Remuneration report

Add / View notes
X

Add Notes

My Notes

Add / View bookmarks
X

My Bookmarks

  • This is your briecase. You can add pages as you go and create a PDF of the pages you select. Click add page below to add this page to your briefcase.

 
The group’s remuneration policy is focused on attracting and retaining employees of the highest calibre. The committee reviews remuneration policies within South Africa and globally and attempts to apply best practice in the group.
For more on the remuneration committee see the Governance report

As far as possible, the committee aligns the remuneration policy with the interests of shareholders and also seeks to encourage and reward long-term sustainable growth of the group. In the case of senior management, longer-term strategic actions are encouraged by having a high proportion of variable remuneration, payment of which is made out of increased returns to shareholders. The remuneration principles contained in this report are subject to shareholder approval. If approval is not granted for any reason, the previously approved remuneration principles will be adhered to.

Remuneration is based on the following elements:
Base salary The salary prior to the addition of any benefits or allowances.
Guaranteed package The amount that comprises the base salary and all employee and employer contributions but exclusive of incentives. It is determined by the level of the position and requirements of the role.
Variable pay Compensation that is contingent on performance or results achieved.
Short-term incentive Used to reward performance for contributions made by an employee to the success of his or her business. Designed to motivate and drive exceptional performance with targets set for short-term financial and strategic objectives.
Long-term incentive Used to encourage senior executives to build up a shareholding, thereby aligning their interests with those of Reunert’s shareholders. It is designed as a retention and reward mechanism based on the achievement of longer-term sustainable growth and balances employee focus between long- and short-term goals. Further, targets are set such that vesting of long-term incentives only occurs if positive real growth in shareholder value has been achieved. A small group of key individuals participate in a pure retention scheme, which is also aimed at the long-term sustainability of the group’s performance.
 
For executive management, the average annual remuneration over a business cycle is expected to be made up as follows:
  Note Estimated
% of
guaranteed
package
Estimated
% of total
remuneration
package
Guaranteed package 100 50
Short-term incentive 1 50 25
Long-term incentive 2 50 25
Total annual remuneration 3 200 100
 

Note 1

The short-term incentive is the estimated average annual payment over a business cycle. Economic conditions and individual business performance play an integral role in determination of pay-outs.
 

Note 2

Long-term executive incentives are dependent on the performance of all the components of the group. This estimate will be influenced by market conditions, the effectiveness of group strategies and the senior management team’s effectiveness in executing group strategies.

The retention scheme for key employees is conditional on remaining in the employ of the group. The percentage of the guaranteed package used for this retention scheme is substantially lower than that of the executive incentive, which is subject to performance conditions.
 

Note 3

Total annual remuneration over the business cycle is dependent on the achievement of key performance criteria and is expected to be in the upper quartile of Reunert’s peer group.
 

GUARANTEED PACKAGE

The group aims to attract and retain individuals with talent, critical skills and an innovative and entrepreneurial bias. Benchmarking against peer companies is performed on an annual basis, and the guaranteed package is reviewed annually with reference to these benchmarks. Individual performance is an integral component of annual increases. The guaranteed package aims to remunerate senior executives in the second quartile (i.e. up to the median of the peer group). The guaranteed package for employees other than executive management is targeted at the median.
 

SHORT-TERM INCENTIVE

The incentive (bonus) scheme is based on the achievement of pre-determined targets and an assessment of the individual’s performance. The targets include corporate and operational performance measures, as well as individual performance against pre-determined objectives related to key business strategies and requirements. Operating profit (EBIT) is used as the primary financial measure.

A bonus is earned only when a predetermined threshold is achieved. Should stretch targets be achieved in full, a maximum of 140% of guaranteed package can be earned by executive management. The bonus is structured to be self-funding, with payments made out of increased profits.

Non-financial measures, for example transformation targets, are also set as a condition for executive management to qualify for a bonus payment.

Employees other than executive management are paid bonuses at lower percentages of guaranteed package. These bonuses, other than in exceptional circumstances, do not exceed three months’ guaranteed package and are discretionary, dependent on performance.
 

LONG-TERM INCENTIVES

The Conditional Share Plan (CSP) was approved by Reunert’s shareholders at the AGM held on 12 February 2013. The targets set are intended to be challenging but realistic, are based on a graduated vesting scale, and full vesting requires a stretch performance.

The key terms of the CSP are:
The performance conditions comprise real growth in normalised headline earnings per share and total shareholder return, each measured independently.
The vesting period for each allocation shall be 50% after three years and the remaining 50% after four years.
The performance conditions are measured over the vesting periods for the shares.
Annual awards will be made.
The face value of any awards may not exceed 1,5 times guaranteed salary package, dependent on the role and responsibility of the executive.
The conditional shares are delivered to the executive, for no consideration, after the vesting period, to the extent that the performance conditions are met and provided that the participant is in the employ of the group.
 
