Remuneration report

Part 1: Background statement

Dear shareholders

I am pleased to provide you with the Barloworld Limited (Barloworld or the company) remuneration report for the year ended 30 September 2018.

As reported in 2017, the company embarked on a strategic review process and as a result the group remuneration philosophy and policy was reviewed to ensure alignment with the new strategy and ambition.

We are satisfied with the response we have received from shareholders in support of our revised policy. Notwithstanding the fact that 97.97% of shareholders endorsed the policy, the remuneration committee will continue to engage shareholders on key issues underpinning the policy.

The main changes that were implemented during the year as per the revised policy were:

  • The short-term incentive scheme (STI) was redesigned in order to drive appropriate behaviours and focus senior employees towards shareholder value creation as follows:
    • At executive director and prescribed officer level the weighting for the short-term incentives was revised and a greater weighting has been assigned to company performance, as below:
      • financial performance – 65% (previously 60%). The financial performance is split between group and divisional financial performance objectives depending on grading and divisional responsibility
      • personal performance – 25% (previously 30%)
      • diversity and inclusion metric remained unchanged at 10%.

The remuneration committee is of the view that a 65% weighting on financial performance is justified to ensure a sufficient link between financial returns, shareholder value creation and reward.

  • The STI metrics were reviewed and more specifically, economic profit replaced operating profit. At divisional level, return on invested capital (ROIC) was added and the metrics are:
  Group
%
  Division
%
 
Economic profit (EP) 30   35  
Free cash flow to firm after interest (FCF) 30   35  
Return on equity (ROE) 25   0  
Return on invested capital (ROIC) 0   30  
Headline earnings per share (HEPS) 15   0  
  • The STI is capped at 175% of annual basic salary for executives (previously 125%) and 200% for the CEO (previously 150%).
  • At least one financial performance metric must achieve threshold before the STI pays. This prerequisite, which is in the form of a financial multiplier curve, escalates at an        increasing rate between threshold and target and at a higher rate between target and outperformance.
  • In response to previous comments from certain shareholders, the overall retention component on our long-term incentives (LTI) for executive directors and prescribed officers has been reduced from 25% to 7.5%
  • The mix between share appreciation rights and full shares granted under our LTIs at executive level was reviewed. The share appreciation rights now bear a greater weighting (70% share appreciation rights (previously 35%) and 30% full shares (previously 65%). We believe that this change aligns with the revised strategy of the company
  • The remuneration committee also adopted a malus and claw-back policy applicable to the group and the divisional executive committee members. This policy applies to all variable remuneration.
102-35 to 102-39

Barloworld delivered strong performance in the 2018 financial year despite challenging macro-economic environments in our respective geographies. It is against the backdrop of this solid performance that STI payments were awarded and the LTI awarded in 2016, will vest.

During the year, the remuneration committee conducted further work on the King IV Code on Corporate Governance and the amended JSE Listings Requirements on remuneration. We are therefore pleased to confirm that this report complies with leading governance and disclosure requirements and is set out in three parts as follows:

  • Part 1 contains the background statement
  • Part 2 sets out the company's remuneration philosophy and policy
  • Part 3 details the implementation of the policy in the 2018 financial year.

Parts 2 and 3 will be put forward for separate non-binding advisory votes.

The company continues with the practice of fair, responsible and equitable remuneration. In this regard, the remuneration committee regularly reviews the company's internal wage gap. The remuneration committee further seeks to find a balance between the interests of executives and shareholders to ensure fair and responsible outcomes. For this reason a significant portion of the pay of our senior employees is at risk and subject to stretching performance conditions.

As in the past, our hope is that this report evidences the company's continued focus on responsible remuneration that is performance based and driven by sound governance principles.

We trust that we have provided a clear summary of the remuneration policy and explanations of the executive management team's remuneration and that you find this to be a comprehensive overview.

NP Dongwana

Chairperson

Remuneration committee

23 November 2018

Part 2: Policy

An overview of the company's revised remuneration policy, implemented during 2018 is provided below.

Governance and the remuneration committee

Role of the remuneration committee

The remuneration committee operates under their terms of reference, a copy of which can be found on our website www.barloworld.com. The remuneration committee also complies with King IV insofar as reporting to the board and attendance at the annual general meeting is concerned.

Members of the remuneration committee

The remuneration committee is constituted as follows:

  • NP Dongwana (chairperson) (independent non-executive), appointed on 8 February 2017
  • DB Ntsebeza (independent non-executive and chairman of the company)
  • SS Ntsaluba (independent non-executive)
  • P Schmid (independent non-executive) appointed 11 May 2017
  • OI Shongwe (independent non-executive) appointed 11 May 2017.

The CEO attends the remuneration committee meetings by invitation, but does not participate in the voting process, and is not present when his own remuneration is discussed or considered.

PricewaterhouseCoopers (PwC), the company's independent advisers, attend the meetings in an advisory capacity. The company secretary, Ms L Manaka (11 months) and Ms A Ndoni (one month) acts as secretary to the remuneration committee.

Advisers

During the 2018 financial year, the remuneration committee received advice and guidance from the following independent advisers:

  • PwC – standing adviser to the remuneration committee on all executive and non-executive remuneration matters including guaranteed pay, short-term incentives, long-term incentives, non-executive directors' fees, remuneration reporting, general corporate governance standards
  • PE Corporate Services – executive salary benchmarking and job grading.

The remuneration committee is satisfied that the advisers acted independently.

Governance and the remuneration committee

Shareholder engagement

The remuneration committee is committed to shareholder engagement and shareholders are engaged on remuneration matters as part of normal shareholder engagements. In the event that 25% or more of the shareholders vote against the remuneration policy or implementation report, the remuneration committee will actively engage with its shareholders and will report on the outcomes of the discussions and measures taken.

Overview of remuneration policy

Barloworld's remuneration philosophy and the reward of our employees, executive directors and prescribed officers, aligns with our dedication towards achieving our strategic objectives. These include being the investment of choice by delivering top quartile returns to our shareholders, as measured by the return we generate on the capital invested.

