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REMUNERATION REPORT

REMUNERATION PHILOSOPHY AND POLICY

Introduction

The major aim of the reward structures is to enable Hulamin to attract, motivate and retain the best talent as part of an integrated human resources strategy which supports the achievement of Hulamin’s strategies and goals. The reward philosophy, policy and strategies also serve to align the interests of management and shareholders and are clearly communicated to employees concerned.

Hulamin’s remuneration philosophy encourages a culture that supports enterprise and innovation through the provision of appropriate short-term and long-term performance-related rewards that are fair and achievable.

Guaranteed and variable pay should not be unduly affected by the performance of a particular operation in which an employee works where factors outside the employee’s control affect results (e.g. no gratuitous windfalls or penalties as a result of commodity price or currency fluctuations).

Remuneration and Nomination Committee (REMCO)

The role, structure and composition of REMCO are covered in the section on Corporate Governance.

The major guidelines that support the application of the reward philosophy are outlined below.

Structure of packages

The structure of remuneration packages supports business needs, is market-related and competitive. To this end market surveys are conducted annually and appropriate action is taken to ensure that pay levels, structures, composition and mix are in line with market trends generally as well as industry-specific trends where relevant. The appropriate mix between guaranteed and variable pay as well as short-, medium- and long-term elements of compensation are reviewed from time to time taking market trends into consideration.

Guaranteed pay

Employees’ guaranteed pay generally consists of basic salary plus company contributions towards retirement funding and health benefits. Regular benchmark exercises are conducted to compare the guaranteed pay of Hulamin employees with selected appropriate companies.

It is recognised that market premiums may be necessary from time to time to attract and retain scarce skills and members of designated groups.

Annual cash salary increases for individuals are determined by taking into account an individual’s pay relative to the market as well as his/her performance and anticipated future value to the business.

Variable pay

Executive directors and senior managers participate in the company’s performance bonus scheme. There were 149 executive and senior management employees who participated in the performance bonus scheme in the year under review.

The performance bonus scheme consists of five different levels. The maximum percentage of cash salary payable under the five levels is capped at 65% for the Chief Executive Officer, 50% for executives, between 30% and 40% for senior management and 20% for middle management employees.

The primary purpose of the performance bonus scheme is to serve as a short-term incentive to motivate a common drive towards performance.

The annual performance bonus scheme is based on a combination of the achievement of corporate financial targets and an element for individual performance, both of which are determined annually. In respect of the executives, a weighting of 70% is applied to the achievement of financial targets and 30% to individual performance. For senior and middle management employees, an equal weighting of 50% is applied to both the financial and the individual performance targets.

The financial targets are related to EBIT, ROCE and HEPS, which all carry an equal weighting. The financial targets are related to the budgets of Hulamin as a whole as well as individual operations. All financial targets have an upper (140%) and a lower (60%) limit at which 100% or 0% of the bonus is paid respectively. Between the 60% lower limit and 140% upper limit, the performance bonus is calculated on a proportional straight-line basis.

Hulamin applies sound performance management processes at executive and senior management level to ensure that there is a direct link between performance and variable pay. The annual key performance indicators, measures and targets are cascaded into key performance areas and targets for various levels of management throughout the organisation. The individual performance rating used in the calculation of payment of bonuses is linked to the individual annual performance assessment ratings achieved. The principle of differentiation based on performance is applied whereby exceptional performers may receive individual performance scores that are significantly higher than the average, and similarly, an individual rating penalty will be applied to employees with below average performance. Sub-standard performance may result in no performance bonuses being paid.

Hulamin’s executive performance bonuses for the financial year 2013 were calculated on the achievement of financial targets and an assessment of personal performance.

In respect of the CEO and executives, the achievement of the financial targets for the 2013 financial year was calculated as follows:

CEO position 
Target  % Weighting  Target points  Actual points achieved for 2013  Max bonus as a % of cash salary 
EBIT  35,00  23,00  10,06   
ROCE and HEPS  35,00  22,50  9,65   
Total  70,00  45,50  19,71  65,00 
Executives 
EBIT  35,00  17,50  7,87   
ROCE and HEPS  35,00  17,50  7,29   
Total  70,00  35,00  15,16  50,00 

 

As a general guideline, the payment of bonuses for each component of the respective awards is determined as independent from the other components.

Incremental changes to the bonus scheme may be considered from year to year to bring about gradual improvements, taking into account experience from the previous year as well as market developments and trends.