In line with the King III recommendations, the CSP also caters for employees who are specialists in their field and who would not otherwise qualify for the CSP. In this case, to attract, motivate and retain the necessary specialist skills required in Reunert’s high technology businesses, no performance conditions apply. The number of shares for specialist employees will be limited and will vest provided that the participant remains in the employ of the group for the full vesting period. The vesting period for each allocation shall be 50% after four years and the remaining 50% after five years from 2013. Allocations are 0,25 times guaranteed package.

Reunert accounts for the share awards as equity settled instruments in terms of IFRS2 Share-based Payments.
 

FINANCIAL TARGETS, INFORMATION AND ALLOCATIONS

Performance vesting condition for CSP

Performance condition 1 Normalised HEPS 60%
Performance condition 2 Total shareholder return 40%
 

Performance targets for CSP

Below inflation No vesting
Inflation plus 4% 40% vesting
Inflation plus 8% 100% vesting
 
These targets will be compounded annually over the vesting period, and vesting will be linear between the above data points.
 

LIFE OF SCHEME

The scheme will terminate after eight years from date of inception, at which time the shareholders will be requested to approve a revised long-term incentive scheme.
 

Maximum participants and allocations for CSP

Participants Performance vesting
Retention
70 individuals
30 individuals
Number of shares to be issued Maximum annual allocations
Scheme maximum allocations (over 8 years)
Individual participant annual maximum allocation
1 250 000 shares
10 000 000 shares
125 000 shares
Percentage of total shares in issue Annual maximum
Life of scheme
0,75%
6,00%
 
The remuneration committee has allocated the following awards:

Actual participants and annual costs for CSP

Scheme Performance vesting
(CSP)
Specialist
(Retention)
Participants 50 individuals 16 individuals
Number of shares to be issued 918 688 60 685
Percentage of total shares 0,46% 0,03%
 

ILLUSTRATIVE CALCULATIONS: COST OF CSP AT 4% AND 8% REAL GROWTH

Compound growth in NHEPS and total shareholder return over 3 years

2013
NHEPS
R
2016
NHEPS
R
(Note 1)
Estimated
market capital
increase
(Note 2)
Estimated
value to
executives
(Note 3)
Inflation +4%
5,69
7,57 R1,4 billion R85 million
Inflation +8%
5,69
8,43 R3,0 billion R95 million
 

Note 1

Annual compound increase in NHEPS for three years, assuming annual headline CPI inflation of 6%, based on figures from Statistics SA at 30 September 2013.
 

Note 2

Increase in Reunert’s market capitalisation after three years based on current PE ratio of 11,5 and 163,1 million shares in issue. This calculation excludes the value of dividends paid in the vesting period.
 

Note 3

Value of shares that will vest in terms of the criteria after three and four years, based again on Reunert’s current PE ratio of 11,5 and 163,1 million shares and assuming 918 688 shares are awarded.

Note: The CSP shares allocated at the remuneration committee meeting in November 2012 are, at this stage, not expected to vest.
 

SHORT-TERM INCENTIVE AWARDS

Target set for 2013

Growth in EBIT 4% 10% 17% 24%
Bonus as a percentage of guaranteed package (maximum) 20 40 100 140
Estimated bonus award R15 million R30 million R65 million R93 million
 
The EBIT growth reflected above is the average EBIT growth for each business unit participating in the short-term incentive. Certain divisions have higher targets and others lower targets in respect of EBIT growth.

A KPI incentive was introduced in 2013 whereby executives can earn a maximum award of 25% of guaranteed package for the achievement of specific KPIs aligned to the strategic needs of their business. The maximum bonus for any executive remains limited to 140% of guaranteed package.
 

ACTUAL ACHIEVED 2013

Decline in EBIT before bonus award 9%
Decline in EBIT after bonus award 13%
 
Rm 2013 2012
Bonuses earned by CBI-electric segment
9,1
8,6
Bonuses earned by Nashua segment
5,3
13,2
Bonuses earned by Reutech segment
16,7
19,4
Total bonuses earned by operations
31,1
41,2
 
Individual companies within each segment earned bonuses for meeting targets set for the 2013 financial year. The exceptional performance by all the Reutech companies in 2013 resulted in bonus awards approaching 100% of guaranteed package being earned.

Included in the objectives for the short-term incentive scheme was the achievement of a predetermined BBBEE rating. The achievement of this rating was a precondition for bonuses to be earned.
 

