CLOVER’S REMUNERATION POLICY
Remuneration philosophy and terms of reference
The overriding objective of Clover’s Remuneration Policy is to drive value by balancing the attraction and retention of key skills with sustainable generation of returns on investment for shareholders and stakeholders.
The Remuneration Policy is regularly reviewed against international best practice to establish remuneration practices that are fair, reasonable and market related. It is designed to align the long-term interests of executive and senior management with the interests of shareholders by combining short-term remuneration with longer term incentives.
Clover’s Remuneration 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 consider Clover’s size, complexity of the business and the competitive environment
- Remuneration should support Clover’s vision to be the most admired branded consumer goods company in South Africa and other emerging markets by attracting and retaining appropriate talent
- Remuneration should correlate directly with Clover’s growth objectives, financial performance targets and actual achievements
- Remuneration should be reviewed and benchmarked regularly through independent service providers to ensure that Clover remains competitive in its diverse markets. Percentiles should not be rigidly applied, but must take into account industry type, skill scarcity, performance and legislative structures and requirements
- Remuneration should motivate and allow for differentiation by rewarding high performers
- Remuneration levels should directly be influenced by individual contributions within roles and responsibilities.
GOVERNANCE
Clover’s Remuneration Committee is a sub-committee of the board and is responsible for setting the approach to, and governance of, remuneration matters. It determines the remuneration of executive directors, other executives and recommends the remuneration of non-executive directors to shareholders for approval.
Details of Remuneration Committee members, meetings held and attendance are set out in the directorate and management section of this integrated report, here. The Executive Committee determines and approves the remuneration structures for all non-executive employees in line with the structures set out below:
Remuneration mix
To align and drive activities that will unlock value throughout the Group, Clover’s remuneration structure comprises three components:
REMUNERATION MIX: GUARANTEED FIXED INCOME COMPONENT
The guaranteed fixed income component comprises:
- monthly salary
- compulsory benefits (e.g. retirement contributions)
- discretionary benefits (e.g. medical aid contributions)
- car benefits (managerial staff)
Employees on the Paterson Band C3 and below have the option of joining Discovery Health Medical Scheme or Umvuzo Medical Scheme and membership to such a scheme is optional. For Paterson C4 and above, membership to the Discovery Health Medical Scheme is compulsory.
Guaranteed fixed income benchmarking
Internal and independent benchmarking is performed regularly to ensure equity, fairness and market related base income.
The fixed income component is reviewed annually in May and is revised on 1 July of each year, following quarterly performance management reviews with each employee. To retain talent and adjust for market changes or employee promotions, interim reviews are also undertaken.
Clover’s employment profile is shaped by competencies, outputs and behaviour required for a specific position. The employment profile must align with the organisational structure and culture, with an appropriate employment grade assigned to the position.
Scarce skills
Scarce skills are defined as skills key to our business processes which are in high demand in the workplace. Clover identifies scarce skills annually and the strategy is adjusted to reduce business risk. If scarcity is as a result of a requirement for a specific combination of skill and experience, Clover will attempt to reduce business risk by building talent pools around incumbents with these scarce skill profiles.
The fixed-income component of this category is targeted at the top-end (90th percentile) of the market range to reduce the risk of losing highly specialised skills and experience. The fixed income component also includes a retention bonus of 8% of annual basic salary payable at the end of each financial year, provided that performance criteria are met.
There are currently 10 scheme participants (down from 16 in the previous period) classified as “S”-category, which are reviewed annually by the Executive Committee.
