuneration downwards, or to zero at any time.
Adjustments may occur to assist in protecting the financial soundness of ANZ or if the Board
subsequently considers that, having regard to information which has come to light after the grant ofdeferred remuneration, the deferred remuneration was not justified.
Each year the mix of cash and equity an individual receives varies, as the value of the variable
remuneration increases or decreases, to reflect individual, business and ANZ overall performanceoutcomes for the year.
An individual’s variable remuneration may comprise a short term incentive opportunity and a long term
incentive opportunity, or a blended short and long term incentive opportunity.
Short term incentives (STI)
The short term incentive opportunity supports ANZ’s strategic annual performance objectives. To
determine and approve the annual short term incentive pool, the Board assesses performance against abalanced scorecard of measures.
For 2014, examples of some of the key performance measures under each of the balanced scorecard
categories used to assess performance are provided below. ANZ has used a balanced scorecard approach
for a number of years.
High Performing Cash profit Economic profit
 Return on equity
 Cash earnings per share

Most Respected Senior leaders as rolemodels
 Employee engagement
 Workforce diversity

3

Well Managed
 Maintainstrongcreditrating Core funding ratio Cost to income ratio Number of outstanding
internal audit itemsANZ Basel III Pillar 3 disclosure
Best Connected Growth in Asia Pacific,
Europe and America

September 2014

Customer Driven
 Customer
satisfaction(based on external surveyoutcomes)

Performance measures within each of the division’s balanced scorecards are strategically aligned to theperformance measures within the ANZ balanced scorecard.
Individual performance metrics, which form part of an individual’s annual objectives, are tailored toreflect the nature of the role.
Individual remuneration outcomes are discretionary and linked to both ANZ and individual performanceoutcomes for all Senior Managers and Material Risk Takers. Each individual’s performance is assessed atyear end against their agreed balanced scorecard of financial and non-financial objectives. Demonstrationof the ANZ Values and an assessment of compliance, risk management and behaviour forms afundamental aspect of the performance assessment. Risk and Compliance input is a critical part of theassessment process in determining the performance of ANZ and in ensuring that individual remuneration
has been appropriately assessed with regard to risk. Individual reward outcomes are then determined,taking into consideration both the individual’s performance and the performance of ANZ overall. Awards
may be below, at or above the individual’s target opportunity.
Short term incentives are delivered in cash up to the mandatory deferral threshold. The HRC regularlyreviews the threshold at which mandatory deferral is applied, the quantum of variable remuneration
which is subject to deferral and the time period over which deferral occurs.
For 2014, deferral applies to 50% of short term incentive payments exceeding $100,0002. Half thedeferred equity is deferred for one year and half is deferred for two years; the deferred equity remains atrisk, and can be clawed back at the discretion of the Board until the vesting date.
Long term incentives (LTI)
The Board/HRC approves the allocation of long term incentives to Senior Managers and Material Risk
Takers. The long term incentive plan is delivered in equity, which provides alignment of a significant
portion of an individual’s remuneration to sustained growth in shareholder value over the longer term.
To further align an individual’s remuneration with ANZ’s actual performance outcomes, ANZ determines
LTI grants after the end of the performance year to which the grant relates (i.e. grants made during
2014 related to performance during 2013).
All long term incentive equity is deferred for three years and remains at risk, and can be clawed back,until vesting.
Equity granted to the CEO and Management Board3 is delivered as two equal tranches of Performance
Rights and in order to vest must meet time and relative Total Shareholder Return (TSR) performance
hurdles4. If the hurdles are not met the awards lapse.
Equity granted to individuals in roles below the level of CEO and Management Board in the 2014 financial
year were either delivered as a blend of Performance Rights and ANZ Deferred Equity (shares or sharerights) subject to time and TSR hurdles or as ANZ Deferred Equity (shares or share rights) subject to atime based hurdle only. If the hurdles are not met the awards lapse.
Total Incentive Performance Plan (TIPP)In determining the incentive pool for TIPP, which applies to Institutional specific employees (excluding
Global Enablement Functions) that support Institutional Banking, the Board takes into consideration
performance against a balanced scorecard of measures. The TIPP balanced scorecard considers a rangeof Financial, Customer, Risk, Process Efficiency and People measures.

2Or the local equivalent for overseas individuals. Mandatory Deferral is subject to a minimum deferral amount of$25,000 (or the local equivalent).
3With the exception of the CRO whose deferred share rights were subject to a 3 year time-based hurdle to ensure
greater impartiality and independence of this role.
4Performance Rights granted during the period are divided into two equal tranches with Tranche 1 subject to TSR
relative to a select financial services comparator group and Tranche 2 subject to TSR relative to a comparator group
comprising companies making up the S&P/ASX50 index as at 22 November 2013.