In line with our philosophy, we are committed to providing remuneration that is competitive in relation to the market benchmarks reviewed by the company annually.

Barloworld has adopted a holistic approach to its remuneration philosophy for senior executives as well as general staff and has implemented a balanced design which consists of the following monetary and non-monetary components:

Elements of remuneration

The table below summarises the remuneration policy as it applies to all employees, with detailed information on the composition of the total remuneration package for executive directors and prescribed officers.

Element           Objective     Eligibility     Policy     Changes for 2019
Fixed     Base salary     Reflects scope and nature of role, performance and experience     All employees    

Role of benchmarking and salary adjustments

Barloworld operates the Towers Watson global grading methodology and structure. This assesses employee 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). Base salary for executives and senior management is benchmarked by independent consultants, PE Corporate Services.

In the case of executive directors and prescribed officers, two sources are used to benchmark salaries:

  • PE Corporate Services using the Tower Watson grading system.
  • Independent benchmark against a comparator group comprising JSE listed companies, performed by PwC.

The remuneration committee approves salary increases for executive directors and prescribed officers on an individual basis. The CEO approves salaries of other group executive members. These are submitted to the remuneration committee for noting. The salary adjustments for other employees are considered by the appropriate heads of divisions and these are approved by the group internal remco (CEO, HC executive, and finance director).

Market positioning

In most cases, the base salary is benchmarked to the market median. Variations around the median may be influenced by the nature of the role, experience, changes in responsibilities and performance track record.

    No proposed changes
      Benefits     Provides employees with contractually agreed basic benefits     All employees     The percentage of company contribution to benefits varies by country.     No proposed changes
Variable     Short-term incentive (STI)     Rewards and motivates achievement of financial, diversity and inclusion as well as individual performance objectives     All employees    

All employees above grade 15 (including executive directors and prescribed officers)

STIs are paid in cash and are based on achievement of annual targets aimed at delivering the strategy and increasing shareholder value. The STI operates on an additive basis and is capped at 200% of annual basic salary for the CEO and 175% for executives. For other employees, the STI operates on a sliding scale depending on grade.

The criteria, as applicable from 2018 for earning a bonus consists of three elements:

  • Financial performance objectives, with a 65% weighting. The 65% weighting is split between group and divisional financial performance objectives depending on grading and divisional responsibility
  • Personal scorecard objectives (incorporating non-financial measures), with a 25% weighting
  • Diversity objectives, with a 10% weighting.

At least one financial performance metric must achieve threshold before the STI pays. This prerequisite, which is in the form of a financial multiplier curve, escalates at an increasing rate between threshold and target and at a higher rate between target and outperformance.

Threshold, target and outperformance financial objectives are set by the remuneration committee annually in advance and are explained in further detail below.

The remuneration committee reviews the actual performance of the executives against the objectives set.

The revised STI Scheme is subject to affordability and the remuneration committee's approval.

All employees below grade 15

Due to the diversified nature of the business, each of the business units have their own bonus or 13th cheque scheme for employees below grade 15.

Divisional bonus plans are aligned such that divisional employees are incentivised on similar financial targets to the executive scheme (as detailed above).

    No proposed changes
Variable     Long-term incentives (LTIs)     To align management and employee interests to those of shareholders over multiple reporting periods and create sustainable value     Employees on grade 15 and above and a limited number of grade 14 employees who hold strategic or operational critical roles     The company operates the following LTI plans:
  • Forfeitable Share Plan (FSP)
  • Share Appreciation Right (SARs) Scheme.

Forfeitable Share Plan (FSP)

The awards are structured as forfeitable share awards and participants receive shares (including dividend and voting rights) on the date of the award but the shares are subject to restrictions and a risk of forfeiture during a three-year vesting period, when stated performance conditions are not met.

The performance awards are subject to performance conditions and continued employment while retention awards are subject to continued employment only.

To the extent that the performance targets are not achieved, those shares will be forfeited and there will be no re-testing of the performance targets. Notional FSP awards, settled in cash on the vesting date can also be made.

Share appreciation rights (SARs)

The Scheme was developed to provide employees with an opportunity to benefit from growth in the underlying value of the ordinary shares of Barloworld. From 2016 onwards, only group executives participate in the SARs Scheme.

The SARs are subject to three, four and five-year vesting periods. All SARs will lapse if not exercised within six years from the date of grant. The first four awards (2006 to 2009) were cash settled. From 2011 onwards, awards are equity settled. From 2007, the entire SARs award was subject to a performance target, as set out below. Notional SARs awards settled in cash on exercise can also be made.

Performance conditions

Full details of the performance conditions and measurement are provided from here.

    No changes proposed
Variable                      

Limits and quantum

An aggregate limit of 22 744 049 (twenty-two million, seven hundred and forty-four thousand and forty-nine) shares, equating to approximately 10% (ten percent) of the current issued share capital of the company applies to all the share plans. The maximum number of unvested FSP awards which may be made to any one participant is 0.25% of the issued ordinary share capital of the company.

Similarly, the maximum number of unvested SARs granted to any one participant may not exceed 1% of the issued ordinary share capital of the company. The 10% plan limit has not been used in totality (current dilution is 0.29%) due to our settlement practices. The plan limit is in place to avoid shareholder dilution in the market.

On an annual basis, the remuneration committee approves the quantum of awards to be made, the performance targets and a mix of instruments to be granted to eligible employees. Full details are disclosed in part 3.

     
Package design

Executive remuneration is heavily weighted toward variable remuneration. The graphs set out the CEO, as well as the average of the executive directors and the prescribed officers' potential pay mix at below threshold, at target and at stretch or outperformance.

The pay mix potential reflected includes cost to company (CTC), short-term incentives (STI) and long-term incentives (LTI).

