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Remuneration report
Clover has a dedicated Board committee that determines the governance of remuneration matters, Group remuneration philosophy, remuneration of Executive Directors and other Executives, as well as the compensation of Non-executive Directors, which is ultimately approved by the shareholders. This remuneration report primarily covers the remuneration of the Executive Directors, Non-executive Directors, and other Executives.
Details on the attendance of meetings held by the Remuneration Committee are set out in the Corporate Governance report. The complete Group Remuneration Policy is set out here.
Remuneration approach for executives
The Group acknowledges that it has to offer nationally and internationally competitive remuneration packages in order to attract, retain, motivate and incentivise high-calibre staff.
The Remuneration Committee uses external market surveys and benchmarks to determine Executive remuneration and benefits, as well as Non-executive Directors’ base fees and attendance fees. The Group’s remuneration philosophy is to structure remuneration packages in such a way that short- and long-term incentives are linked to the achievement of business objectives and the delivery of an acceptable return on shareholders’ funds, while at the same time ensuring the sustainability of the Group.
| The remuneration structures for the Executives of the Group comprise both guaranteed and variable components: | |
| Total guaranteed package | Monthly base salary and benefits such as motor vehicle allowance, retirement funding and medical aid assistance |
| Short-term incentives | All cash-based payments that are paid to an individual based on the Group and individual performance over the preceding financial year |
| Long-term incentives | All cash- and equity-based awards that accrue to an individual based on the Group performance over a financial period |
Total Guaranteed Package (“TGP”)
The TGP of Executives (includes Executive Directors) is benchmarked by using market data of individual salary levels for similar positions on an annual basis. This information, combined with the individual’s performance assessment, is the key consideration for the annual salary reviews. Although the Group endeavour to pay its total staff complement at a level between the median and upper quartile compared to other peers in the industry, it has no restrictions on Executives’ TGP. The Remuneration Committee has requisite discretion to determine the TGP for Executives. Factors such as retention, contribution and level of skills are all considered in the determination of TGP.
The Group offers Executives membership of a defined contribution retirement fund. Other benefits such as a motor vehicle allowance, medical insurance, death and disability insurance, leave and recognition for service are also applicable to Executives.
Short-term incentives (“STIs”)
Executives participate in the “Short-term Incentive Scheme”, which is represented as multiples of the monthly base salary (being the monthly basis salary plus motor vehicle allowance (which is 22% of basic remuneration) and the Company’s contribution to the pension fund (which is 10%) and is linked to the achievement of profit growth and personal performance. The STI for Executives was based 50% on individual performance and 50% on Group profit during the 2012 financial year.
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 will be 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 reached.
A maximum of 100% can be earned on the individual performance bonus. The calculation of the Group profit is based on the achievement of attributable profit. The Remuneration Committee annually approves the target and confirms the profit figure on which bonuses are calculated. The Group profit bonus portion was capped during the 2012 financial year at 200%. In addition to the capping of the profit target, if the profit target is exceeded, a 2% additional bonus is paid for every 1% above the target. Please see here for the workings of the STIs.
Current bonus levels are:
| Member | Multiples of monthly base salary |
|---|---|
| Chief Executive | 12 |
| Chief Financial Officer | 10 |
| Other Executives | 10 |
The Remuneration Committee further resolved that with effect from 1 July 2012 the following capping will apply with regard to the STI:
| Member | Individual performance cap | Group profit cap |
|---|---|---|
| Chief Executive | 100% | 171% |
| Chief Financial Officer | 100% | 171% |
| Other Executives | 100% | 183% |
Long-term incentives (“LTIs”)
The Management Participated Capital Restructuring Exercise (“MPCRE“) of the Group, which was approved by shareholders on 31 May 2010, changed the nature of the preference shares from profit-sharing instruments to pure debt instruments carrying a right to guaranteed dividends only. This affected the value of the preference shares by eliminating any value upside. Accordingly, an award of preference shares to employees of the Group in terms of Clover’s preference share incentive scheme no longer incentivised employees or aligns their interests with the interests of ordinary shareholders. As a result, on 31 May 2010 (subsequently amended on 4 November 2010 and 10 November 2011) the shareholders of the Company approved the adoption of the Clover Share Appreciation Rights Plan (2010) (“SAR Scheme”). The initial allocation referred to on the opposite side of this page formed part of the MPCRE.
The aggregate number of ordinary shares which may be acquired by the Executives under the SAR Scheme may not exceed 16 million ordinary shares. At balance sheet date no ordinary shares have been issued to Executives and therefore the full aggregate of 16 million ordinary shares is still available for issue.
The salient features of the SAR Scheme, which complies with the JSE Listings Requirements, are set out in the Remuneration report, which can be found below of this Integrated Annual Report.
