Reliance and Impact on Key Capitals
Governance and Leadership
Statutory approvals and reports
Group financial statements
Company 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 goals. The reward philosophy, policy and strategies also serve to align the interests of management and shareholders and are clearly communicated to the 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.
|STRUCTURE OF REMUNERATION||Purpose||Detail|
|BASIC SALARY||To attract and retain high
|Remain competitive on our regular
benchmark exercises. Increases are
based on individual and the division’s
AND OTHER CONTRIBUTIONS
|To encourage a lifestyle of saving for
retirement and enhance the daily
well-being of our employees
|Medical aid and retirement benefits|
|To serve as a short-term incentive
to motivate a common drive towards
|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
|LONG-TERM INCENTIVES||To incentivise employees to perform
based on the long-term interests and
objectives of the Group
|Align long-term commitment to the
interests of the Group
Employees’ guaranteed pay generally consists of basic salary plus company contributions towards retirement funding and health benefits.
|Benchmarking||Regular benchmark exercises are conducted to compare the guaranteed pay of Hulamin employees with selected appropriate companies|
|Market premiums||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 increases||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|
ANNUAL PERFORMANCE BONUS SCHEME
Executive directors and senior managers participate in the company’s performance bonus scheme. There were 163 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 as follows for employees:
|Level of management||Cap|
|Chief Executive Officer||65%|
|Senior management||30% to 40%|
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. The weighting of the targets are as follows:
|Level of management||Financial
|Senior and middle management||50%||50%|
- 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 business 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.
EXECUTIVE PERFORMANCE BONUS
- Hulamin’s executive performance bonuses for the financial year 2015 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 2015 financial year was calculated as follows:
as a %
|ROCE and HEPS||35,00||22,50||2,73|
|ROCE and HEPS||35,00||17,50||2,07|
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.
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 Pay
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 in 2015 which are based on international best practice in the form of a:
- Share Appreciation Right Scheme (SARS)
- Performance-based Long Term Incentive Plan (LTIP)
- Deferred Bonus Plan (DBP)
LTIP AND SARS
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 employee 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.
With effect from the 2016 year no awards will be made for the LTIP and DBP schemes. Participants will receive only SARS awards.
OVERALL AND INDIVIDUAL LIMITS
The maximum number of shares which may be issued in terms of the share schemes may not exceed 31 300 000 shares. The maximum number of shares settled in respect of the share schemes to any participant shall not exceed 3 130 000 shares.
During the year as part of a broader BEE transaction, the board approved a new employee share ownership plan (“2015 ESOP”) which will represent 3,4% of the company value.
As Hulamin values its employees as key contributors to both the historic and ongoing performance and success of the Hulamin business. Hulamin invited all permanent South African-based employees up to middle management of whom approximately 90% are black and all permanent South Africa black senior and selected Hulamin management to participate in the BEE transaction through the ESOP and MSOP.
The participation was developed with the following overall objectives in mind:
- To retain and attract high calibre black employees at every level of the Hulamin business
- To create a sense of ownership amongst the employees and engender an ownership culture within the greater Hulamin workforce
- To distribute a significant proportion of the BEE transaction benefits amongst the widest possible group of beneficiaries who are critical to the sustained success of the Hulamin business.
The ESOP scheme consists of a share appreciation scheme, whereby participants share in 50% of the dividends payable to ordinary shareholders.
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.
- In terms of executives’ contracts, there is no automatic severance compensation to executives to change of control. In such cases, the company’s retrenchment policy will apply.
- 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 2015 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 (see 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.