Below threshold performance
(R000)

 

At targeted performance
(R000)

 

At stretch or outperformance
level (R000)

Below threshold performance (R000)   At targeted performance (R000)   At stretch or outperformance level (R000)
* Average CTC
** Indicative expected value of retention FSPs on grant date
*** STI is not payable for performance below threshold
 
* Average CTC
** Indicative expected value on grant date
 
* Average CTC
** Indicative expected value on grant date assuming full vesting
Performance targets

The financial metrics for short and long-term incentives are set by the remuneration committee on an annual basis and are carefully selected based on key business drivers over the short and long term.

The metrics are as follows:

Short-term incentive

Financial metrics (65% weighting)

A combination of the following metrics and weightings are applied:

Group measures:     Divisional measures:  
  • Economic profit (EP)
30%   Economic profit (EP) 35%
  • Free cash flow to firm after interest (FCF)
30%   Free cash flow to firm after interest (FCF) 35%
  • Return on equity (ROE)
25%   Return on invested capital (ROIC) 30%
  • Headline earnings per share (HEPS)
15%      

The 65% weighting is split between group and divisional financial performance objectives depending on grading and divisional responsibility. Prescribed officers and executives with divisional responsibility have a split of 40% group and 25% division.

The targets are set to 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 immediate prior year actuals.

Individual scorecard objectives
(25% weighting)

In respect of personal scorecard objectives, these would typically include aspects such as:

  • Leadership behaviours
  • Customer loyalty and satisfaction
  • Relationships with principals
  • Safety performance
  • Market share targets
  • People development and training
  • Sustainable development key performance indicators
  • Aftermarket growth targets
  • Acquisitions and disposals
  • Special projects.

Diversity and inclusion objectives
(10% weighting)

The attainment of specific workforce diversity and inclusions targets (gender and race).

Earning levels

The percentage of basic salary paid as a bonus based on relative achievement against targets (threshold, target and outperformance) is:

CEO
Performance metric Threshold
%
  Target
%
  Outperfor-
mance
%
 
Bonus based on financial targets (group) 0.0   32.5   65.0  
Bonus based on personal scorecard objectives 0.0   12.5   25.0  
Bonus based on diversity objectives 0.0   5.0   10.0  
Sub-total 0.0   50.0   100.0  
Financial multiplier 0.0   105.0   100.0  
STI cap 200.0   200.0   200.0  
Total bonus 0.0   105.0   200.0  
Executive directors and prescribed officers
Performance metric Threshold
%
  Target
%
  Outperfor-
mance
%
 
Bonus based on financial targets (based on a combination of group and divisional targets) 0.0   32.5   65.0  
Bonus based on personal scorecard objectives 0.0   12.5   25.0  
Bonus based on diversity objectives 0.0   5.0   10.0  
Sub-total 0.0   50.0   100.0  
Financial multiplier 0.0   105.0   100.0  
STI cap 175.0   175.0   175.0  
Total bonus 0.0   91.9   175.0  
Long-term incentives

Details surrounding the performance conditions for the LTIs are set out below:

    SARs   FSP

Performance condition(s) and weighting(s)

 

Headline earnings per share (HEPS)

SARs are also subject to the inherent performance condition of the share price appreciation being above the strike price (defined as the share price at the date of issue)

 

The following performance targets are used:

  • Relative total shareholder return (TSR)
  • HEPS
  • Return on net operating assets (RONOA).

The relative weighting of the performance conditions is reviewed on an annual basis.

Vesting of awards at threshold performance

  25%   22.5%

Vesting of awards at on-target performance

  100%   100%

Performance period

 

The performance conditions are measured over a three-year period, commensurate with the financial years of the company.

Executive contracts

The main terms of the service contracts applicable to executive directors and prescribed officers are summarised below:

Provision   Policy

Contract term

 

Indefinite – or until normal retirement age in the relevant jurisdiction, subject to specified notice periods by the executive and the company

Notice period

 

Nine months for the CEO

Six months for other executives

Termination of employment and change of control payments and/or automatic vesting of long-term incentives

 

Change of control provisions are covered by FSP and SARs rules and allow for proportionate vesting of awards. Change of control clauses in employment contracts provide for redundancy terms, based on established guidelines, in the event of termination of employment within six months of change of control

Restraint of trade

 

Applicable to some executives per their employment contracts

Other benefits

 

Not applicable

Malus and claw-back

To further align the interests of executives with those of the shareholders, the remuneration committee adopted a malus and claw-back policy applicable to members of the group executive committee and the members of the divisional executive committees. This policy applies to all variable remuneration.

Should a trigger event arise before the vesting/payment of any variable remuneration, the remuneration committee can, at its own discretion cancel any unvested/unpaid incentives. If the trigger event arises after variable remuneration that has been paid/settled, the remuneration committee can demand the repayment of an amount equal to the pre-tax value of any bonus paid, or a pre-tax amount equal to the market value of any long-term incentive received. Typically trigger events include gross misconduct, loss to the company due to the failure to observe risk management policies or where misleading financial information has been used and has influenced the incentive amount awarded and/or paid.

Non-executive directors

Non-executive directors are appointed subject to the provisions set out in a letter of appointment. The letter sets out, among other things, the term of appointment, duties and responsibilities, fees and other payments, and provisions related to termination of services.

Non-executive directors receive a standard fee 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. In November 2018, a benchmarking exercise was conducted by PwC, the company's independent remuneration adviser.

The benchmark analysis was against a comparator group comprising JSE-listed companies. The PwC report indicated that some of the committee fees lag the comparator group median. The CEO recommended that increases should be made to fees that were significantly below market levels. However, a staggered approach would be followed to align the fees to market levels over a few years.

The proposed fees for the 2019 financial year are set out in the notice to the annual general meeting (AGM) on page 5 of the AGM booklet. Such fees are exclusive of any value added tax (VAT) that might be applicable, depending on the individual registration circumstances of a particular director. The fees have been adjusted marginally, while the fees which significantly lag the comparator group have been increased to the median.

Non-binding advisory vote

Shareholders are requested to cast a non-binding advisory vote on the aforementioned part 2 of this report.

