Governance and Sustainability

Report of the remuneration committee

COMPOSITION

     
             
Mr IN Matthews  
(Committee Chairman)  
Click here to view résumé  
  Ms ZBM Bassa  
Click here to view résumé  
  Mr PL Campher  
Click here to view résumé  
  Mr MV Moosa  
Click here to view résumé  
Independent non-executive director     Independent non-executive director     Independent non-executive director     Non-executive director  
Meeting attendance: 4/4     Meeting attendance: 4/4     Meeting attendance: 4/4     Meeting attendance 4/4  

Dear stakeholders

Last year’s remuneration report set out the myriad of changes that the remuneration committee (“remco”) dealt with and the revision to the Group’s executive remuneration principles. By contrast, the emphasis this year has been to embed the revised remuneration principles and, more importantly, assess whether these changes have been successful and effective in delivering the anticipated results. We have engaged with many of our shareholders to obtain their views on the Group’s remuneration structures and we extend our appreciation to those shareholders who have taken the time to engage with the remco and management on their views on executive remuneration.

As the Group is refining its approach to implementing the revised remuneration model, further learnings have emerged. This has led to further foundational steps being implemented, such as the regrading of all management employees and the subsequent realignment of their award levels.

Management has been thorough in its review of employee benefits and much like the Group’s customer management system, which has been developed to provide a single view of the customer, a great deal of time and effort has been dedicated to provide a single view of each of our executive team and the Group’s top 160 managers. This will shortly be cascaded down to all levels of management, and will provide the remco and management with a snapshot of the individual’s talent profile, performance, development aspirations, flight risk, succession and other relevant factors to allow deeper insight into the rationale for remuneration decisions.

As a remco, we consider the interests of all employees and as you will appreciate, the most significant event for our employees (whether affected directly or not) has been the implementation of the section 189A restructuring process. Careful consideration was given to the decision to implement the process, which was not taken lightly by executive management and the board. However, it was considered necessary for positioning the Group for a new era. As a remco, we are continuously monitoring the implementation of the process by management and are satisfied that it is being concluded as fairly as possible with due respect afforded to our employees. Once the restructuring process is completed, each employee will have a clear understanding of the Group’s expectations for their role and the Group will be right-sized to ensure sustainable growth.

For the first time last year, we introduced an individual performance component to the Group’s executive bonus scheme, which is based on personal effort and success in meeting (and as we hoped, exceeding) performance objectives set against the Group’s five strategic pillars. The pay for performance methodology has elevated the importance of a performance culture and empowered our managers to determine a component of their bonus based on their individual contributions. The actual results attained are set out in the body of this report.

The remainder of this report sets out the Group’s remuneration policy and principles, and provides stakeholders with an understanding of the Group’s remuneration components. This is followed by the remuneration disclosures of the executive directorate and the proposed fees for non-executive directors for the year ahead.

From a governance reporting perspective, the Committee’s 2014 assessment indicated that the remco was effective in performing its functions and supporting the board appropriately. Our board mandate and terms of reference remain available for perusal, and were reviewed for relevancy and alignment to best practice in the year under review.

This report has been approved by the board on the recommendation of the remco. Stakeholders are invited to submit comments on the Group’s remuneration policy by emailing investor.relations@suninternational.com

IN Matthews

Chairman of the remuneration committee

 

THE GROUP’S REMUNERATION POLICY

The Group is guided by the following key remuneration principles to align employee behaviour with the Group’s strategic objectives:

  • To provide competitive and equitable rewards to attract, motivate and retain high calibre talent while aligning our employees’ remuneration with shareholder interests
  • To attain a high performance culture, with our pay for performance methodology, to facilitate execution of the Group’s strategic priorities
  • To encourage collaborative business behaviour between and among different units by inculcating a culture focused on rewarding achievement of Group, unit and individual performance targets
  • To promote and ensure compliance to the evolving remuneration governance framework for both local and global units
  • To promote the implementation of leading remuneration practices and attract global expertise to the Group as we expand offshore
  • To ensure that the Group’s remuneration policy withstands scrutiny by the Group’s various stakeholders

These principles inform a holistic view in setting the Group’s remuneration policy, which is underpinned by leading remuneration and governance practices.

