REMUNERATION REPORT. Dear Shareholder, I am pleased to present the Vocus remuneration report for FY16, outlining the remuneration in place and outcomes for Key Management Personnel in FY16. In a year of transformational merger and acquisition activity and resulting integration, we have sought to report thoroughly and transparently and will aim to improve upon our disclosure going forward. The Remuneration Committee (“Committee”) is responsible for ensuring that the remuneration framework within the company is appropriately designed to enhance corporate and individual performance whilst supporting company strategy and performance. The Remuneration Committee’s role is to ensure the level of remuneration achieves an appropriate balance between attracting, retaining and rewarding senior managers and directors, Vocus’ interests and shareholder expectations. Our Executive remuneration philosophy involves using a combination of 3 elements; base salary, short-term incentives and long-term incentives. As is demonstrated in this report, these incentives are directly linked to the performance of the company to ensure that any reward is tied to shareholder returns. As part of bringing together the former M2 and Vocus Boards and Executive Teams, we engaged the services of Aon Hewitt Pty Ltd and Egan Associates Pty Ltd to conduct a comprehensive benchmarking exercise against other ASX 100 companies and our peers, and to provide their recommendations on an appropriate remuneration framework going forward. Our intention is to create and maintain an appropriate remuneration structure to assist Vocus in creating delivering returns to shareholders. I trust that the company’s remuneration strategy will receive your support and we welcome your feedback. Craig Farrow Chair of the Remuneration Committee 26 | VOCUS.COM.AU Craig Farrow Chair of the Remuneration Committee ________ The remuneration report outlines the director and executive remuneration arrangements for Vocus and the Company, in accordance with the requirements of the Corporations Act 2001 and its Regulations. The key management personnel of Vocus consisted of the following Directors of Vocus Communications Limited: David Spence Chairman Craig Farrow Deputy Chairman (appointed 22 February 2016) Jon Brett Non-executive Director Tony Grist Non-executive Director (appointed 16 July 2015) Michael Simmons Non-executive Director (appointed 22 February 2016) Rhoda Phillippo Non-executive Director (appointed 22 February 2016) Vaughan Bowen Executive Director (appointed 22 February 2016) James Spenceley Executive Director (ceased acting as Chief Executive Officer 22 February 2016) Steve Baxter Former Non-Executive Director (resigned on 22 February 2016) John Murphy Former Non-Executive Director (resigned on 22 February 2016) Paul Brandling Former Non-Executive Director (appointed on 8 July 2015 and resigned on 22 February 2016) Anthony Davies Former Non-Executive Director (appointed on 8 July 2015 and resigned on 22 February 2016) Nick McNaughton Former Non-Executive Director (resigned on 8 July 2015) And the following persons: Geoff Horth Chief Executive Officer (appointed 22 February 2016) Mark Callander Chief Executive - New Zealand (appointed 22 February 2016) Scott Carter Chief Operating Officer (Mass Markets) (appointed 22 February 2016) Rick Correll Chief Financial Officer Chris Deere Chief Technology Officer (ceased acting as Deputy CEO 22 February 2016) Matt Hollis Director, Corporate & Wholesale (appointed 22 February 2016) Mark Simpson Company Secretary (ceased acting as Company Secretary 22 February 2016) REMUNERATION FRAMEWORK Vocus’ remuneration framework ties the remuneration received by executives to increased shareholder wealth over the longer term. A summary of key Vocus’ performance metrics and share price history is shown below. SHARE PRICE HISTORY UNDERLYING DILUTED EARNINGS PER SHARE (CPS) 46% 72% INCREASE OVER 2015 INCREASE OVER 2015 8.42 29.87 5.77 4.76 16.08 13.28 1.86 FY12 17.38 11.45 2.10 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16 27 The earnings of Vocus for the five years to 30 June 2016 are summarised below: 2012 2013 2014 2015 2016 $'000 $'000 $'000 $'000 $'000 Sales revenue 45,285 66,910 92,302 149,799 830,825 EBITDA 15,722 17,020 32,067 52,247 194,956 EBIT 10,514 8,155 20,355 33,563 116,469 7,775 5,098 12,925 19,850 64,091 Profit after income tax The factors that are considered to affect total shareholders return (‘TSR’) are summarised below: 2012 2013 2014 2015 2016 1.86 2.10 4.76 5.77 8.42 - 1.00 1.80 7.30 17.50 Diluted earnings per share** (cents per share) 12.76 6.85 15.86 19.08 18.82 Underlying diluted earnings per share** (cents per share) 13.28 11.45 16.08 17.38 29.87 Share price at financial year end ($) Total dividends declared* (cents per share) * includes special dividends ** the weighted average number of shares for 2015 and 2016 have been restated for the effect of the 1-for-8.9 rights issue completed in July 2016 in accordance with AASB 133 ‘Earnings per Share’ REMUNERATION GOVERNANCE Remuneration Committee Since the implementation of Vocus’ merger with M2 Group Ltd on 22 February 2016, the Remuneration Committee consists of three independent non-executive directors: Craig Farrow (Chairman, appointed 22 February 2016) Tony Grist (appointed as director 16 July 2015) Rhoda Phillippo (appointed as director 22 February 2016) Prior to that date, the Remuneration Committee consisted of the following independent non-executive directors: Paul Brandling (Chairman, resigned as director 22 February 2016) John Murphy (resigned as director 22 February 2016) Jon Brett Use of remuneration advisors Under the provisions of the Committee’s Charter, the Committee may engage the assistance and advice from external remuneration consultants. To ensure that any recommendations made by remuneration consultants are provided without undue influence being exerted by Executives, external remuneration consultants deliver their advice directly to members of the Committee. No Executives were present during any of the meetings or conversations held between the external remuneration consultants and members of the Committee. During FY16, following the merger of Vocus and M2, the Committee engaged the services of Aon Hewitt to benchmark its board and executive remuneration framework and strategy against Vocus’ peers, being those listed on the ASX as well as within the same industry group, and also sought the strategic advice of Egan Associates Pty Ltd (“Egan”) in respect of general trends in remuneration and reward models in so far as mix of pay, forms of incentive, and reporting. The fees paid to Aon Hewitt and Egan amounted to $95,733 in FY16. 