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Remuneration reportThis report is part of the remuneration report and will be put to a non-binding advisory vote by shareholders at the upcoming AGM. It summarises the company’s remuneration policy for non-executive directors, executive directors and prescribed officers. The information provided in this report has been approved by the board on the recommendation of the remuneration committee. The full remuneration report is available on the company’s website, www.barloworld.com Remuneration philosophy and policyBarloworld aims to provide a level of remuneration that attracts, retains and motivates executives of the highest calibre. Careful consideration is also given to internal equity within the group and to aligning the remuneration paid with shareholder interests and best practice. The vision and strategic plan for 20153, which was approved in the 2011 financial year, continues to be driven by the executive team to deliver profitable growth and enhance financial returns throughout the various businesses. The remuneration philosophy and metrics incorporated into both the short-term incentive (STI) and long-term incentive (LTI) structures have been designed to support this plan. Barloworld has adopted a holistic, balanced approach to its remuneration philosophy for senior executives and general staff incorporating the following monetary and non-monetary components:
Barloworld’s remuneration philosophy is to ensure that executive directors and the senior executive team are fairly rewarded for their individual contributions to the company’s operating and financial performance in line with its corporate objectives and strategy. Barloworld is committed to remuneration that is competitive relative to the target labour market in each country based on industry and market benchmarks reviewed annually by the company. This contributes to Barloworld remaining an employer of choice. No material changes to the remuneration philosophy and practices for executive directors and prescribed officers were made during the year or are envisaged for the 2014 financial year. Divisional incentive plans are aligned so that divisional executives and management are incentivised on similar financial targets to executive directors, with total incentives benchmarked against market comparisons for equivalent levels of management. Governance and the remuneration committeeRole of remuneration committee The remuneration committee operates under terms of reference approved by the board, subject to annual review and in line with King III and the Companies Act. The terms of reference include:
The remuneration committee chairman reports formally to the board on proceedings after each meeting and, in line with King III, will attend the annual general meeting of Barloworld to respond to any questions from shareholders regarding its areas of responsibility. Members of remuneration committee The remuneration committee should have three or more members with a mix of skills and business experience suitable for its purpose The board may from time to time decide the number of members on the remuneration committee. The members must be non-executive directors, of whom at least half should be independent. In line with King III, the remuneration committee is chaired by an independent non-executive director. The remuneration committee is constituted as follows:
The CE attends remuneration committee meetings by invitation. The CE does not participate in the vote process, nor is he present at meetings of the remuneration committee when his own remuneration is discussed or considered. PricewaterhouseCoopers (PwC), the company’s independent adviser, attends the meetings in an advisory capacity. The company secretary, Ms LP Manaka, acts as secretary to the remuneration committee. Advisors During the 2013 financial year, the remuneration committee received advice and guidance from the following independent advisors:
Overview of remunerationRole of benchmarking Barloworld operates the Towers Watson global grading methodology and structure. This assesses an executive’s remuneration against an independently determined grade which is based on a number of factors including the “size” of the job (as measured by revenue and number of employees) as well as its “complexity” (incorporating aspects such as whether it is a domestic, international or global business). Remuneration of divisional executives and senior management below executive director level is also benchmarked to independent market information based on the Towers Watson global grading system. The remuneration committee approves salary increases and incentives for executive directors and prescribed officers on an individual basis. The salary adjustments for other employees are cascaded downwards throughout the group to the appropriate heads of divisions starting with the divisional chief executive officer who approves the salary increases and incentives for executives on the divisional management boards. Package design Executive remuneration is heavily weighted toward variable remuneration as illustrated below. The on-target bonus and long-term incentive entitlement for the CE is slightly higher than for other executive directors and will result in a heavier weighting towards variable pay. The mix between fixed and variable pay for the CE and executive directors (based on on-target bonuses potential and the average indicative expected value, on grant date, of long-term incentive awards made during the year) is:
Elements of remunerationThe table below summarises the composition of the total remuneration package for executive directors and prescribed officers during the 2013 financial year, as well as proposed changes to the total remuneration package for the 2014 financial year. Elements of remuneration
Guaranteed package/base salary The executive directors’ base salary and guaranteed package are reviewed annually. The current levels are benchmarked, in most cases, around the median of the relevant Towers Watson grade and/or group of comparator companies, which is made up of large international and local South African companies. The company uses an independent consultant, namely PE Corporate Services, to conduct this exercise. The results are also discussed with PwC, the standing adviser to the remuneration committee. Variations around the median may be influenced by factors such as the nature of the assignment, level of experience of the executive, changes in responsibilities, performance track record and strategic importance of the role. Given the independent benchmarking performed, as well as the comparator companies used, this level is considered to be competitive in the labour market where the executive operates. Short-term incentives Short-term incentives (annual bonuses) are paid in cash and are based on achievement against 12-month targets aimed at increasing shareholder value. The criteria for earning a bonus are:
Threshold, target and stretch performance targets are set by the remuneration committee annually in advance. The remuneration committee determines the financial measures, the weighting and vesting levels on an annual basis. In addition, the remuneration committee reviews the actual performance of the executives against the targets set at the beginning of the relevant year. The ultimate bonus payment is at the discretion of the remuneration committee. Performance targets The financial metrics are set by the remuneration committee on an annual basis. These metrics are selected based on key business drivers over the short term. A combination of the following metrics has been used in the past and is envisaged to be used in future:
