31 MARCH 2015ALEXANDER FORBES GROUP HOLDINGS LIMITEDINTEGRATED ANNUAL REPORT

Remuneration report

REMUNERATION PHILOSOPHY

The Alexander Forbes remuneration philosophy seeks to enable the business to attract, motivate and retain talented high-performing people. The group aims to create a reward structure that is:

  • aligned with the organisation’s values;
  • designed to reward the right behaviours and outputs; and
  • structured in such a way that the policy will not result in any unfair outcomes for customers.

The remuneration policy is based on best practice and good governance principles. Alexander Forbes will strive to comply with the remuneration guidelines of King III to the fullest extent possible and will be cognisant of the remuneration-related guidance provided by legislative and regulatory regimes in all jurisdictions in which it operates.

REMUNERATION PRINCIPLES

These principles inform the implementation of our remuneration policy:

  • Long-term interest – Overall remuneration policy and practice is in line with the group’s business and risk strategy, profile, objectives, values, risk management practices, the interests of its stakeholders and long-term entity-wide interests.
  • Management of risk – The remuneration policy applies to the group as a whole in a proportionate and risk-based way and contains specific arrangements that take into account the roles of the different levels of employees undertaking activities that involve significant risk taking.
  • Transparency – There is a clear, transparent and effective governance structure for remuneration including the definition of the remuneration policy and its oversight.
  • Appropriate mix of short- and long-term pay – There is a balance between fixed and variable pay, with fixed pay representing a sufficiently high proportion of total remuneration to avoid employees becoming overly dependent on variable pay, except in situations where the market dictates otherwise. The variable portion is based on a combination of business and individual performance. The short-term incentive may vary year on year depending on the performance of the relevant division and individual’s contribution.
  • Treating customers fairly – Performance scorecards and incentives are structured in such a way to ensure that the way in which we reward people, at all levels, does not result in any unfair outcomes for customers. Customers’ interests and company interests are treated with equal importance.
  • Defining performance – Performance measurement is based on a balanced scorecard which includes both financial and non-financial measures and includes measures for current and future risks.
  • Internal and external disclosure – The remuneration policy is transparent internally and adequately disclosed externally when required.
  • Legislative compliance – The policy is cognisant of the remuneration-related guidance provided by legislative and regulatory regimes in all jurisdictions in which the group operates.
  • Approvals and decision-making – The group Remuneration Committee has a mandate to monitor, review and approve all changes to the remuneration policy, including the long-term incentives (LTIs) and its rules (for final approval by the shareholders), the determination of the short-term incentives (STI) for the group, divisions as well as the group Executive Committee awards. The group chief executive has a mandate to approve remuneration and rewards for all executives reporting to the group Executive Committee.

Remuneration is regularly measured against peer companies to ensure that it is both fair and effective.

REMUNERATION STRUCTURE

Our remuneration policy provides for a mix of fixed (or guaranteed) and variable pay. This mix is aligned with market best practice where a large proportion of executives’ remuneration is variable but is managed within defined levels. The components of the remuneration mix are, broadly:

  • guaranteed pay – aligned with market levels and provides the individual with appropriate security and reward in terms of salary and benefits;
  • short-term incentives (STIs) – aligned to operational, financial and other non-financial annual targets that seek to drive operational wins in the short to medium term; and
  • long-term incentives (LTIs) – primarily a performance-driven LTI plan whereby awards are subject to appropriately stretching performance conditions and may be settled in company shares or in cash.

Guaranteed pay

Guaranteed pay is a core element of remuneration reflecting the individual’s role and position and is payable for undertaking expected day-to-day responsibilities. Guaranteed pay includes all guaranteed items such as basic salary, car allowance, medical aid contributions, retirement fund contributions and guaranteed allowances.

Guaranteed pay is structured as a total cost-to-company (TCTC) package and is typically benchmarked against the 50th percentile of the market to create the opportunity for exceptional performers to earn up to the 75th percentile in total through STIs.

Remuneration is generally benchmarked against the financial services market through reputable and independent market remuneration surveys. The group has a job evaluation system in place which is based on stratified systems theory and correlated to the Paterson Modern grading system.

The group provides normal market-related benefits. These include (but are not limited to) company contributions to the retirement fund, medical aid and other benefits as agreed to, including death, disability and funeral cover.

Executive directors have permanent employment contracts with the group. Although these contracts do not provide for a restraint of trade, they do carry three-month termination periods, with the group retaining the right to terminate a contract in the event of poor performance or misconduct.

