DIRECTORS' REPORT:
Remuneration Report

Caltex’s Reward Policy

High performance at individual and team levels is required to deliver the relative Total Shareholder Return expectations established by the Caltex Business Plan. Our Reward practices are structured to appropriately reward performance from motivated, highly skilled and results-orientated people.

The key principles for how Caltex rewards its employees (which includes senior executives) are:

• financial and non-financial performance criteria are applied to deliver long-term creation of value to shareholders, consistent with Caltex’s strategic objectives and values
• company, department and individual performance determine reward outcomes
• market competitive rewards are delivered commensurate with employee duties, responsibilities, accountabilities, competencies and behaviours, and
• reward programs are designed to attract, motivate and retain highly skilled people who are aligned to Caltex’s vision and values.

The application of these principles focuses employee rewards on improving our relative Total Shareholder Return.

Governance of the Caltex Reward System

Governance of the Caltex Reward System is undertaken by the Board’s Human Resources Committee. It reviews our systems and approves outcomes including the satisfaction of performance conditions, ensuring the rewards remain aligned and contribute to relative Total Shareholder Return expectations. The committee is independent of management and can use independent external advisors as necessary.

The Human Resources Committee has delegated authority from the Board to:

• approve the annual Caltex employee reward program
• oversee Caltex’s incentive schemes for senior executives (including the Caltex Equity Incentive Plan) and the Performance Incentive Plan and approve the following aspects of the schemes:
  – structure
  – rules
  – eligibility parameters
  – targets, and
  – incentive pools, and
• oversee the Caltex Australia Limited employee share plan.

The Human Resources Committee also advises the Board on:

• the remuneration of non-executive directors, including remuneration for Board committee memberships
• the remuneration for the Managing Director & CEO and other members of the Caltex leadership team
• major changes to rewards policies or practices by reviewing and commenting on changes proposed by management, and
• remuneration matters generally, including superannuation.

The Human Resources Committee is comprised of three non-executive directors, Mr Greig Gailey (Committee Chairman), Mr Brant Fish and Mr John Thorn (from 1 May 2008). Mr Gailey and Mr Thorn have been determined by the Board to be “independent”, while Mr Fish, who is a senior executive at Chevron, is not considered to be “independent”. Ms Elizabeth Bryan (Board Chairman) attends meetings in an ex-officio capacity. The committee is scheduled to meet a minimum of four times each year to undertake its governance functions. The number of meetings held in 2008, and the attendance by committee members is shown here.

In 2008, Mr Richard (Dick) Warburton served as a member of this committee until his retirement as a director on 24 April 2008.

Delivering Total Shareholder Return through performance and reward

The Caltex Reward System applies to all salaried employees including senior executives but excludes employees covered by enterprise bargaining agreements, Australian Workplace Agreements and employees in Calstores Pty Ltd and Caltex Petroleum Services Pty Ltd.

The key drivers of Total Shareholder Return (TSR) for Caltex are identified as profitability and capital structure. The major drivers that are wholly or partially within senior executive control and provide the inputs for managing and rewarding performance are:

• volume/product mix
• profit
• cash flow
• unit costs
• other income, and
• capital productivity.

There is a range of variable external market conditions that fluctuates with global market dynamics including margins in Refining and Marketing over which senior executives have little control. As demonstrated in Figure 1, senior executives must deliver profitability and generate cash flow in the context of these conditions. The Reward System recognises performance that delivers superior results in our cyclical industry.

Figure 1: Key drivers of Total Shareholder Return

To ensure focus on TSR, each year the Board establishes a clear framework (“Corporate Direction”) from which management develops the Caltex Business Plan. The Board approves the plan and regularly monitors and reviews progress.

The approved Caltex Business Plan is then translated into Department and Business Unit Plans and scorecards that incorporate the TSR drivers. Scorecards are approved by the Human Resources Committee prior to the commencement of each performance year.

Within departments, specific performance agreements are developed for individual employees, thus completing the link between employees and delivery of TSR as shown in Figure 2. Performance agreements must be agreed between the employee and his or her manager. The manager once removed must then endorse the performance agreement. For executives directly reporting to the Managing Director & CEO, performance agreements are set jointly with the Managing Director & CEO.

Figure 2: Aligning individual performance agreements to Total Shareholder Return

Performance management

The efficacy of the Reward System is contingent on the integrity of the Performance Management Process (PMP).

The Caltex PMP ensures employees know what is expected of them, how they are performing and how that will impact on their reward outcomes. As shown in Figure 3, this also provides employees with an understanding of how the performance expected of them is aligned with the Caltex Business Plan.

Figure 3: Relationship between Total Shareholder Return, performance and reward

The assessment of individual performance covers specific performance agreements, relevant department and individual scorecards, personal development plans and demonstration of Caltex values and appropriate behaviours, as well as overall performance against the individual’s job description – that is, assessment is against the whole of job expectations. Regular whole of job assessment occurs during the course of the year, resulting in a rating at year end. Ratings are then calibrated at the business unit and department level.

The performance of senior executives against their performance agreement is measured and tracked regularly by the Managing Director & CEO. Ratings recommended by the Managing Director & CEO for his direct reports must be approved by the Human Resources Committee, along with any resulting changes in fixed remuneration and payments of variable remuneration.

Figure 4 demonstrates how an employee’s whole of job performance assessment ultimately impacts their base pay (fixed remuneration) movement over time and determines their variable remuneration through the Performance Incentive Plan for the current performance year.

Figure 4: Whole of job assessment and outcomes

Determining reward

Total Reward Value

Caltex uses a Total Reward Value approach for employees covered under the Caltex Reward System. The core elements of the Total Reward Value are fixed remuneration (base pay) including any allowances individuals are eligible to receive, variable remuneration and superannuation contributions. Variable remuneration comprises the cash based Performance Incentive Plan (short-term incentive plan) and the equity based Caltex Equity Incentive Plan for eligible senior executives (long-term incentive plan). The relative weighting of fixed and variable components for target performance varies with role seniority and complexity.

The Total Reward Value approach enables comparison and accurate monitoring of the market competitiveness of each employee’s Total Reward Value package. Market comparisons of the Total Reward Value are undertaken regularly to inform if Caltex is in line with its remuneration target (market median). Adjustments are made as appropriate when the Total Reward Value is not in line with the market.

While annual reviews are conducted, there are no guaranteed increases in either fixed or variable remuneration and any increases are determined by individual performance, company performance, economic indicators, market data and the company’s ability to pay.

Employees have some flexibility in packaging the delivery of their fixed and variable remuneration, i.e. they can salary sacrifice such things as novated car leases, the purchase of company shares in our employee share scheme, superannuation contributions, etc.

Fixed remuneration

Fixed remuneration is the component of Total Reward Value received for applying skills and competencies and demonstrating the appropriate behaviours to meet annual performance objectives and the responsibilities outlined in position descriptions.

Caltex aims to reward competitively, with roles being benchmarked to the market median of the industry benchmark (refer to Figure 5). An individual’s fixed remuneration, including senior executives, is targeted within a performance range of 80–120% of the market median with their position in this range determined by assessment of sustained performance over time and internal relativities.

Figure 5: Benchmarking and fixed remuneration

The industry benchmark is the “Resources Group”, defined as mining, oil and gas companies with greater than $1 billion revenue and greater than 600 staff. The reasons for having this group as our market target include:

• The Resources Group includes all major oil, mining and gas companies, which represent our “true” competitors in the attraction and retention of top performers, particularly in the engineering and production job functions.
• The market comparator group allows us to effectively compete for future employees across all functions in a talent tight market.
• The small number of companies and their “brands” is easily related to by all managers and employees.