28 | VOCUS.COM.AU Voting and comments made at Vocus’ 2015 Annual General Meeting (‘AGM’) At the last AGM 98.77% of the shareholders who voted, in person or by proxy, voted to adopt the remuneration report for the year ended 30 June 2015. Vocus did not receive any specific feedback at the AGM regarding its remuneration practices. DIRECTOR REMUNERATION Non-executive Directors Vocus’ non-executive director remuneration policy is designed to provide fair remuneration that is sufficient to attract and retain non-executive directors with the appropriate level of experience, knowledge, skills and judgment to steward the Company’s success. Non-executive director fees consist of base fees and fees for membership on board committees, all of which are inclusive of all superannuation and other contributions. The Chairman and Deputy Chairman of Vocus receive an overall fee that is inclusive of board committee fees and superannuation contributions. In addition, non-executive directors receive reimbursement of expenses incurred while carrying out their director duties. The current aggregate pool available for payment of non-executive directors’ fees is $1,100,000 which was approved by shareholders at the 2015 AGM. Actual fees paid to non-executive directors in FY16 totalled $997,989. Following the external benchmarking exercise, initial increases were made to the Chairman, Deputy Chairman and non-executive director fees to partially address the gap identified by that exercise. A further increase to non-executive directors’ fees is proposed for FY17 (subject to the shareholder approval for an increase in the total available remuneration pool being obtained). The two step increases seek to bring the level of fees payable to non-executive directors to an appropriate benchmark and to enable Vocus to continue to seek, attract and retain qualified and talented directors to support Vocus’ continued strategic growth into the future. To preserve independence and impartiality, non-executive directors do not receive incentive or performance based remuneration, nor are they entitled to retirement or termination benefits. Non-Executive Director Fees The annualised fees for FY16 (on a full year basis for the enlarged Vocus Group), as compared with FY15, are outlined below. It must be noted that the non-executive directors did not receive the full FY16 amounts, as this revision did not occur until February 2016. Actual amounts received by non-executive directors are provided later in this report. FY16 FY15 Chairman $290,000 $247,500 Deputy Chairman (new role in FY16) $185,000 - Non-executive director $125,000 $82,500 Committee Chair $30,000 $20,000 Committee Member $10,000 $10,000 Executive Directors In June 2016, the remuneration for Executive Directors was reviewed, with changes to be effective from 1 July 2016. Details of the key terms of the remuneration arrangements for the Executive Directors were lodged with the ASX on 27 June 2016 in accordance with the ASX Listing Rules. The base salary for the Executive Directors is $330,000. Separately to their role as directors of the Company, Executive Directors have a number of additional key mandates, and accordingly the structure of their remuneration is reflective of these mandates. The Executive Directors receive a mix of fixed and variable remuneration. 29 Executive Director Remuneration Framework Fixed remuneration Incentive Set using benchmark data of comparable roles against peer group data points. Aligned with the Company’s strategic growth plans over a longer period, and intended to reward the Executive Directors for longer term strategic and M&A transaction outcomes. Consideration is given to the director’s experience and skills Reflects the additional involvement with Vocus over and above their individual duties as a director, particularly in relation to the identification, verification and negotiation of strategic growth opportunities for Vocus on an on-going basis. Actual payments made to the Executive Directors during FY16 are set out in the Remuneration Tables. James Spenceley – former Chief Executive Officer Following the implementation of Vocus’ merger with M2, James Spenceley ceased to perform the role of CEO of Vocus. As a consequence, James received a termination payment, the framework for which was approved by Vocus shareholders at its 2015 AGM. Details of the then proposed termination payment entitlement were also disclosed in the Scheme Booklet issued by M2 in December 2015 for the Scheme of Arrangement through which the merger was implemented. The actual termination payment received by James Spenceley on his termination are as follows: ➜➜ Lump sum termination payment of $855,000 (which is inclusive of all statutory entitlements, such as annual and long service leave accrued to termination date); ➜➜ Pro-rata payment of short-term incentives to the date of termination of $227,260; and ➜➜ Accelerated vesting of all unvested Loan Funded Share Plan Shares (560,599 shares issued