Executive Committee members and some senior managers are subject to performance assessments by the group chief executive. Reviews are based on their contribution to achieving the group’s strategy as well as other key stakeholder objectives such as the sustainability of operations. The Remuneration Committee reviews and approves salary reviews for Executive Committee members to ensure that total compensation is both fair and appropriately benchmarked. The committee also reviews and sets the group chief executive’s annual compensation.

The guaranteed pay for the 2014/15 and 2013/14 financial years for the executive directors of the group board were:

R’000

Salary

Benefits and
allowances

Retirement fund
contributions

Total
2015

Total

2014

MS Moloko (chairman)*

567

130

80

777

2 604

E Chr Kieswetter (group chief executive)

4 900

254

513

5 667

5 209

DM Viljoen (group chief financial officer)

3 318

174

535

4 027

3 699

Total for the year

8 785

558

1 128

10 471

11 512

* Mr Moloko became non-executive chairman on 1 July 2014.

Short-term incentive (STI)

STIs are discretionary. Senior employees above a certain grade may be eligible to participate in an annual STI plan.

Alexander Forbes’ STI scheme aims to reward performance for meeting short-term organisational targets. The guiding principles are as follows:

  • A direct link is established between performance management and rewards.
  • Objectives and measures used in the incentive scheme are derived from the overall annual strategic objectives. These are cascaded down to determine relevant objectives and targets at all levels.
  • The incentive programme seeks to enable participants to have a clear understanding of value-adding remuneration opportunities and what they can do in order to maximise their pay.

Alexander Forbes STI bonuses relates to performance against annual objectives consistent with the creation of long-term value for shareholders. Individual and corporate performance targets, both financial and sustainability-related, are tailored to the needs of the business and reviewed regularly to ensure they remain appropriate.

The primary risk from a short-term incentive perspective lies in the measurement of performance and the resulting quantum of the incentive. This is determined subject to the following considerations:

  • Determination and size of the incentive pool – The incentive pool is self-funded through a share of the net operating profit. The size of the incentive pool is dependent on a year-on-year increase of the required profitability.
  • Incentive capping – Paterson A to D band employees are generally offered a 13th cheque equal to one month’s pensionable salary while employees in E to G bands could receive up to a maximum of 200% of their on-target bonus as their incentive, as indicated by the bonus qualification percentages.
  • Performance measurement – Incentives are dependent on performance measured over a 12-month period. Performance is measured according to personal and divisional measures. The divisional scorecard is evenly split between financial and non-financial measures but scorecards for individuals may have a different weighting. Performance measures are based on audited financial results of the company and the measures are independently verified by the group programme and project office and reviewed annually. Internal audit may also be required to independently verify reported results against scorecard measures when required.
  • Bonus deferral – Bonus deferrals are applicable for divisional managing directors and any other identified roles. Deferral percentages will vary from time to time and will be determined depending on the needs of the organisation. Such deferral and/or claw-back provisions as may be deemed appropriate may be approved by the Remuneration Committee from time to time.

STIs paid to executive directors for the past and previous financial years are as follows:

R’000

Total
2015

Total
2014

MS Moloko (chairman)*

3 100

2 250

E Chr Kieswetter (group chief executive)

7 800

5 200

DM Viljoen (group chief financial officer)

5 500

3 600

Total for the year

16 400

11 050

*

Mr Moloko became non-executive chairman on 24 July 2014 and as a result no longer participates in any variable remuneration plans. The payment reflected in 2015 was in respect of the 2014 financial year made subsequent to that year-end.

Long-term incentive plan (LTIP)

The Alexander Forbes LTIP applies to executive directors, senior managers and other key executives and managers of the company. LTIPs offered over a period of three or more years are designed to:

  • align performance with the achievement of long-term Alexander Forbes objectives;
  • act as a retention mechanism for senior executives; and
  • drive a continuous and sustained growth and improvement culture within Alexander Forbes.

The share-based LTIPs are governed by rules as approved by shareholders.

As the scheme rules were originally approved by the exiting private equity shareholders, the rules are re-tabled for approval by current shareholders at the next annual general meeting.

The chairman and other non-executive directors are not eligible to receive LTIPs geared to the share price or corporate performance. Alexander Forbes’ LTIPs are intended to align the interests of executives with those of shareholders and link reward to performance over the longer term.

