Remuneration committee report
The board of directors has delegated oversight of remuneration to the remuneration committee (the committee).
This report sets out the committee’s governance and the company’s remuneration policy, which is divided into four sections:
SECTION 1 – COMMITTEE GOVERNANCE
COMPOSITION AND MEETINGS
Members of the committee and its Chairman are appointed by the board on the recommendation of the Nomination Committee. During the year under review, the committee comprised three independent non-executive directors. Members of the committee are Messrs Mehta (Chairman) and Hankinson and Mrs Mnganga. Their qualifications and experience are available here.
The committee meets formally three times a year. The CEO attends meetings by standing invitation to make proposals and to provide such information as the committee may require. Members’ attendance at meetings were as follows:
TERMS OF REFERENCE
The committee operates in accordance with a formal terms of reference and work plan, which was reviewed and amended in line with the King IV™ recommendations and approved by the board on 2 August 2017.
SELF-EVALUATION OF COMMITTEE PERFORMANCE
The committee undertook a self‑evaluation of its performance and strongly believed that:
- it is appropriately constituted with clearly defined terms of reference and appropriate reporting lines to the board;
- the frequency and duration of committee meetings were appropriate to enable members to discharge their mandate;
- it had a mix of the required skills to address a range of issues and risks pertaining to the committee;
- the members had a clear understanding of their responsibilities and authority;
- it provides clear and specific guidance to the board as mandated and assists the board in its overall responsibility to ensure the proper governance of the company;
- members are well prepared for their meeting; and
- the Chairman of the committee is effective.
SECTION 2 – BACKGROUND STATEMENT
The committee is pleased to present its report for the 12 months ended 30 September 2017. As members of the committee, our focus is to ensure that the company remunerates fairly, responsibly and transparently and in doing so annually reviews the company remuneration policy to ensure that it promotes the achievement of strategic objectives and encourages individual performance.
The committee makes use of the PricewaterhouseCoopers’ executive and non-executive remuneration report to provide insight into current remuneration practices and trends.
During the year under review the committee:
- reviewed the company’s remuneration policy and implementation report for approval by the board, which will be put to a non-binding vote by shareholders at the 2018 Annual General Meeting (AGM). In the event that the remuneration policy and/or the implementation report is voted against by 25% or more of the voting rights exercised, management will engage with those shareholders to get an understanding of the reasons why and amend the remuneration policy and/or the implementation report to address any shortcomings, if necessary;
- reviewed and approved the executive directors’ and executive committee members’ remuneration, performance and incentives bonuses. The CEO’s salary was adjusted to market rates during the year;
- reviewed the Swiss and Irish senior executive remuneration and incentives;
- approved the annual award of shares in terms of the group’s long-term conditional share plan;
- approved the salary mandate to be implemented for the group’s employees;
considered the fees payable to non-executive directors for approval by shareholders, details of which can be found here; and
- reviewed the King IV™ recommendations.
Executive management formally engaged with a number of the company’s top shareholders regarding the company’s remuneration policy before its 2017 AGM and were pleased with the 94.49% (2016: 72.13%) vote in favour of the remuneration policy.
There were no changes made to the remuneration policy during the year under review and the committee is satisfied that remuneration in all forms accruing to employees at all levels is market-related and equitably awarded. In addition, the committee believes that the remuneration policy encompasses the objectives set out in the company’s remuneration philosophy.
Thanks go to the members of the committee for their dedication and constructive contributions to the functioning of the committee.
14 November 2017
SECTION 3 – 2017 REMUNERATION POLICY
SPAR’s employees are pivotal in meeting its strategic objectives in that SPAR is committed to paying fair, competitive and market-related remuneration to ensure that the company is able to attract and retain top-quality and talented employees. Our remuneration policy therefore seeks to:
- position the remuneration levels appropriately and competitively in comparison with the labour market; and
- acknowledge the contribution of individual employees by rewarding them for the successful achievement of company goals and objectives.
Apart from fixed remuneration, an element of variable remuneration that is aligned to value creation in the form of short and longer-term incentive schemes is also catered for, and linked to the achievement and performance of specified targets and objectives, with payment being made out of increased returns. This also assists in attracting and retaining key employees.
PROCESS TO DETERMINE REMUNERATION
SPAR strives to ensure that remuneration is free of unfair discrimination. Fair differentiation based on performance and skills shortage is applied. The company takes cognisance of its external environment through an understanding of national remuneration trends and by regular benchmarking against comparable companies.