PATERSON GRADES IN RELATION TO FIXED INCOME, STIs AND LTIs
| Paterson Band | Guaranteed fixed income | Short-term incentive | Long-term incentive |
| B5 and lower | Base pay and benefits: 13th cheque | Not applicable | Not applicable |
| C1 to C5 | Base pay and benefits: 13th cheque | Merit bonus based on formal performance review. Short-term incentive scheme for selected Paterson Grade C5 employees | Not applicable |
| D1 to D5 | Base pay and benefits | Short-term incentive scheme | Long-term incentive scheme for selected employees (deferred profit share) |
| E | Base pay and benefits | Short-term incentive scheme | Long-term incentive scheme (deferred profit share) |
| F | Base pay and benefits | Short-term incentive scheme | Share appreciation rights scheme |
REMUNERATION MIX: ANNUAL SHORT-TERM INCENTIVE COMPONENT: CATALYST FOR ANNUAL PERFORMANCE
| Paterson Band | Individual performance weighting (%) |
Group profit weighting (%) |
Individual performance cap (%) |
Group profit
cap (%) |
Entitlement (months&rsquo base salary)# |
Max entitlement (months’ base salary)# |
Profit target |
| C5 | 66.7 | 33.3 | 100 | 200 | 1.5 | 2 | Operating profit |
| D1 – D2 | 50 | 50 | 100 | 150 | 2 | 2.5 | Operating profit |
| D3 – D5 | 33.3 | 66.7 | 100 | 175 | 3 | 4.5 | Operating profit |
| E* | 30 | 70 | 100 | 171 | 5 | 7.5 | Operating profit |
| Other executives(F) ¥ | 30 | 70 | 100 | 171 | 10 | 15 | Normalised attributable profit |
| Chief Financial Officer(F) | 30 | 70 | 100 | 171 | 10 | 15 | Normalised attributable profit |
| Chief Executive(F) | 30 | 70 | 100 | 171 | 12 | 18 | Normalised attributable profit |
STI MEASURES AND TARGETS
| Paterson Band | Measure | Target | Stretch target |
| C | Calculated as a percentage of annual basic salary | Individual performance rating of 4 or 5 for a merit bonus | Not applicable |
| D and E | Meeting specific key individual performance indicators agreed between employee and direct manager. Calculated on operating profit before restructuring costs. | Profit target triggered once 100% of target is reached | An additional 1% is added to the bonus for every 1% achieved over the profit target |
| F (Executive) | Meeting specific key individual performance indicators approved annually by the Remuneration Committee (see 2018 STI assessments and awards in the implementation report below).
Calculated using normalised attributable profit. |
Profit target is triggered once 100% of the profit target is reached | If profit exceeds target, all executives qualify for an additional 3.55% that will be paid for every 1% over the profit target |
STIs are self-funded as all bonuses are budgeted for in full before the Remuneration Committee approves the profit target annually. The final profit figure is confirmed by the Remuneration Committee and approved by the board on completion of the annual independent audit and is not necessarily linked to the budget approved by the board.
Incentives are paid Annually in September.
The Remuneration Committee has the sole and absolute discretion to make adjustments for extraordinary factors, taking into account external circumstances beyond the control of employees, such as cyclicality.
Performance reviews are scheduled quarterly with each employee to provide feedback and guidance on achieving of objectives that will steer towards the achievement of profit targets.
REMUNERATION MIX: LONG-TERM INCENTIVE COMPONENT
Long-term incentive scheme (LTI)
Employees on Paterson Band E and certain positions on Paterson Band D5 qualify to participate in Clover’s deferred bonus scheme. This LTI serves as a retention mechanism and aligns the Group’s sustained performance with a commensurate deferred profit share structure.
LTI measures and targets
| Measure | Bonus | Payment scheme | |
| Threshold | Normalised attributable profit target achieved as per budget |
20% of annual base salary |
Paid annually in three equal amounts commencing 12 months after entitlement |
| Target | Normalised attributable profit target achieved as per budget + 10% |
40% of annual base salary |
Paid annually in three equal amounts commencing 12 months after entitlement |
| Stretch target | Normalised attributable profit target achieved as per budget +20% Calculated using normalised attributable profit. | 60% of annual base salary |
Paid annually in three equal amounts commencing 12 months after entitlement |
SHARE APPRECIATION RIGHTS SCHEME (SAR SCHEME)
Purpose: To attract, retain, motivate and reward Clover’s executives (Paterson Band F) and other qualifying participants able to significantly influence Clover’s performance by aligning their interests with those of Clover’s shareholders.
The SAR scheme is governed according to the rules approved by Clover’s shareholders in November 2010, as amended from time to time. Clover’s SAR has been in effect for a decade. The Remuneration Committee has embarked on developing a new LTI-scheme that takes industry best practice, share liquidity, cyclicality and other factors into consideration.
