The directors present their report, together with the Consolidated Financial Report of the Consolidated Entity (Cochlear), being Cochlear Limited (the Company) and its controlled entities, for the year ended 30 June 2011, and the Auditor's Report thereon.

Directors

The directors of the Company at any time during or since the end of the financial year were Mr R Holliday-Smith, Mrs YA Allen, Mr PR Bell, Prof E Byrne, AO, Mr A Denver, Mr DP O'Dwyer and Dr CG Roberts. Information on the directors is presented in the Annual Report.

Directors' meetings

The number of directors' meetings (including meetings of committees of directors) and number of meetings attended by each of the directors of the Company during the financial year are:

	Board of directors		Audit Committee		Medical Science Committee		Nominations Committee		Remuneration Committee		Technology and Innovation Committee
	Held	Attended	Held	Attended	Held	Attended	Held	Attended	Held	Attended	Held	Attended
Mr R Holliday-Smith	9	9	5	5	-	-	4	4	3	3	2	2
Mrs YA Allen	8	8	5	5	-	-	3	3	-	-	2	2
Mr PR Bell	9	9	-	-	-	-	4	4	3	3	2	2
Prof E Byrne, AO	9	9	-	-	2	2	4	4	-	-	2	2
Mr A Denver	9	9	5	5	-	-	4	4	3	2	2	2
Mr DP O’Dwyer	9	9	5	5	2	2	4	4	3	3	2	2
Dr CG Roberts	9	9	-	-	2	2	-	-	-	-	2	2

Principal activities and review of operations and results

The principal activities and a review of the operations of Cochlear during the year ended 30 June 2011, and the results of these operations are set out in the CEO/President's Report and the Financial Discussion and Analysis sections of the Annual Report.

Other than as discussed in the CEO/President's Report and the Financial Discussion and Analysis, there were no significant changes in the nature of those activities during the year ended 30 June 2011.

Consolidated results

The consolidated results for the financial year are:

	2011 $000	2010 $000
Revenue	809,646	734,803
Profit before income tax	235,137	209,351
Net profit	180,114	155,152
Basic earnings per share (cents)	318.2	275.7
Diluted earnings per share (cents)	316.1	274.2

Dividends

Dividends paid or declared by the Company to members since the end of the previous financial year are:

Type	Cents per share	Total amount $000	Date of payment	Tax rate for franking credit
In respect of the previous financial year: Final – ordinary shares	105.0	59,404	23 September 2010	30%
In respect of the current financial year: Interim – ordinary shares	105.0	59,544	15 March 2011	30%

All the dividends paid or declared by the Company since the end of the previous financial year were 60% franked.

The final dividend in respect of the current financial year has not been provided for in the Financial Report as it was not declared until after 30 June 2011. Since the end of the financial year, the directors declared a final 120.0 cents per share dividend, 70% franked at the tax rate of 30%, amounting to a total of $68,233,774.

Environmental regulations

Cochlear's operations are not subject to any significant environmental regulations under either Commonwealth of Australia or State/Territory legislation. However, the Board believes that Cochlear has adequate systems in place to manage its environmental obligations and is not aware of any breach of those environmental requirements as they apply to Cochlear.

Non-audit services

During the year, KPMG, the Company's auditor, has performed certain other services in addition to its statutory duties. The Board has considered the non-audit services provided during the year by the auditor and in accordance with written advice provided by resolution of the Audit Committee, is satisfied that the provision of those non-audit services during the year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:

• all non-audit services were subject to the corporate governance procedures adopted by the Company and have been reviewed by the Audit Committee to ensure that they do not impact the integrity and objectivity of the auditor; and
• the non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor's own work, acting in a management or decision-making capacity for the Company, acting as an advocate for the Company or jointly sharing risks and rewards.

Details of the amounts paid to the auditor of the Company, KPMG, and its related practices for audit and non-audit services during the year are set out below:

	Consolidated
	2011 $	2010 $
Audit services Auditors of the Company: KPMG Australia: - audit and review of financial reports - other audit services - other regulatory compliance services Overseas KPMG firms: - audit and review of financial reports - other regulatory compliance services	587,000 106,000 21,400   542,668 3,638	552,700 - 6,978   564,978 12,579
Total audit services Non-audit services Auditors of the Company: KPMG Australia: - taxation compliance services - other tax related services Overseas KPMG firms: - taxation compliance services	1,260,706       1,017,013 -   445,753	1,137,235       589,651 107,043   461,149
Total non-audit services	1,462,766	1,157,843

State of affairs

There were no significant changes to the state of affairs of Cochlear during the financial year.