Variable remuneration

Remuneration that is variable and directly dependent upon performance is delivered through the annual Performance Incentive Plan and the Caltex Equity Incentive Plan (CEIP). All employees covered by the Caltex Reward System participate in the annual Performance Incentive Plan. Senior executives may also be invited to participate in the CEIP.

Annual Performance Incentive Plan

The annual Performance Incentive Plan is structured so that incentive payments reward employees based on individual, department and company performance (refer to Figure 6). Incentive opportunities increase as performance targets are exceeded at each level across the company. The greatest emphasis and weight is on individual performance, so that individuals have more control over their incentive outcome, with high performance resulting in higher incentives.

Figure 6: Performance incentive plan and total performance incentive

The incentive potential within the Performance Incentive Plan ranges from 0% of base salary when performance expectations are not met, to a maximum of 41% of base salary for exceptional performance. The maximum is determined by the employee’s level in the company, with senior executives qualifying for a maximum of 41% subject to achieving excellence against individual and department performance targets.

Overall performance against the total Caltex Scorecard determines the size of the funding pool for the Performance Incentive Plan. If the Caltex Scorecard does not meet the threshold then there is no funding to support the department performance incentive component of the plan. The threshold for payment under the Performance Incentive Plan is the simultaneous achievement of 80% of the replacement cost of sales operating profit after tax (RCOP NPAT) target and a company scorecard result of greater than or equal to 50 points (out of a total of 100 points). Should the threshold not be met, a maximum budget of 6% of base pay is available to fund the individual performance incentive component as determined by annual performance review ratings.

As indicated above, the company scorecard result establishes the overall funding pool or total bonus opportunity. The actual portion of the pool that an individual receives is based on their department scorecard results, their level of responsibility (role) and individual performance. Performance against the department scorecards will determine the department performance incentive component. Employee role and performance rating determine the quantum of the individual performance incentive component.

The total incentive opportunity increases or decreases relative to company and department scorecard results and individual performance outcomes.

The key Caltex Scorecard measures for 2008, as approved by the Human Resources Committee, are as follows. These measures were selected because they were identified as important financial and operational drivers for the success of Caltex in 2008.

Targets are set as part of the Business Planning process and approved prior to the start of the year. Each year the Human Resources Committee reviews the Performance Incentive Plan including the scorecards and their measures and weightings, performance assessment and reward outcomes. Actual scorecard performance is measured against the targets set and any payouts available under the Performance Incentive Plan are approved by the Human Resources Committee. Caltex’s financial results are approved by the Board after the end of the assessment period before incentive payments are awarded.

The Human Resources Committee has the overriding discretion to review and adjust the Performance Incentive Plan outcomes where there are unforeseen impacts on the scorecard elements. This discretion can be exercised through review of the scorecards and the adjustment of the scorecards as appropriate from time to time.

While RCOP NPAT has been variable over the last five years, the total variable remuneration pool has ranged between 3.8–4.6% of RCOP NPAT. This is a reflection of our conservative administration of the Performance Incentive Plan and management’s attempt to moderate the plan’s outcomes to exclude any excessive gains that may have been driven by external market conditions.

Caltex Equity Incentive Plan (CEIP)

In late 2006, the Board commissioned a detailed review of the Caltex Long-Term Incentive Plan with the assistance of an external consultant. The intent of the review was to ensure that the plan met the current and future needs of the Caltex business and the expectations of shareholders. A new plan, the Caltex Equity Incentive Plan (CEIP), was implemented with effect from 1 January 2007.

Information on the previous plan, the Long-Term Incentive Plan (LTIP), follows as the awards under this plan will continue to vest through to 1 January 2010. Grants were only made under the CEIP in 2008. Grants under the CEIP are on a prospective basis (performance rights grant for the 2008 performance year has a performance and vesting period from 2008–2010).

The primary objectives of the CEIP are to:

• reward senior executives for the performance of the company arising from them delivering against objectives designed to enhance shareholder value
• align senior executives’ reward with longer term shareholder gain, and
  
• facilitate retention of senior executive talent.

The CEIP has two distinct tiers:

• A long-term tier whereby performance rights are granted to participants which vest after three years, subject to relative market based performance criteria over those three years being satisfied. Upon vesting, the rights are automatically exercised to acquire shares.
  
• A medium-term tier whereby restricted shares are granted subject to performance against more controllable performance criteria over the one year prior to the grant of shares. The shares granted vest progressively over two years from date of grant (three years from start of performance period). The performance criteria are the same as those in the short-term cash incentive plan and are approved by the Human Resources Committee before the start of the performance year.

The relative market based performance criteria used in the long-term tier is the three year relative Total Shareholder Return performance measured against two comparator groups; with half of the rights measured against the companies in the ASX 100 Accumulation Index and half against the performance of an international comparator group of refining and marketing companies. Specifically, the international comparator group consists of Frontier Oil (USA), Motor Oil (Greece), Neste (Finland), Singapore Petroleum Company (Singapore), S-Oil (Korea), Sunoco (USA), Tesoro (USA), Valero (USA) and Western Refining (USA). These companies were selected because they represent competitors for investor capital in the global refining and marketing sector.

When measuring against these two peer groups, 50% of the rights will vest if TSR performance just exceeds median performance and 100% of the rights will vest if TSR performance meets or exceeds the 75% percentile. Payout will be based on company ranking for performance between these two levels. If performance conditions are not met, rights will lapse.

In relation to the medium-term tier, the performance metrics are the same as the short-term cash performance incentive plan which uses balanced scorecards comprised of both financial and non-financial measures. The scorecards are approved at the start of the year by the Human Resources Committee. As such, a quantum of restricted shares equivalent in value to the size of the annual Performance Incentive Plan award is granted under the medium-term tier.

Participants in the CEIP are approved annually by the Human Resources Committee and include direct reports to the Managing Director & CEO, as well as other key management roles with significant profitability, strategic and operational impact. In 2008, 22 senior executives participated in the CEIP.

Participation in the CEIP is at two levels, with four Level 1 and 18 Level 2 participants in 2008. In relation to the long-term tier, the target for Level 1 participants is 22% of base pay, with a 44% of base pay maximum. In relation to the medium-term tier, Level 1 target is 23% of base pay with a 41% of base pay maximum. Level 2 participants are eligible for quantums at approximately 75% of Level 1 participants. All grants are approved by the Human Resources Committee.

To encourage participants to continue to hold the shares after vesting, both tiers of the CEIP include voluntary restrictions on sale of shares after vesting to enable tax deferral of up to 10 years from the grant date. Participants must submit a request for release in order to sell shares after vesting.

Under the Board share trading policy participants must not enter into any transaction that is designed or intended to hedge their exposure to unvested shares from the CEIP or LTIP. Participants must provide a compliance certificate with this policy to the Company Secretary each year.

In relation to the cessation of employment, the default provision for both tiers of the CEIP is that unvested grants will lapse upon termination. However:

• If a participant ceases employment due to retirement and more than 12 months since the date the Equity Awards were granted have passed, the maximum number of unvested Equity Awards which may vest is determined by applying the performance conditions (if any) as if the date of retirement was the completion of the performance period in relation to those Equity Awards (“Maximum Number”). The actual number of Equity Awards to vest is equal to or less than the Maximum Number as follows:
  1. if the participant has provided 10 years continuous service, the Maximum Number of Equity Awards will vest
  2. if the participant has provided continuous service of more than five years, but less than 10 years, the Maximum Number of Equity Awards is pro-rated based on the time between the date of grant and the date of retirement and that proportion of the Maximum Number will vest, or
  3. if the participant has provided less than five years continuous service, all Equity Awards lapse unless the Board determines otherwise.
• If a participant ceases employment due to total and permanent disability, death or redundancy, all service conditions are waived and the number of unvested Equity Awards to vest is determined solely by applying the performance conditions (if any) as if the date of cessation was the completion of the performance period in relation to those Equity Awards.
• If a participant ceases employment for any other reason, the Board will determine the number, if any, of unvested Equity Awards which vest.