Subsequent to the financial year-end, the annual top-up issue of SAR which were supposed to be issued on 30 June 2018 were only allocated on 12 September 2018 but have not been accepted by the participants due to the Company being in a closed period. In accordance with the JSE Listings Requirements. A formal announcement will be released on the Stock Exchange News Service once the participants accept the allocation. The SAR was allocated in accordance with the SAR measures and targets set out here of this Report. This will be the final allocation in terms of the current SAR plan although the plan will remain in place and may be used for other ad hoc allocations required by the Remuneration Committee.
SAR MEASURES AND TARGETS
The Remuneration Committee determines the eligibility criteria, quantum as well as the conditions governing all allocations. Seniority, work function and the participant’s ability to add value to Clover is taken into consideration.
SAR FIRST TIME ALLOCATION
The following market related formula is used to calculate the number of share appreciation rights a first-time participant may qualify for on the initial issue of SAR:
A=(BxC)/D
where:
| A | Total number of SAR to be allocated |
| B | Guaranteed fixed income component of the participant |
| C | Market related multiple: Other executives: 4 CFO: 6 CEO: 8 |
| D | The volume weighted average price of an ordinary share listed on the JSE over seven trading days immediately prior to the allocation date |
SAR subsequent allocation
With effect from 1 July 2012, the Remuneration Committee adopted a smoothed average face value allocation formula applicable to second and subsequent allocations:
A = (BxC)/D
where:
| A | Total number of SAR to be allocated | ||||
| B | Guaranteed fixed income component of the participant | ||||
| C |
|
||||
| D | The volume weighted average price of an ordinary share listed on the JSE over seven trading days immediately prior to the allocation date |
Control provisions
In respect of any SAR allocated to participants on or after 1 January 2014, if 30% of the entire issued share capital of Clover is acquired by any person or persons acting in concert (except for the Clover Milk Producers Trust and/or the participants), only the proportionate number of shares will vest with regard to:
| i) | the period of time that has lapsed between the allocation date and the vesting date at the time of the acquisition (whether directly or indirectly); and |
| ii) | the extent to which the performance criteria (if any) have been satisfied as at the date of the acquisition, as may be determined by the Remuneration Committee to be fair and reasonable to participants concerned. |
Not all of the SAR shall immediately vest. Should a dispute arise between the participants and the Remuneration Committee, such dispute shall be deferred to the board for determination, provided that, should such dispute not be resolved within a period of 60 days from referral to the board, the dispute shall be referred to the expert in terms of Section 15 of the SAR plan for final determination.
Refer here Clover’s 2017 integrated report for historic change in control provisions applicable to SAR issues pre-1 January 2014.
Period of vesting of SAR and performance criteria
The SAR Scheme rules provide that all SAR allocated on or after 30 June 2016:
- Will vest in full after the third anniversary of the allocation date, provided that all relevant performance criteria were met
- SAR that are vested already must be exercised by the participant on or before the fifth anniversary of the allocation of these SAR
- Unless it is an initial allocation or once-off retention allocation to a participant which should be exercised on or before the seventh anniversary of the allocation of these SAR
SAR performance criteria
Refer to pages 66 – 74 of Clover’s 2015 integrated report for information relating to the performance criteria applicable to SAR allocated prior to 30 June 2016.