Likely developments

Further information as to likely developments in the operations of Cochlear and the expected results of those operations in subsequent financial years has not been included in this Directors' Report because the directors believe, on reasonable grounds, that to include such information would be likely to result in unreasonable prejudice to Cochlear.

Remuneration Report – audited

Key management personnel have authority and responsibility for planning, directing and controlling the activities of Cochlear, including directors of the Company and other executives. Key management personnel comprise the directors of the Company and senior executives for Cochlear including the five most highly remunerated Company and Group executives.

Remuneration Committee

The Remuneration Committee operates under delegated authority of the Board. The Remuneration Committee approves the remuneration policy and structure for senior executives (being the executive director and other executives named in this report) and makes recommendations to the Board on the total remuneration packages of each senior executive.

External advice on remuneration matters is obtained and is made available for the Remuneration Committee.

From 1 July 2011, all proposed remuneration consultancy contracts (within the meaning of section 206K of the Corporations Act 2001) will be subject to prior approval by the Board or the Remuneration Committee in accordance with the Corporations Act 2001.

Remuneration policies

The Board recognises that Cochlear's performance is dependent on the quality of its people. To successfully achieve its financial and operating objectives in a complex and global environment, Cochlear must be able to attract, motivate and retain highly skilled senior executives who are dedicated to the interests of shareholders. Cochlear adopts a total remuneration approach for senior executives. The key principles that underpin Cochlear's Remuneration Policy include:

• a competitive total remuneration strategy provided to attract, motivate and retain senior executive talent;
• a significant proportion (up to 70% of total fixed remuneration) of total senior executive remuneration linked to financial performance and business objectives, under the Cochlear Management Short Term Incentive Plan (CMSTIP);
• a significant proportion (up to 70% of total fixed remuneration) of total senior executive remuneration linked to the creation of long-term value for shareholders under the Cochlear Executive Long Term Incentive Plan (CELTIP); and
• a requirement that all directors and senior executives achieve and then maintain a holding of shares or vested options equivalent to or greater than one year's fixed remuneration through direct acquisition of shares or by acquiring and retaining rights to vested options and performances shares.

The Remuneration Policy assists Cochlear to achieve its business strategy and objectives. The Remuneration Committee recognises that, while remuneration is a key factor in recruiting the right people, it is not the only factor. Cochlear's corporate reputation, its ethical culture and values and its ability to provide interesting and challenging career opportunities, also play an important role.

Remuneration structure

Chief Executive Officer and other senior executives

Remuneration of the Chief Executive Officer and other senior executives is based on policies and programs under the following categories:

• total fixed remuneration made up of base salary and superannuation, retirement benefits and other incidental benefits; and
• variable remuneration made up of an annual short-term incentive plan and long-term incentives.

The remuneration structure is designed to strike a balance between fixed and variable remuneration. Variable remuneration is tied to performance and is at risk. The table below details the percentage remuneration components of the directors and senior executives at target levels of performance:

	Fixed	Variable or at risk remuneration
	Base salary	Short-term bonus	Long-term equity
Directors
Mr R Holliday-Smith (Chairman)	100%	-	-
Mrs YA Allen	100%	-	-
Mr PR Bell	100%	-	-
Prof E Byrne, AO	100%	-	-
Mr A Denver	100%	-	-
Mr DP O’Dwyer	100%	-	-
Dr CG Roberts (CEO/President)	42%	29%	29%
Executives – Consolidated Entity
Mr R Brook (President, European Region)	62%	19%	19%
Mr NJ Mitchell* (Chief Financial Officer and Company Secretary)	56%	22%	22%
Mr MD Salmon* (President, Asia Pacific Region)	52%	24%	24%
Mr CM Smith (President, Americas Region)	54%	23%	23%
Mr DN Morris* (President, Bone Anchored Solutions)	56%	22%	22%
Executives – Company
Mr D Howitt (Senior Vice President, Manufacturing and Logistics)	56%	22%	22%
Mr J Janssen (Senior Vice President, Design and Development)	56%	22%	22%

* Senior executive of Consolidated Entity and the Company.

