This report sets out our Remuneration Policy and Implementation Report for executive directors (EDs) and non-executive directors’ (NEDs) remuneration for the 2021 financial year and is presented in three parts:
|i)||Part 1: The background statement which provides context to our Remuneration Policy and performance;|
|ii)||Part 2: An overview of the forward looking Remuneration Policy applicable in the 2022 financial year; and|
|iii)||Part 3: The Implementation Report which sets out in detail how the existing policy was implemented during the year under review, including disclosure on payments made to EDs and NEDs during the year ended 30 June 2021.|
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 the stretching performance conditions (where applicable) and the employment condition 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 Part 2 of this report.
Context and key decisions taken
Remgro has a diversified portfolio of investments across industries, which include healthcare, consumer products, financial services, infrastructure, industrial, and media interests. During the 2020 financial year, the Company successfully unbundled its investment in RMB Holdings Limited (RMH) by way of a dividend in specie (RMH Unbundling). The continued impact of the RMH Unbundling on Remgro’s long-term incentive (LTI) structures and the measures taken in response thereto are discussed in more detail in Part 3 of this report.
The weak domestic macroenvironment, characterised by low economic growth, continued high levels of unemployment and rand volatility persisted during the financial year. The ongoing effects of Covid-19 further continued to impact on the Remgro share price and the local lockdown regulations at different levels continued to affect the majority of Remgro’s investee companies’ operations and earnings. It also resulted in the Company not meeting the performance conditions as attached to the 2018 awards, which will result in none of the performance-linked 2018 LTI awards vesting over the vesting periods ending in December 2021, 2022 and 2023.
Mainly because of macroeconomic conditions outside of the control of management, the LTI plans have not yielded any or very little value to participants in the last number of years. Due to the continued impact of Covid-19 on the global and local economy 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” SAR awards will yield the value from these plans as was the expectation prior to the outbreak of the pandemic.
The committee deliberated extensively on the impact of the Covid-19 pandemic, the RMH Unbundling and the macroeconomic 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, with more detail set out in Part 3 of this report.
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 decision was taken with regards to increases:
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.
Long-term incentive (LTI) plans
Remgro continued to review the short, medium and long-term impact of recent corporate activities, particularly the RMH Unbundling and the Covid-19 pandemic on reward principles and practices to enable our ability to attract, retain and motivate all employees. Remgro issued a cautionary announcement in November 2019 with regards to the RMH Unbundling which resulted in the Company entering an extended 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 prevented the Company from granting new awards (the 2019 annual award) to participants and participants from exercising their awards.
During the year under review, the following actions were taken:
- Granting of LTI awards
It was decided to award both the 2019 annual award as well as the 2020 annual award together during December of 2020. In line with our policy, both the 2019 and 2020 annual awards for executive directors, other members of the Management Board (prescribed officers) and identified investment executives were made up of 50% SARs and 50% CSPs, the vesting of which is subject to the performance condition and the employment condition. The awards made to all other participants to the CSP continued to be retention awards, the vesting of which is subject to the employment condition.
- Evaluation of impact on 2012 SAR awards
The committee carefully balanced the prolonged impact of the prohibited periods as well as Covid-19 on the 2012 awards and loss of value to employees with the significant value realised for our shareholders in terms of the RMH Unbundling and decided on the following approach:
- The committee, in line with the SAR Plan rules, extended the exercise period of the 2012 awards (which would have expired on 30 November 2020) to 30 November 2023 for all affected participants in order to allow for the potential recovery of value.
- The committee approved a special award of CSPs to all participants affected by the RMH Unbundling in respect of their 2012 awards. The value of this award is comparable to what the vested value of the SARs were for the 30-day period prior to the 19 November 2019 SENS announcement which brought on the prohibited period. The CSP award will vest in two equal tranches on the first and second anniversaries of the award date, after which it will be subject to a post-vesting holding lock up until 30 November 2023; and
- It is important to note that the participants will not qualify for both the 2012 SAR award and special CSP award and will have to elect which award he or she wants to obtain the benefit from (i.e. if the participant elects to exercise the SAR, the special CSP will be forfeited).
- Evaluation of impact on 2013 – 2015 SAR awards
Covid-19’s ongoing impact has resulted in the 2013 – 2015 awards being negatively impacted. The committee, in line with the SAR Plan rules, carefully considered the impact on all participants and decided to extend the expiry period for these awards as follows:
Original expiry date
Revised expiry date
- 2018 awards
The 2018 award was left unadjusted, and neither the performance conditions nor the exercise period was adjusted.
