Governance, risk and compliance, and remuneration reports
Report on remuneration
Clover’s Group Remuneration Policy (the “Remuneration Policy”) summarises the Board’s evolving approach to and application of principles that will sustainably balance the attraction and retention of key or specialised skills with optimal investor returns.
Clover’s board is responsible for setting executive remuneration and oversees emoluments across the organisation. The backdrop against which Clover’s Remuneration Policy is set is continuously evolving, driven by macro- and socio-economic factors, regulation and practical considerations.
In working to balance the dual objectives of attracting and retaining scarce or specialist skills whilst optimising shareholder returns, it is the Remuneration Committee’s duty to ensure that Clover’s Remuneration Policy articulates and practically gives effect to fair, responsible and transparent remuneration.
This report ultimately aims to provide all stakeholders, and specifically shareholders, with sufficient information to make informed decisions when casting their non-binding vote on Clover’s Remuneration Policy.
This Remuneration Report applies to the period 1 July 2016 to 30 June 2017 and complies with the King III recommendations on remuneration. The report should be read in conjunction with note 33 to the Annual Financial Statements included in this Integrated Report, which contains various statutory disclosures regarding Clover’s remuneration.
Additional information is available in Clover’s letter of appointment, disciplinary code, ethics policy, employment legislation, such as the Labour Relations Act, and the Basic Conditions of Employment Act, as well as Clover’s amended short- and long-term incentive scheme rules.
King IV was released in November 2016 and builds on the current principles contained in King III, aligning shifts in the approach to capitalism towards inclusive, integrated thinking across all six capitals, new governance structures, emerging risks and opportunities from new technologies and new reporting and disclosure requirements.
Complying with King IV is a JSE Listings Requirement which is effective for financial years commencing from 1 April 2017, but only with regard to Integrated Reports to be published after 1 October 2017. The Remuneration Committee has concluded a gap analysis and no material concerns or insufficiencies were identified regarding Clover’s current disclosure and application of principles. The new reporting requirements will be adopted during the current reporting period and disclosed in the amended Report on Remuneration for the period ending 30 June 2018.
Letter to shareholders
Introduction
On behalf of the Remuneration Committee and the board, I am pleased to present the Remuneration Report (including Clover’s Remuneration Policy) for 2017.
Background
Clover listed on the JSE in December 2010. It has a proud legacy as one of South Africa’s oldest companies, having evolved from a dairy co-operative to one of the country’s largest manufacturers and distributors of ambient and chilled branded food and beverage products. Today, Clover is the most reputable company in South Africa (as voted for two years running).
Although Clover converted to a public company in November 2003, the natural evolution to align traditional performance measures against those applied by the capital markets in valuing constituents of the sector has been ongoing since its JSE listing.
A limited listed peer group against which to benchmark financial and operating performance is proving a challenge to the board and investors alike, which is further compounded by the disconnect in the investment appetite of market participants with a short-term view versus Clover’s approach towards creating sustained value over the medium- to longer-term. Misconceptions around the vesting of share appreciation rights following Clover’s capital restructuring as approved by shareholders on 31 May 2010 created further discussion points.
To address the above issues, Clover’s Remuneration Committee initiated discussions with key shareholders as far back as 2012. On the back of these rigorous meetings, PricewaterhouseCoopers was appointed to conduct a review and benchmarking exercise of executive emoluments and structures.
The outcomes and implemented recommendations of their report were shared with key stakeholders and formed the cornerstone for further discussions with shareholders on approval of the amended Clover Remuneration Policy. The subsequent outcome of the vote at the annual general meeting in November 2015 was disappointing and deeply concerning, to say the least, when 41.69% of shareholders voted against the amended policy.
We understood how crucial it was to meet with our investors face-to-face to understand their specific views and concerns – some of which were irreconcilable. Following our subsequent remuneration roadshow in 2016, we consolidated feedback from key investors and made further recommendations to the Clover Board for specific targets and measurements specifically relating to the long-term incentive plan applicable to Executives to be revised. These recommendations were approved and, supported by the Clover Company Secretary, we re-engaged with institutional investors and entered robust debates around the rationale and practicalities of our revised Clover Remuneration Policy.
I am happy to report that we could clarify and move past the roadblocks that faced us in 2015, as is evidenced by the overwhelming approval of the Clover Remuneration Policy at our 2016 annual general meeting, where 99.94% of shareholders voted in favour of our revised approach.
The key targets and measurements applied in the year under review are contained on pages 83 to 85 of the Remuneration Report.
Salary review
Given the tough economic operating environment, low economic growth forecasts, rand weakness, subdued consumer spending and the effects of one of the most severe and protracted droughts in recent history, Clover will have to continue driving cost efficiencies to remain sustainable.
Keeping our products affordable plays a very important role in helping the Company defend and maintain its existing market shares across categories.
Notwithstanding the fact that executive management and other senior management volunteered for a salary-freeze in the prior reporting year, the Remuneration Committee has decided that salary adjustments for employees in the Paterson Band C and above, be capped at 5% for the 2018 financial year, in line with current headline inflation of between 5.1% and 5.3%.
| Job grade | 2016 increase (%) | 2017 increase (%) |
| F | No increases | 5 |
| E | No increases | 5 |
| D4 and D5 | 3 | 5 |
| D1 to D3 | 4 | 5 |
| C | 6 | 5 |
| A and B | 7.5 | Ongoing wage negotiations |
Short-term incentive (STI) bonuses
Executives’ participation in STIs are linked to the achievement of profit growth targets and personal performance measures in the ratio indicated in the table set here.
For Executives, the individual performance portion of the STI is based on specific key performance indicators approved annually by the Remuneration Committee and includes leadership and team building, optimising the brand portfolio, increase market shares through sales and distribution achievements, successful completion of capital projects, mergers, acquisitions and rest of Africa, employment equity and investor relations.
The individual performance component of the STI as determined through the normal performance management process has been allocated to all qualifying staff in Patterson B and C5 to E band.
Clover experienced an exceptionally difficult financial year where the impact of the drought, a low-growth economy and increasing pressure on consumers’ discretionary spend resulted in profit targets not being achieved.
As a result, all STI bonuses related to profit targets were not awarded as the relevant targets were not achieved.
The Remuneration Committee (after reaching mutual agreement with the Executives) have decided that as a result of the poor financial performance of the Company to also not pay any STI bonusses which were linked to the specific key individual performance indicators, despite the fact that a substantial portion of these individual performance indicators have been met during the year under review by the Executives.
Long-term Incentive (LTI) bonusses
Vesting of 6th allocation of Share Appreciation Rights
Individual Performance
After due consideration of the recommendations from the Chief Executive, the Remuneration Committee confirmed of the individual performance targets for each participant. Subsequently, full vesting of the individual performance portion of the 6th allocation of SARs has been achieved.
Financial Performance
Following information received from Management on the achievement of the financial performance conditions in respect of the 6th allocation of SARs, the Remuneration Committee is satisfied that the financial performance conditions were not achieved and subsequently no vesting will take place.
Conclusion
The board believes that the restructuring of Clover’s business will allow it to focus completely on developing and selling higher margin, value added branded products in dairy and other related food categories and to eliminate exposure to the cyclicality of its non-value added dairy business.
This is expected to further align the Group’s performance with measures applied by the market, including headline earnings per share, return on equity and normalised attributable profit.
