EXECUTIVE REMUNERATION
The remuneration of executives is determined by taking into consideration market comparisons and an assessment of performance related to the achievement of documented measurable performance targets. Strategic and business objectives, which are reviewed periodically, as well as a general assessment of performance, are taken into account.
The remuneration structure at senior management level consists of:
- guaranteed pay
- made up of cash package and benefits
- variable pay
- short term incentive bonus schemes, which have maximum levels; and
- long term incentives in the form of employee share incentive schemes.
Guranteed pay
Basic salary
The cash package of senior management is subject to annual review by the Remuneration Committee and the Board and is set with reference to relevant external market data as well as the assessment of individual performance.
Benefits
Membership of an approved company pension fund is compulsory for all senior management, and other benefits include the provision of medical aid, gratuity at retirement and death and disability insurance.
Variable pay
The primary purpose of the bonus scheme is to serve as a short-term incentive which gives executives and senior managers the opportunity to earn an annual bonus based on the financial performance of Tongaat Hulett and the operations as well as an element related to individual/team performance.
Incentive bonus scheme
The short-term incentive bonus scheme is based on a combination of the achievement of pre-determined targets, and an assessment of the individual’s overall general performance. These targets include measures of corporate and, where applicable, operational performance as well as the achievement of individual and where applicable team performance against pre-determined objectives related to key business strategies and requirements.
The performance targets are made up of 50% financial targets and; depending on job grade level; 50% non-financial targets, which are strategic objectives and team targets.
Financial targets for bonus scheme
All financial targets have an upper limit and a lower limit. If financial results are below the lower limit, zero points will be earned for the element concerned. If financial results exceed the upper limit, the full score related to the relevant element of the bonus will apply to the scheme (participants) concerned.
The financial targets of this year comprise
- headline earnings
- ROCE
- cash-flow and
- operating profit
Over and above the range mentioned above, in the 2013/14 performance period, there was also a condition that if Tongaat Hulett’s headline earnings were below R700 million, no bonuses would be payable in respect of any element of any scheme. The same principle will be applied in 2014/15.
Incentive share schemes
The objective of the long-term incentive share schemes is to strengthen the alignment of shareholder and management interests and assist in the attraction, retention and appropriate reward of management.
The various instruments are the Share Appreciation Right Scheme 2005 (SARS), the Long Term Incentive Plan 2005 (LTIP) and the Deferred Bonus Plan 2005 (DBP) (collectively referred to as “the Plans”). These share-schemes were amended at the AGM on 27 July 2010 to ensure compliance with Schedule 14 of the JSE Listing Requirements and, where appropriate, the King III Report.
Under these share incentive schemes, senior management and professional employees of the company are awarded rights to receive shares in the company based on the value of these awards (after the deduction of employees’ tax) when performance conditions have been met, the awards have vested and, in the case of the SARS, when the share appreciation rights have been exercised. The amendment in 2010 of the LTIP scheme also included the introduction of retention shares that may be awarded on the condition that the employee remains in the service of the company. The purpose of such awards of unconditional RLTIPs is to assist with targeted key and high potential employee retention. Retention shares are a small quantum in relation to other share-based instruments; and are awarded by exception.
The accounting charges to the income statement required by IFRS 2 Share-based Payment are accounted for as equity-settled instruments. The costs associated with the settlement of awards under the share schemes qualify for a tax deduction by the company.
Details of the schemes and awards made from 2005 to 31 March 2014, after approval by the Remuneration Committee and the Board, are detailed on the following pages. The share incentive scheme in operation prior to 2005 was discontinued in 2005, with the previous awards continuing to run their course and no new awards being made.
Performance conditions governing the vesting of the scheme instruments are set at the time of each annual award and currently relate to:
- growth in earnings per share,
- total shareholder return,
- return on capital employed, and
- strategic goals in areas such as sugar production, renewable energy and extracting value from land conversion.
The performance targets are intended to be challenging but achievable. Targets are linked, where applicable, to the company’s medium term business plan, over three year performance periods, with actual grants being set each year considering the job level and cash package of the participating employee, their individual performance, and appropriate benchmarks of the expected combined value of the awards.
The King III Report refers to the application of company performance conditions to govern the vesting of awards under the Plans, and precludes the application of retesting. The application of company performance conditions has been applied since the approval of the Plans. New awards thus have relevant performance conditions, do not provide for retesting, and apply the principle of graduated vesting as recommended by King III.