REMUNERATION STRUCTURE

These remuneration principles are attained through the appropriate mix of guaranteed fixed remuneration and variable performance-related remuneration. At management level, this further comprises a short-term incentive (over a one-year performance period) and long-term incentives (over a minimum three-year performance period).

The remco reviews the total remuneration mix of executives on an annual basis. This review entails an analysis of the combination and proportion of the total remuneration paid as part of the guaranteed package against both the short-term and long-term incentives. The appropriate mix and combination of each of these remuneration components at executive level is imperative as each component is linked to promote the creation of shareholder value.

To retain a competitive edge in the industry and ensure we remain an employer of choice, our remuneration philosophy is to remunerate our executives equitably, competitively and in line with shareholder expectations and leading remuneration practices. In light of this, we use niche market industry and country benchmarks to ensure that we are constantly informed of market trends. In an effort to ensure employees are paid equitably, irrespective of their gender, the Group also analyses pay at various levels of management and addresses these as may be appropriate.

Consideration of our JSE-listed peers and comparator market salary data of organisations of similar market capitalisation and revenue is taken into account in making executive remuneration decisions.

Executive remuneration is further informed by utilising an integrated view of executive remuneration, talent and performance management. This provides detailed and consolidated information for each executive in the Group with regard to:

 

REMUNERATION COMPONENTS

Guaranteed Package

Our remuneration policy seeks to remunerate all employees with a guaranteed package that is anchored at the median market position. Performance remains one of the most important factors in determining total guaranteed pay, and therefore the Group differentiates between average and outstanding performance, and remunerates individuals based on their contribution to the Group’s strategic objectives.

Short-Term Incentive

Middle, senior and top management employees participate in an annual short-term incentive plan, otherwise referred to as the Executive Bonus Scheme (EBS). The EBS is structured to reward accomplishment of annual financial and non-financial performance targets that are aligned to the delivery of Group and unit performance together with individual performance against agreed strategic priorities. Business performance remains the most weighted driver in calculating EBS, contributing two-thirds to the total EBS amount, with individual performance weighted at one-third of the formulae.

EBS is calculated as a percentage (target incentive percentage) of an employee’s qualifying guaranteed package and is determined by attaining both Group and unit business performance targets, as well as individual performance over the most recent financial year, as follows:

The target incentive percentage is dependent on the employee’s grade and will be determined by remco from time to time based on prevailing market trends.

Unit and Group Business Performance

The Unit and Group Factor is dependent on budgeted financial performance as follows:

Targets   % of budgeted financial  
performance achieved  
Group or  
unit Factor  
Threshold   90%   0%  
Target   100%   100%  
Stretch   110%   200%  

Earnings before interest, taxes, depreciation and amortisation (EBITDA) is the financial performance metric for both unit and Group performance. For employees based at units, EBITDA performance is equally weighted between Group and the applicable unit. For Group employees, EBITDA performance is based on the Group result. Linear interpolation is used to determine the unit or Group Factor between Threshold, Target and Stretch performance.

Individual performance

The personal factor, which comprises one-third of the EBS, ranges between 0 – 200% and is dependent on the employee’s performance rating results for the relevant financial year.

No EBS will be payable to an employee who is rated as a weak performer in terms of their most recent performance assessment.

calibratiOn of performance rating results

To ensure effective integration of the performance ratings with unit and Group performance, the Group applies calibration of performance ratings results across the Group. This includes assessing the individual performance ratings at unit level against the actual unit business performance results and against the envisaged on-target bonus to be paid in accordance with the rating provided. Executive leadership, functional heads and unit general managers are all involved in open and honest discussions regarding their performance rating to ensure that a common performance benchmark is applied across the Group.

long-term incentive plans

The main objective of the Group’s long-term incentive plans is to motivate and retain management on a long-term basis while promoting long-term wealth creation for both executives and shareholders. The Group operates two long-term incentive plans with annual awards – the Equity Growth Plan (EGP) and Bonus Share Matching Plan (BSMP).

