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Remuneration policy

Objective

The Clover Group Remuneration Policy (“policy”) aims, by means of fair, reasonable and market related remuneration practices, to ensure that the Clover Group (“Group”) attracts and retains key people (specifically Executive and senior management members of the quality required by the Board) in order to continue delivering shareholder return on investment and fulfilling its role as corporate citizen sustainably.

The policy follows the internationally recognised practice of combining shortterm remuneration with long-term incentives in order to compete for skilled resources in the short-term and to align the interest of Executive and senior management with long-term value creation for shareholders.

The policy is based on the following key principles:

  • Remuneration should support the Group’s strategies, and be consistent with the organisation’s culture of fairness and equity.
  • Remuneration should support the Group’s vision to be the most admired branded consumer goods company in emerging markets by attracting and retaining the right talent.
  • Remuneration should have a direct correlation with the growth objectives and financial performance targets and actual achievements of the businesses of the Group.
  • Remuneration should be reviewed and benchmarked annually through independent external professional service providers to ensure that the Group remains competitive in the diverse markets in which it operates, not applying percentiles rigidly but taking into account industry type, skills scarcity, performance and legislative structures and requirements.
  • Remuneration should motivate and allow for differentiation (i.e. reward high performers).
  • Individual contribution based on the role and responsibilities should have a direct bearing on the levels of remuneration.

2. Governance

The Remuneration Committee takes an active role in reviewing the remuneration philosophy, policy, strategy and practices for alignment to best practice and the strategic imperatives of the Group.

The remuneration structure for all employees who are not executives is determined and approved by the Executive Committee.

3. Remuneration mix

3.1 General

Clover’s remuneration structure comprises the following:

  • Total guaranteed package (TGP”).
  • Short-term incentives (“STIs”).
  • Long-term incentives (“LTIs”).

3.2 Differentiation between Paterson Grades

Paterson Grade Total guaranteed
package		 Short-term incentive Long-term incentive
C5 and below Base pay and benefits; 13th cheque Performance bonus based on formal performance management N/a
D1 to D5 Base pay and benefits Short-term incentive scheme; Performance bonus based on formal performance management N/a
E Base pay and benefits Short-term incentive scheme; Performance bonus based on formal performance management Long-term incentive scheme
F Base pay and benefits Short-term incentive scheme Share appreciation rights scheme

4. Total guaranteed package

TGP Considerations Composition of TGP
  • Employment profile based on competencies, outputs and behaviour required for the position.
  • The employment profile must fit within the organisational structure and an appropriate employment grade should be assigned.
  • Regular benchmarking exercises are performed internally and externally to ensure equity, fairness and market relatedness.
  • Appropriate market percentiles are applied based on skills, experience and market competitiveness and cognisance paid to performance ratings, time in position, personal development and overall value added scarce skills.
  • Guaranteed monthly salary.
  • Compulsory benefits (e.g. retirement).
  • Discretionary benefits (e.g. medical aid).
  Medical aid considerations
  • Guaranteed packages are reviewed annually in May and are revised on 1 July of each year.
  • Interim reviews of the guaranteed packages are undertaken to retain talent, to take into account market adjustments or upon promotion of employees.
  • Employees on Paterson Grade C3 and lower can choose to join Discovery Health Medical Scheme or Umvuzo Medical Scheme.
  • For Paterson Grade C4 and higher the Discovery Health Medical Scheme is compulsory.

Scarce skills are identified annually and where scarcity is due to demand outstripping supply, a plan is put in place to reduce the risk of the business or organisation. Where scarcity is due to a unique combination of skills and experience required, deliberate efforts are made to build a talent pool around the scarce individual to reduce the risk to the business or organisation.

Management has introduced an “S” category of employee to reduce the risk of losing employees with specialised skills. The total remuneration package applied to this category of people is targeted at the top end of the market (90th percentile) range and includes a specialised discretionary retention bonus (8% of annual base pay) which is payable at the end of every financial year provided the necessary performance criteria are met by the individual.

5. Short-term incentive

5.1 The Group’s Short-Term incentive Scheme (“STI”)

  • The STI is designed to drive improvement of the Group’s results on an annual basis.
  • Previously, 50% of the STI is determined by individual performance (which is capped at 100%) and 50% by the extent to which the Group’s profit target has been reached. Following the benchmarking exercise conducted by PricewaterhouseCoopers (“PwC”) the Remuneration Committee resolved that with effect from 1 July 2012:
    • For the Chief Executive and the Chief Financial Officer, 30% of the STI is determined by individual performance and 70% by the extent to which the Group’s profit target has been achieved.
    • For other Executives, 40% of the STI is determined by individual performance and 60% by the extent to which the Group’s profit target has been achieved.
    • For all other employees participating in the STI, 50% of the STI is determined by individual performance and 50% by the extent to which the Group’s profit target has been achieved.
  • The portion relating to the individual performance and Group’s profit target is capped as set out in the table here.
  • When applying the STI the following differentiation between Paterson Grades F, E and D exist with effect from 1 July 2012:
Paterson Band Individual performance
%		 Group profit
%		 Individual performance
Cap		 Group profit Cap Entitlement (months) Maximum entitlement (months)*
D1 – D2 50% 50% 100% 200% 2 3
D3 – D5 50% 50% 100% 200% 3 4.5
E 50% 50% 100% 200% 5 7.5
Other Executives 40% 60% 100% 183% 10 15
Chief Financial Officer 30% 70% 100% 171% 10 15
Chief Executive 30% 70% 100% 171% 12 18
* For example, if the Chief Executive achieves a 100% individual performance bonus and a 171% Group profit bonus the Chief Executive will be able to earn 18 months’ additional income (i.e. 150% of his annual base salary).