Figure 7 shows the current variable remuneration structure.

Figure 7: 2008 Caltex variable remuneration structure

Key business and competitive drivers which influenced the design of the CEIP included the following:

1. Our business is cyclical in nature as can be seen by recent and historical crude oil and refined product price movement. This impacts the length with which we can reliably predict business outcomes and our planning cycle. The three year performance period established in the long-term tier of the CEIP corresponds with our typical planning cycle and is very consistent with other long-term incentive plans in major companies.
2. In order to increase shareholder value, senior management must continuously deliver against all of the key business drivers. These drivers include safety, volume/product mix, profit, cash flow, unit costs, and capital productivity. The medium-term tier of the plan uses metrics which touch all of these key controllable areas.
3. Our external remuneration consultants have advised us that the typical variable remuneration mix for this level of executives is 50% short-term and 50% long-term. CEIP maintains the heavy emphasis on equity awards, but balances the amounts related to long and medium-term tiers of the plan. The medium-term tier has more controllable measures, similar to typical short-term incentive plans.
4. To continue to attract and retain key leaders, the design strikes a balance between when the awards are granted, vest and are delivered to the executive. The three tier approach to our variable pay structure (short-term, medium-term and long-term) provides the right mix of rewards to attract potential executives in the marketplace while retaining those that are already here through the variety of vesting periods in the medium-term and long-term tiers of the plan.

The CEIP:

• aligns the executive’s rewards with those of the shareholder:
  • 66% of the executive’s variable reward is equity based and thus is subject to the same market forces as that of the shareholder
  • uses industry specific (International Refining & Marketing companies) and broader market (ASX 100) peer groups to measure relative Total Shareholder Return performance. Having multiple peer groups is aligned with the different choices – and the returns – our investors have in the marketplace, and
  • the final quantum of shares that the executive receives under the long-term tier of the plan is subject to Caltex outperforming the peer groups
• provides market based reward levels
• provides for attraction and retention of critical executives, and
• has a balance of controllable and market based elements that are used in determining the overall executive’s reward.

It has been our past practice and is our future expectation that shares awarded under this plan will be purchased on market.

Valuation of grant of performance rights

For accounting purposes, the fair value of performance rights for the CEIP was calculated at grant date by an independent valuer. The Monte Carlo simulation technique has been used based on the following assumptions:

2008
Peer group	ASX 100	International Refining & Marketing Companies
Exercise price	Nil	Nil
Volatility	30%	30%
Risk free interest rate	6.76%	6.76%
Dividend yield	4.4%	4.4%
Expected life	3.0 years	3.0 years
Share price at grant date	$19.37	$19.37
Valuation per right	$10.41	$10.76
2007
Peer group	ASX 100	International Refining & Marketing Companies
Exercise price	Nil	Nil
Volatility	30%	30%
Risk free interest rate	6.00%	6.00%
Dividend yield	3.6%	3.6%
Expected life	3.0 years	3.0 years
Share price at grant date	$23.00	$23.00
Valuation per right	$12.49	$12.49

Long-Term Incentive Plan for 2006 and prior years

The terms of this plan are being included for completeness. No new awards are being granted under the terms of this plan. However, awards previously granted under this plan will continue to vest through to 1 January 2010.

The Long-Term Incentive Plan was approved by shareholders in 1999 and was only available to nominated senior executives as determined by the Human Resources Committee. Like the CEIP, participation was limited to senior executives, being direct reports to the Managing Director & CEO and other key managerial roles with a significant strategic impact. Also like the CEIP, participation was at two levels, with Level 2 participants qualifying for an allocation of shares equivalent to 75% of the scale that applies to Level 1 participants.

The Long-Term Incentive Plan delivered incentives via a restricted share plan, where any bonus received is paid to a trustee to purchase Caltex Australia Limited shares on the market. The award was determined on Caltex’s performance against two measures, namely:

• Return on Capital Employed (ROCE) – a target approved by the Board for the relevant financial year equating to the ratio of total earnings before interest and tax to the total of borrowings and shareholders’ equity of Caltex, and
• a one year Total Shareholder Return measure calculated as at 31 December of each year relative to the Total Shareholder Return of the members of a peer group of companies for the same period.

Accordingly, the performance criteria for the LTIP were backward-looking such that at the end of the financial year, actual performance was measured against the preliminary targets set at the beginning of the year. Payouts, if any, were determined by the Human Resources Committee. The rate of award for each of those measures is shown in the table below:

Table 1: Long-Term Incentive Plan schedules

TSR			ROCE
The TSR schedule reflects market practice where no award is made for below 51st percentile and the full award can be earned for ranking at the 75th percentile or above. Maximum TSR represents 50% of total reward available.			Maximum ROCE represents 50% of total reward available.
	Grant as % of base pay			Grant as % of base pay
TSR ranking	Level 1	Level 2	ROCE v Target	Level 1	Level 2
Below 51st percentile	0%	0%	80% and below	0%	0%
At 51st percentile	18%	14%	80-90%	7-14%	5.25–10.5%
Between 51st percentile and 75th percentile	18-45%	14-34%	90-100%	14-22%	10.5–16.5%
Above 75th percentile	45%	34%	100%	22%	16.5%
			100-110%	22-45%	16.5–34%
			>110%	45%	34%

The shares awarded vested to participants in three equal tranches:

• one third on 1 January in the year following the date the Trustee acquired the shares
• one third on 1 January in the second year following the date the Trustee acquired the shares, and
• one third on 1 January in the third year following the date the Trustee acquired the shares.

Grants awarded in relation to performance years prior to 2007 accordingly will vest up to 2010 subject to the participant still being employed by Caltex, unless the participant ceases employment due to retirement, redundancy, total and permanent disability, or death.

Shares acquired pursuant to the LTIP are subject to a voluntary restriction on sale (post vesting) to allow the executives to defer tax.

Further information on the LTIP is available in the 2006 Annual Report.

Beyond total remuneration value

Caltex also offers employees the opportunity to participate in the company’s business success through the Caltex Australia Limited Employee Share Plans (CALESP). CALESP provides eligible employees with a simple and tax-effective means of sharing in the future of Caltex Australia. Under these share plans, employees sacrifice part of their salary to purchase Caltex Australia Limited shares on market. Shares may be purchased under a Tax Exempt Plan (up to $1,000 annually) or under a Tax Deferred Plan (up to 10% of base pay). Approximately 70% of our employees are shareholders in the company through CALESP.

Caltex performance

The Caltex Reward Policy links remuneration to performance which should, in turn, link to the returns available to Caltex’s shareholders, including share price growth and dividends.

Graphs 1 and 2 show the relative Total Shareholder Return against the peer groups for the period 1 January 2007 to 31 December 2008.

Graph 1: 2008 Total Shareholder Return versus Long-Term Incentive Plan peer group – ASX 100
Caltex Australia Limited and the Constituents of the S&P/ASX 100 Index
Total Shareholder Return Performance
1 January 2007–31 December 2008

2009 Copyright. All Rights Reserved. Egan Associates.
Indices based on a value of 100 at 1 January 2007. 60-trading day smoothing applied.
(1) Constituents based on the S&P/ASX 100 Index as at grant date (i.e. 1 January 2007). Caltex is included in the S&P/ASX 100 Index.

