Scope of report
This report reviews the activities of the remuneration committee and provides an overview of the remuneration principles, policy and practices applicable to rewards available and awarded to directors, prescribed officers and key managers.
Remuneration philosophy and policy
The Grindrod remuneration philosophy is to fairly reward individual performance, measured against objective structures, to support organisational sustainability, a high-performance culture and the retention of scarce and specialised skills.
Remuneration policies are structured to achieve value-based management, which, at organisational level, stimulates organisational performance and optimises employed capital and shareholder returns. Policy frameworks, which adhere to legislation and sound governance criteria, are aligned with the business strategy and objectives. Individual performance is measured against individually tailored, predetermined KPIs, including non-financial sustainability measures that incrementally trigger rewards. To achieve performance continuity and the desired retention levels, some policies factor out conditions over which the organisation and individuals have no control, such as adverse market conditions.
Guaranteed executive remuneration is benchmarked in consultation with independent remuneration specialists.
Executive remuneration includes short- and long-term incentives which are linked to performance and sustainable achievements. Certain rewards are based on share-price appreciation which promotes long-term commitment to creating shareholder value.
Role and key functions
The remuneration committee is a formal committee of the board that assists in determining and recommending remuneration policy. The role and key functions of the remuneration committee are defined in the remuneration committee terms of reference, approved by the board in 2014, and reviewed annually.
The committee independently reviews, advises on and make recommendations relating to all remuneration matters to promote an environment that is conducive to the achievement of strategic objectives and encourages individual performance. The committee also monitors the outcomes of the implementation of the remuneration policy to measure whether the objectives that were set have been met.
Composition and committee meetings
The committee comprises three independent non-executive directors. During the year under review, directors serving on the committee included Pieter Uys (chairman, appointed 27 May 2016), Jannie Durand (appointed 30 May 2012, resigned 27 May 2016), Mike Hankinson (appointed May 2010) and Nkululeko Sowazi (appointed 25 November 2014). More details of these directors are given in the directorate and executive committee section.
The chairman of the board is a member of the committee given that the committee fulfils an advisory role and makes recommendations to the board on matters related to the remuneration of directors.
Committee members meet at scheduled meetings three times a year and unscheduled meetings when the committee is required to address urgent matters in its scope of responsibility. No unscheduled meetings were held in 2016.
Attendance of committee members at the meetings of the committee during the year is listed in the directorate and executive committee section of this integrated annual report.
The group CEO attends committee meetings by invitation. Invited attendees are excluded from voting at committee meetings and the group CEO is excluded from discussions related to his remuneration.
In terms of its mandate, matters included in the remuneration committee’s annual work plan in 2016 included:
- monitoring the company’s remuneration policy and advising the board on the remuneration of non-executive and executive directors;
- reviewing the performance of the chairmen of the board and the board committees;
- evaluating and recommending fees for non-executive directors based on industry benchmarks;
- reviewing and approving the criteria against which executive directors are evaluated;
- reviewing the performance of executive directors against predetermined financial and operational targets;
- reviewing and approving the remuneration packages and incentives, including annual bonuses, for executive directors;
- approving the overall divisional allocations for senior management bonuses;
- approving annual remuneration increases for employees outside the bargaining unit;
- reviewing the performance of the primary pension and provident funds;
- legislative and regulatory compliance within the scope of its mandate;
- reviewing of the remuneration report for inclusion in the 2016 integrated annual report; and
- approving the annual work plan for 2017.
Executives, prescribed officers and key managers receive remuneration comprising a guaranteed total cost of employment (TCOE) and a variable portion which incorporates short- and long-term incentive bonus schemes.
Executives’ guaranteed remuneration considers the complexity of the role of each executive, their level of experience and their contribution to the group’s overall performance. Increases in guaranteed remuneration are awarded based on performance and updated responsibilities.
Executive remuneration is benchmarked with the “TASK” grading methodology in consultation with independent compensation consultants, to grade the level of responsibility with consideration to factors that include sales volumes, profits, number of employees, assets managed and salary/wage account.
The incentive bonus schemes reward an individual’s contribution to company performance to align the focus of executives with the expectations of stakeholders and promote executive retention through share ownership. These incentives, namely the FSP and the share option scheme, reflected below, include schemes that provide for awarding a total of 3 572 656 shares as incentives.