Service contracts

Cochlear does not enter into service contracts for senior executives, other than the CEO/President. Senior executives operate under standard termination and redundancy conditions with the following exceptions:

• the President, Asia Pacific Region has a notice period of three months; the President, European Region has a notice period of six months; and the President, Americas Region has a notice period of 60 calendar days;
• the President, European Region will receive a maximum of Swiss francs (CHF) 30,000 for repatriation costs in the case of termination or resignation; and
• the President, Americas Region will be entitled to 12 months' base pay if his employment is terminated for reasons other than serious misconduct.

The CEO/President's conditions are set out separately in this Remuneration Report.

Base salary and benefits

Base salaries are determined by reference to appropriate benchmark information including comparable Australian Securities Exchange (ASX) listed companies based on market capital and revenue, taking into account an individual's responsibilities, performance, qualifications, experience and geographical location.

In addition to base salary, selected overseas based executives receive additional benefits including health insurance, a car allowance and a relocation allowance. In Australia, retirement benefits are paid in line with the statutory Superannuation Guarantee legislation levels. In July 2005, members of the legacy defined benefit plan were given the opportunity to transfer to the accumulation fund. Ongoing contributions are based on the estimated required company contributions, using the plan actuarial assessments to ensure that employees are not adversely prejudiced by the move. The transfer of all executive members was completed in the first half of the 2006 financial year.

Globally, retirement benefits are paid in line with local legislation and practice.

Variable remuneration

The Board believes that well designed and managed short-term and long-term incentive plans are important elements of employee remuneration, providing tangible incentives for senior executives to achieve Cochlear's short-term and long-term performance goals. Participation in these plans encourages greater involvement by senior executives to share in the future growth, prosperity and profitability of Cochlear in a way that gives them a community of interest with shareholders.

The proportions of variable remuneration opportunity vary for senior executives within Cochlear, reflecting an individual's responsibilities, performance and experience.

Cochlear Management Short Term Incentive Plan

Short-term incentives for senior executives are determined under the CMSTIP. The short-term incentive is structured in such a way that a significant part of the senior executive's package depends upon achievement of individual performance goals linked to the business strategy and objectives and the financial performance of Cochlear. Financial measures include targets of revenue and earnings before interest and tax. Short-term incentives are paid on both the half and full year results.

The percentage of total remuneration that is allocated to short-term incentives varies according to the senior executive's position and the range is 30% to 70% of total fixed remuneration for achieving all budgeted targets. In years of exceptional performance, the short-term incentives could increase to 100% of total fixed remuneration.

The process of determining relevant performance measures and whether they are met is as follows:

• at the beginning of the financial year, the Remuneration Committee recommends to the Board the targets for the CEO/President and the other senior executives. These are dependent on financial objectives and agreement between the CEO/President and the senior executive on individual performance goals; and
• the CEO/President and the other senior executives and then the CEO/President and Chairman assess progress towards the financial and individual performance goals. The Remuneration Committee reviews, and the Board approves, these assessments prior to any payment.

The Remuneration Committee also evaluates the proposed short-term incentive awards in aggregate and determines their appropriateness having regard to Cochlear's overall financial results. After this assessment, the Remuneration Committee makes its recommendation to the Board for payment. Once approved by the Board, the short-term incentive awards are paid to participants. This occurs on a half and full year basis.

Cochlear Executive Long Term Incentive Plan

The CELTIP was approved by shareholders at the 2003 Annual General Meeting (AGM). The CELTIP is designed to reward senior executives for achieving long-term growth in shareholder value.

Senior executives are offered a mixture of options (being options to acquire ordinary shares of Cochlear Limited) and performance shares (being fully paid ordinary shares of Cochlear Limited).

The number of options and performance shares offered to a senior executive depends on their fixed remuneration and Cochlear's target remuneration package for the senior executive's position. The mixture of options and performance shares is determined at the discretion of the Board.

The exercise price of the options is based on the weighted average price of Cochlear Limited's shares traded during the five business days following the date of the provision of the preliminary final report to the ASX in August each year. All options refer to options over ordinary shares of Cochlear Limited. Each option is convertible to one ordinary share. All performance shares are ordinary shares of Cochlear Limited. Each performance share equates to one ordinary share.

Options and performance shares granted under the CELTIP are subject to vesting conditions. Under these vesting conditions participants are restricted from any trading of performance shares or options until vesting conditions are met. Cochlear also prohibits CELTIP participants from hedging unvested options and performance shares. Additionally, Cochlear has general policy restricting all employees from "short selling" Cochlear securities.