The list below contains the peer group companies for the long-term tier of the Caltex Equity Incentive Plan in 2008:

The ASX 100 peer group for the 2008 performance year is: AGL Energy, Alumina, Amcor , AMP, Aristocrat Leisure, Asciano Group, ASX, ANZ Banking Group, AXA Asia Pacific Holding, Babcock & Brown, Babcock & Brown Infrastructure Group, Bendigo & Adelaide Bank, BHP Billiton, Billabong International, Bluescope Steel, Boart Longyear Limited, Boral, Brambles, Centro Properties Group, CFS Retail Property Trust, Challenger Financial Services Group, Coca-Cola Amatil, Cochlear, Commonwealth Bank of Australia, Commonwealth Pr.Offe.Fd., Computershare, Connecteast Group, Consolidated Media Holding, CSL, CSR, David Jones, Dexus Property Group, Downer Edi, Fairfax Media, Fortescue Metals Group, Foster’s Group, Futuris, Goodman Fielder, Goodman Group, GPT Group, Harvey Norman Holdings, Incitec Pivot, ING Individual Fund, ING Office Fund, Insurance Australia Group, James Hardie Inds.Cdi., Leighton Holdings, Lend Lease, Lihir Gold, Lion Nathan, Macquarie Airports, Macquarie Comms. Infrastructure Group, Macquarie Country Trust, Macquarie Group, Macquarie Infrastructure Group, Macquarie Office Trust, Metcash, Mirvac Group, National Australia Bank, Newcrest Mining, News Corp.Cdi.’B’ (ASX), Oil Search, Onesteel, Orica, Origin Energy (Ex Boral), Oz Minerals, Paladin Energy, Perpetual, Qantas Airways, QBE Insurance Group, Rio Tinto, Santos, Sigma Pharmaceuticals, Sims Metal Management, Sonic Healthcare, St.George Bank, Stockland, Suncorp-Metway, Tabcorp Holdings, Tatts Group, Telecom Corp.NZ. (ASX), Telstra, Toll Holdings, Transurban Group, United Group, Valad Property Group, Wesfarmers, West Australia Newspaper Holding, Westfield Group, Westpac Banking, Woodside Petroleum, Woolworths, Worleyparsons.

Graph 2: 2008 Total Shareholder Return versus Long-Term Incentive Plan peer group – International Refining & Marketing
Caltex Australia Limited and the Constituents of the Bespoke International Comparator Group
Total Shareholders Return Performance
1 January 2007–31 December 2008

2009 Copyright. All Rights Reserved. Egan Associates.
Indices based on a value of 100 at 1 January 2007. 60-trading day smoothing applied.
The Refining and Marketing peer group for the 2008 performance year is Frontier Oil (USA), Motor Oil (Greece), Neste (Finland), Singapore Petroleum Company (Singapore), S-Oil (Korea), Sunoco (USA), Tesoro (USA), Valero (USA), Western Refining (USA).

The Board has adopted a policy which recommends a dividend payout ratio in the range of 40% to 60% of the RCOP after tax excluding significant items. If there is surplus cash flow above the target payout ratio, the Board will consider a further distribution in the form of a fully franked special dividend and/or other capital management initiatives.

However, the declaration and amount of dividends are at the sole discretion of the Board and are dependent on Caltex’s earnings and cash flow requirements and financial conditions at that time.

Conclusion

The Caltex Reward Policy and System are designed to align rewards with shareholder interests while appropriately recognising the importance of the contributions of our people to the company’s success.

Our Reward Policy and Systems are supported by a rigorous, transparent performance management process and are key elements in an integrated people management approach to delivering a high performing, motivated and engaged workforce.

Senior executive reward is aligned to the achievement of strategic objectives, the creation of shareholder value and delivery of the Vision, Values and Strategic Intents.

Remuneration details for directors and senior executives

The following sections of the Remuneration Report provide detailed information on the remuneration paid to the non-executive directors of Caltex Australia Limited, the Managing Director & CEO and senior executives at Caltex, being the key management personnel which include the five highest remunerated executives, and how that remuneration was calculated.

Table 2 details the unvested senior executive share benefits for 2008.

Table 2: Unvested shareholdings of senior executives during 2008

Senior executives	Position	Unvested shares at1 Jan 2008 from the 2005, 2006 and 2007 performance years(i)	Restricted shares granted for the 2008 performance year(i)	Shares vested from the 2005, 2006, 2007 and 2008 performance years	Unvested shares at 31 Dec 2008 from the 2006 2007 and 2008 performance years(ii)
Richard Beattie(iii)	Group Manager – Policy, Public and Government Affairs	11,705	–	(11,705)	–
Andrew Brewer(iv)	Acting Group Manager – Strategy and Planning	11,161	–	(3,782)	7,379
Helen Conway(v)	General Manager – Office of the CEO, Company Secretary and General Counsel	21,286	5,563	(10,697)	16,152
Simon Hepworth	Chief Financial Officer	26,346	3,060	(13,357)	16,049
Kenneth James(vi)	Acting General Manager – Supply and Distribution	6,117	2,503	(2,200)	6,420
Mike McMenamin(vii)	Group Manager – Strategy, Planning & Development	12,403	4,172	(5,838)	10,737
Alex Strang	General Manager – Supply and Distribution	26,437	6,640	(33,077)	–
Andrew Walz(viii)	General Manager – Marketing	–	–	–	–
Brian Waywell(viii)	General Manager – Refining	–	–	–	–
Peter Wilkinson	Group Manager – Operational Excellence and Risk	8,679	2,782	(3,682)	7,779
Simon Willshire	Group Manager – Human Resources	7,936	5,563	(2,691)	10,808

Notes:

1. Grant date for the CEIP medium-term award related to the 2008 performance year will be in the second quarter of 2009, so the number of shares granted is shown at fair value at 31 December 2008. Similarly the opening balance at 1 January 2008 includes the actual shares granted from the 2007 performance year, rather than the 31 December 2007 fair value.
2. If the executive meets the service conditions, amounts will vest in 2009, 2010 and 2011 in accordance with the vesting conditions of the Long-Term Incentive Plan and the Caltex Equity Incentive Plan.
3. Mr Beattie retired on 4 July 2008.
4. Mr Brewer commenced his role on 20 April 2007 and was seconded to Chevron as at 1 April 2008. The vesting periods on his unvested awards as at that date were extended until his return, which is estimated in 2011.
5. Ms Conway was appointed to General Manager – Office of the CEO, Company Secretary and General Counsel on 4 July 2008. Prior to that she held the role of Company Secretary and General Counsel.
6. Mr James was appointed on 3 November 2008.
7. Mr McMenamin was appointed to Group Manager – Strategy, Planning & Development on 1 April 2008. Prior to that he held the role of Acting General Manager – Marketing.
8. Mr Waywell and Mr Walz are not eligible to participate for any of the grant periods under the secondment arrangement with Chevron.

In relation to the Long-Term Incentive Plan and Caltex Equity Incentive Plan for each senior executive, Table 3 shows the percentage paid and forfeited in relation to each grant, the years in which the grant is still to vest and the total value of the grant for each financial year after 2008. It shows the future cost to Caltex that will be incurred as a result of the shares awarded in 2006, 2007 and 2008. The cost to Caltex of the shares is recorded as at 31 December of each year; however, the shares vest in the senior executive in January/March of the following year.