Part 3: Disclosure of the implementation of the policies for the period under review

Key remuneration decisions taken during the year

The remuneration committee discussed the following matters during 2018:

  • Approval of the changes to the company's remuneration policy
  • Approval of the long-term incentive awards, inclusive of the mix of instruments to be used and company performance conditions relating thereto
  • Approval of the targets and weighting of the performance measures of the STI scheme
  • Reviewed personal scorecard objectives of the executives
  • Reviewed and approved the adoption of a malus and claw-back policy
  • Reviewed global and national developments in respect of executive remuneration
  • Reviewed and approved peer group companies for benchmarking in 2018
  • Reviewed executive pay equity trends in the group
  • Approved salary increases for executive directors and prescribed officers
  • Approved the STI payments for executive directors and prescribed officers
  • Reviewed King IV principles
  • Reviewed and approved the company's remuneration report
  • Reviewed and recommended increases to non-executive director fees
  • Reviewed the remuneration committee terms of reference
  • Reviewed and considered executive shareholding requirements.
Guaranteed package/base salary adjustments

On average the executives received a 6% increase. Details of the basic salary and guaranteed packages (basic salary plus benefits) paid to each of the executive directors and prescribed officers during the 2018 financial year are set out further in this report.

2018 short-term incentive outcomes

Performance against group financial targets

Metric Threshold    Target    Outperformance        Actual   
Economic profit (million)*                    
   Equipment Southern Africa  R55     R192     R329          R42    
   Equipment Russia  $13     $17     $21          $20    
   Automotive  R81     R163     R244          R15    
   Logistics  (R238)    (R122)    (R6)         (R69)   
   Group  (R286)    (R29)    R228          R5    
HEPS (cents)                             
Group  974     1 096     1 218          1 151    
Free cash flow to firm after interest (million)                             
   Equipment Southern Africa  R40     R177     R314          (R100)   
   Equipment Russia  $2     $6     $10          $22    
   Automotive  R117     R198     R279          R690    
   Logistics  R264     R311     R358          R520    
   Group  R3 273     R3 530     R3 787          3 591    
ROE (%)                             
Group  10.5     11.8     13.0          11.4    
ROIC (%)                             
   Equipment Southern Africa  12.8     14.2     15.5          12.7    
   Equipment Russia  18.8     21.0     23.2          21.6    
   Automotive  13.1     13.9     14.7          12.4    
   Logistics  2.5     7.3     12.0          8.7    
    Below threshold     Between threshold and target     Between target and outperformance     Outperformance and above
* Based on weighted average cost of capital ("WACC") at beginning of reporting period.

The financial objectives set out in the table above were approved by the remuneration committee for the divisional executive directors and prescribed officers.

The executive directors, Dominic Sewela (CEO), Don Wilson (finance director) and one prescribed officer, Peter Bulterman (CEO: Equipment Southern Africa, Russia and Iberia) were measured against group financial targets. The other prescribed officers (Emmy Leeka and Keith Rankin) were measured against a combination of group and divisional financial targets (40% group and 25% division).

STI payments

Annual performance bonus payments are made in cash following finalisation of the company's audited financial results for the year in question and are not deferred.

Annual performance bonus payments made to executive directors and prescribed officers are disclosed further in this report.

The scheme is calculated based on the following formula which incorporates six variables:
[A + B + C + D] x E x F x Annual basic cash salary
Individual Scorecard score [A] counting for up to 25% of the Total Bonus percentage (Total Bonus percentage = [A + B + C + D]).
Diversity and Inclusion score [B] counting for up to 10% of the Total Bonus percentage.
Group financial performance objectives [C], counting for up to 65% of the Total Bonus percentage.
Divisional financial performance score [D], counting for up to 25%, is only applicable for executives with divisional responsibility.

Financial Multiplier [E] is a calculated amount based on Group financial performance [C].

(a) If group financial performance % [C] < 50%: Financial Multiplier = group financial performance %/50% x 105%
(b) If group financial performance % [C] > 50%: Financial Multiplier = (group financial performance % 50%)/50% x (1 – 105%) +105%
(c) Illustrative effect of the above:
  (i) If group financial performance % [C] = 0%, financial multiplier = 0%
  (ii) If group financial performance % [C] = 25%, financial multiplier = 52.5%
  (iii) If group financial performance % [C] = 50%, financial multiplier = 105%
  (iv) If group financial performance % [C] = 75%, financial multiplier = 102.5%
  (v) If group financial performance % [C] = 100%, financial multiplier = 100%
STI Cap [F] is multiplied by the annual basic cash salary.

In this context, STIs represented as a percentage of basic salary for the year ended 30 September 2018 were calculated as follows:

  Personal
scorecard
(% of basic)
D&I
scorecard
(% of basic)
Group
financials
(% of basic)
Group
financial
multiplier
Divisional
financials
(% of basic)
Total bonus
as a % of
cash salary
Potential
maximum
bonus as
% of basic
 
Name A B C E D   F  
CE                
Dominic Sewela 17.5 7.0 36.0 104.5 n/a 126.4 200.0  
Executive directors                
Donald Wilson 12.5 7.0 36.0 104.5 n/a 101.4 175.0  
Prescribed officers                
Emmy Leeka 7.8 7.5 22.1 104.5 0.0 68.6 175.0  
Keith Rankin 14.2 5.2 22.1 104.5 8.8 91.8 175.0  
Peter Bulterman 12.5 7.0 36.0 104.5 n/a 101.4 175.0  
LTI vesting outcomes

Historic and outstanding awards

The table below provides an overview of the actual vesting and likelihood of vesting of historic and outstanding awards made under the SAR and FSP.