In measuring performance against the financial targets, actual performance is adjusted to exclude the impact of uncontrollable fluctuations in items such as exchange rates. In addition, the Remuneration and Nomination Committee and the board will consider, when determining whether financial targets have been met, whether any specific, significant abnormal items, such as impairments should be adjusted for. In the current year, the Remuneration and Nomination Committee and the board adjusted for the impairment of property, plant and equipment and intangible assets when determining whether financial targets had been met.

The Remuneration and Nomination Committee and the board have the discretion to decide on the payment or non-payment of performance bonus awards.

Long-term incentives

The company’s long-term incentives consist primarily of share incentive schemes.

The variable component of Hulamin’s remuneration packages is structured to include long-term incentives for executives and senior management that are in line with the market, aligned to company performance and take into account the accounting cost, as well as prevailing taxation provisions. To this end, base pay and annual bonus are complemented by share-based schemes which are based on international best practice in the form of a Share Appreciation Right Scheme (SARS), a performance-based Long Term Incentive Plan (LTIP) and a Deferred Bonus Plan (DBP).

Under the LTIP and the SARS, rights or shares are offered to eligible executives and senior managers in the form of performance-based conditional awards. A portion of LTIP awards do not bear performance conditions.

The performance conditions governing the vesting of the above-mentioned scheme instruments are related to growth in earnings per share, share price, total shareholder return and return on capital employed, relative to targets that are intended to be challenging but achievable. Targets are linked, where applicable, to the company’s medium-term business plan, over three-year performance periods. Grants are set on an annual basis considering the position held by the participating employee, their individual performance, and the expected combined value of the awards.

The DBP is offered to selected executives to encourage share ownership in Hulamin and the retention of key executives. Where a DBP is offered, the employee may elect to utilise a percentage of their annual bonus to purchase company shares. If the employees remains employed for the full period, the employee will receive a grant by the company of one extra share for each share pledged and held.

As a general guideline, eligible managers may be granted annual awards of shares under the SARS and LTIP with a face value of a percentage of an average cash salary for the grade. The quantum of grants offered is based on the individual’s performance rating and market benchmarks in line with prevailing local and international best practice. The percentage of the performance bonus that may be granted to eligible individuals in the form of company shares in terms of the DBP, is also determined by the Remuneration and Nomination Committee at its discretion on an annual basis taking into account prevailing circumstances.

Prior to the listing and unbundling of Hulamin in 2007, selected executives and managers were participants of Tongaat Hulett administered share option and right schemes. Post unbundling, Hulamin is obliged to settle all benefits held by Hulamin participants in the Tongaat Hulett share option and right schemes using Hulamin shares. This has been covered in more detail in note 32 to the annual financial statements.

Other benefits

Membership of the Hulamin Pension Fund is compulsory for all senior management and disability and life insurance benefits are also provided to members of the fund. Medical aid benefits and a gratuity at retirement are also provided.

Termination conditions for executives

The Chief Executive Officer and executives are subject to a three-month and two-month notice period respectively. Hulamin reserves the right to terminate an executive’s employment without notice, for any cause recognised as sufficient by law.

Executive employment does not allow for payment on termination arising from executive failure or for balloon payments. In the event of early termination there is no automatic entitlement to bonuses or share-based incentives.

There is no automatic severance compensation to executives in the case of retrenchment due to a change of control.

Payments could be considered in order to retain key executives during a period of uncertainty.

Non-executive directors’ remuneration

Non-executive directors receive fees for their services on the board and board committees. Directors’ fees comprise a fixed element which is paid for holding the office of director, and a variable element which is linked to attendance at regular scheduled meetings of the board and/or sub-committees.

Non-executive directors, serving on a board sub-committee as an invitee, at the request of the chairman of the board sub-committee, will be paid the same attendance fee as members of that board sub-committee, subject to shareholder approval at the 2014 annual general meeting.

Fees for non-executive directors are reviewed on an annual basis taking relevant external market data into account. Fees are recommended by the Remuneration and Nomination Committee and are submitted to the board and the shareholders for approval at each annual general meeting.

Non-executive directors do not participate in the group’s performance bonus plan or share incentive schemes.

J B Magwaza and S P Ngwenya, through their interests in Imbewu Consortium and Makana Investment Corporation respectively, are participants in the Hulamin BEE entity (click here for further details on the Hulamin BEE equity transaction).

The remuneration of directors and prescribed officers for the year is detailed in the notes to the annual financial statements.

 

The major aim of the reward structures is to enable Hulamin to attract, motivate and retain the best talent as part of an integrated human resources strategy which supports the achievement of Hulamin’s strategies and plans.