on 18 December 2014 and 293,554 shares issued on 26 November 2015) for which a share-based payment expense of $1,030,504 has been recognised in FY16. Vaughan Bowen – Executive Director Vaughan Bowen remains entitled to the two remaining tranches of STI granted of $300,000 each as part of his remuneration as Executive Director of M2, relating to the CallPlus acquisition, subject to the performance measures for those tranches being satisfied. The maximum amount is based upon the following criteria: ➜➜ The size of the acquisition ➜➜ Cost savings associated with acquisition funding and transaction costs ➜➜ Potential cost savings achieved post acquisition ➜➜ Potential improvement in shareholder earnings ➜➜ Potential shareholder value accretion Payment of the incentive is only made if earnings improvement objectives (in respect of the acquired business) are achieved. Current Incentive As part of the Executive Directors’ remuneration, a grant of 100,000 performance rights each under the above Plan be made to each Executive Director in recognition of their ongoing engagement and contribution, including such reasonable assistance requested in relation to implementation and integration of the Company’s various acquisitions. These performance rights will be subject to the terms and conditions of the Vocus Performance Rights Plan Rules and the Invitation Letter setting out the terms of the Grant at the time. The performance rights will vest in 3 tranches, upon the expiry of each of the following Vesting Periods: ➜➜ Tranche 1 (33,333 performance rights) to vest on the expiry of 1 July 2017 ➜➜ Tranche 2 (33,333 performance rights) to vest on the expiry of 1 July 2018 ➜➜ Tranche 3 (33,334 performance rights) to vest on the expiry of 1 July 2019 This grant is subject to shareholder approval, which will be sought at the next Vocus AGM. 30 | VOCUS.COM.AU EXECUTIVE REMUNERATION The Board has established a remuneration strategy that supports and drives the achievement of Vocus’ business strategy. The Board believes the remuneration framework aligns the key management personnel with shareholder interests. The Remuneration Committee continuously monitors the remuneration structure to ensure it remains effective in retaining and focusing the team that has to date been very successful in building shareholder value. The recently conducted benchmarking exercise across the Executive team focused on roles, Vocus peers and comparators, within both the ASX and the industry. This provided insight and tangible data on relevant remuneration levels and mixes of total remuneration across fixed, STI and LTI. The consultants also assisted the Remuneration Committee to develop a strategy and framework for Executive remuneration going forward, designed to attract, retain and reward highly talented and qualified executives to lead the Vocus business. In all cases, remuneration has been set and aligned to shareholders’ interests including: ➜➜ profit as a core component of plan design; ➜➜ sustainable growth in shareholder wealth; and ➜➜ attracting and retaining high calibre personnel. The Committee intends to undertake a similar review every two years to ensure that Vocus’ remuneration strategy and framework remains current and appropriate for an organisation of its size, scale and capacity. Executive Remuneration Framework Vocus aims to reward key management personnel with a level and mix of remuneration based on their position and responsibility, which has both fixed and variable components. Fixed remuneration Incentive (STI/LTI) Set using benchmark data of comparable roles against peer group data points. Designed to reward achievement of Vocus’ financial, operational and strategic business objectives and align Executive performance with overall shareholder returns on both annual and longer term timeframes. Consideration is given to the executive’s qualification, experience and skills. Short-term Incentive (STI) Aligned to shareholder value creation and overall business strategy with focus is on financial and non-financial hurdles. Long term incentive (LTI) Aligned to the achievement of increased shareholder wealth over the longer term The Remuneration Committee, in conjunction with the CEO, reviews Executive remuneration annually on the basis of the current market practice, performance against agreed measures and other relevant factors. The STI program is designed to align the targets of the business with the targets of the Executives responsible for achieving those targets. STI payments are granted to executives based on specific annual targets and key performance indicators (‘KPI’s’) being achieved. Each year KPIs aligned to business objectives are selected, using both financial and non-financial measures of performance. These KPIs are the drivers of shareholder value creation. All KPIs are based on the overall Vocus business strategy, adjusted to reflect individual roles. For the period to which STI applies, payments are made after assessment of performance by the Board following its approval of the annual accounts. LTIs are exclusively equity-based. There are number a different plans currently in place, as a result of the combination of Vocus with Amcom and M2 in FY16. Details of these plans are set out in the relevant section below, and have previously been disclosed to the market by the various organisations and in M2’s Scheme Booklet. The LTI framework for FY17 and beyond is outlined later on in this report. Chief Executive Officer The Board has put in place a remuneration framework and package that aligns the CEO’s performance with the company’s strategic objectives. The CEO’s remuneration is structured broadly on the principle that 50% of his remuneration is fixed and 50% is variable (with the maximum amounts spread equally between STI and LTI’s). 