 

The EGP operates as follows:

 

The BSMP operateS as depicted below:


 

In addition to the annual awards illustrated above, the Group further utilises the BSMP as a retention mechanism in certain instances by permitting the remco to make retention or attraction awards for new employees. These awards have a vesting period of either three years or five years depending on the quantum of the award (which is determined by a formulae). If an employee receives such an award but leaves the employment of the Group before the vesting period, they forfeit the award and repay the dividends received as a result of the award.

Conclusion

This concludes the summary of the Group’s remuneration policy and remuneration practices as first implemented in 2013/14, and which are now in the second year of implementation. The principle of pay for performance will further evolve as the Group continues to embed a high-performance culture with long-term strategic objectives as the driving factor behind rewards and incentives.

The Group’s remuneration policy as outlined above will be submitted to shareholders for a non-binding vote at the annual general meeting to be held on 21 November 2014.

DISCLOSURES OF 2014 REMUNERATION

Based on the remuneration policy and principles summarised above, the Group discloses the actual remuneration paid to executives and prescribed officers as well as details regarding their long-term incentive awards for the year under review. Having considered the matter, the Group is of the opinion that its executive directors are the only prescribed officers of the Group.

TOTAL EMOLUMENTS

 

  R   Salary   Gross  
EBS  
Retirement  
contributions  
Other benefits   Payment in  
terms of mutual  
agreement  
Total  
  2014              
  GE Stephens   5 287 325   6 912 951   713 115   94 560     13 007 951  
  AM Leeming   3 293 314   3 202 448   576 000   130 686     7 202 448  
  KH Mazwai   2 041 744   1 640 018   455 058   312 198     4 449 018  
  RP Becker*   555 155   -   124 584   12 392     692 131  
  TOTAL   11 177 538   11 755 417   1 868 757   549 836     25 351 548  
  2013              
  GE Stephens   3 847 080   3 862 083   519 051   335 200     8 563 414#  
  AM Leeming   2 079 931   1 898 347   366 977   611 685     4 956 940#  
  KH Mazwai   1 911 148   1 212 640   429 300   402 137     3 955 225  
  G Collins   3 438 310   3 432 000   542 028   2 361 158     9 773 496  
  RP Becker   3 332 403   2 491 671   747 501   487 058   8 941 271   15 999 904  
  TOTAL   14 608 872   12 896 741   2 604 857   4 197 238   8 941 271   43 248 979  

* Resigned on 28 February 2013, effective 31 August 2013.  
# This disclosure is for the full financial year, notwithstanding that their appointments to the board were made on 1 February and 1 March 2013 respectively.  

 

SHORT-TERM INCENTIVES

For the year under review, the EBS earned and attributable to the percentage of predetermined targets achieved are:

Individual   EBS payment  
30 June 2014  
On-target  
EBS  
Maximum  
potential  
EBS  
% of  
target  
achieved  
GE Stephens   6 912 951   5 180 750   10 361 500   133.44%  
AM Leeming   3 202 448   2 400 000   4 800 000   133.44%  
KH Mazwai   1 640 018   1 404 500   2 809 000   116.77%  

The EBS comprised the three EBS components as achieved and is disclosed for the aforementioned executive director’s as:

Individual   1/3rd Unit  
performance  
1/3rd Group  
performance  
1/3rd Personal  
performance  
GE Stephens   114.7%   85.61%   200%  
AM Leeming   114.7%   85.61%   200%  
KH Mazwai   114.7%   85.61%   150%  

Based on the EBS explanation provided above, the table above reflects the combined unit’s overall higher than budgeted financial performance as the Group achieved slightly below the board approved budgeted EBITDA. The unit and Group factor are objectively applied, based on the audited results of the units and Group. Individual performance is based on the remco’s performance assessment of the executives against the Group’s strategic objectives as translated into each executive’s performance contract.