Both the options and performance shares are subject to performance hurdles and vesting restrictions, which will ultimately determine the final number of options that will be exercisable and the number of performance shares receivable by a senior executive. The relevant performance hurdles and vesting restrictions are:

• a three year vesting period – during which time the senior executive must remain in employment and will be unable to exercise the options or trade the performance shares; and
• the performance of Cochlear over the vesting period – measured by using growth in earnings per share (EPS) and total shareholder return (TSR) as measured against the S&P/ASX 100 comparator group. Half the offer will be assessed against EPS growth and the other half using TSR as follows:

Compound annual growth rate of EPS over a three year period		Ranking of TSR against S&P/ASX 100 comparator group over a three year period
Performance	% of options and performance shares vesting	Performance	% of options and performance shares vesting
<10% 10% to 20% >20%	0% 50% to 100% pro-rata 100%	<50th percentile 50th to 75th percentile >75th percentile	0% 50% to 100% pro-rata 100%

Options and performance shares only vest if time qualifications and relevant performance hurdles are met or on death of the employee.

There are no voting or dividend rights attached to options. There are no voting rights attached to the unvested ordinary shares. Voting rights will be attached to the unissued ordinary shares when the options have been exercised. Performance shares are held in trust for the senior executives. Participants may direct the plan trustee to exercise votes attaching to shares held in trust for them.

Dividends paid to the trust in respect of performance shares are, in turn, paid to the relevant senior executives during the vesting period. Voting rights are not transferred but are attached to the performance shares once ownership is transferred. Dividends are no longer payable once shares are forfeited.

To comply with Long Term Incentive (LTI) obligations, the Board has discretion to issue new shares or purchase shares from the open market.

The following factors and assumptions were used in determining the fair value of options on grant date using the Black-Scholes model:

Grant date	Option life	Fair value per option	Exercise price	Price of shares on grant date	Expected volatility	Risk free interest rate per annum	Dividend yield per annum
16 August 2010	3 – 5 years	$9.86	$69.80	$69.31	34.6%	4.49%	2.60%

Performance shares granted on 16 August 2010 have a fair value of $41.26.

Performance of Cochlear in current CELTIP cycle

Depicted in the charts below is a comparison of basic EPS of Cochlear for the financial years 2007 to 2011 and the TSR performance of Cochlear relative to the S&P/ASX 100 for financial years 2009 to 2011:

Cochlear EPS performance		Cochlear TSR performance

For the year ended 30 June 2011, the growth in basic EPS was 15% and the decrease in total return to Cochlear Limited shareholders (as measured from the change in share price plus dividends paid) was 2%. Cochlear's TSR position for F11 is at number 58.

Consequences of performance on shareholder wealth

In considering Cochlear's performance and benefits for shareholder wealth, the Remuneration Committee has regard to the following indices in respect of the current financial year and the previous four financial years:

Amounts $	2011	2010	2009	2008	2007
Net profit attributable to equity holders of the parent entity (million)	180.1	155.2	130.5	115.2	100.1
Dividends paid (million)	118.9	107.1	89.5	77.9	60.4
Share price at 30 June	72.00	74.32	57.70	43.65	61.00
Change in share price	(2.32)	16.62	14.05	(17.35)	6.37

Executive director

At the date of this Remuneration Report, there is one executive director in office, Dr CG Roberts.

Dr CG Roberts was appointed to the Board on 1 February 2004 at the time of his appointment as CEO/President.

Dr CG Roberts' appointment has no fixed term and a notice period of six months. If Cochlear terminates Dr CG Roberts' employment without cause, he will be entitled to receive an amount equivalent to 12 months of his total fixed remuneration plus the amount of benefits under the CMSTIP prorated to the date of termination.

Dr CG Roberts participates in the CMSTIP at a value equal to 70% of total fixed remuneration. Dr CG Roberts participates in the CELTIP at a value equal to 70% of total fixed remuneration. The proportion of CELTIP that is provided between options and performance shares is determined by the Board.

Non-executive directors

Fees for non-executive directors are based on the nature of the directors' work and their responsibilities. The remuneration rates reflect the complexity of Cochlear and the extent of the geographical regions in which Cochlear operates. In determining the level of fees, survey data on comparable companies is considered. Non-executive directors' fees are recommended by the Remuneration Committee and determined by the Board. Shareholders approve the aggregate amount of non-executive director fees.

Fees are within the aggregate amount approved by shareholders at the AGM in October 2007 of $1,500,000 a year.