31 Although Geoff Horth commenced his role as CEO of Vocus on 22 February 2016, following the merger with M2, he did not receive any increase to the level fixed remuneration previously paid to him as CEO of M2 pending the external review and benchmarking exercise which was undertaken by the Remuneration Committee. Following that review, a new contract was entered into with Geoff Horth, the terms of which were outlined in an announcement to the ASX and market on 27 June 2016, and which was to be effective from 1 July 2016. The fixed remuneration component of the CEO’s remuneration of $1,100,000 was determined by the Board with reference to market data. The Remuneration Committee considered the following factors in arriving at this outcome: ➜➜ Ensuring that remuneration is competitive with the company’s relative peer group; ➜➜ The increased responsibilities of the CEO following the merger of Vocus and M2; and ➜➜ Reflective of the increased size and scale of the new business. The CEO’s STI of $600,000 is subject to key performance indicators determined by the Remuneration Committee and the Board at the commencement of the year. The KPIs relate directly to Vocus’ financial and non-financial performance. The KPI’s and STI amount is reviewed annually by the Remuneration Committee. Details of the STI payment made to Geoff Horth in respect of FY16 is outlined in the relevant section. The CEO’s LTI of $600,000 is equity based and consists performance rights to be issued to the CEO under the Vocus Communications Limited Performance Rights Plan, details of which appear further in this report. As at 30 June 2016, Geoff Horth holds 135,418 options and 224,806 performance rights, issued as at 22 February 2016 to replace those provided by M2. Tamara Hay, Sales Operations Manager ________ 32 | VOCUS.COM.AU Other key management personnel remuneration Variable remuneration for Executive KMP (other than the CEO) is structured on similar principles to those adopted for the CEO. Although the mix of fixed and variable remuneration varies between the Executives, and is determined based on the extent to which they are in a position to directly influence Company performance, Vocus’ remuneration philosophy is to allocate a material part of executive remuneration to be derived from an “at risk” element in the form of STI and LTI. Given that Vocus’ Executive KMP fixed remuneration is below the benchmarked median in most instances, when compared to ASX peers, Vocus Group pays STI in cash to better approximate market levels of cash payment in the remuneration mix. The review by the Remuneration Committee resulted in the FY17 fixed remuneration for the Executive KMP being increased. The total fixed remuneration pool for Executive KMP (other than the CEO) is $2,400,000. These adjustments were necessary to improve fixed remuneration relative to the market median, in the context of the increased responsibilities for each Executive following the merger of the two companies, and to reduce the risk of voluntary executive turnover due to pay considerations. It is worth noting that the fixed remuneration still remains below the median in all instances, based on the data provided by the recent benchmarking exercise. The Remuneration Committee aims to address any gaps over a two year period to bring the remuneration framework in line with a competitive benchmark, reflective of alignment with shareholder interests and delivery of merger benefits. Service agreements Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of the key terms of these agreements are as follows Key term Executive Directors CEO Other KPM Duration of agreement: No fixed term No fixed term No fixed term Period of notice required to terminate agreement (by the relevant KMP): Three months Six months or three months in case of fundamental change Three months Period of notice required to terminate agreement (by Company): Three months Twelve months Three months Potential Termination benefits (where required, to be approved by the Shareholders at the 2016 AGM): Accelerated vesting of incentives on a pro-rated basis, at the Board’s discretion at the time In addition to notice, if termination occurs as a result of fundamental change, termination payment equal to 9 months’ Fixed Remuneration. No additional payments if Company terminates employment otherwise with notice In addition to notice, maximum termination payment ranging from 3 months to 6 months’ Fixed Remuneration, with additional notice periods / payments applicable for some KMP in certain change of control scenarios Accelerated vesting of LTI on a pro-rated basis, at the Board’s discretion at the time Accelerated vesting of LTI on a pro-rated basis, at the Board’s discretion at the time Statutory leave entitlements Statutory leave entitlements Statutory leave entitlements Remuneration: As disclosed in the relevant section 33 REMUNERATION TABLES Amounts of remuneration Details of the remuneration of the directors and other key management personnel are set out in the following tables. The amounts shown are equal to the amount expensed in the company’s financial statements. Short-term benefits Postemployment benefits Long-term benefits Share-based payments Cash salary and fees Bonus / Commission Nonmonetary Superannuation Employee leave Equity settled* Total $ $ $ $ $ $ $ 213,739 - - 18,330 - - 232,069 2016 Non-Executive Directors: D Spence C Farrow 65,920 - - - - - 65,920 T Grist 104,782 - - 9,954 - - 114,736 J Brett2 147,662 - - 14,028 - - 161,690 58,793 - - - - - 58,793 1 R Phillippo1 M Simmons 51,667 - - - - - 51,667 S Baxter3 84,067 - - - - - 84,067 J Murphy 1 71,121 - - - - - 71,121 P Brandling3 74,206 - - 7,050 - - 81,256 A Davies3 62,790 - - 5,965 - - 68,755 3 N McNaughton 7,917 - - - - - 7,917 942,664 4 - - 55,327 - - 997,991 658,192 250,000 - 19,308 855,000 1,030,504 2,813,004 82,265 - - 10,000 17,167 - 109,432 284,103 118,667 37,740 10,000 34,426 166,279 651,215 91,886 28,656 27,939 6,126 - 10,719 165,326 Executive Directors: J Spenceley5 V Bowen1 Other Key Management Personnel: G Horth1 M Callander1 R Correll 420,800 195,888 38,377 34,200 10,493 58,865 758,623 S Carter1 170,936 62,000 29,360 10,000 14,355 74,258 360,909 425,151 C Deere 249,692 88,000 - 19,308 30,935 37,216 M Hollis6 170,264 401,795 26,314 18,832 23,554 36,318 677,077 M Simpson7 208,029 112,500 - 19,763 4,760 31,314 376,366 3,278,831 1,257,506 159,730 202,864 990,690 1,445,473 7,335,093 *Includes share-based payments accounting expense for options, performance rights and loan funded shares. 