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Directors’ Report

For the year ended 30 June 2009

REMUNERATION REPORT (Audited) (continued)

    • 2.5.

      Executive Remuneration (continued)

      • i)

        Fixed Remuneration

Fixed Remuneration is reviewed annually by the Remuneration Committee. The process consists of a review of the Consolidated Entity, business unit and individual performance,

relevant comparative remuneration externally and internally and, where appropriate, external advice on policies and

practices. The Committee has access to external advice independent of Management.

Executives are given the opportunity to receive their fixed remuneration in a variety of forms including cash and fringe benefits such as motor vehicles. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Consolidated Entity.

The fixed component of executive remuneration is detailed in the tables on page 23.

ii) Variable Remuneration – Short Term Incentive (STI)

Executive Committee members are not subject to a formal STI program. Their performance is reviewed annually by the Board and any incentive payment is currently at the absolute discretion of the Board. An STI program is currently being considered for KMP Executives.

An STI program exists for operational management. The objective of the STI program is to link the achievement of the Consolidated Entity’s operational targets with the remuneration received by the Managers charged with meeting those targets. The potential STI available is set at a level that provides sufficient incentive to the Manager to achieve the operational targets, and ensures that the cost to the Consolidated Entity is

reasonable in the circumstances.

For operational management, actual STI payments paid to each Manager depend on the extent to which specific targets set at the beginning of the financial year are met. The targets are established to ensure continuing Consolidated Entity performance and maximise stakeholder benefit.

For the reporting period, the targets consisted of a number of Key Performance Indicators (KPIs) such as contribution to net profit before tax for the business unit or the business segment. These measures were chosen because they represent the key drivers for the short term success of the business and provide a framework for delivering long term value.

20 AVJennings Limited ABN 44 004 327 771

No part of the STI program involves a comparison of performance with factors external to the Consolidated Entity.

There are predetermined benchmarks that must be met in order to trigger payments under the STI scheme. On an annual basis, after consideration of the performance against the KPIs, the Remuneration Committee determines the amount, if any, of the short term incentive to be paid to each Manager. This usually occurs within two months after the reporting date.

The estimated amount of the STI bonus to be paid is raised as a provision in the results of the financial year to which the STI bonus applies. Participants eligible for the STI scheme can elect, in the period preceding the financial year to which the

STI bonus applies, to either salary sacrifice all or part of the bonus to superannuation or to receive the entire bonus as a cash payment.

For the 2008 financial year, 100% of the STI bonus of $125,000 that was accrued in that year vested to Executives and was paid in the 2009 financial year. The maximum STI bonus payable to Key Management Personnel as considered by the Remuneration Committee for the 2009 financial year was nil.

There have been no alterations to the STI bonus plans since their grant date.

iii) Share-based Compensation

The Chief Executive Officer has been granted 1 million shares in AVJennings Limited which will vest equally on the first,

second and third anniversary of his appointment as Managing Director and Chief Executive Officer. The grant date is 7 March 2009 and the first vesting date is 19 February 2010. The vesting condition is the continuity of employment as at each vesting date. The vesting of these shares is not subject to a performance condition as they were granted as part of the terms of appointment to the position and recognition of past performance in an acting capacity in that position. These shares are currently held by the AVJ Deferred Employee Share Plan Trust.

The market value of the shares at the grant date is taken to be the fair value. The fair value is expensed on a straight-line basis over the vesting period.

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