REMUNERATION PRINCIPLES

The Remuneration Policy is aligned with the Company’s approach of rewarding all employees fairly, responsibly and competitively, according to their capabilities, skills, responsibilities and level of performance.Key remuneration principles embedded in the Remuneration Policy are:

  • Alignment with the overall business strategy, objectives and values of Remgro;
  • Remuneration design which supports the interests of shareholders;
  • Mechanisms for ensuring that executive remuneration is fair and responsible in the context of overall Company remuneration;
  • Remuneration design which supports the retention and attraction of key talent and supports succession planning;
  • Compliance with best practice remuneration governance standards including prevailing labour law legislation;
  • Recognising and encouraging exceptional and value-added performance in line with a performance-based culture;
  • Ensuring that remuneration structures are consistent with the Company’s long-term requirements and decision-making; and
  • Protecting the Company’s rights by means of standard contracts of employment.

Remgro’s remuneration philosophy is guided by its business strategy, namely a long-term approach to deliver value in a sustainable manner.

Due to the nature of the business, the remuneration framework, on an organisation-wide basis, provides for fixed remuneration (i.e. salary and benefits) and a long-term share plan, which only renders value if stretching performance conditions (where applicable) are met. As an investment holding company, the Remuneration and Nomination Committee (the committee) views increased market capitalisation, sustainable growth in the share price and above-average dividend yield as critical metrics to deliver value to shareholders over time. In line with this approach Remgro does not pay short-term incentives (i.e. cash bonuses) and believes that management’s decision-making should be long-term focused. It is aligned with the philosophy that they should be rewarded where value creation is demonstrated, without excessive risk taking in the short term. This two-tier approach makes the Remgro Remuneration Policy focused and avoids unnecessary layers of complexity. Our remuneration philosophy and policy are further detailed in the second section of this report.

Context AND KEY DECISIONS TAKEN

Remgro has a diversified portfolio of investments across industries, which include financial services, healthcare, consumer products, industrial, infrastructure, as well as media and sport. During the year under review, the Company unbundled its investment in RMB Holdings Limited (RMH) by way of a dividend in specie (RMH Unbundling).

The weak domestic macroenvironment, characterised by low economic growth, continued high levels of unemployment and rand volatility persisted during the financial year. Continued poor performance from state-owned entities (SOEs), particularly Eskom, and the resulting downgrade of our economy to junk status contributed significantly to weakened overall trading conditions.

The most significant impact on the economy as a whole as well as the Remgro share price during the reporting period was the outbreak of Covid-19 in China and the resulting global pandemic leading up to the announcement of a State of Disaster in South Africa. Local and global economies almost completely halted at certain stages and the local lockdown regulations at different levels seriously affected the majority of Remgro’s
investee companies’ operations and earnings.

Mainly because of macroeconomic conditions outside of the control of management, the long-term incentive (LTI) plans have not yielded any or very little value to participants in the last number of years. The recent negative impact of Covid-19 on the global and local economy, currency and market volatility and on the operations of specific investee companies (i.e. ban on selling of liquor and significant reduction in non-Covid-19 related hospitalisation), it seems unlikely that any of the current “in-flight” LTI awards will yield the expected value from these plans.

The committee deliberated extensively on the impact of the Covid-19 pandemic, the RMH Unbundling and the macro-economic conditions on all elements of remuneration during the year and a summary of these decisions and the other main actions and deliberations are provided below:

Total guaranteed PACKAGE (TGP)

In order to mitigate against the impact of Covid-19 on the remuneration of employees, and in line with Remgro’s philosophy on fair and responsible remuneration, the following actions, among others, were taken:

  • The members of the Management Board voluntarily agreed to reduce their TGP by 30% for the months of April, May and June in solidarity to the serious impact that the initial lockdown and lockdown level five had on the economy, our investee companies, small businesses and the people of South Africa in general. The Company then decided to donate this saving to The South African SME Relief Trust (or the Sukuma Relief Programme) in support of Small and Medium enterprises.
  • No salary increases were proposed and approved for members of the Management Board and management level employees for the 2021 financial year. Non-management employees received cost of living related salary adjustments of between 4.5% and 5.0% for the 2021 financial year.
  • The majority of employees were able to continue to work from home during the initial Covid-19 lockdown levels and the Company continued to pay full salaries to all employees. Employees that were not able to productively work remotely or were not able to work at all were required to utilise accrued annual leave during this time.

Long-Term Incentive (LTI) Plans

  • Evaluation of effectiveness of non-guaranteed remuneration

    In the absence of any short-term incentive (STI) arrangements and the limited effectiveness of guaranteed remuneration, the LTI plans are critical to attract, motivate and retain employees across the Company, and not only at Management Board level. These LTI plans are not currently delivering value to participants that, in turn, results in the LTI plans being less effective as a tool with which to motivate and retain employees and could lead to a loss of talent.

    Management, in consultation with their external advisor, is currently considering a number of alternatives to discharge their responsibility to ensure employees stay engaged and motivated and that the Company can continue to attract and retain the best employees.

  • Granting of LTI awards

    Remgro issued a cautionary announcement in November 2019 with regards to the RMH Unbundling which resulted in the Company entering a cautionary period. The 2018 Rules of the Remgro Equity Settled Conditional Share Plan (CSP) and Remgro Share Appreciation Rights Plan (SAR Plan) regard prohibited periods (which include cautionary periods) as a restriction which prevents the Company from making new awards to employees. The Company was prevented from making the planned annual awards in December 2019. While the restrictions were lifted in April 2020, the Company decided to postpone the making of the 2019 awards further due to the uncertainties of the impact of Covid-19 on investee companies and Remgro as a whole.