1. Denotes remuneration from 22 February 2016 to 30 June 2016 2. Includes remuneration for representation of Vocus on the board of its New Zealand construction joint venture Connect 8 Limited until resignation on 16 April 2016 3. Denotes remuneration up to cessation as director of Vocus (22 February 2016) 4. Denotes remuneration up to cessation as director of Vocus (8 July 2015) 5. Includes amounts paid in relation to termination as CEO of Vocus of $855,000, which is inclusive of all statutory entitlements, such as annual and long service leave accrued to termination date and share-based payment expense on early vesting of Loan Funded Shares of $1,030,054 6. Includes commissions earned of $206,795 7. Denotes remuneration up to cessation as Company Secretary (22 February 2016) 34 | VOCUS.COM.AU Short-Term Benefits PostEmployment Benefits Long-Term Benefits Share-Based Payments Cash salary and fees Bonus / Commission Nonmonetary Superannuation Employee leave Equity settled* Total $ $ $ $ $ $ $ 136,986 - - 13,014 - - 150,000 101,666 2015 Non-Executive Directors: D Spence J Brett ** 92,846 - - 8,820 - - J Murphy 73,373 - - 1,627 - - 75,000 S Baxter *** 56,250 - - - - - 56,250 N McNaughton 95,000 - - - - - 95,000 481,217 250,000 - 18,783 27,810 96,341 874,151 Executive Directors: J Spenceley Other Key Management Personnel: R Correll 366,061 150,000 - 35,000 5,986 66,985 624,032 M Simpson 287,000 120,000 - 30,000 5,012 54,687 496,699 C Deere 211,217 50,000 - 18,783 38,690 35,589 354,279 1,799,950 570,000 - 126,027 77,498 253,602 2,827,077 *Includes share-based payments accounting expense for both options and loan funded shares. **Includes fees and super for representation of Vocus on the board of its New Zealand construction joint venture Connect 8 Limited. *** Remuneration disclosed is from date of appointment as a director (2 October 2014). The proportion of remuneration where linked to performance is detailed below. Fixed remuneration Name At risk - STI At risk - LTI * 2016 2015 2016 2015 2016 2015 100% - - - - - 54% 57% 9% 29% 37% 14% G Horth 56% - 18% - 26% - M Callander 76% - 17% - 7% - R Correll 66% 64% 26% 24% 8% 12% S Carter 62% - 17% - 21% - C Deere 71% 65% 21% 14% 8% 21% M Hollis 36% - 59% - 5% - M Simpson 62% 64% 30% 24% 8% 12% Executive Directors: V Bowen J Spenceley Other Key Management Personnel: * The LTI above refers to share-based payments. 35 The proportion of the STI cash bonus paid and forfeited is as follows: Cash bonus paid/payable Name 2016 Cash bonus forfeited 2015 2016 2015 Executive Directors: V Bowen - - - - 100% 100% - - G Horth 89% - 11% - M Callander 90% - 10% R Correll 94% 100% 6% S Carter 93% - 7% C Deere 88% 100% 12% M Hollis 100% - - M Simpson 100% 100% - J Spenceley Other Key Management Personnel: - These STI payments were paid or are payable based on the successful achievement of earnings based targets including budgeted revenue, earnings before interest and depreciation and amortisation, net profit after tax, market expectations, growth initiatives, and other qualitative or project driven outcomes. FY16 was a year in which Vocus underwent significant transformational changes, in particular its combination with Amcom in July 2015 and then with M2 in February 2016. Of the Executive KMP who held office as at 30 June 2016, Rick Correll and Chris Deere both held KMP office at 30 June 2015. The remaining Executive KMP took office at varying stages during the financial year, predominately from 22 February 2016, when the merger with M2 was implemented. The STI payments made to the CEO and Executive KMP therefore reflect a number of different criteria and factors which were considered by the Remuneration Committee, and reflect the contribution made by each of the Executive KMP to both Vocus’ business performance in FY16, as well as the contribution each of them made to the transformation undertaken by Vocus in FY16. This is consistent with Vocus’ remuneration framework in relation to STIs being aligned to the achievement of Vocus’ strategic objectives and increasing shareholder returns. All Executive KMP (including the CEO) substantially achieved satisfaction of qualitative and project measures whilst also applying substantial effort towards the transformational union of Vocus and M2, without being in receipt of any further retention or transition bonuses. The final STI award took into account a reasonable balance of all of the above and a significant value delivered to shareholders through 2016 activities. The CEO’s KPI’s were originally based on the same principles as those adopted in M2’s 2015 annual report. Since the merger, Geoff’s appointment as CEO of the merged group resulted in additional responsibilities relating to achievement of Vocus financial objectives as well as additional qualitative components around the merger. Despite this, it was agreed that given the proportion of the financial year in which the merged company operated, the original KPI measures would apply. Name % Of STI % Achieved Financial Results Inclusive of development of the Annual Operating Plan, the 5 year strategy, and achievement of Executive team KPI’s (paid on the basis of average achievement across the executive team) 50 45 Customer Satisfaction 10 8 Business Improvement Geoff Horth KPI 20 16 Leadership, Values & Behaviours TOTAL 20 20 100 89% The STI measures for FY17 will be established for the CEO and Executive team in the first 3 months of the financial year. The measures will reflect both quantitative and qualitative measures representing Vocus’ strategic business objectives. 