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September 2014

Individual reward outcomes are determined after taking into consideration the individual’s performanceand relevant business performance.
Payments made under the TIPP are delivered in cash up to $80,000. Mandatory deferral applies to 60%
of payments exceeding $80,0005 and this is deferred evenly over three years. The equity remains at risk
and can be clawed back any time prior to the vesting date.
Current and Future Risks
ANZ has an Enterprise-wide risk management framework which takes into account a range of risks
managed within ANZ, both at the Enterprise level and individual business level.
Risk appetite is set using both qualitative and quantitative measures across the major risk classes
including liquidity, market, financial, credit and operational risk to ensure business objectives andperformance are measured and monitored on a risk-adjusted basis and within appetite.
To ensure consistent monitoring year on year, the Board considers performance against a balanced
scorecard of measures to determine the incentive pools. This helps to ensure that the incentive pools areshaped by risk considerations. The CRO reviews and provides input to the Board/HRC on incentive pools
taking into consideration the risk and return tradeoffs.
The ANZ Remuneration Policy through the risk management framework ensures the design, monitoring,measurement and remuneration outcomes occur within the broader framework of ANZ’s risk
management targets and thresholds.
The design and operation of all variable remuneration schemes are required to adhere to a set of policy
principles and governance standards which require the approval of the Finance, Risk, and HR functions.
Individual incentive awards are made on the basis of a risk adjusted view of both financial and nonfinancial performance. However, if the assessment of performance subsequently proves to be inaccurate
or incorrect, the unvested deferred awards can be clawed back by the Board.
Quantitative Disclosures for Senior Managers and Material Risk Takers
The following quantitative disclosures are provided with reference to the ANZ Remuneration Policy andcurrent practices, and include individuals who met the definitions of Senior Manager or Material RiskTaker at any stage during the financial year.
Table 1 (APS 330, Table 18 (h) and 18 (j)): Remuneration - fixed, variable and other
remuneration
Table 1 provides a view of how remuneration is paid or communicated to individuals. Consistent with theRemuneration Report Non Statutory Remuneration Disclosure table approach:Fixed remuneration relates to amounts for/paid during the financial year.

Variable remuneration relates to the communicated cash and equity values (fair value) received, thatis paid/granted, in/during the financial year that relate to the prior financial year.

This approach has been chosen over the Statutory Remuneration Disclosure approach (i.e. the inclusionof cash STI for the financial year and also the accounting expense of prior year STI and LTI share-based
payments in the financial year) as it provides greater transparency to the value communicated andactually granted to individuals during the financial year.
No guaranteed bonuses, sign-on awards or termination payments have been paid/granted in the financialyear to Senior Management or Material Risk Takers.

5
Or the local equivalent for overseas individuals. Mandatory Deferral is subject to a minimum deferral amount of$18,000 (or the local equivalent).

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ANZ Basel III Pillar 3 disclosure

September 2014
Financial Year 2014
Senior Management

Number of people
Fixed remuneration (cash – non-deferred) $’000

Material Risk Takers

25

8

19,9394,150

Variable remuneration
Number of people

22

7Cash (non-deferred) $’000

16,431

7,488

Shares and share-linked instruments (deferred) $’000

27,779

11,204

Financial Year 2013
Senior ManagementNumber of people
Fixed remuneration (cash – non-deferred) $’000

Material Risk Takers

238

19,167

4,134

Variable remuneration
Number of people

227

Cash (non-deferred) $’000

16,371

8,558

Shares and share-linked instruments (deferred) $’000

26,574

10,413

Table 2 (APS 330, Table 18 (i) and 18 (k)): Deferred remuneration exposed to implicit andexplicit adjustments
Values have been calculated using a 1-day volume weighted average price (vwap) of ANZ shares onvesting date (paid out)/30 September 2014 (outstanding), multiplied by the number of shares/rights(face value). Reductions are determined comparing these values to the allocation value at grant. All
outstanding deferred remuneration is exposed to ex post explicit and implicit adjustments. ANZ does notprovide retained remuneration.
Explicit adjustments reflect lapse, due to performance conditions not being met and/or due to cessationof employment. Implicit adjustments reflect share price reductions in the value of equity from grant.
All deferred remuneration is deferred into equity.

Financial Year 2014
Senior Management

Material Risk Takers

27,204

14,325

105,300

23,216

Deferred remuneration paid out
Vested shares and share-linked instruments $’000
Outstanding deferred remuneration
Unvested shares and share-linked instruments $’000
Deferred remuneration reductions
Total reductions due to ex post explicit adjustments $’000(18,670)-

Total reductions due to ex post implicit adjustments $’000

(456)

(283)

Financial Year 2013
Senior Management

Material Risk Takers

34,7689,160

110,81133,286

Total reductions due to ex post explicit adjustments $’000(8,603)(1,565)

Total reductions due to ex post implicit adjustments $’000--

Deferred remuneration paid out
Vested shares and share-linked instruments $’000
Outstanding deferred remuneration
Unvested shares and share-linked instruments $’000
Deferred remuneration reductions

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ANZ Basel III Pillar 3 disclosure

September 2014

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ANZ Basel III Pillar 3 disclosure

September 20148