At the date of this report, the Chairman of Cochlear is Mr R Holliday-Smith. His director's fees are set at three times the base fee for non-executive directors. He does not receive any additional fees for serving on committees of the Board.

From 2003, no new non-executive director was entitled to join the Cochlear Limited directors' retirement scheme. Non-executive directors appointed prior to this were members of the scheme, which provided directors with more than five years' service, retirement benefits of up to three times their annual remuneration over the previous three years.

On 23 October 2006, the Board determined that it should implement changes to non-executive director remuneration consistent with developing market practice and guidelines by discontinuing the ongoing accrual of benefits under the existing retirement scheme once the remaining members of the scheme reached their five year service period. The benefits accrued to that date will be indexed by reference to the bank bill rate.

All directors transitioned from the retirement scheme during the year ended 30 June 2007.

Non-executive directors do not receive any performance related remuneration, options or performance shares.

There are no commitments to non-executive directors arising from non-cancellable contracts with the Company or the Consolidated Entity.

Directors' and senior executives' remuneration details

The following table provides the details of all the directors and the executives of the Company and the Consolidated Entity with the authority and responsibility for planning, directing and controlling the activities of the Company and the Consolidated Entity (key management personnel), including the five most highly remunerated executives of the Company and the Consolidated Entity.

Details of the nature and amount of each major element of remuneration are:

	Year	Fixed remuneration						Variable remuneration				Total	Proportion of total remuneration
		Short-term		Long-term			Total	Short-term	Equity compensation(i), (iv)		Total		Perform-ance related	Equity related
Amounts $		Salary and fees	Non-monetary benefits(ii)	Super-annuation benefits	Termination benefits(iii)	Long service leave		Bonus(i)	Value of options	Value of perform-ance shares			%	%
Directors Non-executive
Mr R Holliday-Smith (Chairman)	2011	439,943	-	15,199	-	-	455,142	-	-	-	-	455,142	-	-
	2010	188,332	-	14,544	-	-	202,876	-	-	-	-	202,876	-	-
Mrs YA Allen (Appointed 2 August 2010)	2011	163,846	-	13,657	-	-	177,503	-	-	-	-	177,503	-	-
	2010	-	-	-	-	-	-	-	-	-	-	-	-	-
Mr PR Bell	2011	171,043	-	14,703	-	-	185,746	-	-	-	-	185,746	-	-
	2010	167,563	-	14,282	-	-	181,845	-	-	-	-	181,845	-	-
Mr TCE Bergman (Retired 30 June 2010)	2010	424,805	-	14,461	36,476	-	475,742	-	-	-	-	475,742	-	-
Prof E Byrne, AO	2011	166,135	-	14,507	18,288	-	198,930	-	-	-	-	198,930	-	-
	2010	149,909	-	13,492	14,937	-	178,338	-	-	-	-	178,338	-	-
Mr A Denver	2011	180,620	-	15,222	-	-	195,842	-	-	-	-	195,842	-	-
	2010	162,371	-	14,178	-	-	176,549	-	-	-	-	176,549	-	-
Mr DP O'Dwyer	2011	186,135	-	15,263	-	-	201,398	-	-	-	-	201,398	-	-
	2010	170,678	-	14,345	-	-	185,023	-	-	-	-	185,023	-	-
Executive
Dr CG Roberts (CEO/President)	2011	1,200,388	-	15,199	-	25,647	1,241,234	741,411	512,648	-	1,254,059	2,495,293	50.3%	20.5%
	2010	1,137,844	-	14,461	-	28,398	1,180,703	490,951	461,393	-	952,344	2,133,047	44.6%	21.6%

 