All SAR allocated on or after 30 June 2016 are subject to the following performance criteria:
INDIVIDUAL PERFORMANCE CONDITION
30% of the allocation is subject to the achievement of individual performance targets, measured as the average over three years
30% vests at 70% performance and 100% vests at 90% performance:
| Performance | Weighting | Targets |
| Individual performance condition | 30% | Average individual performance measured over 3 years 30% vests at 70% performance 100% vests at 90% performance |
FINANCIAL PERFORMANCE CONDITIONS
70% of the SAR allocation is subject to achieving financial performance as measured by HEPS and ROE:
| Performance measure | Weighting | Threshold | Targets | Stretch target |
| HEPS | 35% | 30% vests if HEPS growth (over the performance period of 3 years) of CPI + 4% per annum is achieved | 65% vests if HEPS growth (over the performance period of 3 years) of CPI + 6% per annum is achieved | 100% vests if HEPS growth (over the performance period of 3 years) of CPI + 8% per annum is achieved |
| ROE | 35% | 30% vests if actual ROE is achieved in the base year* | 65% vests if actual ROE achieved in the base year* + 0.4% | 100% vests if actual ROE achieved in the base year* + 0.9% |
| * | Base year = year in which allocation is made |
| ** | Base year – will be calculated by taking actual ROE, excluding exceptional items, as at 30 June 2015 (13.5%) and applying a 0.3% annual incremental increase |
EXECUTIVE REMUNERATION
APPROACH
Executive remuneration structures (including those of executive directors and prescribed officers) comprise both guaranteed and various components as set out below. Clover’s remuneration philosophy seeks to align and link both short- and long-term incentives to the achievement of business objectives and delivering acceptable return on shareholders’ equity that supports Clover’s sustainability.
The Remuneration Committee utilises external independent market surveys and benchmarks to determine executive remuneration and benefits as well as the base and attendance fees for non-executive directors.
| Component | Type | Comprises | Objective |
| Guaranteed | Guaranteed fixed income | Base salary, benefits (car allowance, retirement and medical aid contributions | Commensurate with scope of position, experience and level of responsibility |
| Variable | Short-term incentive | Cash-based payments to an individual based on Group financial performance and individual performances over the preceding financial year | Rewards individual and profit performance. Refer to the STI table on here |
| Variable | Long-term incentive |
All cash and equity-based awards that accrue to an individual over time, based on the Group’s financial and individual performance over a financial period | Attract, retain and incentivise key incumbents to deliver exceptional individual and corporate performance over time, aligned to shareholder interests |
GUARANTEED FIXED INCOME COMPONENT
The Remuneration Committee has the discretion to determine executive guaranteed fixed income packages. Executives may participate in a defined contribution retirement fund and other benefits, including vehicle allowances, medical insurance, death and disability insurance, leave and recognition for service.
Short-term incentives (STIs) (variable)
Executives’ participation in STIs are linked to achieving profit growth targets and individual key performance measures. Refer here and the table here.
Long-term incentives (LTIs) (variable)
Executive LTIs comprise equity-based awards that serve as a retention mechanism. More information on targets and measures are available here, in particular the share appreciation rights scheme here which complies with JSE Listings Requirements. This scheme is currently under review.
Share dilution
SAR stipulates that the aggregate number of ordinary shares which may be acquired by executives may not exceed 16 million ordinary shares. At 30 June 2018, a total of 11 240 883 (30 June 2017: 11 240 883) ordinary shares have been issued to executives. The remaining balance available for issue is 4 759 117.
SARs allocations made during the year under review
Only the following SAR awards were made during the year under review.
On 1 November 2017 a first-time allocation of 1 000 000 SAR in respect of ordinary shares were made to and accepted by Mr FF Scheepers, Clover’s newly appointed Chief Financial Officer at an allocation price of R13.56 per share. This allocation will vest in three equal portions after the 3rd, 4th and 5th anniversary of the allocation date. No performance criteria need to be met before the SARs vest as set out above as this allocation is a retention-based allocation.
On 14 February 2018 a retention award of 200 000 SAR in respect of ordinary shares were made to and accepted by Mr J van Heerden, an executive director of a major subsidiary of Clover at an allocation price of R15.15 per share. This allocation will vest in three equal portions after the 3rd, 4th and 5th anniversary of the allocation date. No performance criteria need to be met before the SARs vest as set out above as this allocation is a retention-based allocation.
Hedging of SARs
Clover entered into a forward contract to purchase 1 824 195 Clover Industries shares to hedge a portion of the share appreciation rights issued to management. Refer to note 13 of the financial statements here for further details.
Executive employment contracts
A six-month notice period is required for terminating the contract of employment for executive directors.
Non-executive directors’ emoluments
Non-executive fees are competitive and ranked in the upper quartile to attract and retain specific skills and independent leadership that adds value to Clover.
Attendance fees are only paid for actual meetings attended. The Chairman and lead independent directors receive a fixed annual fee and does not receive any additional fees for serving on board sub-committees.