Targets for 2014

Growth in EBIT after bonus award 17% 25% 38% 46%
Bonus as a percentage of guaranteed package (maximum) 20% 40% 100% 140%
Estimated bonus award R18 million R36 million R75 million R111 million
 
In addition, a KPI bonus pool, of R18 million has been created which is a maximum of 20% of the guaranteed package of executives. Again, the maximum bonus for any executive is 140% of guaranteed package.

The EBIT growth reflected above is the average EBIT growth for each business unit participating in the short-term incentive. The individual business units’ target percentages differ. Should Reunert in aggregate not meet the above target growth rates, those business units that achieve their specific targets may still earn bonuses.
 

REMUNERATION

EXECUTIVE DIRECTORS AND PRESCRIBED OFFICERS

The remuneration of executive directors for the past two financial years is reflected in the tables below:

Executive directors

R’000 Salary Bonus
and
performance
related
payments
Travel
allowance
Retirement
contributions
Medical
contributions
Other Sub total Gains on
options
exercised
Total
2013
DJ Rawlinson
4 669
656
60
466
55
 
5 906
 
5 906
BP Gallagher1
1 299
 
130
21
867
2 317
2 320
4 637
MC Krog
2 734
388
98
268
 
 
3 488
 
3 488
Total
8 702
1 044
158
864
76
867
11 711
2 320
14 031
2012
DJ Rawlinson 4 310 1 700 60 430 50 6 550 6 550
BP Gallagher 2 423 810 241 36 3 510 541 4 051
MC Krog 2 506 1 000 98 246 3 850 3 850
GJ Oosthuizen 138 9 16 2 8 946 9 111 1 621 10 732
Total
9 377 3 510 167 933 88 8 946 23 021 2 162 25 183
1 BP Gallagher resigned from the board on 28 March 2013 on his retirement.
 
Executive directors do not earn additional remuneration for their attendance at board or committee meetings.

The remuneration of prescribed officers for the past two financial years is reflected in the tables below:

Prescribed officers

R’000 Salary Bonus
and
performance
related
payments
Travel
allowance
Retirement
contributions
Medical
contributions
Other Sub
total
Gains on
options
exercised
Total
2013
Officer A
2 119
1 591
132
204
44
1
4 091
1 372
5 463
Officer B
1 386
1 290
30
143
70
6
2 925
383
3 308
Officer C
1 423
120
222
85
1 850
137
1 987
Officer D
1 036
111
178
50
1 375
220
1 595
Officer E
Total
5 964
2 881
393
747
249
7
10 241
2 112
12 353
2012
Officer A
Officer B 1 277 60 135 63 1 535 1 024 2 559
Officer C 1 261 120 207 76 1 664 1 664
Officer D 968 111 166 39 1 284 1 258 2 542
Officer E 1 670 24 164 42 1 900 1 875 3 775
Total
5 176 315 672 220 6 383 4 157 10 540
 

REMUNERATION POLICIES AFFECTING NON-EXECUTIVE DIRECTORS

The appointment of non-executive directors is considered and requires approval by the full board based on proposals received from the Reunert nomination committee.

Non-executive directors do not have service contracts with the company, do not receive any incentives from the company and are not eligible for participation in any long-term share-based incentive plans.

The term of office for non-executive directors is governed by the company’s Memorandum of Incorporation, which requires that directors resign every three years, but may make themselves available for re-election by shareholders.
 

REMUNERATION STRUCTURE

The remuneration of non-executive directors is reviewed by the remuneration committee each year. Remuneration is compared with the median of selected peer companies as a reference point, and recommendations are submitted to the board and then to the shareholders for approval. Fees are approved annually at the company’s annual general meeting and are effective from 1 March each year.
 

EXPENSES

Travel and accommodation expenses of R25 039 (2012: R36 771) were reimbursed.
 

PAYMENTS TO NON-EXECUTIVE DIRECTORS – 2013

Fees paid to non-executive directors (between 1 October 2012 and 30 September 2013) are reflected in the table below:
R’000 2013 2012
Total directors’ and committee fees paid
TS Munday
1 006
784
YZ Cuba (resigned 17 May 2013)
173
296
SD Jagoe
583
455
LM Mojela (appointed 1 April 2013)
149
TJ Motsohi
277
200
KW Mzondeki (resigned 19 November 2012)
50
323
NDB Orleyn
450
337
SG Pretorius
395
329
JC van der Horst
383
289
R van Rooyen
472
436
Total
3 938
3 449
 
img
SEAN JAGOE CHAIRMAN REMUNERATION COMMITTEE
Sandton, 20 November 2013