Environmental, Social and Governance (ESG)
Workplace, economic, social and environmental sustainability practices have always been part of Remgro’s core values. During the year under review, Remgro embarked on an ESG journey, the aim of which is to develop a strong ESG strategy and framework for implementation across the business and the businesses of investee companies. During this journey, key areas of focus will be established, together with measurable and stretching targets which will be incorporated into the remuneration framework.
In order to incentivise and motivate management in driving this journey, qualitative ESG measures have been incorporated into the LTI which measures detailed milestones to be achieved by specified dates. Once measurable and stretching quantitative measures have been identified, these measures will be incorporated into the LTI scorecard and communicated to shareholders.
This journey will remain a key focus area for the foreseeable future.
Although the ESG journey is still in its infancy and a priority focus area for the upcoming year, the committee felt it was prudent to relook at the LTI performance conditions and include qualitative ESG milestones in the LTI in order to drive this journey. These qualitative measures make up 100% of the ESG measure for the 2019 and 2020 awards and will focus on governance and risk as well as strategic investment decisions and portfolio impact.
The performance conditions for the LTI awards are as follows:
|Free cash flow||25%|
More details are provided in Parts 2 and 3 of this report.
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. During the year under review, it became clear that extensive work was being undertaken on a both a subcommittee and ad hoc committee level in both addressing the unique challenges which the Company faced as well as in driving the execution of the Company’s business strategy. In light hereof, it is proposed that the Board member fee remains as it is for 2022, but that the subcommittee fees be increased by 8%. Given the low base of the current ad hoc committee fee and the critical work performed by the ad hoc committees and the Investment Committee in particular, it is proposed that the ad hoc committee fee be increased from R25 000 to R30 000 and that, going forward, members of the Investment Committee will receive an ad hoc fee for meetings attended.
Malus and Clawback Policy
The committee implemented a formal Malus and Clawback Policy during the year. More details on this policy are set out in Part 2 below.
Voting results and shareholder engagement
At the Annual General Meeting (AGM) held on 30 November 2020, Remgro’s Remuneration Policy received a favourable vote by ordinary shareholders of 88.7% and the Remuneration Implementation Report received a favourable vote by ordinary shareholders of 92.9%.
The committee remains committed to ongoing engagement with shareholders and welcomes any comment they may wish to provide.
Future areas of focus
During the 2022 financial year the committee will focus on the following forward looking considerations:
- To develop a Company ESG strategy, and to align the remuneration strategy with the ESG strategy with a focus on the incorporation of quantitative ESG performance measures within the variable remuneration design.
- In line with our philosophy of remunerating fairly and responsibly, continue to identify and address any discrepancies.
- To continue to ensure that our internal human resources and remuneration policies support transformation across the business.
During the 2021 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 2021 financial year. The committee is satisfied and regards PwC as being wholly objective and independent.
The committee is of the view that during the 2021 financial year, Remgro’s Remuneration Policy achieved its stated objectives. At the 2021 AGM Remgro will put its Remuneration Policy and Remuneration Implementation Report to two separate non-binding advisory shareholder votes (see Ordinary Resolutions Numbers 15 and 16 in the Notice to shareholders here) and the committee looks forward to a positive outcome in this regard.
The Remuneration Policy provides an overview of Remgro’s remuneration principles for the organisation as a whole and applies to all permanent employees. 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 25 November 2021.
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 committee consists of four non-executive directors, three of whom are independent. The members of the committee for the year under review were:
- Mr J P Rupert (chairman);
- Mr P K Harris (independent non-executive director) – retired from the committee on 30 November 2020;
- Ms S E N De Bruyn (lead independent non-executive director) – appointed to the committee on 30 November 2020;
- Mr P J Moleketi (independent non-executive director); 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 non-executive 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 numerous informal interactions in preparation for the formal meetings. 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.
Fair and responsible remuneration across the Company
The delivery of Remgro’s strategy is dependent on the values, talent and skills of all employees across the Company and Remgro therefore views employees as critical assets. Remgro committed to the principle of rewarding all employees across the Company in a manner which is fair and responsible and strives to create an environment which is inclusive. This commitment is entrenched in the remuneration policy.
The TGP of all employees is positioned around the 75th percentile of the market which takes into account that the Company does not have an short-term incentive plan (STI) in place. All employees are furthermore eligible to receive LTI awards and not only executives. Lower-level employees typically receive higher percentage increases than other employees.
Further ongoing actions taken in this regard include:
Assessment of remuneration conditions between employees at the same level in accordance with the principle of “equal pay for work of equal value” to identify and address any unjustifiable remuneration disparities.
Investing in its people initiatives, which include: talent management; development opportunities for all employees; various training courses as per identified needs and an employee value proposition aligned to the corporate values and culture.
Fair and responsible remuneration practices remain a key focus area for the committee in the 2022 financial year.