Table 3: Long-term incentive/Caltex equity incentive grants to senior executives after 2008

Senior executives	CEIP  year	LTI year	Vested (% of shares vested)	Future  years when shares will vesT	Future cost to Caltex of unvested shares* ($)
Andrew Brewer(iii)		2006	33%	2011	7,571
	2007(iv)		33%	2011	8,170
	2007(v)		0%	2011	19,470
	Total				35,211
Helen Conway		2006	33%	2009, 2010	13,159
	2007(iv)		66%	2009	–
	2007(v)		33%	2009, 2010	10,684
	2008(vi)		0%	2009, 2010, 2011	15,560
	Total				39,403
Simon Hepworth		2006	33%	2009, 2010	17,175
	2007(iv)		66%	2009	–
	2007(v)		33%	2009, 2010	12,019
	2008(vi)		0%	2009, 2010, 2011	8,558
	Total				37,752
Kenneth James		2006	33%	2009, 2010	5,191
	2007(iv)		66%	2009	–
	2007(v)		33%	2009, 2010	3,678
	2008(vi)		0%	2009, 2010, 2011	7,002
	Total				15,871
Mike McMenamin		2006	33%	2009, 2010	7,202
	2007(iv)		66%	2009	–
	2007(v)		33%	2009, 2010	7,789
	2008(vi)		0%	2009, 2010, 2011	11,670
	Total				26,661
Peter Wilkinson		2006	33%	2009, 2010	7,273
	2007(iv)		66%	2009	–
	2007(v)		33%	2009, 2010	4,787
	2008(vi)		0%	2009, 2010, 2011	7,780
	Total				19,840
Simon Willshire		2006	33%	2009, 2010	1,726
	2007(iv)		66%	2009	–
	2007(v)		33%	2009, 2010	10,348
	2008(vi)		0%	2009, 2010, 2011	15,560
	Total				27,634

Notes:

* The maximum and minimum total value of the grants is the same for the financial years after 2006 because such amounts are subject only to service conditions.

1. There are no future shares to vest, or cost to Caltex, for Mr Beattie or Mr Strang.
2. Mr Waywell and Mr Walz are not eligible to participate for any of the grant periods under the secondment arrangement with Chevron.
3. Mr Brewer commenced his role on 20 April 2007 and was seconded to Chevron in an expatriate role on 1 April 2008. The vesting periods on his unvested awards as at that date were extended until his return, which is estimated in 2011.
4. Medium-term grant relating to 2006 performance year.
5. Medium-term grant relating to 2007 performance year.
6. Medium-term grant relating to 2008 performance year.

Table 4: Senior executive performance rights during 2008

Senior executives	Position	Performance right100s at 1 Jan 2008	Performance right100s granted  in 2008	Performance right100s vested  in 2008	Lapsed	Unvested performance right100s at 31 Dec 2008
Richard Beattie(i)	Group Manager – Policy, Public and Government Affairs	3,400	4,870	(3,400)	(4,870)	–
Andrew Brewer(ii)	Acting Group Manager – Strategy and Planning	3,070	–	–	–	3,070
Helen Conway(iii)	General Manager – Office of the CEO, Company Secretary and General Counsel	6,220	9,070	–	–	15,290
Simon Hepworth	Chief Financial Officer	8,210	11,870	–	–	20,080
Kenneth James(iv)	Acting General Manager – Supply and Distribution	2,360	3,320	–	–	5,680
Mike McMenamin(v)	Group Manager – Strategy, Planning & Development	3,300	5,480	–	–	8,780
Alex Strang(vi)	General Manager – Supply and Distribution	7,630	10,820	(10,936)	(7,514)	–
Andrew Walz(vii)	General Manager – Marketing	–	–	–	–	–
Brian Waywell(vii)	General Manager – Refining	–	–	–	–	–
Peter Wilkinson	Group Manager – Operational Excellence and Risk	3,300	4,420	–	–	7,720
Simon Willshire	Group Manager – Human Resources	5,980	8,410	–	–	14,390

Notes:

1. Mr Beattie retired on 4 July 2008. The service vesting condition was approved as satisfied early for his performance rights under the rules of the plan. 4,870 of these rights lapsed as a result of not meeting the 50th percentile performance hurdle.
2. Mr Brewer commenced his role on 20 April 2007 and was seconded to Chevron on 1 April 2008. The vesting periods on his performance rights as at that date were extended until his return, which is estimated in 2011.
3. Ms Conway was appointed to General Manager – Office of the CEO, Company Secretary and General Counsel on 4 July 2008. Prior to that she held the role of Company Secretary and General Counsel.
4. Mr James was appointed on 3 November 2008.
5. Mr McMenamin was appointed to Group Manager – Strategy, Planning & Development on 1 April 2008. Prior to that he held the role of Acting General Manager – Marketing.
6. Mr Strang passed away on 17 December 2008. The service vesting condition was approved as satisfied early for his performance rights under the rules of the plan. 7,514 of these rights lapsed as a result of not meeting the 50th percentile performance hurdle.
7. Mr Waywell and Mr Walz are not eligible to participate for any of the grant periods under the secondment arrangement with Chevron.

Tables 5 and 6 below show the relationship between the Long-Term Incentive (LTI) payout paid to senior executives during the year, compared to the TSR performance quintile achieved over the past five years. It clearly demonstrates that the Long-Term Incentive Plan awards have been strongly correlated with Total Shareholder Return, our proxy for shareholder value creation.

Table 5: Long-term incentive scheme payout for Caltex senior executives (Level 1) 2004-2006

Measure	2004	2005	2006
Long-term Incentive Plan (pre 2007)
Measure 1: Total Shareholder Return (TSR) Performance versus ASX 200	Upper Quintile (Q5)	Upper Quintile (Q5)	44th percentile (Q3)
Measure 2: ROCE (% of business plan target)	185%	113%	127%
Payout in Restricted Caltex Shares (Quantum as % of maximum allowable payout - 90%)	96%	86%	50%
Caltex Equity Incentive Plan  (post 2006)	New Plan as at 1 January 2007. No awards made under this plan prior to that date
– Medium-term tier
Measure: Company Balanced Scorecard Result which includes metrics  on safety, earnings, cash flow, capital efficiency, cost management (100 points represent hitting the business plan targets)
Payout in Restricted Caltex Shares (Quantum as % of maximum allowable payout - 40.5%)
– 2007 Long-term tier (Grant Date 1 January 2007)
Measure 1: 3 Year TSR Performance versus ASX 100
Measure 2: 3 Year TSR Performance versus International Refining and Marketing
Payout in Caltex Shares (Quantum as % of base salary)
– 2008 Long-term tier (Grant Date 1 January 2008)
Measure 1: 3 Year TSR Performance versus ASX 100
Measure 2: 3 Year TSR Performance versus International Refining and Marketing
Payout in Caltex Shares (Quantum as % of base salary)

Table 6: Caltex equity incentive scheme payout for Caltex senior executives (Level 1) 2007-2008

Measure	2007	2008	2009	2010
Long-term Incentive Plan (pre 2007)	No awards were granted post 2006 as the incentive scheme was redesigned. Post 2006, all awards are being granted under the Caltex Equity Incentive Plan
Measure 1: Total Shareholder Return (TSR) Performance versus ASX 200
Measure 2: ROCE (% of business plan target)
Payout in Restricted Caltex Shares (Quantum as % of maximum allowable payout - 90%)
Caltex Equity Incentive Plan (post 2006)
– Medium term tier
Measure: Company Balanced Scorecard Result which includes metrics on safety, earnings, cash flow, capital efficiency, cost management (100 points represent hitting the business plan targets)	93	55
Payout in Restricted Caltex Shares (Quantum as % of maximum allowable payout - 40.5%)	55%	24.20%
– 2007 Long-term tier (Grant Date 1 January 2007)
Measure 1: 3 Year TSR Performance versus ASX 100	19th percentile (Q1) thru 31/12/2008
Measure 2: 3 Year TSR Performance versus International Refining and Marketing	44th Percentile (Q2) thru 31/ 12/2008
Payout in Caltex Shares (Quantum as % of base salary)	Payouts of 0-44% to be determined based on three year TSR results ending on 31/12/2009
– 2008 Long-term tier (Grant Date 1 January 2008)
Measure 1: 3 Year TSR Performance versus ASX 100		23rd percentile (Q2) thru 31/12/2008
Measure 2: 3 Year TSR Performance versus International Refining and Marketing		55th Percentile (Q3) thru 31/12/2008
Payout in Caltex Shares (Quantum as % of base salary)		Payouts of 0-44% to be determined based on three year TSR results ending on 31/12/2010

Summary of total remuneration value of senior executives in 2008

The proportion of each senior executive’s remuneration for 2008 that was fixed, and the proportion that was subject to a performance condition, is shown in Table 7.

