CUSTOMISING PERX TO MEET YOUR SPECIFIC NEEDS Our published PERX series has been designed to reflect the most common relative TSR hurdle design;  this being a comparator group that consists of the ASX 100 companies as at 30 June of each year. The PERX calculation engine can be used to develop customised PERX values that match the actual details of most relative LTI arrangements, these include different: -        Comparator companies (including global shares) -        Performance period start dates -        Performance period end dates and -        TSR calculation methods (eg. days used in VWAP calculations). The company specific PERX results can be incorporated into customised reports for Remuneration Committees and to provide regular updates to company executives on their outstanding LTI grants. Please call +61 (0)2 9225 6100 if you would like to enquire about this service or email us on: thuynh@pfsconsulting.com.au.
 EXAMPLE OF PERX CALCULATION Assume there are four companies in an Index: A, B, C and D.  Over three years these companies produce the following returns: Company After 1 Year After 2 Years After 3 Years Cumulative Return Rank Cumulative Return Rank Cumulative Return Rank A 0% 3 15% 1 20% 1 B -5% 4 0% 4 14% 2 C 5% 2 10% 3 -5% 4 D 10% 1 12% 2 12% 3 SPX Return 5% 12% 14% SPX Value 1.05 1.12 1.14 SPX takes the 75th percentile performance for the calculation period.  In this example, the 75th percentile performance is the second highest cumulative return. Hence: After one year Company C's return of 5.0% is the second highest.  Therefore, strong performance is deemed as 5.0% or greater for the first year. After two years, Company D's cumulative return of 12% is the second highest.  Therefore, a strong return over this period is when a company exceeds this result for the two years. In the third year, Company B's strong performance in the final year moves it into second place with a cumulative three year return of 14%.  This cumulative return is the SPX cumulative return for the 3 year period. Note that the progression of the SPX differs from the yearly returns of the four companies. Other key features of the PERX series are: Based on Total Shareholder Return (TSR) – This is the market metric used by most companies to assess financial performance and incorporates changes in: share price, dividends paid and capital adjustments (such as share splits and placements). Underlying Data - The calculations use Refinitiv's Datastream to provide data in relation to company actions, share prices and dividend data. Volume Weighted Averages - To calculate the TSRs we use a Volume Weighted Average Price at the start and end of the calculation periods.  The period of volume weighting is 5 days. Delisted and Suspended Companies - Companies that are delisted or suspended from trading at the time of calculation are removed from the calculations.  These companies are not replaced by other companies.  This is inline with how most of our clients treat these events. Monthly Release - At this stage the PERX suite of indices will be released on a monthly basis with figures to be provided for 5 years for each series.
 TRACKING THE RELATIVE PERFORMANCE OF AN LTI GRANT XYZ Pty Ltd issued an LTI grant that has a relative TSR hurdle where vesting is subject to performance against the companies in the ASX 100.  The performance period started 30 June 2017 and will end four years later in 2021.  The company has calculated that it has achieved a return of 20% for the 3 years since commencement.  It would like to determine how it is tracking against this hurdle. The chart shows how XYZ's total return after 1 year of -6% was well below the performance of the median company in the ASX 100. In the second half of year 2, XYZ's share price surged strongly and after 2 years the cumulative total return for the company was 24.3%.  This result was in between the median and 75th percentile performance of the comparator companies. In the last year, XYZ's share price fell dramatically in March and April but then recovered strongly.  Its current total return of 20% puts it on track to achieve some vesting in 2021. COMMUNICATING STRONG RELATIVE PERFORMANCE LMN Limited has a similar bonus grant to XYZ but has a performance period of 3 years.  The company has undertaken the performance assessment and is planning on awarding eligible executives 100% of the applicable LTI grant. The Remuneration Committee believes that some shareholder groups will react negatively to this news and are looking for a way to communicate the company's strong absolute and relative performance. The chart shows how LMN's strong performance over the 3 years on an absolute and relative basis. On an absolute basis the chart shows the company's strong result with a 66% return to shareholders over the 3 years.  It also shows how strongly the company's share price has recovered in the past 2 months with the total return almost returning to its 3 year high. On a relative performance basis the chart shows how the company's financial performance has been equal to or above the SPX (top 25% of the ASX 100) for most of the 3 year period.  However, due to the strong rebound in the past 2 months the company's relative performance has also improved significantly and after 3 years is almost 30% higher than the SPX.  This result is therefore deserving of 100% vesting.