36 | VOCUS.COM.AU Significant importance will be placed on the delivery of financial results to ensure shareholder return. Qualitative measures will include Merger implementation, Customer Satisfaction, Business Improvement, and Leadership, Values and Behaviours. The CEO’s KPIs are cascaded throughout the company, and captured within an online goal setting and performance management system. The total STI and LTI pools for Executive KMP is $1,125,000 and $1,030,000, respectively. EQUITY-BASED COMPENSATION Vocus has a number of equity-based compensation plans currently in operation (both legacy and forward looking). This has resulted primarily from the combination of Vocus, Amcom and M2 over the past financial year. Going forward, it is intended that no new options or shares will be issued under the Employee Share Option Plan (“ESOP”) or the Loan Funded Share Plan (“LFSP”). The Remuneration Committee sought advice from Egan Associates in relation to the long term incentive plans and equity based compensation plans adopted by comparable peers of Vocus, and has determined that the Vocus Communications Limited Performance Rights Plan (“Performance Rights Plan”) will form the basis of the equity based long term incentive plan for Vocus in the future. The Board intends to seek the approval of the shareholders to the terms of this Long Term Incentive Plan at the 2016 AGM, and the exemption of shares issued in satisfaction of performance rights from the 15% cap on the issue of new shares. Employee Share Option Plan (“ESOP”) An employee share option plan was established by Vocus and approved by its shareholders at a general meeting in 2010, whereby Vocus may, at the discretion of the Vocus Board, grant options in respect of Vocus Shares to its employees. Each Vocus Option converts into one Vocus Share on exercise. No amounts are paid or payable by the recipient of the Vocus Option in respect of the option grant, although an exercise price is set at the date the options are granted. Vocus Options carry neither rights to dividends nor voting rights. Vocus Options may be exercised at any time from the date of vesting to the date of their expiry. Pursuant to the Scheme of Arrangement undertaken by M2, each outstanding M2 option converted to Vocus Options, in accordance with a pre-determined formula. Only the CEO held M2 options which were converted to Vocus Options, with 135,418 of these options yet to vest as at the date of this report. The table below summarises the Vocus Options currently outstanding: Issue date Expiry date 1 August 2011 31 July 2018 Exercise price* Number of options % vested $2.39 46,668 100% 11 May 2012 10 May 2019 $1.89 7,500 100% 22 February 2016** 22 February 2023 $5.09 135,418 - 189,586 * The exercise price of all options were reduced as of 5 August 2016 in accordance with the formula set out in the rules of the Vocus Options and Performance Share Plan, consistent with ASX Listing Rule 6.22.2, following the completion of Vocus’ fully underwritten 1 for 8.90 accelerated renounceable entitlement offer with retail rights trading of Vocus ordinary shares. For further information see announcement ‘Change to exercise price of options’ lodged with the ASX on 28 July 2016. ** Issued to Geoff Horth in replacement of his M2 options and due to vest on 1 January 2017 subject to performance conditions The table below summarises the Vocus Options that were exercised during FY16: Grant date Exercise price Number of shares issued 1 October 2010 $0.50 135,000 13 May 2011 $2.00 6,666 11 May 2012 $2.00 61,334 203,000 Loan Funded Share Plan (“LFSP”) Vocus Shares were issued to Vocus Blue Pty Limited, a wholly-owned Subsidiary of Vocus, as part of Vocus’ Loan Funded Share Plan remuneration scheme to attract and retain key employees. Vocus Blue Pty Limited’s sole purpose is to hold shares as trustee for its beneficiaries (its Participants). 37 The Participants are granted a loan by Vocus to purchase the beneficial interest in Vocus Shares. The loans are limited recourse to the Participants and any dividends received on the plan shares are used to reduce the loan balance net of tax payable. Participants are required to meet service requirements and performance conditions before being entitled to acquire full title to the Vocus Shares and are required to repay the loan in order to do so. The shares held by Vocus Blue Pty Limited are included in the number of Vocus Shares on issue. As at the date of this Report, Vocus Blue Pty Limited held 5,089,252 Vocus Shares in trust under the Loan Funded Share Plan remuneration scheme of behalf of its Participants. Of this total number, 2,581,687 Vocus Shares were shares issued to current and previous Vocus KMP as at 30 June 2016 including 554,177 loan funded shares issued to KMP during the financial year ended 30 June 2016. A summary of LFSP Shares held by KMP is listed in the table below. Fair value per share and issue price per share has also been included for additions during the current year. LFSP shares Balance at the start of the year Additions Disposals/ Other Balance at the end of the year Issue price per share Fair value per share J Spenceley 1,262,353 293,554 - 1,555,907 7.08 1.14 R Correll 569,918 69,967 - 639,885 6.49 1.16 M Simpson* 455,439 55,428 (510,867) - 6.49 1.16 C Deere 224,000 95,228 - 319,228 6.49 1.16 - 66,667 - 66,667 5.53 1.30 M Hollis** * Classed as disposal on ceasing to be KMP. ** Additions represent existing shareholding at date