Table 7: Distribution of fixed and variable elements of senior executive remuneration for 2008

Senior executive	Position	Fixed	Variable (including shor and long-term incentive payments)
Richard Beattie(i)	Group Manager – Policy, Public and Government Affairs	86%	14%
Andrew Brewer(ii)	Acting Group Manager – Strategy and Planning	82%	18%
Helen Conway(iii)	General Manager – Office of the CEO, Company Secretary and General Counsel	72%	28%
Simon Hepworth	Chief Financial Officer	76%	24%
Kenneth James(iv)	Acting General Manager – Supply and Distribution	78%	22%
Mike McMenamin(v)	Group Manager – Strategy, Planning & Development	76%	24%
Alex Strang(vi)	General Manager – Supply and Distribution	76%	24%
Andrew Walz(vii)	General Manager – Marketing	77%	23%
Brian Waywell(viii)	General Manager – Refining	73%	27%
Peter Wilkinson	Group Manager – Operational Excellence and Risk	78%	22%
Simon Willshire	Group Manager – Human Resources	76%	24%

Notes:

1. Mr Beattie retired on 4 July 2008.
2. Mr Brewer commenced his role on 20 April 2007 and was seconded to Chevron on 1 April 2008.
3. Ms Conway was appointed to General Manager – Office of the CEO, Company Secretary and General Counsel on 4 July 2008. Prior to that she held the role of Company Secretary and General Counsel.
4. Mr James was appointed on 3 November 2008.
5. Mr McMenamin was appointed to Group Manager – Strategy, Planning & Development on 1 April 2008. Prior to that he held the role of Acting General Manager – Marketing.
6. Mr Strang passed away on 17 December 2008.
7. Mr Walz was appointed to General Manager – Marketing on 1 April 2008.
8. Mr Waywell resigned on 30 November 2008.

Details of the classification and amount of each element of the remuneration of senior executives (excluding the Managing Director & CEO) who received the highest total remuneration for 2008 are set in Table 8. The 12 senior executives below, all of whom are (or were) members of the Caltex Leadership Team, along with the directors of Caltex Australia Limited are considered the key management personnel for whom details of their remuneration must be disclosed in accordance with accounting standards.

Table 8: Total remuneration for senior executives for 2008 (in dollars)(i)

		PRIMARY		POST EMPLOYMENT	OTHER LONG-TERM	EQUITY		TOTAL
	Salary and fees(ii)	Bonus    (short-term incentive)	Non- monetary benefits	Super- annuation	Other(iii)	Share benefits (long-term incentive)	Rights benefits (long-term incentive)
Richard Beattie (Group Manager – Policy, Public and Government Affairs)(iv)
2008	448,518	–	–	40,089	–	52,525	80,327	621,459
2007	291,369	47,000	–	30,780	19,554	111,038	14,389	514,130
Andrew Brewer (Acting Group Manager – Strategy and Planning)(v)
2008	44,329	–	22,678	12,100	1,690	17,648	–	98,445
2007	274,372	50,000	66,204	28,007	15,978	108,534	12,993	556,088
Mark Burrowes (General Manager – Marketing)(vi)
2008	–	–	–	–	–	–	–	–
2007	521,851	–	8,442	20,190	–	–	–	550,483
Helen Conway (General Manager – Office of the CEO, Company Secretary and General Counsel)(vii)
2008	437,277	40,000	10,626	45,945	17,302		58,326	706,964
2007	385,877	96,000	12,276	43,403	22,672		26,324	787,776
Simon Hepworth (Chief Financial Officer)
2008	537,631	22,000	13,843	74,798	30,341		76,628	859,262
2007	491,562	108,000	12,669	56,902	35,140		34,747	990,149
Kenneth James (Acting General Manager – Supply and Distribution)(viii)
2008	34,697	3,000	2,669	6,342	3,559		3,617	60,243
2007	–	–	–	–	–		–	–
Mike McMenamin (Group Manager – Strategy, Planning & Development)(ix)
2008	345,610	30,000	11,331	36,795	14,223		33,301	533,518
2007	330,613	70,000	4,227	33,311	8,371		13,966	575,805
Alex Strang (General Manager – Supply and Distribution)(x)
2008	433,217	–	23,871	92,448	–		99,576	772,342
2007	487,340	113,000	11,082	84,870	57,214		32,291	1,051,373
Andrew Walz (General Manager – Marketing)(xi)
2008	425,165	96,805	541,311	12,951	193,155		–	1,269,387
2007	–	–	–	–	–		–	–
Brian Waywell (General Manager – Refining)(xii)
2008	564,436	137,051	533,853	17,724	276,018		–	1,529,082
2007	800,000	–	–	–	–		–	800,000
Peter Wilkinson (Group Manager – Operational Excellence and Risk)
2008	288,035	20,000	1,446	29,453	8,582		29,561	422,382
2007	264,935	43,000	–	26,168	5,558		13,966	432,674
Simon Willshire (Group Manager – Human Resources)
2008	407,014	40,000	11,574	43,673	8,909		54,982	622,155
2007	370,344	93,000	12,669	33,570	6,435		25,308	611,740
Total remuneration: senior executives
2008	3,965,929	388,856	1,173,202	412,318	553,779		436,318	7,495,239
2007	4,218,263	620,000	127,569	357,201	170,922		173,984	6,870,218

Notes:

1. All of the senior executives have been in the position stated above for the whole year of 2008, with the exception of those noted.
2. Salary and fees includes base pay, annual leave and termination benefits.
3. Other long-term remuneration represents the Chevron Long-Term Incentive plan for Mr Waywell and Mr Walz and is long service leave all the other executives.
4. Mr Beattie retired on 4 July 2008.
5. Mr Brewer was appointed Group Manager – Strategy and Planning on 20 April 2007 and was seconded to Chevron on 1 April 2008.
6. Mr Burrowes resigned on 13 April 2007.
7. Ms Conway was appointed to General Manager – Office of the CEO, Company Secretary and General Counsel on 4 July 2008. Prior to that she held the role of Company Secretary and General Counsel.
8. Mr James was appointed on 3 November 2008.
9. Mr McMenamin was appointed to Group Manager – Strategy, Planning & Development on 1 April 2008. Prior to that he held the role of Acting General Manager – Marketing.
10. Mr Strang passed away on 17 December 2008.
11. Mr Walz was appointed on 1 April 2008.
12. Mr Waywell resigned on 30 November 2008.

Brian Waywell and Andrew Walz were appointed as General Manager – Refining and General Manager – Marketing on 1 August 2006 and 1 April 2008, respectively. They are both seconded from Chevron to Caltex. Under the terms of the secondment arrangements, Caltex has agreed to pay Chevron, from 1 January 2008, the full cost of providing Mr Waywell and Mr Walz, including the cost of their targeted long-term incentive. Chevron’s long-term incentive plan may pay out in future years based on Chevron’s TSR performance and stock performance. The targeted value for both Mr Waywell and Mr Walz was 95% of 2008 base salary (2007: Mr Waywell’s target was 95% of 2007 base salary). Caltex has no obligation to pay any individual amounts to Chevron, Mr Waywell or Mr Walz beyond this amount. The remuneration components for Mr Waywell and Mr Walz are described later in this report as they are the same remuneration arrangements as are applicable to Mr King, Managing Director & CEO.

