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Contact To Introduce Long Term Incentive Scheme

Contact To Introduce Long Term Incentive Scheme

Contact Energy is to introduce a long term incentive scheme to more closely align the remuneration of senior executives with the performance of the company.

Chair of Contact Energy, Mr Phil Pryke, said: “The adoption of the scheme reflects Contact’s ongoing focus on best management practice”.

“In recent years, listed companies in New Zealand and overseas have made increasing use of long term incentive (LTI) programmes to more closely tie management reward to the performance of their company over time,” said Mr Pryke.

The Contact scheme is based on setting aside an additional 15% of base salary for qualifying executives. This sum will be used to purchase Contact shares in three years time, if pre-defined performance targets are met.

The scheme will tie executive reward to the fortunes of the company in two different ways. First, the number of shares to be purchased will be calculated based on the share price at the beginning of the measurement period. The greater the share price appreciation over the minimum three year measurement period, the greater the reward. This directly links the size of potential reward to Contact’s share price.

Second, the payment of any reward will be dependent on Contact achieving pre-defined minimum performance goals. These are a combination of an earnings target, and a requirement that total returns from dividends and share price appreciation exceed a minimum threshold over a three year period. Further detail is set out in the attachment.

The first measurement period begins from 1 July 2004, and the scheme will initially apply to five senior executives within Contact.

“The scheme has been carefully designed to balance a range of objectives,” said Mr Pryke.

“It seeks to reward senior executives for their efforts to increase shareholder value, but without creating sharply skewed incentives that could distort behaviour. We believe this scheme fits with Contact’s needs at this time, and should help to drive the company’s future performance”.

The LTI scheme was developed under the direction of Contact’s Board, with external advice from HayGroup.

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