	Year	Fixed remuneration					Variable remuneration				Total	Proportion of total remuneration
		Short-term		Long-term		Total	Short-term	Equity compensation(i), (iv)		Total		Perform-ance related	Equity related
Amounts $		Salary and fees	Non-monetary benefits(ii)	Super-annuation benefits	Long service leave		Bonus(i)	Value of options	Value of perform-ance shares			%	%
Executives Consolidated Entity
Mr R Brook(v), (vi) (President, European Region)	2011	440,286	89,441	37,659	-	567,386	175,914	142,603	-	318,517	885,903	36.0%	16.1%
	2010	422,945	66,293	36,208	-	525,446	141,396	142,283	-	283,679	809,125	35.1%	17.6%
Mr NJ Mitchell(v), (vi), (vii) (Chief Financial Officer and Company Secretary)	2011	440,899	-	116,532	15,336	572,767	183,697	160,034	-	343,731	916,498	37.5%	17.5%
	2010	425,506	-	108,188	16,898	550,592	140,589	146,475	-	287,064	837,656	34.3%	17.5%
Mr MD Salmon(v), (vi), (vii) (President, Asia Pacific Region)	2011	474,221	-	15,199	9,279	498,699	211,141	154,437	-	365,578	864,277	42.3%	17.9%
	2010	457,002	-	14,461	12,702	484,165	131,833	137,905	-	269,738	753,903	35.8%	18.3%
Mr CM Smith(v), (vi) (President, Americas Region)	2011	468,875	21,948	12,997	-	503,820	182,804	111,084	69,149	363,037	866,857	41.9%	20.8%
	2010	486,021	23,969	14,023	-	524,013	196,218	136,739	39,690	372,647	896,660	41.6%	19.7%
Mr DN Morris(v), (vii) (President, Bone Anchored Solutions)	2011	422,213	-	15,199	10,526	447,938	152,106	119,033	-	271,139	719,077	37.7%	16.6%
	2010	412,168	-	14,461	9,379	436,008	118,891	110,085	-	228,976	664,984	34.4%	16.6%
Company
Mr D Howitt(v) (Senior Vice President, Manufacturing and Logistics)	2011	411,962	-	15,199	17,031	444,192	148,048	114,342	-	262,390	706,582	37.1%	16.2%
	2010	396,557	-	14,461	12,454	423,472	114,939	103,360	-	218,299	641,771	34.0%	16.1%
Mr J Janssen(v), (vi) (Senior Vice President, Design and Development)	2011	416,498	-	15,199	10,238	441,935	150,385	117,973	-	268,358	710,293	37.8%	16.6%
	2010	404,345	-	14,461	8,984	427,790	117,415	112,279	-	229,694	657,484	34.9%	17.1%

1. Short-term and long-term incentive bonuses are granted annually. The grant date is tied to the performance appraisal, which for the current year was completed by 30 June 2011. The service and performance criteria are set out in this report.
2. Benefits include the provision of car allowances, health insurance and relocation costs.
3. Amounts accrued for interest during the financial year to the directors' retirement scheme.
4. The value disclosed above is the proportion of the fair value of the options and performance shares allocated to the financial year. The ability to exercise the options and performance shares is conditional on Cochlear achieving certain performance hurdles. The estimated value of options for the current financial year is calculated at the date of grant using the Black-Scholes model. Further details of options granted during the financial year are set out below. The value of performance shares for the current financial year is calculated as the share price at the date of issue discounted for vesting probabilities.
5. Executive is included as one of the five named Company executives or Consolidated Entity executives who received the highest remuneration in the current financial year in accordance with section 300A of the Corporations Act 2001. (vi) Executive is included as a key management person in accordance with AASB 124 Related Party Disclosures. (vii) Denotes Consolidated Entity and Company executives.

Exercise of options granted as remuneration

During the financial year, the following shares were issued on the exercise of options previously granted as compensation:

	Number of shares	Amount paid $/share
Executive director
Dr CG Roberts	64,718	49.43
Executives
Consolidated Entity
Mr R Brook	36,469	55.13
Mr NJ Mitchell	31,014	55.45
Mr MD Salmon	16,929	49.43
Mr CM Smith	21,512	52.63
Mr DN Morris	14,848	49.43
Company
Mr D Howitt	23,435	55.65
Mr J Janssen	31,120	54.56

During the previous financial year, 189,220 options were exercised. There are no amounts unpaid on the shares issued as a result of the exercise of the options in prior years.

Analysis of bonuses included in remuneration

Details of the vesting profile of the short-term incentive cash bonuses awarded as remuneration to each executive director of the Company and each of the five named Company executives and relevant Consolidated Entity executives are detailed below:

	Short-term incentive bonus
Amounts $	Included in remuneration	% vested in financial year(i)	% forfeited during financial year(ii)
Executive director
Dr CG Roberts	741,411	87.2%	12.8%
Executives
Consolidated Entity
Mr R Brook	175,914	93.9%	6.1%
Mr NJ Mitchell	183,697	87.5%	12.5%
Mr MD Salmon	211,141	95.8%	4.2%
Mr CM Smith	182,804	85.1%	14.9%
Mr DN Morris	152,106	87.0%	13.0%
Company
Mr D Howitt	148,048	86.7%	13.3%
Mr J Janssen	150,385	86.9%	13.1%

1. Amounts included in remuneration for the financial year represent the amounts that vested in the financial year based on achievement of personal goals and satisfaction of specified performance goals. No amounts vest in future financial years in respect of the CMSTIP for the 2011 financial year.
2. The amounts forfeited in short-term incentive bonuses are due to the personal and specified performance service goals not being met in the current financial year.