  • Therefore, no employee will receive a STI greater than 1,5 times his/her annual base salary (being the basic salary plus motor vehicle allowance (being 22% of basic remuneration) and the Company’s contribution to pension fund (which is 10%).
  • The Group’s profit target (which refers either to operating profit or attributable profit) is triggered once 90% of the profit target (100% bonus level) is reached, further if the profit is greater than the profit target 2% additional bonus will be paid for every 1% achieved over the profit target.
  • The STI is self-funded since all bonuses are budgeted for in full before the profit target is approved by the Remuneration Committee.
  • The STI for Paterson Grade F is calculated with reference to attributable profit, whereas the STI for Paterson Grades E and D is calculated with reference to operating profit.
  • The Remuneration Committee annually approves the profit targets and confirms the final profit figure after the annual audit is completed; whereafter bonuses are paid out during September/October of each year.
  • Adjustments may be made for extraordinary factors at the sole and absolute discretion of the Remuneration Committee.
  • Employees who have been found guilty of gross misconduct will not be allowed to participate in the STI.
  • Due to the agricultural nature of the Group’s business, the Remuneration Committee will use its discretion when awarding bonuses in the event that cyclicality (which is beyond the control of the employees) played an integral part in the Group not achieving the necessary profit targets.
  • Steps are put in place to manage and guide employees to achieve the maximum bonus (and relevant profit targets) through performance management sessions being held quarterly (on a one-on-one basis).

5.2 Performance bonus

  • A performance bonus is paid to all employees who score an annual performance rating of 4 or 5.
  • The performance bonus is calculated as a percentage of annual basic pay (plus motor vehicle allowance) and is paid together with the 13th cheque (for employees in Paterson Grades C5 and lower) or the STI (for employees in Paterson Grades D1 to E).

6. Long-term incentive

6.1 Long-term Incentive Scheme (“LTI”)

  • The LTI is a deferred bonus scheme, which serves as a retention mechanism and rewards senior management members (Paterson Grades E and certain Grade Ds) for adding value to the businesses of the Group.
  • The Group’s senior management members are eligible for participation in the LTI.
  • Provided the attributable profit target is met, a percentage of annual earnings are paid out over a three-year period (in equal amounts).
  • The LTI is governed by rules which are reviewed and updated regularly by the Remuneration Committee as necessary for alignment with best practice.

6.2 Share Appreciation Rights Scheme (“SAR Scheme”)

  • The purpose of the SAR Scheme is to attract, retain, motivate and reward the Group’s Executives (Paterson Grade F) who are able to influence the performance of the Group, on a basis which aligns their interests with those of the Group’s shareholders.
  • The purpose of the SAR Scheme is to attract, retain, motivate and reward the Group’s Executives (Paterson Grade F) who are able to influence the performance of the Group, on a basis which aligns their interests with those of the Group’s shareholders.
  • The eligibility criteria, the quantum of allocations and the conditions governing each allocation are determined by the Remuneration Committee taking into consideration the following:
    a. The seniority within the Group.
    b. The work function.
    c. The ability of the Executive to add value to the Group and its businesses.
  • Notwithstanding the aforementioned, in calculating the number of share appreciation rights (“SARs”) to be allocated to an Executive the following market related formula has been used (excluding the Initial Allocation set out on here):
    • A = (B × C)/ D
      where –
    • A = the total number of SARs to be allocated;
    • B = TGP of the Executive;
    • C = market related multiples (for the Chief Executive the multiple is 8, for the Deputy Chief Executive and the Chief Financial Officer the multiple is 6 and for other Executives the multiple is 4); and
    • D = the volume weighted average price of an ordinary share on the JSE over seven trading days immediately prior to the allocation price.
  • Following the benchmarking exercise conducted by PwC the Remuneration Committee resolved that with effect from 1 July 2012 the smoothed average face value allocation formula (set out below) will be used when allocating SARs to an Executive:
    • A = (B × C)/ D
      where –
    • A = the total number of SARs to be allocated;
    • B = TGP of the Executive (or participant);
    • C = market related multiples set out as follows:
      Member Annual smoothed face value multiple
      CE 267%
      CFO 200%
      Other Executives 167%
    • D = the volume weighted average price of an ordinary share on the JSE over seven trading days immediately prior to the allocation price.
  • The SAR Scheme rules were amended during the financial year under review to make provision that all SARs:
    • allocated on or after 1 July 2011 and have vested must be exercised by the Executive on or before the seventh anniversary of the relevant allocation date relating to such allocation of SARs; and
    • allocated on or after 1 July 2011 will vest in full after the third anniversary of the allocation date, provided that the relevant performance criteria were met.
  • The SAR Scheme is governed according to rules approved by the Company’s shareholders in November 2010.
  • All SARs allocated on or after 1 July 2012 will be subjected to the following performance criteria:
    • 25% will be subject to personal performance conditions to be set and measured by the Chief Executive for each of the Executives, provided that the Chief Executive will make a recommendation regarding the vesting of the 25% of the allocation to the Remuneration Committee for each of the Executives;
    • 75% will be subject to Company (financial) performance conditions set out below:
      • the headline earnings per share must exceed the previous four year’s headline earnings per share plus the average inflation rate over the previous four years plus 2% growth; and
      • provided that the vesting of the 75% of the allocation will be based on a sliding scale whereby 30% of the allocation will vest when achieving headline earnings per share growth above the average inflation and 100% when achieving the headline earnings per share increase by a minimum of 2% above inflation.

7. Regulatory

This policy is to be read in conjunction with the Company’s letter of appointment, disciplinary code, code of ethics, applicable employment legislation, specifically the Basic Conditions of Employment Act and Labour Relations Act, as well as the Company’s short-term and long-term incentive scheme rules.

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