Group targets apply in the case of the CE, financial director, executive director: Human Resources, Strategy and Sustainability, and group general manager: Finance. Divisional targets apply for the remaining executive directors and prescribed officers, with the exception of HEPS which is measured for all on a group basis in recognition of their collective responsibility for the performance of the group as a whole. The targets set take into account the current trading conditions and challenges faced by the company or relevant division and incorporate a meaningful level of stretch to motivate and retain senior employees. The threshold targets are set at the minimum level of acceptable performance for the business. Personal scorecard objectives would typically include aspects such as:
Consistent with prior years, a bonus of up to 30% of annual basic salary can be earned where 100% of personal scorecard objectives are achieved. An 85% achievement of personal objectives will result in a bonus of 22.5% of annual basic salary. The threshold is 70% achievement of personal objectives, in which case 15% of annual basic salary can be earned as a bonus. No bonus is payable below 70% achievement. The personal objectives component of the scheme is the same for the CE, executive directors and prescribed officers. Earning levels The percentage of basic salary eligible to be paid as a bonus based on relative achievement against targets (threshold, target and stretch) is: CE
Executive directors and prescribed officers
The company operates the following long-term incentive plans:
It is essential for the group to retain skills over the longer term and to motivate and incentivise executive directors and other senior employees to drive sustainable value creation over multiple reporting periods and to be shareholders of the company. This is achieved through long-term incentive plans and annual awards using the FSP and SARs scheme. In the case of the executive directors and prescribed officers, the FSP is 25% retention driven and 75% performance driven and the SARs is 100% performance driven. An aggregate limit of 22 744 049 (twenty two million, seven hundred and forty four thousand and forty nine) shares equating to approximately 10% of the current issued share capital of the company applies to the FSP, SARs and SOS. The maximum number of unvested FSP awards which may be made to any one participant is 568 601 and the maximum number of unvested SARs granted to any one participant may not exceed 1% of the issued ordinary share capital of the company. A total of 8 888 167 shares have been issued to date in respect of the FSP and SOS representing 3.8% of the current issued share capital. There are no options outstanding under the SOS. Since 2010, FSPs have been settled via on-market purchases of company shares. It is the current intention to settle equity-settled SARs in the same manner in order to avoid shareholder dilution. A reconciliation of opening balance as at 1 October 2012 and closing balance as at 30 September 2013 can be found on page 84 of the annual financial statements. On an annual basis, the remuneration committee determines the quantum of awards to be made, the performance targets, and the mix of instruments to be granted to eligible employees. Forfeitable share plan (FSP) Barloworld uses the FSP as an incentive tool for long-term value creation as well as for retention purposes. The purpose of the FSP is to provide senior executives with the opportunity to acquire shares in Barloworld, ensure that key skills are retained and align the interest of participants with shareholder interests. Non-executive directors are not eligible to participate in the FSP. Awards are structured as forfeitable
share awards. This means that
participants receive shares (including
dividend and voting rights) on the date
of award but those shares are subject to
restrictions and a risk of forfeiture during
a three-year vesting period. In respect of
executive directors, the vesting of the
majority of the forfeitable share award is
subject to the satisfaction of performance
targets. To the extent that the
performance targets are not achieved,
those shares subject to the targets will be
forfeited and there will be no Performance targets The performance targets applicable to the FSP are determined and set by the remuneration committee annually. These performance targets are elected based on key business drivers over the long term. The following performance targets have been used and are envisaged to be used in future
The above targets are consistent with prior years except for the return on net assets (RONA) condition which was replaced by RONOA in order to ensure focus on returns on operating assets under management’s control and to facilitate benchmarking with peer companies. All the awards are subject to continued employment until the vesting date. Awards subject to performance targets vest according to the achievement of targets as follows (linear vesting occurs between thresholds and target). Performance targets
Share appreciation rights scheme (SARs) The SARs was developed with the objective of enabling employees to benefit from growth in the value of the ordinary shares of Barloworld. The SARs are subject to a three, four and five-year vesting period. All SARs will lapse if not exercised within six years from date of grant. The first four awards (2006 to 2009) were cash-settled. From 2011, awards made under the SARs will be equity-settled. From 2007 the entire SAR award has been subject to a performance target. Performance targets In the case of the SARs there is an inherent performance condition in that they are granted at a strike price equal to the current share price at date of issue and recipients therefore only benefit to the extent of future appreciation in the share price. They are also subject to an additional performance condition as determined by the remuneration committee. HEPS have been used historically for this purpose and will be used in future. Share option scheme (SOS) No share options have been granted since 2004 under the SOS and all options have matured during the 2013 financial year. Executive contracts Executive directors are subject to indefinite term service contracts to normal retirement age with a notice period of six months and nine months in the case of the group CE. The main terms of the service contracts applicable to executive directors can be summarised as follows: Executive contracts
Non-executive directors The appointment of non-executive directors (NEDs) is governed by a letter of appointment that sets out, among other things, the term of appointment, duties and responsibilities, fees and other payments, and termination of services. NEDs receive standard fees for their services on the board and board committees. The remuneration committee reviews the level of fees and makes recommendations to the board for consideration. A benchmarking exercise was conducted in November 2013 by PwC, the company’s independent remuneration advisor. In terms of Barloworld’s memorandum of incorporation, fees payable to NEDs must be approved by shareholders in general meeting. The current level of fees payable to non-executive directors was approved by Barloworld’s shareholders at the annual general meeting held on 23 January 2013. Proposed fees for 2014 are set out in the notice to the annual general meeting on page 6 of the AGM booklet.
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