The fees payable to non-executive directors for the 2018 financial year will be increased by 4,5% from the fees paid during the year under review, subject to shareholder approval.
Engagement with shareholders
At each AGM, the remuneration policy is placed before shareholders for consideration and approval under the terms of an advisory non-binding vote.
In the event that 25% or more of the votes cast are recorded against either the remuneration policy resolution or the implementation resolution, then:
- The remuneration committee will engage with shareholders to ascertain the reasons for the dissenting vote. This will form part of the existing engagement process on remuneration matters which is already a standard feature of our annual engagement with key institutional shareholders
- The remuneration committee will make specific recommendations to the Board as to how the legitimate and reasonable objections of shareholders might be addressed, either in the Company’s remuneration policy or through changes in how the remuneration policy is implemented.
TOTAL REMUNERATION AND BENEFITS PAYABLE TO DIRECTORS AND PRESCRIBED OFFICERS
The board considered the requirements of the Companies Act and the recommendation of King IV™ with regard to disclosure of the remuneration of directors and prescribed officers. After careful consideration, board concluded that all members of the Executive Committee are deemed to be prescribed officers.
A complete table setting out total remuneration of directors and prescribed officers is available in note 32 to the financial statements here in this integrated report.
INTEREST OF DIRECTORS AND OTHER EXECUTIVES IN THE ORDINARY SHARE CAPITAL OF THE GROUP
A complete table setting out the interest of directors and prescribed officers in Clover’s ordinary share capital is available in note 32 to the financial statements here in this integrated report.
Loans to executives
Refer to page 87 of the 2017 integrated report for salient features of the legacy loan and cession agreements entered into between Clover and its executives, as well as to Clovers website (www.clover.co.za) for full details relating to the MPCRE.
The loan agreements have been amended previously to provide for final loan repayment dates based on the normal retirement date for each executive.
The value of the ordinary shares forming the basis of the loan and cession agreements of Dr JHF Botes is approximately R20 million.
| Other executives | 30 June 2011 |
30 June 2012 |
30 June 2013 |
30 June 2014 |
30 June 2015 |
30 June 2016 |
30 June 2017 |
30 June 2018 |
| JHF Botes | 2 411 574 | 2 452 661 | 2 536 148 | 2 572 487 | 2 625 130 | 2 612 441 | 2 585 373 | 2 725 273 |
|---|---|---|---|---|---|---|---|---|
| Total | 2 411 574 | 2 452 661 | 2 536 148 | 2 572 487 | 2 625 130 | 2 612 441 | 2 585 373 | 2 725 273 |
Dr Steve Booysen
Chairman: Remuneration Committee
26 September 2018
IMPLEMENTATION REPORT
This is Clover’s first implementation report in line with King IV™ requirements. The report details the outcome of the approved remuneration policy in the year under review. There were no deviations from the policy.
2018 GUARANTEED PACKAGE (GP)
The following increases to GP were implemented in the reporting period for executive directors and prescribed officers, where the new amounts were applicable from 1 July 2017 to 30 June 2018.