Award   SAR   FSP
2012   100% (A)   84% (A)
2013   100% (A)   71.7% (A)
2014   0% (A)   39.3% (A)
2015   0% (A)   52% (A)
2016   100% (A)   100% (A)
2017   100% (L)   100% (L)
2018   100% (L)   100% (L)
(Actual (A), proportion likely to vest (L))

Awards with a performance period ending during the 2018 financial year

The vesting profile for awards made during March 2016 with a performance period that commenced on 1 October 2015 and ending 30 September 2018, vesting during March 2019 are as follows:

FSP performance conditions for the 2016 award   Achievement of performance conditions
TSR   100%
HEPS   100%
RONOA   100%
Resultant vesting   100%
SAR performance conditions for the 2016 award   Achievement of performance conditions
HEPS   100%
Resultant vesting   100%

LTI awards made during the year

In line with the revised policy, executive directors and prescribed officers received a combination of awards under the SAR Scheme and FSP. The mix between SAR and FSP awards, together with the percentage it represents of TGP is depicted below, as well as details of the applicable performance conditions and targets are set out on the next page.

2018 instruments awarded and quantum

Due to prohibited period restrictions, the remuneration committee could not grant equity awards to participants. As a result notional SAR and FSP awards were granted. These awards have the same conditions as equity-settled awards, but will be settled in cash on vesting and exercise.

In the table on the next page the instruments granted, together with the grant expected values per executive director and prescribed officers are provided. Expected value differs from face value (which is the share price on the grant date) and is the indicative fair value of the instrument on the grant date. When determining the expected value of an instrument, the type of instrument and the probability of satisfying the performance conditions were taken into account.

    Name   Notional
SAR
  Notional
perfor-
mance
FSP
  Notional
retention
FSP
  Total  
Mix between instruments   All executive directors and prescribed officers   70%   22.5%   7.5%   100%  
At grant expected value   DM Sewela   56%   15%   9%   80%  
  DG Wilson               Within three years of retirement and therefore not eligible for an award  
  K Rankin   42%   12%   6%   60%  
    M Leeka   42%   12%   6%   60%  
2018 performance conditions

FSP awards

FSP awards were granted on 30 March 2016 with a performance period that commenced on 1 October 2015 and ending 30 September 2018, and the vesting period will expire on 29 March 2019. The following performance targets, weighting and performance periods were applicable to the SARs awarded to executive directors and prescribed officers. Linear vesting on a sliding scale will be applied between threshold and target performance:

  Weighting of
performance
conditions
(%)
  Below
threshold
(vesting %)
  Threshold
(vesting %)
  Target
(vesting %)
 
Performance FSPs                
TSR 30   0   6.75   22.5  
HEPS 30   0   6.75   22.5  
RONOA 40   0   9   30  
Vesting of performance FSPs   0   22.5   75  
Retention FSPs                
  No performance conditions              
Vesting of retention FSPs     25   25   25  
Combined maximum vesting     25   47.5   100  

The following targets were set for the respective performance conditions and are considered by the remuneration committee to be stretching in the context of the company's business strategy and the market conditions. Linear vesting applies between threshold and target performance.

Condition   Threshold (22.5% vesting)   Target (100% vesting)
TSR   Median of peer group   Upper quartile of peer group*
HEPS   0% real growth   6% real growth
RONOA   15%   20%
* The following comparator group was set for the 2018 TSR condition:
  • Bidvest Group Limited
  • Finning International Inc. (Canada)
  • Imperial Holdings Limited
  • KAP Industrial Holdings Limited
  • Remgro Limited
  • Sime Darby Berhard (Malaysia)
  • Supergroup Limited
  • Tiger Brands Limited
  • Trencor Limited
  • Wilson Bayly Hlm-Ovc Limited
SARs awards

SARs awards were granted on 30 March 2018 and a third of the SARs will vest on the third, fourth and fifth anniversary of the grant date, respectively and participants have until 30 March 2024 to exercise their vested SARs. The following performance targets, weighting and performance periods were applicable to the number of SARs awarded and are tested over a three-year performance period. Linear vesting on a sliding scale will be applied between threshold and target performance:

Condition   Threshold (25% vesting)   Target (100% vesting)
Real growth in HEPS   0% real growth   2% real growth
Total remuneration outcomes
  2017  
All figures stated in R'000 Basic
salary
Retirement
and
medical aid
Car
benefits
Other
benefits
Cash
perfor-
mance
bonus1
Dividends      
(R’000)10
LTI     
reflected2,3
Total
single
figure
remune-
ration
 
Executive directors                  
CB Thomson4,5,6 3 490 703 95 32 847 5 852 216 2 235 45 437  
D Sewela 7 121 1 096 268 3 7 079 263 3 350 19 179  
DG Wilson 4 239 1 056 246 2 3 605 188 1 544 10 879  
Prescribed officers                  
PJ Bulterman7,8 5 258 860 251 3 5 154 188 1 544 13 257  
E Leeka9 3 548 621 430 1 369 3 527 95 630 10 219  
PK Rankin9 4 020 756 161 1 369 3 879 173 1 926 12 284  
Total 24 186 4 389 1 356 2 746 23 244 905 8 993 65 819  
  2018  
  Basic
salary
Retirement
and
medical aid
Car
benefits
Other
benefits
Cash
performance
bonus1
Dividends      
(R’000)10
LTI     
reflected2,3
Total
single
figure
remune-
ration
 