To align shareholders’ and executives’ interests, the vesting of the LTIP awards will be conditional on achieving performance conditions measured over a period appropriate to the strategic objectives of the company. Such performance measures are linked to factors enhancing shareholder value and require strong levels of overall corporate performance, measured against an appropriately defined peer group or other relevant benchmark/s.

Awarding of LTIPs is made on a sliding scale to avoid an ‘all or nothing’ profile and starts at a level that is appropriate in comparison with guaranteed pay. Awards with high potential value may only be linked to commensurately high levels of performance. Full awards require significant value creation.

The structure of the LTIP ensures that the senior management team is aligned with both the longer-term future success of the company and the interests of all shareholders.

The number of conditional shares awarded under the LTIP during the financial year was as follows:

’000 shares

Total
2015

Total
2014**

MS Moloko (chairman)*

E Chr Kieswetter (group chief executive)

1 315

DM Viljoen (group chief financial officer)

881

Total for the year

2 196

*

Mr Moloko became non-executive chairman from 1 July 2014.

**

The new share scheme became effective on listing the company on 24 July 2014.

Historical long-term incentive plans

During the seven-year private equity control, certain long-term incentives and share ownership plans were put in place for key individuals and senior employees of the group. All these historical schemes matured at exit of the private equity shareholders (with some deferral in certain instances).

Attendant upon the listing of the group on 24 July 2014, the 2014 Exit Transaction Incentive Plan was crystallised and all liabilities in terms of this plan were fully recognised in the year reviewed.

Similarly, the Alexander Forbes Management Trust and Management Co-Investment Trust was wound up following the listing and members of the trust compensated for the dilution of their shareholding in Alexander Forbes Equity Holdings that resulted from the 2014 capital restructure.

The 2011 Executive Long-Term Incentive Plan, which was amended in June 2014, was constructed and designed as a restricted bonus incentive scheme which is cash-settled. The plan did not involve the purchase, transfer or issue of shares or share options, nor was it linked in any way to shares. The participation by executive directors in the plan was required to be approved and confirmed by the Remuneration Committee. Various senior managers and directors of the company were designated as eligible employees under the plan. Fifty percent of the awards made to eligible employees in terms of the plan vested upon listing on 24 July 2014, while the remaining 50% will vest after 18 months from the date of listing. The awards were conditional upon acceptable performance by participants over the period and upon participants being employed by a member business of the group at the date of payment. The liability was recognised in line with its retention period.

Details of payment and incentive allocations relating to the historical incentive schemes may be found in the audited annual financial statements of Alexander Forbes Group Holdings Limited which are published on the company’s website.

REMUNERATION OF NON-EXECUTIVE DIRECTORS

Independent directors receive letters of appointment that include a notice period of three months. Other executive directors do not receive such letters as they are shareholder representatives.

The overarching principle applying to the remuneration of independent non-executive directors is to compensate them fairly and at a level that is appropriate to attract the desired talent and expertise.

The remuneration of non-executive directors consists of directors’ fees based on board and board committee participation. To compensate for additional responsibility, the chairmen of the board and committees are compensated at levels higher than other members. Different levels of remuneration are also paid in respect of the different board committees based on the complexity and amount of preparation and level of responsibility required by the committees.

Market benchmarking is undertaken periodically to ensure that the remuneration of non-executive directors is appropriately aligned to the market. Each year the Remuneration Committee receives recommendations from the group chief executive and the chairman concerning the remuneration of non-executive directors, who are paid fixed fees. All directors’ fees are approved annually in advance by shareholders in general meeting.

The independent directors’ fees paid in the year reviewed are shown in the table below, with comparative figures for the previous financial year. The next non-executive directors’ increase in fees (a proposed 5% for 2015/2016) will be subject to approval at the annual general meeting of shareholders as detailed in the notice of that meeting included in this report.

Non-executive directors’ fees paid in the past financial year:

2015

Group
board

Subsidiary
boards

Group
Audit
Committee

Subsidiary
Audit
Committee

Remuneration
and
Nominations
Committees

Social,
Ethics and
Transformation
Committee

Chairperson

1 689 000

261 057

456 844

261 057

195 787

97 902

Member

456 844

130 528

195 787

130 528

97 902

52 216

2014

 

 

 

 

 

 

Chairperson

n/a

246 280

430 985

246 280

184 705

92 360

Member

430 985

123 140

184 705

123 140

92 360

49 260