Allocations made in terms of the SAR Scheme
1. |
Initial allocation |
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a. |
Total number of SARs allocated, allocation date and allocation price |
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| Number | Allocation | Allocation | ||||||
|---|---|---|---|---|---|---|---|---|
| of SARs | date | price | ||||||
| allocated | ||||||||
Executive Directors |
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| Johann Hendrik Vorster | 4 587 200 | 31 May 2010 | R4,67 | |||||
| Hermanus Bernardus Roode | 2 616 762 | 31 May 2010 | R4,67 | |||||
| Louis Jacques Botha | 2 443 140 | 31 May 2010 | R4,67 | |||||
| Christiaan Philippus Lerm (Dr) | 2 454 758 | 31 May 2010 | R4,67 | |||||
Other Executives |
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| Hendrikus Lubbe | 2 027 236 | 31 May 2010 | R4,67 | |||||
| James Henry Ferreira Botes (Dr)* | 1 370 904 | 31 May 2010 | R4,67 | |||||
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| As a result of the subdivision of the ordinary shares on a two-for-one basis during the listing process, the number of SARs allocated was doubled accordingly. | ||||||||
b. |
Vesting |
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| The SARs allocated as part of the initial allocation will vest in three equal tranches on the expiry of three, four and five years from 31 May 2010. | ||||||||
c. |
Performance criteria |
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| No performance criteria have to be met prior to the vesting of the SARs relating to the initial allocation. | ||||||||
d. |
General |
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| The SARs relating to the initial allocation was allocated to Executives as part of the MPCRE of the Group and should not be taken into consideration in determining future allocations of SARs to such Executive in accordance with the SAR Scheme. | ||||||||
2. |
Second allocation |
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| Further, in lieu of bonus payments during the 2010 financial year, a second allocation of SARs under the SAR Scheme took place. | ||||||||
a. |
Total number of SARs allocated, allocation date, allocation price and exercise of SARs |
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| Number | Allocation date | Allocation | Total | |||||
| of SARs | price | number | ||||||
| allocated | of SARs | |||||||
| exercised | ||||||||
| as at | ||||||||
| 30 June | ||||||||
| 2012 | ||||||||
Executive Directors |
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| Johann Hendrik Vorster | 800 000 | 18 August 2010 | R0,00 | – | ||||
| Hermanus Bernardus Roode | 400 000 | 18 August 2010 | R0,00 | 133 333 | ||||
| Louis Jacques Botha | 400 000 | 18 August 2010 | R0,00 | 133 333 | ||||
| Christiaan Philippus Lerm (Dr) | 133 336 | 18 August 2010 | R0,00 | 44 446 | ||||
Other Executives |
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| Hendrikus Lubbe | 133 332 | 18 August 2010 | R0,00 | 44 444 | ||||
| James Henry Ferreira Botes (Dr) | 133 332 | 18 August 2010 | R0,00 | 44 444 | ||||
b. |
Vesting |
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| The SARs allocated as part of the second allocation will vest in three equal tranches on the expiry of one, two and three years from 18 August 2010. | ||||||||
c. |
Performance criteria |
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| No performance criteria have to be met prior to the vesting of the SARs relating to the second allocation. | ||||||||
d |
General |
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| Certain of the Executives exercised the SARs that vested on 18 August 2011 in relation to the second allocation. | ||||||||
3. |
Third allocation |
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a. |
Total number of SARs allocated, allocation date and allocation price |
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| Number | Allocation | Allocation | ||||||
| of SARs | date | price | ||||||
| allocated | ||||||||
Executive Directors |
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| Johann Hendrik Vorster | 821 256 | 1 July 2011 | R11,00 | |||||
| Hermanus Bernardus Roode | 478 979 | 1 July 2011 | R11,00 | |||||
| Louis Jacques Botha | 404 063 | 1 July 2011 | R11,00 | |||||
| Christiaan Philippus Lerm (Dr) | 1 119 | 1 July 2011 | R11,00 | |||||
Other Executives |
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| Hendrikus Lubbe | 57 778 | 1 July 2011 | R11,00 | |||||
| James Henry Ferreira Botes (Dr) | 330 723 | 1 July 2011 | R11,00 | |||||
b. |
Vesting |
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| The SARs allocated as part of the third allocation will vest in full after the expiry of three years from 1 July 2011. | ||||||||
c. |
Performance criteria |
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The following performance criteria will have to be met prior to the vesting
of the SARs relating to the third allocation and all subsequent allocations:
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d. |
General |
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| In the event that the aforementioned performance criteria are not met prior to the vesting of the SARs, such portion of the allocated SARs eligible for vesting will be forfeited. Also, all SARs allocated relating to the third allocation and all subsequent allocations, which 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. | ||||||||
4. |
Allocation to newly appointed Executive |
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a. |
Total number of SARs allocated, allocation date and allocation price |
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| Executives | Number of SARs | Allocation date | Allocation price | |||||
| allocated | ||||||||
| Elton Ronald Bosch | 953 620 | 1 June 2012 | R13,50 | |||||
b. |
Vesting |
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| The SARs allocated as part of this allocation will vest in three equal tranches on the expiry of three, four and five years from 1 June 2012. | ||||||||
c. |
Performance criteria |
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| No performance criteria have to be met prior to the vesting of the SARs relating to this allocation. | ||||||||
d. |
General |
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| The primary purpose of the allocation to Mr ER Bosch is to serve as a retention mechanism therefore no performance criteria have to be met prior to the vesting date. | ||||||||
Early vesting of initial SARs allocation
The Remuneration Committee resolved during the financial year under review (in accordance with paragraph 6.1.1.5 of the rules governing the SARs Scheme) that all SARs allocated to Mr HB Roode during the MPCRE of the Group (known as the initial allocation) will vest on 30 June 2013 (irrespective of whether the vesting dates thereof have been reached).