Executive directors                  
CB Thomson4,5,6           108 9 179 9 287  
D Sewela 8 537 1 301 285 3 10 787 359 8 458 29 729  
DG Wilson 4 655 1 187 273 3 4 756 119 6 302 17 295  
Prescribed officers                  
PJ Bulterman7,8 2 916 25 360 1 459 2 958 7 718  
E Leeka9 4 224 692 469 1 369 2 897 165 2 989 12 805  
PK Rankin9 4 278 805 161 1 375 3 930 185 5 562 16 295  
Total 24 610 4 010 1 547 4 208 25 327 829 23 312 83 842  
1 Bonuses related to the performance in 2017 and 2018 financial years.
2 The 2017 LTI reflected includes the value of the SARS and FSPs (with performance conditions) awards made on 30 March 2015 with a performance period ending on 30 September 2017 and FSPs without performance conditions that were granted on 29 March 2017.
3 The 2018 LTI reflected includes the value of the SARS and FSPs (with performance conditions) awards made on 30 March 2016 with a performance period ending on 30 September 2018 and FSPs without performance conditions that were granted on 31 January 2018.
4 CB Thomson resigned from the company on 8 February 2017.
5 Other benefits relate to severance pay, leave pay and long service awards.
6 The LTIs reflected for CB Thomson relate to LTIs that he continues to hold that will remain subject to originally set performance conditions and performance periods.
7 PJ Bulterman was only a prescribed officer for only a part of the 2018 financial year.
8 PJ Bulterman's other benefits for 2018 include a retirement benefit and leave pay that were due.
9 Other benefits for E Leeka and PK Rankin include retention bonuses.
10 Dividends paid in relation to performance shares not yet included in the single figure in prior years.
Unvested and settled LTI awards

In line with the new reporting requirements of King IV, the number of unvested and settled LTIs are disclosed below.

      2017  
Award date     Opening
number on
1 October
2016
  Granted
during
2017
Forfeited/
lapsed
during
2017
Exercised/
settled
during
2017
Closing
number on
30 September
2017
Cash
value on
settlement
during
201722
Closing
estimated
fair value at
30 September
2017
 
      Number of
awards
  Number of
awards
Number of
awards
Number of
awards
Number of
awards
ZAR ZAR  
D Sewela                      
Share Appreciation Right Plan11                      
28 February 2011     15 758       (15 758) 573 591  
30 March 2012     19 590       (13 060) 6 530 140 395 187 933  
19 March 2013     31 510       (21 006) 10 504 559 495 362 703  
18 March 201418     35 060     (35 060)      
30 March 201518     50 340         50 340    
30 March 2016     65 350         65 350   3 896 014  
29 March 2017         85 920     85 920   3 431 271  
31 January 2018                  
Forfeitable Share Plan – with performance conditions12                      
18 March 201419     18 630     (15 090) (3 540) 497 066  
30 March 201519     23 700         23 700 84 135 1 543 704  
30 March 2016     34 610         34 610 122 866 3 862 707  
29 March 2017         44 580     44 580 55 725 5 584 091  
31 January 201821                
Forfeitable Share Plan – no performance conditions13                      
18 March 201420     6 210       (6 210) 811 088  
30 March 201520     7 900         7 900 28 045 989 554  
30 March 2016     11 540         11 540 40 967 1 445 500  
29 March 2017         14 860     14 860 18 575 1 861 364  
31 January 201821                  
                  2 931 948 23 164 841  
      2018      
      Granted
during
2018
Forfeited/
lapsed
during
2018
Exercised/
settled
during
2018
Closing
number on
30 September
2018
Cash
value on
settlement
during
201822
Closing
estimated
fair value at
30 September
2018
     
      Number of
awards
Number of
awards
Number of
awards
Number of
awards
ZAR ZAR   Strike price  
D Sewela                      
Share Appreciation Right Plan11                      
28 February 2011               70.83  
30 March 2012         (6 530) 467 026   96.48  
19 March 2013           10 504   333 187   90.73  
18 March 201418               106.82  
30 March 201518       (50 340)       90.77  
30 March 2016           65 350   3 572 554   72.77  
29 March 2017           85 920   3 259 522   121.53  
31 January 2018     137 540     137 540   3 543 536   177.71  
Forfeitable Share Plan – with performance conditions12                      
18 March 201419                    
30 March 201519       (11 376) (12 324) 2 039 480      
30 March 2016           34 610 141 901 4 237 995      
29 March 2017           44 580 182 778 5 458 821      
31 January 201821     16 430     16 430 34 667 2 011 854      
Forfeitable Share Plan – no performance conditions13                      
18 March 201420                    
30 March 201520         (7 900) 1 306 265      
30 March 2016           11 540 47 314 1 413 073      
29 March 2017           14 860 60 926 1 819 607      
31 January 201821     5 480     5 480 11 563 671 026      
              4 291 920 26 321 174      
      2017  
Award date     Opening
number on
1 October
2016
  Granted
during
2017
Forfeited/
lapsed
during
2017
Exercised/
settled
during
2017
Closing
number on
30 September
2017
Cash
value on
settlement
during
201722
Closing
estimated
fair value at
30 September
2017
 
      Number of
awards
  Number of
awards
Number of
awards
Number of
awards
Number of
awards
ZAR ZAR  
CB Thomson14                      
Share Appreciation Right Plan11                      
30 March 2012     72 000     (72 000) 1 342 320  
19 March 2013     80 440       (53 626) 26 814 1 417 603 925 887  
18 March 201418     67 010     (67 010)      
30 March 201518     96 950         96 950    
30 March 201615     119 560         119 560   7 127 888  
Forfeitable Share Plan– with performance conditions12                      
18 March 201419     35 600     (28 836) (6 764) 949 769  
30 March 201519     45 650     (11 340)   34 310 121 801 2 234 789  
30 March 201615     63 320     (36 869)   26 451 93 901 2 952 108  
Forfeitable Share Plan– no performance conditions13                      
18 March 201420     11 870       (11 870) 1 550 341  
30 March 201520     15 220     (3 781) (11 439) 1 521 769  
30 March 201616     21 110     (12 292) (8 818) 1 206 378  
                  8 203 882 13 240 672  
DG Wilson17                      
Share Appreciation Right Plan11                      
30 March 2012     35 000       (35 000) 526 417  
19 March 2013     43 840       (29 226) 14 614 772 589 504 621  
18 March 201418     35 060     (35 060)      
30 March 201518     50 340         50 340    
30 March 2016     55 030         55 030   3 280 760  
Forfeitable Share Plan– with performance conditions12                      
18 March 201419     18 630     (15 090) (3 540) 497 066  
30 March 201519     23 700         23 700 84 135 1 543 704  
30 March 2016     29 140         29 140 103 447 3 252 218  
Forfeitable Share Plan– no performance conditions13                      
18 March 201420     6 210       (6 210) 811 088  
30 March 201520     7 900         7 900 28 045 989 554  
30 March 2016     9 710         9 710 34 471 1 216 275  
                  2 857 258 10 787 132  
      2018      
      Granted
during
2018
Forfeited/
lapsed
during
2018
Exercised/
settled
during
2018
Closing
number on
30 September
2018
Cash
value on
settlement
during
201822
Closing
estimated
fair value at
30 September
2018
     