Executive remuneration is annually reviewed and approved by the committee, against each individual’s level of experience, responsibilities and performance, the scarcity of the person’s knowledge and skills and the premium placed on such a resource in the market place. The current levels of remuneration are benchmarked at the median of the relevant global grades and/or select comparator group, which include large local and international companies.
Non-executive director fees are reviewed annually by the committee and proposed fees, aligned with the remuneration levels of comparable listed companies, are referred to the board for approval at the annual general meeting. Non-executive directors are excluded from participation in the Grindrod incentive bonus plan and share option schemes.
During the year, the committee considered the performance of the CEO, the group financial director, other executive directors, non-executive directors and board committees in determining their respective remunerations. The primary performance indicators are set out below.
Integrated annual report
Following the committee’s review of the accuracy, completeness and transparency of this remuneration report, inclusive of details of emoluments paid to directors and incentive schemes included below, it recommended the inclusion of its report in the integrated annual report of Grindrod for the year ended 31 December 2016 to the board.
On behalf of the remuneration committee
28 February 2017
Emoluments paid to directors and prescribed officers
The tables below provide an analysis of the emoluments, split between local and offshore remuneration package approvals, paid to executive and non-executive directors and prescribed officers of the company in relation to the 2016 and 2015 financial years.
|1||Bonus payment in respect of services rendered in 2016 accrued as at year-end, as detailed below.|
|2||Fees ceded to Remgro.|
|3||Resigned as non-executive director on 27 May 2016 and was replaced by PJ Uys.|
|4||Resigned as member on the Social and Ethics Committee on 22 February 2016.|
|5||Includes fees paid by Grindrod Bank Limited. Resigned as director on the Boards of Grindrod Bank Limited on 7 April 2016 and Grindrod Limited on 16 May 2016.|
|6||Appointed as independent non-executive director 24 October 2016.|
|7||Appointed as independent non-executive director 27 May 2016.|
|8||Resigned as independent non-executive director 27 May 2016.|
|9||Increases are based on performance and responsibilities and include role complexity, level of experience and contribution to group performance. Remuneration is benchmarked by independent consultants. Average increase from March 2016 to February 2017 is 6%. Deviation from the 6% is due to two months of remuneration at prior year increase levels. Annual increases are effective 1 March 2016, affecting 10 months of the financial year.|
|10||The 0.64% increase from 2015 to 2016 is due to timing as more fully set out in note 9 above.|
Performance bonuses are based on the achievement of stretch profit targets, specified strategic and non-specified value-added objectives approved by the remuneration committee annually. The short-term incentives for executives are capped at 100 per cent of TCOE.
KPIs are grouped according to the following three elements:
- The stretch profit element which is based on both targeted divisional and group profits. Factors including market conditions, return on equity and financial performance have been considered in determining such targets.
- The specific strategic element, aimed at ensuring attainment of key initiatives from the three year strategic plan, which is directly aligned to the delivery of shareholder value.
- Non-specified value-added component, comprising objectives that include transformation, SHERQ, operational and commercial imperatives that add both long and short-term value to the group.
The relative cash bonus caps as a percentage of annual salary and the average payments are as follows:
The bonus payments related to performances as assessed and approved by the committee are:
Key managers within all divisions receive bonuses based on a structure similar to that for executives. Performance is measured against pre-agreed key objectives and financial results. All bonuses are reviewed by the CEO and bonus information is tabled for approval by the remuneration committee.
Grindrod Limited and Grindrod Bank’s primary performance incentive, the share-price-linked option schemes, aim to reward and retain executives and key managers.
Vesting of awards in the Grindrod Limited share-price-linked option scheme is subject to:
- the participant’s achievement of performance criteria;
- appreciation of the Grindrod Limited share price, measured against increased shareholder value over the vesting period; and
- the total award at a divisional level in any period being limited to between 6 and 10 per cent of the division’s attributable profits.
