Remuneration report

1. Message from the Remuneration committee chairman

During the past year, two significant events have shaped the work of the remuneration committee (the committee): the listing and unbundling of Motus and less than 75% of shareholders voted in favour of Imperial's remuneration policy (51,84%) at the AGM held on 30 October 2018. In response, the committee has engaged with relevant stakeholders and conducted a detailed review of the group's remuneration policy and implementation ahead of the 2019 AGM.

Details are included in section 2.

This process emphasised the importance of fair and transparent remuneration policies and practices at all levels of the organisation that are based on the achievement of clear performance goals and also consistent for the long-term strategic decision-making, which will lead to sustainable value creation.

Focus areas during the year

Following the work performed by the committee during the year, we believe that Imperial's core remuneration policy is still appropriate, but that it requires better alignment with the interests of shareholders and current best practice, including enhancing remuneration disclosures. We have thus made a number of material changes to the group's remuneration policy and the way we implement it, which are summarised below.

Long-term incentives (LTI)

  • We replaced the annual deferred bonus plan (DBP), which was not linked to performance conditions, with the conditional share plan (CSP), which is subject to performance conditions. These conditions incentivise long-term sustainable performance.
  • Performance conditions applicable to all LTI are now being disclosed and annual allocations for executives are capped at 100% of total guaranteed pay (TGP).
  • All LTI scheme rules were amended to provide for the reduction, forfeiture or clawback of scheme benefits in certain defined circumstances.
  • The number of participants in share schemes has also been reduced by more than 50%.

Short-term incentives (STI)

  • We revised executive STI performance conditions to clearly link executive STI with the group's strategy and to disclose these performance conditions for each executive, capped at a maximum of 150% of TGP for executive directors and 100% of TGP for prescribed officers.
  • The discretionary component of STI performance conditions for executives was reduced to 10% and the factors considered in exercising this discretion will be disclosed. The committee, however, retains the discretion to make downward adjustments to STIs where application of the STI formula results in outcomes which are not aligned to the actual performance of the company or where the outcome is clearly not in line with shareholder expectations.
  • Targets that focus on transformation now comprise 10% of the STI incentive for executive directors.

Executive minimum shareholding requirements (MSR)

  • We introduced MSR for executives and prescribed officers, effective 1 July 2019 with a phasing in period of five years.

More detail is provided on section 4.

The group undertakes regular benchmarking of the remuneration packages of the executive directors and senior staff members with the assistance of PricewaterhouseCoopers.

During the year, the committee further considered and approved:

  • The general composition of executive remuneration packages.
  • Executive STIs for the year.
  • Executive LTI awards capped at 100% of TGP.
  • The new CEO and CFO's remuneration given the change in their roles in the group.

On section 2 of this report, we provide more detail of the shareholder engagements that were conducted after the 2018 AGM, including the matters raised by such shareholders, and the resultant changes made to our remuneration policy and its implementation.

In keeping with the recommended practices contained in King IV, the committee will again table both the remuneration policy and the remuneration policy implementation of the group for approval by shareholders by separate non-binding advisory votes at the AGM on 30 October 2019.

It is our aim to ensure that our governance and disclosure relating to executive remuneration is transparent and that we do not compromise on performance criteria when external factors outside of our control stifle or enhance performance. Throughout the group, we attempt to compensate individuals fairly for a specific role, with due regard to their skills and performance.

The compensation of most of our unionised employees is determined collectively or based on sector norms. We strive to maintain positive day-to-day working relationships with our unionised employees, and to balance their right to industrial action with the rights of the group to conduct its activities.

Remuneration of the CEO and CFO

The group has only two executive directors, the CEO, Mohammed Akoojee, and the CFO, George de Beer.