      Number of
awards
Number of
awards
Number of
awards
Number of
awards
ZAR ZAR   Strike price  
CB Thomson14                      
Share Appreciation Right Plan11                      
30 March 2012               96.48  
19 March 2013         (26 814) 2 179 174   90.73  
18 March 201418               106.82  
30 March 201518       (96 950)       90.77  
30 March 201615           119 560   6 536 106   72.77  
Forfeitable Share Plan– with performance conditions12                      
18 March 201419                  
30 March 201519       (16 469) (17 841) 2 952 513      
30 March 201615           26 451 108 449 3 238 925      
Forfeitable Share Plan– no performance conditions13                      
18 March 201420                  
30 March 201520                  
30 March 201616                  
              5 240 136 9 775 031      
DG Wilson17                      
Share Appreciation Right Plan11                      
30 March 2012               96.48  
19 March 2013         (14 614) 1 051 770   90.73  
18 March 201418               106.82  
30 March 201518       (50 340)       90.77  
30 March 2016           55 030   3 008 380   72.77  
Forfeitable Share Plan– with performance conditions12                      
18 March 201419                  
30 March 201519       (11 376) (12 324) 1 985 349      
30 March 2016           29 140 119 474 3 568 193      
Forfeitable Share Plan– no performance conditions13                      
18 March 201420                  
30 March 201520         (7 900) 1 253 335      
30 March 2016           9 710 39 811 1 188 990      
              4 449 739 7 765 562      
      2017  
Award date     Opening
number on
1 October
2016
  Granted
during
2017
Forfeited/
lapsed
during
2017
Exercised/
settled
during
2017
Closing
number on
30 September
2017
Cash
value on
settlement
during
201722
Closing
estimated
fair value at
30 September
2017
 
      Number of
awards
  Number of
awards
Number of
awards
Number of
awards
Number of
awards
ZAR ZAR  
PJ Bulterman17                      
Share Appreciation Right Plan11                      
28 February 2011     24 667       (24 667) 890 725  
30 March 2012     35 000         35 000   1 007 300  
19 March 2013     43 840         43 840   1 513 795  
18 March 201418     35 060     (35 060)      
30 March 201518     50 340         50 340    
Forfeitable Share Plan – with performance conditions12                      
18 March 201419     18 630     (15 090) (3 540) 497 066  
30 March 201519     23 700         23 700 84 135 1 543 704  
Forfeitable Share Plan – no performance conditions13                      
18 March 201420     6 210       (6 210) 811 088  
30 March 201520     7 900         7 900 28 045 989 554  
                  2 311 060 5 054 353  
E Leeka                      
Share Appreciation Right Plan11                      
19 March 2013     45 740         45 740   1 579 402  
18 March 201418     38 510     (38 510)      
30 March 201518     55 620         55 620    
30 March 2016                  
29 March 2017         29 950     29 950   1 196 073  
31 March 2018                  
Forfeitable Share Plan– with performance conditions12                      
30 March 2016     21 220         21 220 75 331 2 368 293  
29 March 2017         15 540     15 540 19 425 1 946 540  
31 January 201821                  
Forfeitable Share Plan– no performance conditions13                      
18 March 201420     3 430       (3 430) 447 992  
30 March 201520     4 390         4 390 15 585 549 891  
30 March 2016     7 070         7 070 25 099 885 588  
29 March 2017         5 180     5 180 6 475 648 847  
31 January 201821                  
                  589 906 9 174 635  
      2018      
      Granted
during
2018
Forfeited/
lapsed
during
2018
Exercised/
settled
during
2018
Closing
number on
30 September
2018
Cash
value on
settlement
during
201822
Closing
estimated
fair value at
30 September
2018
     
      Number of
awards
Number of
awards
Number of
awards
Number of
awards
ZAR ZAR   Strike price  
PJ Bulterman17                      
Share Appreciation Right Plan11                      
28 February 2011               70.83  
30 March 2012         (35 000) 2 656 500   96.48  
19 March 2013           43 840   1 390 605   90.73  
18 March 201418               106.82  
30 March 201518       (50 340)       90.77  
Forfeitable Share Plan – with performance conditions12                      
18 March 201419                  
30 March 201519       (11 376) (12 324) 2 054 117      
Forfeitable Share Plan – no performance conditions13                      
18 March 201420                  
30 March 201520         (7 900) 1 276 482      
              5 987 099 1 390 605      
E Leeka                      
Share Appreciation Right Plan11                      
19 March 2013           45 740   1 450 873   90.73  
18 March 201418       -55 620       106.82  
30 March 201518               90.77  
30 March 2016               72.77  
29 March 2017           29 950   1 136 204   121.53  
31 March 2018     55 270     55 270   1 423 958   177.71  
Forfeitable Share Plan – with performance conditions12                      
30 March 2016           21 220 87 002 2 598 389      
29 March 2017           15 540 63 714 1 902 873      
31 January 201821     6 600     6 600 13 926 808 170      
Forfeitable Share Plan – no performance conditions13                      
18 March 201420                  
30 March 201520         -4 390 696 474      
30 March 2016           7 070 28 987 865 722      
29 March 2017           5 180 21 238 634 291      
31 January 201821     2 200     2 200 4 642 269 390      
              915 983 11 089 870      
      2017  
Award date     Opening
number on
1 October
2016
  Granted
during
2017
Forfeited/
lapsed
during
2017
Exercised/
settled
during
2017
Closing
number on
30 September
2017
Cash
value on
settlement
during
201722
Closing
estimated
fair value at
30 September
2017
 