of appointment as a director or key management person. Matt Hollis was issued 40,000 shares under the LFSP in the current year. A summary of loans outstanding in relation to LFSP Shares held by KMP is listed in the table below LFSP shares Balance at the start of the year Additions Disposals/ Other Balance at the end of the year J Spenceley 4,391,365 2,078,362 (191,612) 6,278,115 R Correll 2,093,582 454,086 (84,094) 2,463,574 M Simpson* 1,711,587 359,728 (2,071,315) - C Deere 1,131,200 618,030 (37,740) 1,711,490 - 343,415 (8,395) 335,020 M Hollis** * Classed as disposal on ceasing to be KMP. ** Additions represent existing shareholding at date of appointment as a director or key management person. Matt Hollis was issued 40,000 shares under the LFSP in the current year. No further shares are to be issued under the LFSP to any participants. Performance rights As part of the Amcom Scheme Implementation Agreement, Vocus agreed to issue Vocus Performance Rights to replace existing Amcom performance rights held by certain Amcom employees. Similarly, as part of the M2 Scheme Implementation Agreement, Vocus agreed to issue Vocus Performance Rights to replace existing M2 performance rights held by M2 employees. 38 | VOCUS.COM.AU The total number of performance rights which were issued, vested and converted to shares in FY16 are: Date Number of performance rights Notes 1 July 2015 - 8 July 2015 364,511 Issue of performance rights as replacement for Amcom Telecommunications Ltd performance rights 8 July 2015 (74,978) Vesting of performance rights and issue of shares (4,614) Vesting of performance rights and issue of shares 12 January 2016 (124,005) Vesting of performance rights and issue of shares 15 January 2016 (18,456) Vesting of performance rights and issue of shares 22 February 2016 784,651 Issue of performance rights as replacement for M2 Group Limited performance rights 30 June 2016 927,109 Balance as at 30 June 2016 10 December 2015 Balance as at 1 July 2015 Prior to the vesting of the performance rights referred to above, the performance conditions applicable to those performance rights were tested. The performance rights issued to replace the Amcom performance rights were subject to time thresholds, namely 6 and 12 month periods, and to the performance rights holder’s continued employment with Vocus up to and including the vesting date. The performance rights which vested in December 2015 and January 2016 satisfied the relevant performance conditions, and accordingly were converted to shares in the name of the rights holder. Performance Rights on issue as at 30 June 2016 are as follows: Vesting date Number of performance rights Performance measures 1 July 2016 213,973 Replacement M2 performance rights - earnings per share (EPS) performance measure deemed satisfied at time of issue. Relative total shareholder return (TSR) measured and satisfied. 8 July 2016 142,458 Replacement Amcom performance rights – continued employment at vesting date 1 July 2017 382,249 Replacement M2 performance rights - earnings per share (EPS) performance measure deemed satisfied at time of issue. Relative total shareholder return (TSR) to be measured. 1 July 2018 188,429 Replacement M2 performance rights - earnings per share (EPS) performance measure deemed satisfied at time of issue. Relative total shareholder return (TSR) to be measured. 927,109 The performance rights due to vest in July 2016 have since vested and been converted to shares. In addition, the vesting date of some performance rights due to vest on 1 July 2017, were accelerated and converted to shares as part of the executive termination entitlements for executives (non-KMP) whose employment was terminated as a result of the merger. A summary of performance rights held by KMP is listed in the table below. Performance rights Balance at the start of the year Additions Disposals/ Other Balance at the end of the year G Horth - 224,806 - 224,806 S Carter - 104,425 - 104,425 M Callander - 15,074 - 15,074 39 The key features of the Vocus Performance Rights Plan for FY17 and onwards are set out below: Form of grant Performance rights to be settled in Vocus shares Participants are not required to pay for the performance rights Grant timing September Frequency of grant Annual Number of performance rights granted Measured on a fair value basis, based on the value weighted average price (VWAP) value of the shares for the calendar month of June immediately preceding the grant of the performance rights Vesting date Upon expiry of the Performance Period Performance period 3 year period, from 1 July in the year of grant to 30 June at the end of the period Performance measures A mix of EPS, TSR, ROI and WACC measures Terminating Executives If a good leaver, vesting will be on pro-rata basis at the discretion of the Board Change of control Vesting on pro-rata basis at discretion of the Board. No non-executive Directors participate in any of the short-term or long term incentive plan arrangements maintained by Vocus. Additional disclosures relating to key management personnel In accordance with Class Order 14/632 issued by the Australian Securities and Investments Commission relating to ‘Key management personnel equity instrument disclosures’, the following disclosure relates only to equity instruments in the Company or its subsidiaries. Shareholding The number of shares in Vocus held during the financial year by each Director and other members of key management personnel of Vocus at 30 June 2016, including their personally related parties, is set out below: Balance at the start of the year Received as part of remuneration Additions Disposals Balance at the end of the year 471,218 Ordinary shares D Spence 471,218 - - - C Farrow * - - 658,125 - 658,125 V Bowen * - - 8,193,933 - 8,193,933 4,200,000 293,554 (293,554) 4,200,000 400,000 - - 400,000 T Grist * - - 3,200,000 - 3,200,000 R Phillippo - - - - - M Simmons * - - 19,481 - 19,481 G Horth * - - 678,098 - 678,098 569,918 69,967 (91,889) 547,996 - - 853 - 853 J Spenceley ** J Brett R Correll ** M Callander * S Carter * M Hollis * - - 292,500 (142,500) 150,000 2,396,348 95,228 - (57,579) 2,433,997 - 40,000 160,092 - 200,092 8,037,484 C Deere ** 498,749 13,203,082 (585,522) 21,153,793 * Additions represent existing shareholding at date of appointment as a director or key management person ** Ordinary shares as remuneration granted through the Vocus LFSP This concludes the remuneration report, which has been audited. 