Mohammed succeeded Marius Swanepoel as CEO with effect from 1 February 2019. He had been acting in the position of CEO of Imperial Holdings in addition to his role as CFO of Imperial Holdings from June 2018 until the unbundling of Motus in November 2018 and had been CEO designate of Imperial Logistics from the unbundling until his appointment as CEO of Imperial Logistics on 1 February 2019. His annual remuneration was benchmarked and adjusted to R10 000 000 with effect from 1 February 2019, which is in line with the previous CEO's remuneration after an inflationary adjustment. The adjustment also took into account his experience both within the group and before joining Imperial as well as contribution to value creation. His remuneration for the coming year will again be benchmarked against similar companies and adjusted accordingly.

Mohammed's STI for the 2019 financial year is capped at 150% of his TGP and is assessed against a combination of short-term financial performance, long-term strategic and other non-financial performance conditions.

During the year under review, Mohammed received an STI of R5 100 000 (51% of his TGP), which is significantly lower than last year as a percentage of his TGP due largely to the financial performance of the group during the year. Details of the extent to which each of the performance measures determining his STI were met is included in the remuneration policy implementation section of this report. In determining the strategy execution and discretionary portion of his STI, the committee considered Mohammed's performance in a difficult trading environment and swift action taken to address unsustainable businesses that are being discontinued, the strategic coherence of the business going forward and the various roles fulfilled during the year.

  CEO and CFO STI performance measures for F2020     Weighting  
  Group HEPS growth >5% up to 9%     30%  
  Group achievement of ROIC >1% up to 3% over WACC     30%  
  Operating profit growth >5% up to 9%     20%  
 

Strategy execution

  • A coherent integrated strategy that leverages group capabilities across regions
  • Expansion of African business into new regions, industries and capabilities
  • Expansion of distributorship and international freight management capabilities
  • Enhance technology and innovation in all businesses
  • Disposal of non-core assets and replacement of these with strategically aligned assets
     50%  
 

Transformation

  • Establish the foundations for the one Imperial strategy
  • Enhance transformation and diversity across all operations
  • Promote an inclusive culture
  • Improve race and gender representation
  • Implement a strategy to attract, develop and retain talent
     10%  
 

Discretionary

  • Matters which are outside the other performance measures above and could not be anticipated when setting measures for the year
     10%  
  Maximum as percentage of fixed compensation     150%  

George de Beer was appointed as CFO with effect from the unbundling of Motus in November 2018. He had previously been the divisional CFO of Logistics. His remuneration was benchmarked prior to unbundling and adjusted to R5 080 000. His remuneration in the coming year will again be benchmarked against similar companies and adjusted accordingly.

George's STI for the 2019 financial year is capped at 150% of his TGP and is assessed against a combination of short-term financial performance, long-term strategic and other non-financial performance conditions.

In the year under review, George received an STI of R1 750 000 (35% of his TGP), which is largely a reflection of the financial performance of the group during the year. Details of the extent to which each of the performance measures determining his STI were met is included in the remuneration policy implementation section of this report. In determining discretionary portion of his STI, the committee considered George's rapid adjustment to the role of CFO of a listed company and role in the identification of and accounting for unsustainable businesses that are being discontinued.

The F2020 STI performance measures for the CFO are the same as those applicable to the CEO set out in the table above.

Non-executive director's fees

Fees are benchmarked regularly, and the current fees are considered to be in line with those paid by peer companies of a similar size and complexity to Imperial. Shareholders approved the fees for the year from 1 July 2019 to 30 June 2020 at the AGM of 30 October 2018 and no change is proposed to those fees except those relating to divisional finance and risk committees. An inflationary increase of 5% is proposed in respect of fees for the period from 1 July 2020 to 30 June 2021. In light of the increasing expansion of the group outside of South Africa and the consequent appointment of directors based outside of South Africa, a conversion factor of fees for foreign directors is also proposed.

Summary

The committee has made material changes to Imperial's remuneration policies and the way we implement these during the year. We are of the view that the resulting policy represents a healthy balance between the interests of shareholders and the company on one hand, and the executives on the other, and supports long-term sustainable value creation in the group aligned with its strategy. We value the views of shareholders and welcome any comments and suggestions which would assist us in further improving our policies and frameworks in future.