It should be noted that Mr HB Roode will be retiring due to medical reasons on 30 June 2013.
Hedging of SARs
The third allocation of SARs has been hedged. Refer to note 14.2 to the annual financial statements for further details.
Employment contracts for Executives
During the financial year under review all Executives entered into new employment contracts whereby the notice period for termination of the contract was amended from one month to six months.
Loans to Executives
As part of the MPCRE on 31 May 2010 (and 4 November 2010 with regard to Dr JHF Botes) respectively, the Executives subscribed and shareholders of the Company approved the allotment and issue to them of 9 350 000 (on 31 May 2010) and 250 000 (on 4 November 2010 with regard to Dr JHF Botes) ordinary shares at a subscription price of R9,34 per share, with a portion of the subscription price being lent to the Executives. However, the aforementioned allotment and issue sets out the position prior to the subdivision of shares approved on 4 November 2010.
For full details of the MPCRE please visit our website on www.clover.co.za.
The salient features of the loan and cession agreements entered into between the executives and the Company are set out below:
- As security for the indebtedness, the Executives have ceded to the Company the ceded rights (defined as being all rights, title and interest in and to the proceeds in respect of the ordinary shares (issued to them as referred to above) and from the preference shares acquired through the Clover preference shares scheme in respect of the proceeds (defined as being dividends, special distributions, redemption proceeds and any proceeds as a result of a disposal or sale of either the ordinary and/or preference shares referred to above, or any part thereof).
- Interest shall accrue on the outstanding balance of the loan amount at an interest rate equal to 90% of the prime interest rate charged from time to time by Absa Bank Limited.
- If an Executive leaves the employ of the Company for any reason whatsoever, he shall be obliged to repay the loan amount and interest or the balance thereof, within two months after termination of his employment.
- If an Executive dies, the loan amount and interest or the balance thereof, shall be repaid to the Company within six months after his death.
It should be noted that the aforementioned loan agreements have been amended to make provision for a final repayment date of the respective loans linked to the normal retirement date for each of the Executives.
The table below reflects the outstanding balances of the loans on 30 June 2011 and 30 June 2012 respectively.
| Loan | ||
|---|---|---|
| Executive Director/ | ||
| Other Executives | 30 June 2012 | 30 June 2011 |
Executive Director |
||
| JH Vorster | R25 822 256 | R26 509 496 |
| HB Roode | R11 620 942 | R19 176 720 |
| CP Lerm (Dr) | R11 717 994 | R12 037 292 |
| LJ Botha | R5 330 249 | R5 635 941 |
Other Executives |
||
| H Lubbe | R929 989 | R1 000 606 |
| JHF Botes (Dr) | R2 452 661 | R2 411 574 |
| Total | R57 874 091 | R66 771 629 |
| The value of the ordinary and preferences shares forming the basis of the loan and cession agreements referred to previously is well in excess of R250 million. Calculated on an ordinary share price of R13,50 and a preference share price of R2,90. | ||
Remuneration approach for Non-executive Directors
It is the Group’s policy to attract Non-executive Directors who can add significant value to Clover. For this reason, non-executive fees are competitive and at the upper quartile. Attendance fees are only paid for actual committee meetings attended. Further the Chairman of the Board, Mr JAH Bredin, and the Lead Independent Director, Mr TA Wixley will not receive additional remuneration should they serve on any subcommittee as they receive a fixed annual fee.
The fees payable to Non-executive Directors for the 2013 financial year will be proposed for consideration and approval at the 2012 annual general meeting.
Total remuneration and benefits payable to Directors and prescribed officers
The Board considered the requirements of the Companies Act with regard to the disclosure of the remuneration of Directors and prescribed officers. After careful consideration it was concluded that all members of the Executive Committee will be deemed to be prescribed officers.
A complete table setting out the total remuneration of Directors and prescribed officers can be found in note 33 to the annual financial statements, of this Integrated Annual Report.
Dr Steve Booysen
Independent Non-executive Director