Analysis of share based payments granted as remuneration

Details of the vesting profile of the options and performance shares granted as remuneration to each director of the Company and each of the five named Company executives and relevant Consolidated Entity executives are set out below:

		Options			Performance shares
	Date of grant(iv)	Number granted	% vested in financial year	% forfeited in financial year(i)	Number granted	% vested in financial year	% forfeited in financial year(i)	Value Min(ii) $	Yet to vest Max(iii) $
Executive director
Dr CG Roberts	20 August 2007	59,088	87%	13%	-	-	-	-	-
	18 August 2008	101,412	-	-	-	-	-	-	-
	17 August 2009	58,599	-	-	-	-	-	-	-
	16 August 2010	86,272	-	-	-	-	-	-	-
Executives
Consolidated Entity
Mr R Brook	20 August 2007	17,422	87%	13%	-	-	-	-	-
	18 August 2008	30,285	-	-	-	-	-	-	-
	17 August 2009	19,663	-	-	-	-	-	-	-
	16 August 2010	17,674	-	-	-	-	-	-	-
Mr NJ Mitchell	20 August 2007	15,644	87%	13%	-	-	-	-	-
	18 August 2008	35,824	-	-	-	-	-	-	-
	17 August 2009	20,686	-	-	-	-	-	-	-
	16 August 2010	21,302	-	-	-	-	-	-	-
Mr MD Salmon	20 August 2007	14,891	87%	13%	-	-	-	-	-
	18 August 2008	33,446	-	-	-	-	-	-	-
	17 August 2009	19,344	-	-	-	-	-	-	-
	16 August 2010	22,363	-	-		-	-	-	-
Mr CM Smith	20 August 2007	12,577	87%	13%	2,377	87%	13%	-	-
	18 August 2008	29,714	-	-	1,726	-	-	-	38,783
	17 August 2009	22,379	-	-	-	-	-	-	-
	16 August 2010	-	-	-	5,781	-	-	-	238,177
Mr DN Morris	20 August 2007	13,296	87%	13%	-	-	-	-	-
	18 August 2008	25,074	-	-	-	-	-	-	-
	17 August 2009	14,505	-	-	-	-	-	-	-
	16 August 2010	17,740	-	-	-	-	-	-	-
Company
Mr D Howitt	20 August 2007	12,211	87%	13%	-	-	-	-	-
	18 August 2008	24,032	-	-	-	-	-	-	-
	17 August 2009	13,903	-	-	-	-	-	-	-
	16 August 2010	17,312	-	-	-	-	-	-	-
Mr J Janssen	20 August 2007	13,396	87%	13%	-	-	-	-	-
	18 August 2008	24,819	-	-	-	-	-	-	-
	17 August 2009	14,358	-	-	-	-	-	-	-
	16 August 2010	17,559	-	-	-	-	-	-	-

1. The percentage forfeited in the financial year represents the reduction from the maximum number of options and performance shares available to vest due to EPS, TSR or employee service periods not being met.
2. The minimum value of performance shares yet to vest is nil as the performance criteria may not be met and consequently, the performance shares may not vest.
3. The maximum value of performance shares yet to vest is not determinable as it depends on the market price of shares of the Company on the ASX at the date the performance shares vest. The maximum values disclosed above are based on the valuations as per this report.
4. Options and performance shares vest three years after their initial grant date.

Analysis of movements in options

The movement in value during the financial year of options over ordinary shares of Cochlear Limited held by each Company director and each of the five named Company executives and relevant Consolidated Entity executives is detailed below:

	Value of options
Amounts $	Granted in year(i)	Exercised in year(ii)	Forfeited in year(ii)
Executive director
Dr CG Roberts	850,642	1,737,372	152,274
Executives
Consolidated Entity
Mr R Brook	174,266	742,592	44,891
Mr NJ Mitchell	210,038	587,269	40,320
Mr MD Salmon	220,499	384,965	38,375
Mr CM Smith	-	443,954	32,404
Mr DN Morris	174,916	364,518	34,271
Company
Mr D Howitt	170,696	302,423	31,470
Mr J Janssen	173,132	541,105	34,524

1. The value of options granted in the year is the fair value of the options calculated at grant date using the Black-Scholes model. The total value of the options granted is included in the table above. This amount is allocated to remuneration over the vesting period (i.e. in years 30 June 2013 to 30 June 2015).
2. The value of options exercised and forfeited during the year is calculated as the market price of shares of the Company on the ASX as at close of trading on the date the options were exercised or forfeited after deducting the price paid or payable to exercise the option.