In 2007, the terms of the secondment arrangement for Mr Waywell capped the cost to Caltex. An additional amount of $255,314 in remuneration was paid to Mr Waywell by Chevron above the cap. The components of his 2007 remuneration are as follows:

2007	Salaries and fees (A$)	Bonus (Short-term incentive – CIP) (A$)	Expatriate and other allowances (A$)	Non-monetary benefits (A$)	Total (A$)
Brian Waywell	306,315	164,309	355,667	229,023	1,055,314

Other information required by the Corporations Act 2001

Options

Options do not form a part of the remuneration package of directors or senior executives. However, performance rights, subject to a forward-looking three year performance period, were issued to senior executives under the 2007 and 2008 Caltex Equity Incentive Plan. Subject to meeting performance hurdles, the rights will vest on 31 December 2009 and 2010, respectively. Mr King, Mr Walz and Mr Waywell, who are secondees, are eligible for Chevron options under the Chevron remuneration package.

Contracts of employment

The senior executives of Caltex other than Mr King, the Managing Director & CEO (commencing 1 May 2006), Mr Waywell, General Manager – Refining (commencing 1 August 2006 and ending 1 December 2008) and Mr Walz, General Manager – Marketing (commencing 1 April 2008) are appointed as permanent Caltex employees. Their employment contracts require both the company and the senior executive to give a notice period within a range of one to nine months as stipulated by their individual contracts should they resign or have their service terminated by Caltex. The terms and conditions of the executives reflect market conditions at the time of their contract negotiation and appointment. Our intention is to reset the termination notice for all key senior executives to at least three months.

If a senior executive were to resign, their entitlement to unvested shares payable through the Long-Term Incentive Plan and Caltex Equity Incentive Plan would be forfeited and, if resignation was on or before 31 December of the year, their payment from the Performance Incentive Plan would also be forfeited.

The details of the contracts of the senior executives of Caltex (other than Mr King, Mr Waywell and Mr Walz, which are provided later in this report) are set out in Table 9:

Table 9: Summary of contracts of employment for senior executives

Senior executives	Position	Appointed to current role	Contract	Termination notice
Helen Conway	General Manager – Office of the CEO, Company Secretary and General Counsel	4 July 2008	Open ended	3 months
Simon Hepworth	Chief Financial Officer	1 January 2001	Open ended	3 months
Kenneth James	Acting General Manager – Supply and Distribution	3 November 2008	Open ended	1 month
Mike McMenamin	Group Manager – Strategy, Planning & Development	1 April 2007	Open ended	1 month
Peter Wilkinson	Group Manager – Operational Excellence and Risk	11 July 2005	Open ended	1 month
Simon Willshire	Group Manager – Human Resources	13 November 2006	Open ended	6 months

Other than prescribed notice periods, there is no special termination benefits payable under the contracts of employment. However, a benefit may be required to be paid in accordance with the legislative requirements at the time of the senior executive’s termination.

Mr Beattie (Group Manager – Policy, Public and Government Affairs) was remunerated $316,199 upon retirement.

Mr Waywell returned to Chevron on 1 December 2008. Mr Walz’s secondment is for a period of three years ending on 1 April 2011 and Caltex and Chevron may agree to vary the contract term by early termination or extension. The secondment arrangement may also be terminated by Caltex if Mr Walz:

• commits a wilful breach or wilfully neglects to perform or observe any of his statutory or contractual duties, or
• fails to perform or observe any of his statutory or contractual duties and does not correct or rectify the failure within seven days of being requested to do so.

On termination, Mr Walz has no rights against Caltex for payment of any amounts or claims.

Non-executive directors

Policy for determining non-executive directors’ fees

Under the Constitution of Caltex Australia Limited and the ASX Listing Rules, the total remuneration pool for non-executive directors is determined by shareholders. The Constitution provides that, within this overall pool amount, remuneration for non-executive directors is to be divided among the directors in the proportion and manner agreed by the Board (and, in default of agreement, equally). The Board, after taking advice from the Human Resources Committee, reviews the remuneration of non-executive directors for Board and committee work on an annual basis and, if considered appropriate, approves new fees.

Fees for non-executive directors are set at a level appropriate to attract and retain directors with the necessary skills and experience to allow the Board to have a proper understanding of, and competence to deal with, current and emerging issues for Caltex’s business and to effectively review and challenge the performance of management. In setting fees the Board has regard to external data on fees, external advice from a specialist remuneration consultant and to the size and complexity of Caltex’s operations.

Non-executive directors resident in Australia are entitled to statutory superannuation. Superannuation is included as part of the total remuneration pool.

Non-executive directors do not receive any bonus payment or participate in any incentive plan. Accordingly, 100% of the remuneration of non-executive directors is fixed.

Caltex does not have a directors’ retirement scheme. Prior to 1 January 2004, Mr Richard (Dick) Warburton participated in a directors’ retirement scheme which was in place at that time and amounts accrued under the scheme were frozen and paid into a separate interest bearing account pending his retirement. Mr Warburton retired as a director at the end of the Annual General Meeting on 24 April 2008. An amount of $330,629 was paid to Mr Warburton on retirement. No current directors are entitled to an accrued retirement benefit.

Non-executive directors’ fees

In 2008, fees paid to non-executive directors were subject to a maximum Board remuneration pool of $1,600,000 per annum, inclusive of statutory entitlements. The remuneration pool for non-executive directors was approved by shareholders at the Annual General Meeting held on 24 April 2008. This represented an increase in the pool of $200,000.

Fees paid to non-executive directors in 2008 were paid at the following rates:

	2008
Board fees
Chairman (inclusive of committee fees)	$378,500
Non-executive directors	$137,000
Audit Committee fees
Chairman	$30,000
Member	$15,000
Human Resources Committee fees
Chairman	$20,000
Member	$10,000
OHS & Environmental Risk Committee fees
Chairman	$20,000
Member	$10,000
Nomination Committee fees
Chairman	Nil
Member	Nil

The statutory superannuation guarantee charge (where applicable) is paid as an additional amount.

The Board reviewed board and committee fee rates in December 2008 and determined that board and committee fees for 2009 are to be paid at the same rates as in 2008.

Non-executive directors can elect to forgo fees to acquire shares, on market, in Caltex Australia Limited through a non-executive director share plan (NED Share Plan). Participation in the NED Share Plan is not open to directors who are employed by Chevron.

Shares acquired through the NED Share Plan are subject to a trading lock of 10 years from the date of acquisition. Shares are released from the trading lock when the director leaves office and may be released early in other cases (for example, on the director making an early request for release).

The NED Share Plan year runs from 1 July to 30 June. A non-executive director who wishes to participate in the NED Share Plan for a year must lodge an application to participate in the plan for that year. Caltex pays brokerage and other acquisition costs.

The acquisition of shares under the NED Share Plan is not subject to any performance conditions, as shares are acquired on market on a fee-sacrifice basis.

For the 2008 year, Ms Elizabeth Bryan elected to participate in the NED Share Plan. She acquired 4,238 shares on market (at $11.77 per share) on 8 September 2008. The balance of fees sacrificed for the 2008/09 plan year will be used to purchase shares on market in March 2009.

Mr Trevor Bourne participated in the NED Share Plan in the 2007/08 plan year. He acquired 988 shares on market (at $12.15 per share) on 5 March 2008.