Having duly conducted the performance assessments, the Remco is of the view that the aforesaid executives have not only met, but exceeded their key performance indicators under each of the five strategic pillars through their individual contributions and performance. This is despite an extremely challenging year with difficult trading conditions. The management team has accomplished many of the changes they set out to attain in the year under review and they have been rewarded accordingly. However, more remains to be done and the actual EBS achieved still fell short of the maximum potential EBS that management could have earned should all three EBS components have met the stretch targets set by the board.

SHARE-BASED PAYMENTS EXPENSE

The table below sets out the amount expensed for share-based payments in the statement of comprehensive income for the year:

Name   2014  
(Rands) 
2013  
(Rands) 
GE Stephens   6 779 747   3 844 200  
AM Leeming   3 446 517   2 660 786  
KH Mazwai   2 663 071   2 714 627  
TOTAL   12 889 335   9 219 613  

LONG-TERM INCENTIVES

The Group’s share plans are equity settled. Accordingly the total number of shares allocated under the Group’s share plans amount to approximately 1.15% in aggregate of the Group’s issued share capital based on an assumed 100% vesting.

Awards made to executive directors/prescribed officers under share plans at 30 June 2014

  Date of grant   Grant  
price  
Grants held  
30 June 2013  
Grants made/  
(forfeited)  
during the  
year  
Grants  
exercised  
Grants held  
30 June 2014  
Gains on the  
exercise of  
share options  
and grants  
Present value  
of existing  
future awards  
  GE Stephens                
  EGP     29 964   216 986   –   246 950   –   8 466 939  
  29.06.2011**   89.46   12 099         12 099      398 904  
  27.06.2012   90.07   17 865       17 865     612 055  
  02.09.2013   94.87   –   114 923     114 923     4 188 943  
  27.06.2014   109.65      102 063      102 063      3 267 037  
  CSP     35 630   –   –   35 630   –   1 404 262  
  29.06.2011**   n/a   15 826         15 826      –  
  27.06.2012   n/a   19 804         19 804      1 404 262  
  DBP     6 241       6 241     685 610  
  03.09.2012   n/a   6 241   –      6 241      685 610  
  RSP#     147 329   –   –   147 329   –   16 206 190  
  01.10.2011   n/a   62 161         62 161      6 837 710  
  01.02.2013   n/a   85 168         85 168      9 368 480  
  BSMP       28 358     28 358     3 119 380  
  02.09.2013   95.00   –   28 358      28 358      3 119 380  
  TOTAL               464 508   –   29 883 281  
  AM Leeming                
  EGP      45 296   89 415   –   134 711   –   4 314 633  
  30.06.2009*   77.25   8 767       8 767     –  
  29.06.2010   84.12   10 398       10 398     360 707  
  29.06.2011**   89.46   10 667       10 667     351 691  
  27.06.2012   90.07   15 464       15 464     529 797  
  02.09.2013   94.87   –   47 357     47 357     1 726 163  
  27.06.2014   109.65      42 058      42 058      1 346 277  
  CSP      30 975   –   –   30 975   –   1 207 280  
  29.06.2011**   n/a   13 949       13 949     –  
  27.06.2012   n/a   17 026         17 026      1 207 280  
  DBP      7 238   –   (1 463)  5 775   143 506   635 250  
  30.09.2010   n/a   1 463     (1 463)  –   143 506   –  
  27.09.2011   n/a   2 255       2 255     248 050  
  03.09.2012   n/a   3 520       3 520     387 200  
  RSP#     65 118   –   (6 019)  59 099   596 122   6 500 890  
  01.12.2008   n/a   6 019     (6 019)  –   596 122   –  
  27.06.2012   n/a   33 925       33 925     3 731 750  
  01.03.2013   n/a   25 174         25 174      2 769 140  
  BSMP       13 137     13 137     1 445 070  
  02.09.2013   95.00   –   13 137      13 137      1 445 070  
  TOTAL               243 697   739 628   14 103 123  