SPAR uses remuneration surveys conducted by reputable salary survey companies that have sufficient sample sizes and spread of positions, and an adequate representation in relevant industries comparable to SPAR. Salary scales provide remuneration guidelines based on the Paterson grading system and are informed by market comparisons. The company strives to remunerate key positions and those positions where there is a shortage of skills (as defined annually) on at least the 75th percentile of the market, and the rest of the positions on at least the 50th percentile of the market.
The use of a performance management system also ensures that there is a positive correlation between individual and team performance and remuneration earned. Management is responsible for managing remuneration and thus supporting the long-term sustainability of the company.
The committee is responsible for approving salary increases for executive directors and the executive committee. The CEO, together with the executive committee, is responsible for all employees below EU grade. The overall percentage increase for employees below EU is authorised by the committee. Salary increases are implemented:
- on 1 January each year for all employees graded DU band and below who are not members of the bargaining unit;
- on 1 October each year for employees graded EL band and above; and
- as per collective agreements with the union(s) for employees in the bargaining unit.
SPAR’s remuneration structure consists of both guaranteed and variable remuneration. SPAR uses the Paterson grading methodology, which works as follows:
Guaranteed remuneration and benefits
Non-management (A to C band) and management employees (D to EL band) remuneration
Salary and subsidised benefits (retirement and medical) form the guaranteed component of employees’ remuneration. The components are as follows:
- Bands A to C receive a monthly salary and a guaranteed 13th cheque.
- Bands D and above receive a monthly salary.
- Other pensionable remuneration applicable to bands D and above includes a car allowance, vehicle insurance and fuel, which are paid by the company.
- From date of engagement, permanent employees at all levels become members of one of the available retirement funds, namely:
- The Old Mutual SuperFund Pension Fund: The SPAR Group Limited Defined Contribution Pension Fund,
- The Old Mutual SuperFund Provident Fund: The SPAR Group Limited Staff Provident Fund, and
- The Old Mutual SuperFund Provident Fund: The SPAR Group Management Provident Fund.
- Membership of a medical aid scheme is not compulsory, but those who wish to become members can choose from a number of medical aid schemes available. The Tiger Brands Medical Scheme is a group scheme, while a number of other low-cost medical aids have been negotiated at distribution centre level.
- Other variable remuneration, such as allowances, is paid, where applicable, and in accordance with the legislation and collective agreements entered into with the union(s), or workers’ committees.
- Non-financial benefits include subsidised canteen meals, access to a clinic, uniforms and training and development.
Executive remuneration (EU to F band)
The executive directors are full-time employees of the company and, as such, each has an employment agreement, in accordance with the company’s standard conditions of service, but with a notice period of two months (versus one month for other employees) and more comprehensive confidentiality undertakings. The CEO has a notice period of three months.
Executive directors receive a monthly salary and benefits based on the role of each executive and his or her performance and contribution to the group’s overall results, including other pensionable remuneration applicable to band EU and above, such as car allowance, vehicle insurance and fuel, which is paid by the Company.
Details of the executive directors’ remuneration is available in the implementation report.
Non-executive directors’ remuneration
Non-executive directors are not full-time employees of the company and, as such, each has a contract for services and not a contract of employment.
Non-executive directors’ remuneration consists of a guaranteed basic fee and is not linked to the financial performance of the group, nor do they receive share options or bonuses.
Management recommends non-executive directors’ fees, based on industry benchmarks, to the committee for onward recommendation to, and approval by, the board who, in turn, recommend the fees to shareholders for approval in accordance with the Companies Act requirements. Non-executive remuneration increases are implemented on 1 March each year and their proposed fees for the period 1 March 2018 to 28 February 2019 is available here.
The short-terms incentive scheme is solely at the discretion of the company and can be changed or withdrawn at any time. Short-term incentives are only paid to individuals who are in the employ of the company at the end of the financial year.
The main purpose of this incentive scheme is to support a performance culture and to reward employees for achieving good annual financial results when compared with predetermined targets. Performance bonuses are based on the achievement of financial, individual and transformation objectives approved by the committee.
Non-management employees (A to C band)
Non-management employees are entitled to a performance bonus of up to 50% of a month’s salary or part thereof, based on the achievement of set targets. The targets are based on key issues in the business plan and are mainly financial targets.
Management employees (D band and above)
The maximum incentive bonus that may be earned is as follows:
The financial component of the short-term incentive for divisional managers is based on a targeted divisional profit before tax growth on the previous year. For central office managers, short-term incentives are based on the group’s profit after tax growth on the previous year.