      Number of
awards
  Number of
awards
Number of
awards
Number of
awards
Number of
awards
ZAR ZAR  
PK Rankin                      
Share Appreciation Right Plan11                      
28 February 2011     28 940       (28 940) 1 304 326  
30 March 2012     24 710       (24 710) 649 869  
19 March 2013     39 260       (13 086) 26 174 431 184 903 788  
18 March 201418     33 210     -33 210      
30 March 201518     39 220         39 220    
30 March 2016     45 150         45 150   2 691 737  
29 March 2017         34 430     34 430   1 374 984  
31 January 2018                  
Forfeitable Share Plan – with performance conditions12                      
30 March 201519     18 470         18 470 65 569 1 203 047  
30 March 2016     23 910         23 910 84 881 2 668 515  
29 March 2017         17 860     17 860 22 325 2 237 144  
31 January 201821                  
Forfeitable Share Plan – no performance conditions13                      
18 March 201420     2 960       (2 960) 386 606  
30 March 201520     6 160         6 160 21 868 771 602  
30 March 2016     7 970         7 970 28 294 998 322  
29 March 2017         5 950     5 950 7 438 745 297  
31 January 201821                  
                  3 002 358 13 594 437  
      2018      
      Granted
during
2018
Forfeited/
lapsed
during
2018
Exercised/
settled
during
2018
Closing
number on
30 September
2018
Cash
value on
settlement
during
201822
Closing
estimated
fair value at
30 September
2018
     
      Number of
awards
Number of
awards
Number of
awards
Number of
awards
ZAR ZAR   Strike price  
PK Rankin                      
Share Appreciation Right Plan11                      
28 February 2011               70.83  
30 March 2012               96.48  
19 March 2013         (26 174) 1 509 716   90.73  
18 March 201418               106.82  
30 March 201518       (39 220)       90.77  
30 March 2016           45 150   2 468 260   72.77  
29 March 2017           34 430   1 306 161   121.53  
31 January 2018     55 270     55 270   1 423 958   177.71  
Forfeitable Share Plan – with performance conditions12                      
30 March 201519       (8 866) (9 604) 1 547 232      
30 March 2016           23 910 98 031 2 927 780      
29 March 2017           17 860 73 226 2 186 957      
31 January 201821     6 600     6 600 13 926 808 170      
Forfeitable Share Plan – no performance conditions13                      
18 March 201420                  
30 March 201520         (6 160) 977 284      
30 March 2016           7 970 32 677 975 927      
29 March 2017           5 950 24 395 728 578      
31 January 201821     2 200     2 200 4 642 269 390      
              4 281 129 13 095 180      
11 The estimated fair value of SARs which have vested but remain unexercised and which are within 12 months from vesting after year end was determined using the year end 30-day VWAP of R125.26 (2017) and R122.45 (2018) less the strike price and adjusted by the likelihood of performance conditions being met as at each year end. The fair value of SARs which are more than 12 months from vesting after year end was determined on a similar basis except that an indicative valuation was performed to determine the value of an instrument. The following vesting percentages were used for the 2017 fair value calculations: 0% (2014 allocation), 0% (2015 allocation) and 100% (2016 and 2017 allocation). 2018 fair value calculations were based on the following estimated vesting percentages: 0% (2015 allocation), 100% (2016, 2017 and 2018 allocation).
12 The estimated fair value of FSPs with performance conditions was determined using the year end 30-day VWAP of R125.26 (2017) and R122.45 (2018) adjusted by the estimated likelihood of performance conditions being met as at each year-end. The following vesting percentages were used for the 2017 fair value calculations: 52% (2015 allocation), 100% (2016 allocation) and 100% (2017 allocation). 2018 fair value calculations were based on the following estimated vesting percentages: 89.10% (2016 allocation), 100% (2017 allocation) and 100% (2018 allocation).
13 The estimated fair value for the FSPs without performance conditions was determined based on the year end 30-day VWAP of R125.26 and R122.45 for 2017 and 2018 respectively.
14 CB Thomson resigned from the company on 8 February 2017. No LTI allocations were made to him in 2017.
15 CB Thomson continues to hold SARs and FSPs with performance conditions that were allocated to him on 30 March 2016. These will remain subject to originally set performance conditions and performance period.
16 On the date of his resignation from the company a portion of the FSP awards without performance conditions were forfeited and a portion vested immediately
17 As of 2016 PJ Bulterman, and DG Wilson (2017) were not eligible for LTI allocations as they were within three years of retirement
18 The SAR allocation on 18 March 2014 and 30 March 2015 were forfeited on 18 March 2017 and 30 March 2018 respectively as the performance conditions were not met.
19 The FSPs with performance conditions allocated on 18 March 2014 and 30 March 2015 vested on 18 March 2017 and 29 March 2018. The vesting percentages for the allocations are 19% and 52% respectively.
20 The FSPs with no performance conditions allocated on 18 March 2014 and 30 March 2015 vested on 18 March 2017 and 29 March 2018 respectively.
21 The company was trading under cautionary from 1 February 2018. This resulted in a prohibited period which restricted the company from making any equity-settled awards. Therefore, cash-settled notional FSPs were allocated to participants.
22 Represents the value of shares vested during the year and dividends received on FSPs.
Non-executive directors' fees for 2018

Fees for NEDs during the current financial year are set out in the consolidated annual financial statements, as approved by the remuneration committee and by the board, on authority granted by shareholders at the annual general meeting held on 31 January 2018.

Proposed non-executive director fees for 2019

Refer to the special resolution section set out in the notice of annual general meeting for approval by shareholders in terms of section 66 of the Companies Act in the AGM booklet.

Non-binding advisory vote

Shareholders are requested to cast a non-binding advisory vote on the aforementioned part 3 of this report.

NP Dongwana

Chairperson of the remuneration committee