* Performance conditions not met, EGP rights lapsed  
** Performance conditions met  
# Vests in three tranches  

 

  Date of grant   Grant  
price  
Grants held  
30 June 2013  
Grants made/  
(forfeited)  
during the  
year  
Grants  
exercised  
Grants held  
30 June 2014  
Gains on the  
exercise of  
share options  
and grants  
Present value  
of existing  
future awards  
  KH Mazwai                
  EGP      46 508   62 792   –   109 300   –   3 393 181  
  30.06.2009*   77.25   10 156         10 156     –  
  29.06.2010   84.12   11 374         11 374     394 564  
  29.06.2011**   89.46   11 444         11 444     377 309  
  27.06.2012   90.07   13 534         13 534     463 675  
  02.09.2013   94.87   –   33 257      33 257     1 212 218  
  27.06.2014   109.65      29 535      29 535      945 415  
                 
  CSP      30 262   –   –   30 262   –   1 063 833  
  29.06.2011**   n/a   15 259       15 259     –  
  27.06.2012   n/a   15 003         15 003      1 063 833  
                 
  DBP      3 774   –   –   3 774   –   415 140  
  27.09.2011   n/a   801       801     88 110  
  03.09.2012   n/a   2 973   –      2 973      327 030  
                 
  RSP#     54 792   –   (10 254)  44 538   984 396   4 899 180  
  01.12.2008   n/a   10 254      (10 254)  –   984 396   –  
  27.06.2012   n/a   44 538         44 538      4 899 180  
                 
  BSMP       7 688     7 688     845 680  
  02.09.2013   95.00   –   7 688      7 688      845 680  
  TOTAL               195 562   984 396   10 617 013  

The following awards were made and exercised by executive directors/prescribed officers subsequent to 30 June 2014:

  Individual   Date of grant   Grants  
made  
Grants  
vested  
Grants  
exercised  
Grants  
forfeited  
Present value  
of existing  
future awards  
  GE Stephens              
  BSMP   11.09.2014   30 771         3 456 506  
  CSP   29.06.2011      6 867   0   8 959^    
  RSP   01.10.2011      31 081   0   0    
  TOTAL     30 771   37 948   0   8 959   3 456 506  
  AM Leeming                   
  BSMP   11.09.2014   14 255         1 601 264  
  CSP   29.06.2011      6 052   0   7 897^    
  DBP   27.09.2011      2 225   0   0    
  TOTAL     14 255   8 277   0   7 897   1 601 264  
  KH Mazwai              
  BSMP   11.09.2014   7 300         820 009  
  CSP   29.06.2011      6 621   6 621   8 638^    
  DBP   27.09.2011      801   801      
  TOTAL     7 300   7 422   7 422   8 638   820 009  

^ A portion forfeited due to the relevant performance condition not being met.  

The aforesaid disclosures conclude the remuneration paid to the executive directors in the year under review.

DIRECTORS’ FEES

Fees payable to non-executive directors for their services as directors and for their participation in the activities of the committees are recommended by the executive directors to the remco for consideration. Thereafter the fees are considered by the board for submission to shareholders, if applicable, for a special resolution in accordance with the Companies Act.

Non-executive director fees are determined on the basis of a base annual fee and an attendance fee per meeting as advocated by King III. This practice is extended to non-executive directors of the Group’s various subsidiary boards. The executive directors and other executive management that serve on the Group’s subsidiary boards do not receive any fees in their personal capacities for this role and, to the extent applicable, any fees payable as a result of this office are waived in favour of the Group.

Proposed fees for the next financial year are determined by the end of the previous financial year and are payable quarterly in arrears, after approval by members at the annual general meeting. In the case of new appointments or resignations from the board or committees during a financial year, the annual fees are pro-rated in line with the period of tenure of office.

Fees paid to non-executive directors by the Company during 2014 financial year.