Roddy Sparks

Remuneration committee chairman

13 September 2019

2. Remuneration policy and implementation engagement

Introduction

At the 2018 AGM, 84,24% of shareholders voted in favour of the group's remuneration policy, down on the 93,67% in the previous year. However, only 51,84% of shareholders voted for the implementation of the remuneration policy, which was a significant concern.

Although a non-binding advisory vote, the board continues to take account of the views expressed by shareholders in its deliberations and remains deeply committed to responsible conduct, sound governance and transparency regarding executive compensation.

In line with its stated policy and King IV, that if 25% or more of the votes exercised at the AGM are against the remuneration policy and/or its implementation, the board embarked on a programme of engagement with shareholders to ascertain the reasons for the dissenting vote. The board deliberately extended this process beyond just the implementation of our remuneration policy and included the policy itself.

As a result, we implemented measures, detailed in the chairman's letter and elsewhere in this report, aimed at addressing valid objections and concerns raised during our engagement with shareholders.

Process

Shareholders and other interested parties were advised in a SENS announcement published on 30 October 2018, that Imperial had commenced a process to engage with concerned shareholders, who were invited to connect with the group in writing by submitting questions or comments. No written submissions were, however, received through this process other than from shareholders and interested parties with whom the board had engaged prior to the AGM.

The board, through its chairman and the chairman of the remuneration committee, pro-actively contacted and engaged with its top 10 shareholders (with the exception of only one shareholder who declined an engagement), as well as with a few shareholders with smaller shareholdings. Meetings were held with these shareholders, either in person at their offices, or via teleconference. The board also noted the recommendations of Institutional Shareholder Services (ISS), a proxy advisory service based in the UK, recommending a vote against the implementation of the group's remuneration policy, and engaged with ISS via teleconference.

Concerns raised and actions implemented

Although engagement focused primarily on the implementation of the group's remuneration policy, broader policy issues were also raised and considered. Concerns raised by shareholders and corrective action implemented are summarised in the table below:

Shareholder concern     Comment     Action
The vesting of share instruments on resignation of a previous CEO, Mr MJ Lamberti, should have been reduced given an adverse court judgement against him.     The vesting had been a result of the application of the scheme rules and most of the awards related to an agreed remuneration structure in which the CEO received little or no cash remuneration over a period of four years, but rather share instruments that vested in the future.    
  • CEO remuneration is now structured in line with current policy. Accordingly, except for LTI, the CEO is paid in the year to which the remuneration relates.
  • Share scheme rules were amended to provide for reduction, forfeiture of shares and clawback in certain circumstances.
The CSP allocated on unbundling did not disclose related performance conditions. Furthermore, these awards were for large amounts.     CSP were awarded as a once-off measure to incentivise management to achieve stretch performance targets in the five years post the unbundling of Motus.    
  • Performance targets were disclosed in detail on SENS and again later in this report on section 4.
DBP awards are not subject to performance conditions and shareholders are of a view that all LTI awards should be performance linked.    
  • The remuneration committee considered shareholder feedback that all LTIs should be subject to performance conditions
    
  • No further DBP awards will be made.
  • Annual benchmark LTI allocations will all be performance-based SAR or CSP or a combination thereof.
  • Related performance conditions are disclosed in this report on section 4.
Shares held by executives should not be matched but a minimum shareholding requirement (MSR) should be introduced.    
  • MSR is not commonly applied in South Africa but is emerging as best practice.
    
  • MSR have been introduced for executive directors and prescribed officers, with a phasing-in period of five years.
Short-term incentives as disclosed in the unbundling circular and paid on unbundling are not supported.    
  • The incentives were related to the very exceptional nature of the unbundling.
    
  • All future incentives will be linked to disclosed performance conditions.
Remuneration policy and implementation should be clear and transparent.          
  • Disclosure in this report has been significantly enhanced.
  • STI is linked to performance and strategy.
  • The discretionary element of STI has been significantly reduced and related disclosure improved.
STI and LTI should be aimed at enhancing long-term value creation without sacrificing short-term performance.    
  • Engagement with shareholders emphasised the importance of long-term strategy execution.
     STI performance conditions have been revised to include short-term performance measures, longer-term strategic measures and non-financial measures while all LTI are now subject to long-term performance conditions.
The social context in South Africa should be considered in formulating policy including pay gap, B-BBEE and safety.           Revised performance conditions were formulated after considering these factors, bearing in mind that more than 70% of the group’s revenue is earned from operations outside South Africa.