The functional component comprises objectives that include corporate objectives (for example, transformation) and individual objectives, which are specific to a manager’s sphere of influence. The attainment of these targets contributes towards the achievement of the company’s strategic objectives, which are aligned to the delivery of sustained shareholder value. The principle of paying for performance is a key underpin to the short-term incentive and any variable payments are directly aligned to performance outcomes. Achieving these objectives will result in a bonus payout subject to the achievement of a minimum profit level of no less than the profit level achieved in the previous year.
The short-term incentive bonus is capped at 100% of annual salary for executive directors and senior general management.
For the executive directors, the breakdown of the targets, relative bonus caps as a percentage of annual salary and the average payout for the year under review, were as follows:
Share option plan (SOP) (2004)
The last options were allocated on 7 February 2014 and remaining participants have 10 years from date of issue to exercise their option rights. No further share option allocations can be made in this scheme. There are no performance criteria in this scheme and as the scheme is now closed, none can be introduced.
Options previously granted to executive directors, options exercised during the year under review and unexercised options as at 30 September 2017 are provided here.
Conditional share plan (CSP)
The CSP provides a mechanism that enables the company to provide key employees with the opportunity to receive shares in the company based on personal or group performance. The primary intent is to make performance-related awards under the CSP through an award of shares that are subject to appropriate performance conditions. An award of restricted shares may be made in exceptional circumstances to address serious retention risks or to compensate prospective employees for the loss of long-term incentive awards with their existing employer.
The CSP is differentiated from the SOP in that it has performance conditions governing the vesting of awards. In addition, whereas the SOP is generally settled by the issue of shares, the CSP is intended to be settled by a market purchase of shares and will, therefor, not cause dilution to shareholders.
Salient features of the CSP are as follows:
The performance conditions applicable to an award of shares are set annually by the committee, in broad consultation with shareholders. The performance conditions will be measured over a performance period of three years, which is aligned with the financial years of the company.
The table below shows the three performance conditions along with their definitions and the proportion of the total number of shares awarded to which the performance conditions relate. In addition, the table shows the Threshold, On-target and Stretch target conditions which represent the levels of achievement required for certain portions of the performance shares related to that particular performance condition to vest.
Threshold performance will act as a ‘gatekeeper’ and will represent the minimum performance that is required before performance shares vest. On-target performance relates to good, but sufficiently stretching performance, and stretch performance relates to exceptional performance in the context of the prevailing business environment. The portion of the performance shares that will vest at each target will be as follows:
Linear vesting will apply for performance between threshold and on-target or between on-target and stretch performance. The conditions of the CSP will continue to be reviewed in line with best practice.
Performance condition targets, information and allocations
The interim measures against the targets for the unvested awards issued in 2014, 2015 and 2016 are summarised in the table below. The HEPS growth and average annual RONA projections over the appropriate performance periods for each applicable grant has been calculated using historical and forecast HEPS values.
The measure of TSR will be the TSR of SPAR relative to the weighted average TSR of the 6 selected peer group companies.
In February 2017, the committee awarded 231 700 shares (2016 grant) to executives and senior managers. The vesting date of award is 7 February 2020.
Details of CSP awards to executive directors are provided in the implementation report.
SECTION 4 – IMPLEMENTATION REPORT
The implementation report contains the detailed information and figures pertaining to the application of the remuneration policy in relation to executive and non-executive directors.
DIRECTORS’ REMUNERATION AND INTERESTS REPORT
As at the date of this report, the directors’ interests in the share capital of the company remained unchanged.
Declaration of disclosure
Other than that disclosed above and below, no consideration was paid to, or by any third party, or by the company itself, in respect of the services of the company’s directors, as directors of the company, during the year ended 30 September 2017.
DIRECTORS’ SHARE SCHEME INTERESTS
The group’s option scheme provides the right to the option holder to purchase shares in the company at the option price. On election by option holders, one third of the options granted vest after three years, with a further third vesting on the expiry of years four and five respectively. Option holders have 10 years from the date of issue to exercise their option rights.
Options held over shares in The SPAR Group Ltd
Shares held by participants in terms of the CSP
In terms of the CSP, the group has granted shares to executives, senior management and key talent specifically identified in the form of performance share awards. These shares vest over a period of three years subject to performance conditions at year-end. No exercise price is allocated to these awards.