| Guaranteed package at 30 June 2018 R’000 |
Guaranteed package at 30 June 2017 R’000 |
% increase | |
| Executive directors | |||
| JH Vorster | 6 666 | 6 411 | 4% |
| ER Bosch (resigned 31 December 2018) | – | 3 981 | |
| F Scheepers (appointed 1 January 2018) | 4 080 | ||
| Prescribed officers (other executives) | |||
| H Lubbe | 4 058 | 3 864 | 5% |
| JHF Botes (Dr) | 4 095 | 3 899 | 5% |
| MM Palmeiro | 3 996 | 3 808 | 5% |
| J van Heerden | 3 415 | 3 089 | 10.5% |
| * | Mr ER Bosch resigned as Chief Financial Officer with effect from 01 January 2018. Mr F Scheepers was appointed as Chief Financial Officer with effect from 1 January 2018. |
2018 STI ASSESSMENT AND AWARDS
The committee’s assessment of the Chief Executive’s and Chief Financial Officers’ performance against targets set for the various elements of the STI are indicated in the table below:
| Group profit component | Individual component | |
| Range of final ratings | 0% | 0% – 100% |
| Description | The Group did not achieve its normalised attributable profit target of R404 million. The profit target is triggered once 100% of the profit target is reached. If profit exceeds target, an additional 3.55% for all executives will be paid for every 1% achieved over the target. |
Individual performance measures are based on specific key performance indicators approved annually by the Remuneration Committee. Weighting of individual KPIs will vary from the average reflected below. |
| Key performance ratings for CE and CFO | Performance |
| Chief Executive | |
| Strategy: Implementation |  |
| Strategy: Effectiveness of execution | |
| Brands and marketing: Optimise market share and profitability Brands and marketing: Development of new brands | |
| Execute agreed targets set for Project Sencillo | |
| Mergers, acquisitions and rest of Africa | |
| Leadership: Employment equity | |
| Leadership: Create a culture aligned to Clover’s ethics and vision | |
| Investor relations: Consistent and transparent communication | |
| Growth: Increase PAT | |
| Growth: Increase HEPS | |
| Growth: Increase ROE | |
| Transformation |  |
| Chief Financial Officer | |
| Risk management and legal: ensure proper corporate governance across operations and King IV™ implementation | |
| Risk management and legal: Internal audit results and improve Clover control environment | |
| Finance: Determine optimal working capital for the Group | |
| Finance: Determine optimal long-term finance for the Group | |
| Finance: Ensure accurate and timely financial reporting | |
| Finance: Grow HEPS | |
| Finance: Improve ROE | |
| Finance: Ensure maximum government incentives | |
| Investor relations: Arrange timeous and accurate investor roadshows | |
| Investor relations: Ensure quality of investor interactions and roadshows | |
| Transformation | |
| * | The Remuneration committee considered Clovers’ normalised results in the evaluation above. Please refer to Annexure II here for further detail on our normalised results. |
2018 LTI PERFORMANCE ASSESSMENT – SHARE APPRECIATION RIGHTS
(SARs)
(ALL EXECUTIVES AND QUALIFYING STAFF)
INDIVIDUAL PERFORMANCE
Full vesting of the individual performance portion of the 7th allocation of SARs has been achieved for the year under review.
Individual performance condition:
| Performance | Weighting | Minimum 30% | Maximum 100% |
| Average individual performance against KPIs over 3 years | 30% | 70% | 90% |
FINANCIAL PERFORMANCE
The financial performance conditions relating to the vesting of the 7th allocation of SAR have not been met and that subsequently no vesting will take place.
Financial performance condition:
| Metric | Weight | Minimum 30% |
Target 65% |
Maximum 100% |
Achievement | Result |
| HEPS growth | 35% | HEPS > CPI +4% | HEPS > CPI +6% | HEPS > CPI + 8% | HEPS < CPI +4% | Not met |
| ROE growth | 35% | = ROE in base year | = ROE in base year + 0.4% | = ROE in base year + 0.9% | ROE < in base year | Not met |
Annual top-up allocation of SARs
Subsequent to the year under review, the Remuneration Committee resolved to allocate the annual top-up issue of SARs which were supposed to be issued on 30 June 2018 only on 27 August 2018 but the allocation have not been accepted by the participants as at the 12th of September 2018 due to the Company being in a closed period. In accordance with the JSE Listings Requirements a formal announcement will be released on the Stock Exchange News Service once the participants accept the allocation.
The SAR was allocated in accordance with the SAR measures and targets set out here of this report. This will be the final allocation in terms of the current SAR plan although the plan will remain in place and may be used for other ad-hoc allocations required by the Remuneration Committee.
EXECUTIVE REMUNERATION SNAPSHOT AND SHARE DISCLOSURE TABLES
Details on total remuneration received and receivable by executive directors and prescribed officers for the year under review and the prior year comparative, as well as individual’s interests in the issued share capital of the Company are available in the notes to the annual financial statements, here in this report.
NON-EXECUTIVE DIRECTORS’ FEES
Details on fees received and receivable by non-executive directors for the year under review and the prior year comparative are available in the notes to the annual financial statements, here in this report.
Report on Remuneration