3. Governance

Committee chairman

The committee is chaired by RJA Sparks, who is also the lead independent non-executive director.

Role of the committee

The committee advises and guides the board on:

  • Accurate and transparent disclosure of directors and prescribed officers' remuneration.
  • The establishment and implementation of remuneration policies for non-executive directors, executive directors, prescribed officers and other executives, to ensure that the company remunerates directors and executives fairly and responsibly.
  • Approval of the general composition of remuneration packages and the criteria for executive bonus and incentive awards.
  • Increases to non-executive directors' fees.
  • Material changes to the group's pension and provident funds and medical aid schemes when appropriate.
  • Administration of share-based incentive schemes.
Committee chairman

At year-end, the members of the remuneration committee were RJA Sparks (chairman), P Langeni and T Skweyiya. All are independent non-executive directors, except for Ms P Langeni who is a non-executive director. Mr A Tugendhaft who was a member during the year resigned as a director and as a member of the committee on the unbundling of Motus. Mr GW Dempster will join the committee as a member from 1 January 2020 and Mrs T Skweyiya will step down as a member on 31 December 2019.

The group CEO and CFO attend committee meetings by invitation and assist the committee in its deliberations, except when issues relating to their own remuneration and performance are discussed. No director is able to decide his or her own remuneration.

Meeting attendance
  Member     Regular
meetings		  
  RJA Sparks* (chairman)     4/4  
  SP Kana^     2/2  
  P Langeni     4/4  
  A Tugendhaft^     2/2  
  T Skweyiya*     2/2  

* Independent non-executive director.
^ Resigned after the 2018 AGM.
# Joined the committee in November 2018.

2019 AGM

In keeping with the recommended practices contained in King IV, both the remuneration policy and the remuneration policy implementation of the group will be tabled for approval by shareholders by separate non-binding advisory votes at the AGM on 30 October 2019.

Should 25% or more of the voting rights exercised at the AGM be voted against the remuneration policy and/or the implementation the board will in good faith start:

  • An engagement with dissenting shareholders to ascertain the reasons for the dissenting votes.
  • Taking steps to address valid objections and concerns raised, which steps may include amending the remuneration policy or clarifying or adjusting remuneration governance and/or processes.

The board will also disclose:

  • The manner and form of engagement to ascertain the reasons for dissenting votes.
  • The issues raised by such shareholders.
  • The steps taken to address valid objections and concerns.

4. Remuneration policy

Determination of performance incentives

Imperial has various formal frameworks for performance management that are directly linked to either increases in total guaranteed pay or annual short-term incentive bonuses. Performance management and assessment sessions take place regularly throughout the group, where company performance, personal achievement of KPIs and delivery on key strategic imperatives are discussed.

Remuneration breakdown

The group's employees are key determinants of its success. Employee remuneration, particularly guaranteed pay, is a significant component of the group's total operating costs. The group's remuneration policy seeks to attract and retain quality employees at all levels. Remuneration is structured to be competitive and relevant in the sectors in which the group operates, and divisions review their remuneration policies regularly.

  Remuneration information – continuing operations only 2019       2018  
  Total number of employees 24 982       24 252  
  Total compensation paid to employees (Rm) 10 575       10 351  
  Total compensation as a % of revenue 21       21  
Salaried employees
  Cost to company   STIs       LTIs       Other benefits  
 