    This position was reviewed at the June 2020 Remuneration and Nomination Committee meeting and it was decided to further postpone the making of these awards to the latter part of 2020.

Non-Executive Directors’ (NED) fees

With consideration to the impact of Covid-19, the RMH Unbundling as well as the decision not to grant increases to the Management Board and other managers, the committee approved not to increase the NED fees for the 2021 financial year.

Assessment of the implication of the RMH unbundling on the Remgro share Plans

The impact of the adjustments to the Remgro share plans are set out in the Implementation Report.

Malus and Clawback policy

The committee commenced with the introduction of Malus and Clawback into the Remgro remuneration framework. The committee is in the process of finalising the formal Malus and Clawback Policy, the implementation of which will be ongoing for the 2021 financial year.

Voting results and shareholder engagement

At the Annual General Meeting (AGM) held on 28 November 2019, Remgro’s Remuneration Policy received a favourable vote by Ordinary Shareholders of 93.99% and the Remuneration Implementation Report received a favourable vote by Ordinary Shareholders of 94.97%.

The committee remains committed to ongoing engagement with shareholders and welcomes any comment they may wish to provide.

The committee is of the view that during the 2020 financial year, Remgro’s Remuneration Policy achieved its stated objectives. At the 2020 AGM Remgro will put its Remuneration Policy and Remuneration Implementation Report to two separate non-binding advisory shareholder votes (see ordinary resolutions numbers 16 and 17 in the Notice to shareholders) and the committee looks forward to a positive outcome in this regard.

FUTURE AREAS OF FOCUS

During the 2021 financial year the committee will focus on the following forward-looking considerations:

  • To review the short-, medium- and long-term impact of recent corporate activities and the Covid-19 pandemic on reward principles and practices to enable our ability to attract, retain and motivate all employees.
  • To review the performance measures and targets for each of the approved LTI arrangements to ensure they remain relevant for future awards.
  • To finalise and implement the Malus and Clawback Policy.

The Remuneration Policy provides an overview of Remgro’s remuneration principles for the organisation as a whole. The information provided in this policy has been approved by the Board on recommendation by the committee. This Remuneration Policy will be put to a non-binding advisory vote by shareholders at the next AGM on 30 November 2020.

GOVERNANCE

The committee is appointed by the Board with delegated powers and the functioning of this dedicated Board committee is well established within Remgro’s mode of operation. In essence it is the committee’s role to ensure fair and responsible remuneration across the Company, by way of policy making and implementation, and that the disclosure of remuneration is accurate, complete and transparent. Ultimate responsibility remains with the Board.

The committee is governed by a mandate, reviewed and approved by the Board annually, that incorporates best practice governance recommendations and serves to assist members of this committee in the execution of their role and responsibilities.

The members of the committee for the year under review were:

  • Mr J P Rupert (chairman);
  • Mr P K Harris (independent non-executive director);
  • Mr G T Ferreira (lead independent non-executive director) – retired at the 28 November 2019 committee meeting;
  • Mr P J Moleketi (independent non-executive director) – appointed to the committee on 28 November 2019; and
  • Mr F Robertson (independent non-executive director).

The Board acknowledges the recommended practice in King IV that the Chairman of the Board should not be the chairman of this committee but given the following reasons, this arrangement is deemed appropriate:

  • The necessity to align the Company’s remuneration approach with corporate strategy;
  • The Chairman receives no emoluments or fees from Remgro thus there are no conflicts with regard to the approval of nonexecutive director fees;
  • The Chairman is a significant shareholder in the business hence it is not regarded as unreasonable for him to chair this committee; and
  • In terms of committee composition the majority of the committee remains independent non-executive directors.

The committee formally met twice during the year and had four further engagements via round robin discussions and decisions. The details on the attendance of the formal meetings are set out in the Corporate Governance Report.

The mandate set out in the terms of reference of the committee includes the following:

In respect of its nomination function –

  • Assist the Board with the process of identifying suitable candidates for appointment as directors;
  • Ensure the establishment of a formal and transparent process for the appointment of directors;
  • Oversee the development of a formal induction programme for new directors;
  • Evaluate the performance of the Board; and
  • Ensure that succession plans for the Board, Chief Executive Officer (CEO) and other Management Board members are developed and implemented.

In respect of its remuneration function –

  • Oversee the establishment of an organisation-wide Remuneration Policy that promotes positive outcomes across the economic, social and environmental context in which Remgro operates;
  • Promote an ethical culture and responsible corporate citizenship in the context of remuneration;
  • Oversee the fair, responsible and transparent setting and administering of remuneration of all employees;
  • Advise on the fees of non-executive directors, for approval by shareholders at the AGM;
  • Ensure that remuneration meets Remgro’s needs and strategic objectives and is administered in accordance with the shareholder-approved plan rules;
  • Oversee the preparation and recommendation to the Board of the Remuneration Report to be included in the Integrated Annual Report; and
  • Ensure that the Remuneration Policy and Remuneration Implementation Report are put to two separate non-binding advisory votes by shareholders at the AGM.

The committee is satisfied that it has carried out its responsibilities for the year in compliance with its mandate.

During the 2020 financial year, the committee has engaged external remuneration consultant PricewaterhouseCoopers Inc. (PwC) as well as management and the Board in conducting their duties and responsibilities.

The committee considered the advice, opinions and services received by PwC during the 2020 financial year. The committee is satisfied and regard PwC as being wholly objective and independent.

Components of Remuneration

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