40 | VOCUS.COM.AU Loans to Directors and executives Loans to Directors and executives for the year ended 30 June 2016 are in relation to the Company’s Loan Funded Share Plan. A schedule detailing the loan amounts and movements during the year is included in the Remuneration Report. Shares under option Unissued ordinary shares of Vocus Communications Limited under option at the date of this report are as follows: Grant date Expiry date Exercise price Number under option 1 August 2011 31 July 2018 $2.39 46,668 11 May 2012 10 May 2019 $1.89 5,000 22 February 2016 22 February 2023 $5.09 135,418 187,086 On 28 July 2016, Vocus announced a reduction in the exercise prices of its unlisted options in accordance with the formula set out in the rules of the Vocus Options and Performance Share Plan, consistent with ASX Listing Rule 6.22.2. The changes to the exercise prices of Vocus’ unlisted options follows the completion of Vocus’ fully underwritten 1 for 8.90 rights issue concluded in July 2016. The reduced option prices are reflected in the table above which were previously $2.50, $2.00 and $5.20, respectively. No person entitled to exercise the options had or has any right by virtue of the option to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of options The following ordinary shares of Vocus Communications Limited were issued during the year ended 30 June 2016 and up to the date of this report on the exercise of options granted: Date options granted Exercise price Number of shares issued 1 October 2010 $0.50 135,000 13 May 2011 $2.00 6,666 11 May 2012 $2.00 63,834 205,500 Shares under performance rights Unissued ordinary shares of Vocus Communications Limited under performance rights at the date of this report are as follows: Grant date Expiry date Exercise price Number under option 22 February 2016 1 July 2017 $0.00 319,344 22 February 2016 1 July 2018 $0.00 173,355 492,699 No person entitled to exercise the performance rights had or has any right by virtue of the performance right to participate in any share issue of the Company or of any other body corporate. Shares issued on the exercise of performance rights The following ordinary shares of Vocus Communications Limited were issued during the year ended 30 June 2016 and up to the date of this report on the vesting of performance rights granted: Date options granted Exercise price Number of shares issued 8 July 2016 $0.00 364,511 22 February 2016 $0.00 302,820 667,331 41 Indemnity and insurance of officers The Company has indemnified the directors and executives of the Company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. During the financial year, the Company paid a premium in respect of a contract to insure the directors, the Company secretary and all executive officers of the Company and any related body corporate, against a liability incurred as such a director, Company secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of liability and the amount of the premium. Indemnity and insurance of auditor The Company has not, during or since the financial year, indemnified or agreed to indemnify the auditor of the Company or any related entity against a liability incurred by the auditor. During the financial year, the Company has not paid a premium in respect of a contract to insure the auditor of the Company or any related entity. Proceedings on behalf of the Company No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings. Non-audit services Details of the amounts paid or payable to the auditor for non-audit services provided during the financial year by the auditor are outlined in note 45 to the financial statements. The Directors are satisfied that the provision of non-audit services during the financial year, by the auditor (or by another person or firm on the auditor’s behalf), is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001, and that the services as disclosed in note 45 to the financial statements do not compromise the external auditor’s independence requirements of the Corporations Act 2001 for the following reasons: ➜➜ all non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor; and 42 | VOCUS.COM.AU ➜➜ none of the services undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards. Officers of the Company who are former partners of Deloitte Touche Tohmatsu There are no officers of the Company who are former audit partners of Deloitte Touche Tohmatsu. Rounding of amounts The Company is of a kind referred to in ASIC Corporations (Rounding in Financial / Directors’ Reports) Instrument 2016/191, issued by the Australian Securities and Investments Commission, relating to ‘rounding-off’. Amounts in this report have been rounded off in accordance with that Corporations Instrument to the nearest thousand dollars, or in certain cases, the nearest dollar. Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out immediately after this Directors’ report. Auditor Deloitte Touche Tohmatsu continues in office in accordance with section 327 of the Corporations Act 2001. This report is made in accordance with a resolution of Directors, pursuant to section 298(2)(a) of the Corporations Act 2001. On behalf of the Directors David Spence Director 23 August 2016 Sydney