  • Total guaranteed package (TGP) is monitored and benchmarked on an ongoing basis.
  • Remuneration levels consider industries, sectors and geographies from which skills are acquired or to which skills are likely to be lost, the general market and the market in which each business operates.
  • TGP and the mix of fixed and variable pay are designed to meet each business’ industry, operational needs and strategic objectives, based on stretch targets that are verifiable and relevant.
  • The structure of remuneration for unionised employees is driven by collective bargaining and sectoral determinations.
  • General adjustments to guaranteed pay levels are effective from 1 July each year. In unionised environments, collective bargaining arrangements may come into operation at other agreed times.
  • Annual increase parameters are set using guidance from group budgeting processes, market movements, individual performance, the performance of the division and/or company and other relevant factors.
  • Increases above inflation depend on divisional or departmental and individual performance.
   Divisions pay short-term bonuses aligned to industry best practice and in some cases include a guaranteed bonus. However, in most cases bonuses depend on the performance of the individual and business in which they are employed. Performance criteria are set for each individual depending on the requirements of the job.       Only salaried employees at senior management level qualify for long-term incentives.       Company car (where applicable), travel allowances, pension and provident fund, medical aid (includes both regular and budget options).  
Employees paid by the hour
  Cost to company   STIs       LTIs       Other benefits  
 
  • Annual increases in remuneration and bonuses generally determined at industry level through collective bargaining and negotiations between the industry and trade unions.
  • The group aims to remunerate employees fairly and in line with sound business and remuneration principles, beyond the minimum wage. Increases for deserving employees are determined based on merit.
  • Where appropriate, employees receive ongoing training and promotion, with concomitant rate increases. These promotions are discussed and authorised by both supervisors and line management.
   Bonuses are determined annually in line with agreements signed with various unions. Where appropriate, certain individuals are awarded additional bonuses in line with their individual performance. These bonuses are reviewed and approved by divisional management.       No LTIs.       Pension and provident fund (compulsory), and medical aid (includes both regular, budget options and some hourly paid employees belong to bargaining council medical schemes and pension funds).  
Executive directors and prescribed officers

Policy

Executives are responsible for leading others and making significant decisions about the short and long-term operation of the business, its assets, funders and employees. They require specific skills and experience and are held to a higher level of accountability.

Imperial's remuneration policy is formulated to attract and retain high-calibre executives and motivate them to develop and implement the group's strategy to optimise long-term shareholder value. The group's remuneration policy also aims to align the entrepreneurial ethos and long-term interests of senior managers and executives with those of shareholders.

The remuneration policy is intended to conform to best practice. It is structured around the following key principles:

Total rewards
are set at levels that are responsible and competitive within the relevant market. 		    Incentive-based rewards
are capped and earned through the achievement of demanding growth and return targets consistent with shareholder interests over the short, medium and long term.		     Incentive plans, performance
measures and targets
are structured to operate soundly throughout the business cycle.		     The design and
implementation of long-term
incentive schemes
are prudent and do not expose shareholders to unreasonable financial risk.

Elements of executive remuneration

Executive remuneration comprises the following key elements:

1.     Fixed remuneration.
2.     Annual short-term incentives.
3.     Share-based long-term incentive and retention schemes.
4.     Other benefits may include vehicle benefits, pension or provident fund contributions, medical insurance, death and disability insurance.

The remuneration committee seeks to ensure an appropriate balance between the fixed and performance-related elements of executive remuneration and between those aspects of the package linked to short-term performance and those linked to longer-term shareholder value creation.

The group's general philosophy for executives? remuneration is that the performance-based pay of executive directors and senior managers should form a significant portion of their expected total compensation. There should also be an appropriate balance between rewarding operational performance (through annual incentive bonuses) and rewarding long-term sustainable performance (through long-term and/or share-based incentives).

1.     FIXED REMUNERATION
      Fixed remuneration is the TGP before STIs. The fixed remuneration of each executive is based on roles in similar companies, which are comparable in terms of size, market sector, business complexity and international scope. TGP is benchmarked against the median of the group.
      When determining fixed remuneration, factors taken into account include inflation and salary trends, group and divisional performance, individual performance and changes in responsibilities.
      Executive directors are entitled to vehicle benefits, pension or provident fund contributions, medical insurance and death and disability insurance. Providing these benefits is considered to be market competitive for executive positions and included in fixed remuneration.
2.     ANNUAL INCENTIVE
      All executives are eligible to receive a performance-related STI. The incentive is non-contractual and not pensionable. The committee reviews incentives annually and determines the level of each incentive payment based on performance criteria set at the beginning of the performance period.
      The criteria differ depending on the position of each executive and the division in which they operate. Criteria include:
     

Group return on invested capital (ROIC)

The base target for ROIC is achievement of 1% above the weighted average cost of capital (WACC) and the measurement pays on the gap between ROIC and WACC +1%.