Remuneration of directors in 2008

Details of the remuneration of directors of Caltex Australia Limited for 2008:

		PRIMARY		POST EMPLOYMENT	EQUITY	OTHER	TOTAL
	Salary and fees	Bonus	Non-monetary benefits	Superannuation	Share benefits
Executive
Desmond King (Managing Director & CEO)
2008	492,090	264,601	1,222,197	23,919	–	527,128	2,529,935
2007	1,400,000	–	–	–	–	–	1,400,000
Non-executives
Elizabeth Bryan (Chairman)
2008	328,502	–	357	34,065	49,998	–	412,922
2007	127,000	–	–	93,180	–	–	220,180
Trevor Bourne
2008	160,000	–	695	15,480	12,000	–	188,175
2007	145,107	–	–	13,050	–	–	158,157
Brant Fish
2008	147,000	–	–	–	–	–	147,000
2007	140,000	–	–	–	–	–	140,000
Greig Gailey
2008	51,692	–	–	141,238	–	–	192,930
2007	–	–	–	7,999	–	–	7,999
Colleen Jones-Cervantes
2008	85,750	–	–	–	–	–	85,750
2007	–	–	–	–	–	–	–
John Thorn
2008	177,000	–	1,482	15,930	–	–	194,412
2007	80,000	–	–	94,400	–	–	174,400
Former non-executive directors
Richard (Dick) Warburton
2008	105,418	–	1,219	25,227	–	330,629	462,493
2007	293,200	–	–	97,020	–	–	390,220
Peter Wissel
2008	62,916	–	–	–	–	–	62,916
2007	145,000	–	–	–	–	–	145,000
Total remuneration: directors
2008	1,610,368	264,601	1,225,950	255,859	61,998	857,757	4,276,533
2007	2,330,307	–	–	305,649	–	–	2,635,956

Notes:

• A share benefit arises when Caltex shares are acquired under the Non-Executive Directors Share Plan by a director via a salary sacrifice arrangement.
• Mr King participated in Chevron’s long-term incentive plan. In 2008, Caltex incurred the cost of this plan for Mr King paid to target of 135% of base salary, shown as other benefit in the table. Non-monetary benefits for Mr King include Australian income tax and FBT payments, as well as local housing and services.
• Ms Elizabeth Bryan was appointed as Board Chairman with effect from 1 October 2007.
• Mr Greig Gailey was appointed as a director on 11 December 2007.
• Ms Colleen Jones-Cervantes was appointed as a director from 1 June 2008. Previously in 2008, and in 2007, she served as an alternate director. She did not receive any remuneration from Caltex in her role as an alternate director.
• Mr Richard (Dick) Warburton served as a director until 24 April 2008. Mr Warburton, a former Board Chairman, was paid at the Chairman’s rate until his retirement as a director. The payment of the Chairman’s rate to Mr Warburton was approved by the Board on the basis that Mr Warburton would be assisting the then incoming Chairman, Ms Elizabeth Bryan.
• On retirement, Mr Warburton received payment of an accrued retirement benefit under a previous scheme for non-executive directors (which was discontinued by the Board in December 2003). Mr Warburton’s accrued retirement benefit at 31 December 2003 was frozen and paid into a separate interest bearing account pending his retirement.
• Mr Peter Wissel was appointed as an alternate director from 1 June 2008. He did not receive any remuneration from Caltex in his role as an alternate director. Mr Wissel previously served as a director to 31 May 2008 and in 2007.

Remuneration for Managing Director & CEO

Mr Desmond King, the Managing Director & CEO, is seconded from Chevron to Caltex. Chevron Global Energy Inc. holds 50% of the shares in Caltex Australia Limited. The appointment of a Chevron executive as Managing Director allows Caltex to access industry experience that Chevron executives have gained through involvement in the day-to-day operations of one of the world’s leading global energy companies.

Under the terms of the secondment arrangements, from 1 January 2008 Caltex pays the full cost to Chevron of providing Mr King, representing a reimbursement of the salary and other benefits incurred by Chevron in relation to Mr King’s services to Caltex including the cost of Chevron’s Long-Term Incentive Plan paid to target. The target value of this Chevron Long-Term Incentive Plan is 135% of Mr King’s 2008 base salary (2007: 135%). Chevron’s Long-Term Incentive Plan may pay out in future years based on Chevron’s TSR performance and stock performance.

Mr King’s remuneration was distributed on the basis of 69% fixed and 31% variable.

In 2007, the terms of the secondment arrangement for Mr King capped the cost to Caltex. An additional amount of $98,715 in remuneration was paid to Mr King by Chevron above the cap. The components of his 2007 remuneration are detailed below. In addition to housing, expatriate and other allowances, Mr King’s remuneration consisted of base salary and a cash bonus under the Chevron Incentive Plan (CIP) as detailed below.

2007	Salaries and fees (A$)	Bonus (Short-term incentive – CIP) (A$)	Expatriate and other allowances (A$)	Non monetary benefits (A$)	Total (A$)
Desmond King	365,476	251,027	608,956	273,256	1,498,715

In 2007, Mr King also participated in the long-term incentive schemes offered by Chevron and received an amount under these schemes of $299,600 from Chevron.

Although Caltex has no obligation to pay any amount to Mr King and he does not participate in the incentive schemes for Caltex senior management, Caltex has input into the amount Mr King receives under the CIP.

Mr King’s secondment to Caltex ends on 30 June 2009 and Caltex and Chevron may agree to vary the contract term by extension or by early termination.

The secondment agreement may be also be terminated by Caltex if Mr King:

• commits a wilful breach or wilfully neglects to perform or observe any of his statutory or contractual duties as an officer of Caltex
• fails to perform or observe any of the statutory or contractual duties or obligations imposed on him as an officer of Caltex and does not correct or rectify the failure within seven days of being requested to do so, or
• ceases to hold the office of director of Caltex Australia Limited.

On termination, Mr King has no rights against Caltex for payment of any amounts or claims. Under the secondment agreement, Chevron agrees that the scope, nature and performance of Mr King’s duties are subject to, and are to be undertaken in accordance with, the lawful directions of the Board of Caltex. In his letter of appointment, Mr King also agrees that the scope, nature and performance of his duties are subject to, and must be undertaken in accordance with, the lawful directions of the Board of Caltex Australia Limited.

Chevron Incentive Plan (CIP)

The CIP awards an annual cash bonus to participants which is based on three components, with each component weighted equally. The components are the performance of Chevron, the performance of the participant’s Award Unit (which in Mr King’s case is Caltex Australia) and the participant’s performance, all in the prior year. At target, the CIP award would be an amount equal to 50% of Mr King’s base salary. The performance conditions in the CIP were chosen to give employees a direct line of sight with performance and to tie accountability with actual performance.

All awards under the CIP are approved by the Management Compensation Committee of the Board of Directors of Chevron. That committee assesses the performance of Chevron by comparing corporate results against business plan targets. The Award Unit performance assessment of Caltex Australia is made by senior management at Chevron with input from Caltex based on the achievement of financial objectives (e.g. earnings, cash flow and operating expense) and operational objectives (e.g. safety, and reliability, etc.). Mr King’s individual performance is assessed by his Award Unit head at Chevron based on the assessment of Mr King made annually by Caltex against Caltex performance benchmarks agreed between Caltex and Mr King. The assessment made by Caltex of Mr King’s performance as part of the CIP, also directly influences the size of any increase to the base salary Chevron pays to Mr King. As can be seen, there is an alignment between Mr King’s remuneration and his performance at Caltex.

The methods of assessing individual performance under the CIP are the same as those used in Chevron’s general performance and salary administration process. These methods have been chosen because they assess the full range of individual performance and leadership behaviours. Assessing corporate and Award Unit performance against business plan targets, which include financial and operational measures, ensures that management is being evaluated on the full range of metrics that ultimately leads to increased shareholder value.