As a result of the cyclical nature of shipping and commodity markets shareholders approved a pure retention incentive, the Grindrod Limited forfeitable share plan, used in periods of market distress when share price appreciation is unlikely. The incentive, which is capped at 6 million shares (0.8% of share capital), is designed to be a small but critical part of the long-term incentives and is utilised in limited circumstances to retain key management. The board has, since the inception of this forfeitable share plan and during the current extended poor commodity and shipping market, awarded a total of 3 172 656 shares in order to retain key management within the Group.
Grindrod Limited share-price-linked option scheme
The share-price-linked option scheme was introduced in 2007 as a retention incentive for executives and key managers. During the annual staff-appraisal period, key strategic managers are nominated for participation in the scheme based on their performance and contribution to the success of the divisional business plan in that year. The merit of each nomination is debated at meetings between divisional executives and the CEO and qualifying candidates are nominated to the remuneration committee for its review and subsequent approval by the board.
The options, which are linked to the Grindrod ordinary share price, are settled in cash and therefore not classified as equity-settled in terms of the JSE Listings Requirements. Vesting is effected in three one-third tranches on the third, fourth and fifth anniversaries of the grant date and do not have an expiry date beyond the vesting date. The cash settlement, paid net of tax, is based on the difference between the grant and settlement prices, being the weighted average of the closing price for the seven trading days preceding the vesting date.
Vesting settlements may not exceed 10 per cent of the net after-tax profit of a division. No settlement is paid if the share price does not rise between grant and vesting dates, if an employee resigns, is dismissed, has interrupted service or has rendered unsatisfactory performance as determined by the remuneration committee or group chief executive officer.
No bonus payments were made on options which vested in 2016. The cost of scheme settlements is hedged against 8 833 128 treasury shares (not allocated to the forfeitable share plan) (2015: 8 981 034), purchased at a weighted average price of R17.31 (2015: R17.01). No shares were bought back during 2016.
Share option gains and cash-settled share-price-linked option payments for 2016 are detailed below:
A summary of options granted to executives and senior management, still to vest as at 31 December 2016, is as follows:
The detail of awards granted to executives as at 31 December 2016 are as follows:
Grindrod Bank share-price-linked option scheme
The Grindrod Bank share-price-linked option scheme was introduced in 2009 for Grindrod Bank executives and key employees. The scheme operates according to the same performance requirements as the Grindrod Limited share-price-linked option scheme detailed on the preceding pages, except that the share-price element is calculated as the greater of the net asset value of Grindrod Bank or an agreed price-earnings value, that payments are limited to six per cent of the division’s attributable profit and that vesting dates are the dates of Grindrod Bank remuneration committee meetings.
A summary of options granted to executives and senior management of Grindrod Bank, still to vest as at 31 December 2016, is as follows:
Bonus payments totalling R7 812 875 were made on Grindrod Bank options vesting in 2016.
The detail of awards granted to an executive as at 31 December 2016 is as follows:
Grindrod Limited forfeitable share plan
The forfeitable share plan was introduced and approved by shareholders in 2012 to support the recruitment and long-term retention of executives and key managers during times that the Grindrod ordinary share price is stagnant or decreasing as a result of circumstances over which the company and participants have no control. As such, vesting is not subject to profit targets, but participants must remain in their positions in the group for an award to vest.
Shares awarded vest in three equal tranches at the end of years three, four and five after the award date. Prior to vesting, participants receive dividends paid and may vote in respect of the shares awarded, but they cannot sell or encumber their allocation until delivery date. Unvested awards are forfeited on termination of employment, by the company or the participant.
In accordance with the shareholders’ approval at the 2012 AGM, a maximum of 6 million ordinary shares may be awarded to executives and qualifying managers who meet strategic objectives in the business plan and the value granted at the awarded price is recognised in the income statement over the vesting period.
The following table summarises the movements in the forfeitable share plan during the year.
The table below shows the executive participants in the scheme and the value granted in 2016.
Share option scheme
The share option scheme is closed, with only one participant remaining, being AK Olivier, who has 400 000 ordinary-share options (2015: 400 000) at a strike price of R12.51. These options have vested and expire on 23 November 2020.
Directors’ interests in the company
At 31 December 2016, the directors held interests in the company as follows:
Following 31 December 2016, vesting in terms of the forfeitable share plan increased the beneficial direct shareholdings with 83 333 shares for AK Olivier and with 50 000 shares for each of AG Waller, B Ntuli and MR Wade.
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