Non-executive directors   Subsidiaries  
and trust fees  
R  
Director’s  
fees  
R  
Committee  
fees  
R  
Total  
2014  
R  
Total  
2013  
R  
PDS Bacon   -   258 900   110 800   369 700   134 500  
ZBM Bassa   -   258 900   193 675   452 575   393 400  
PL Campher   10 000   258 900   340 992   609 892   534 150  
NN Gwagwa   -   234 800   55 500   290 300   260 000  
BLM Makgabo-Fiskerstrand   -   234 800   36 300   271 100   264 200  
IN Matthews   30 000   421 200   239 608   690 808   711 850  
B Modise   -   234 800   89 000   323 800   317 900  
LM Mojela   17 921*   258 900   73 208   350 029   237 413  
MV Moosa   -   974 100   245 000   1 219 100   1 120 400  
GR Rosenthal   -   258 900   305 500   564 400   486 750  
   57 921   3 394 200   1 689 583   5 141 704   4 597 663  

* Fee is for the period up until 22 August 2013 when Ms Mojela resigned from the board of Afrisun Gauteng (Pty) Ltd and Emfuleni Resorts (Pty) Ltd  

 

Given increasing regulatory and governance demands on the Group, management recommended that non-executive director fees be increased to the extent that that some of the aforementioned fees were out of kilter with the market. Having considered the challenging operating environment, the remco elected to restrict the increase in non-executive director fees to the increase applied to executive management salaries of 6.75% with two exceptions:

  • Given its significantly increased mandate, the fee for the social and ethics committee has been proposed to increase by 18% to bring it in line with the other committees. This is above the 10% increase mandate approved by shareholders and accordingly the fees for the social and ethics committee for the 2015 financial year will be presented to shareholders for approval.
  • Meeting fees have been proposed for the Investment committee as it has been mandated by the board to meet in person no less than four times each year. Previously the investment committee only received a fee for telephonic participation, which was based on an hourly fee as set out below. Given that the investment committee will now be meeting in person, the meeting fee proposed is in line with the meeting fees for committees that cover a similar amount of work. The fees for telephonic meetings will still apply in the instances of investment committee teleconferences.

The remainder of the board and committee fees, escalated at 6.75% for the forthcoming financial year. Increases will be presented to shareholders for approval, together with a resolution that permits director fee increases of no more than 10% for the following two years, and applicable fees for additional/ad hoc meetings.

Non-executive directors’ and committee fees for 2015
  2015   2014  
Non-executive directors   Base fee   Attendance  
fee per meeting  
Base fee   Attendance  
fee per meeting  
Services as directors          
– Chairman of the board   770 200   44 900   721 500   42 100  
– directors   122 000   25 700   114 300   24 100  
Lead independent director   295 300   25 700   276 600   24 100  
Audit committee          
– Chairman   102 700   28 900   96 200   27 100  
– members   51 500   14 500   48 200   13 600  
Risk committee          
– Chairman   56 600   30 900   53 000   28 900  
– members   28 300   15 500   26 500   14 500  
Remuneration committee          
– Chairman   46 300   28 300   43 400   26 500  
– members   23 300   14 200   21 800   13 300  
Nomination committee          
– Chairman   38 500   19 300   36 100   18 100  
– members   19 400   9 700   18 200   9 100  

The proposed non-executive director fees for 2014/2015 are set out below for perusal and approval of shareholders.

Investment committee AND Social and Ethics committee fees for 2015
  2015   2014  
Rands Base fee   Attendance  
fee per meeting  
Base fee   Attendance  
fee per meeting  
Investment committee          
– Chairman   42 600   24 500     *3 700  
– members   21 300   12 300     *2 700  
Social and ethics committee          
– Chairman   42 600   24 500   36 100   18 100  
– members   21 300   12 300   18 100   9 100  
 

* Members will continue to receive an hourly fee for any teleconferences that may be necessary.

In line with best governance practice, the non-executive directors do not participate in any of the Group’s short- or long-term incentive schemes, nor do they earn any consultancy fees.