Other items – unaudited

Unissued shares under option

At the date of this report, unissued ordinary shares of the Company under option are:

Number of options	Plan	Exercise price per share	Exercise period
168,756	CELTIP	$63.18	August 2010 – September 2012
696,113	CELTIP	$49.91	August 2011 – September 2013
418,905	CELTIP	$60.04	August 2012 – September 2014
435,677	CELTIP	$69.80	August 2013 – September 2015

These options do not entitle the holder to participate in any share issue of the Company or any other body corporate.

The closing share price at 30 June 2011 was $72.00.

During the financial year, the Company granted 443,498 options over ordinary shares to employees under the CELTIP. The options are exercisable in the two years following lodgement with the ASX of the Company's preliminary final report for the year ending 30 June 2013. The number of options which will be exercisable is dependent on the performance measures and retention requirements set out in this Remuneration Report.

During the year, 70,728 options granted by the Company were forfeited.

Directors' interests

The relevant interest of each director in the share capital of the Company, as notified by the directors to the ASX in accordance with section 205G(1) of the Corporations Act 2001, at the date of this report is as follows:

	Cochlear Limited ordinary shares	Options over ordinary shares
Mr R Holliday-Smith	5,500	-
Mrs YA Allen	2,500	-
Mr PR Bell	2,500	-
Prof E Byrne, AO	2,000	-
Mr A Denver	2,500	-
Mr DP O’Dwyer	3,350	-
Dr CG Roberts	725,310	297,542

Indemnification of officers

Under the terms of Article 35 of the Company's Constitution, and to the extent permitted by law, the Company has indemnified the directors of the Company named in this Directors' Report, the Company Secretary, Mr NJ Mitchell, and other persons concerned in or taking part in the management of the Consolidated Entity. The indemnity applies when persons are acting in their capacity as officers of the Company in respect of:

• liability to third parties (other than the Company or related bodies corporate), if the relevant officer has acted in good faith; and
• costs and expenses of successfully defending legal proceedings in which relief under the Corporations Act 2001 is granted to the relevant officer.

Insurance premiums

During the financial year, the Company paid a premium for a Directors' and Officers' Liability Insurance policy and a Supplementary Legal Expenses Insurance policy. The insurance provides a cover for the directors named in this Directors' Report, the Company Secretary, and officers and former directors and officers of the Company. The insurance also provides cover for present and former directors and officers of other companies in the Consolidated Entity. The directors have not included in this report details of the nature of the liabilities covered and the amount of the premium paid in respect of the Directors' and Officers' Liability and Supplementary Legal Expenses Insurance policies, as such disclosure is prohibited under the terms of the contract.

Events subsequent to the reporting date

Other than the matter noted below, there has not arisen in the interval between the end of the financial year and the date of this Directors' Report, any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of Cochlear, the results of those operations, or the state of affairs of Cochlear in future financial years:

Dividends

For dividends declared after 30 June 2011, see Note 9 to the financial statements.

Lead auditor's independence declaration

The lead auditor's independence declaration is set below and forms part of the Directors' Report for the financial year ended 30 June 2011.

Rounding off

The Company is of a kind referred to in Australian Securities and Investments Commission (ASIC) Class Order 98/100 dated 10 July 1998 and in accordance with that Class Order, amounts in the Directors' Report and Financial Report have been rounded off to the nearest one thousand dollars, unless otherwise indicated.

Dated at Sydney this 9th day of August 2011.

Signed in accordance with a resolution of the directors:

Director	Director

 

Lead Auditor's Independence Declaration

Lead auditor's independence declaration under section 307C of the Corporations Act 2001

To: the directors of Cochlear Limited I declare that, to the best of my knowledge and belief, in relation to the audit for the year ended 30 June 2011 there have been:

1. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and
2. no contraventions of any applicable code of professional conduct in relation to the audit.

KPMG Sydney, 9 August 2011	Kevin Leighton, Partner