    

Group normalised headline earnings per share (HEPS) growth

The measurement starts to pay out above a base target for HEPS growth.

Divisional ROIC

The base target for ROIC is achievement of 1% above WACC and the measurement pays on the gap between ROIC and WACC +1%.

    

Divisional operating profit

The measurement starts to pay out above a base target for profit before interest and tax (PBIT) growth.
Transformation:

Measurement of the executive committee members with group responsibility

This measurement is based on sub-measurements for the organisation as a whole and at divisional level:

  • Management control.
  • Employment equity.
  • Skills development.
  • Growth in black top, senior and middle management.
  • Implementation of a strategic talent management plan and the development of a three to five-year succession plan for key staff members.
    
Project based

Project-based incentives allow flexibility to nominate particular projects and allow for performance on non-quantitative aspects during the year to be taken into consideration. In the 2019 financial year, this included the unbundling of Motus. The remuneration committee has further discretion to authorise incentives for projects successfully completed during the year, which are awarded in exceptional cases. This will be based on performance conditions set before commencement of any projects. No such conditions have been set for executive directors.
Discretionary

This component allows the committee to make adjustments in circumstances which could not be foreseen at the start of the period or are not in the control of a particular executive. This component of STI has been reduced to a maximum of 10% out of 150% and the factors taken into account will be disclosed going forward.

    
Annual STI

The committee sets the minimum performance targets at which annual STIs become payable and the targets at which the maximum incentive is paid. STIs are capped at maximum levels as a percentage of TGP. The committee has a discretion to make adjustments to payments in exceptional circumstances where application of the formula will result in payments which are not aligned with shareholder expectations or fair remuneration practice.

      Maximum STI % of GTP  
Executive directors     150%  
Senior management     50% to 100%  
Other senior staff     20% to 35%  
3.     SHARE-BASED LTI AND RETENTION SCHEMES
      Executive participation in LTI and retention schemes is based on criteria such as seniority, performance during the year and retention drivers. Any senior employee with significant managerial or other responsibility, including any director holding salaried employment or office in the group, is eligible to participate in LTI schemes. Non-executive directors may not be awarded rights in any of the incentive schemes.
     

The group has three LTI plans:

  • Share appreciation rights (SAR) scheme.
  • Deferred bonus plan (DBP).
  • Conditional share plan (CSP).
Share appreciation rights

Selected participants receive annual grants of SAR, which are conditional rights to receive Imperial shares equal to the difference between the exercise price and the grant price. Vesting of all rights is subject to performance conditions set at the date of award being met and participants remaining employed with the group for the vesting period. The performance conditions and the performance period are determined by the board annually in respect of each new grant of rights.

The targets and measures relating to each issue are detailed in a letter of grant. After vesting, the rights may be exercised by a participant within four years after vesting; this was changed to two years. Upon exercise by a participant, the difference between the exercise price and the grant price is paid by:

  • Delivering Imperial shares that will be purchased on the open market, or
  • Delivering Imperial shares that will be purchased through call options (hedges), or
  • As a fall-back provision only, by the issue of new shares, or
  • Settling the value in cash.
Deferred bonus plan

Qualifying senior employees are required to purchase Imperial shares which are held in escrow by the company. On the condition that the participant remains in the employ of the group and retains the shares over a three-year period, a matching award of Imperial shares is made on vesting. A participant remains the owner of the shares for the duration of the three-year period and enjoys all shareholder rights in respect of the shares. Although shares can be sold by the participant at any stage, the matching award is forfeited in line with the level of sales of the shares.

In light of a general market move away from incentive instruments that are not performance linked, the board decided to make no further allocations of DBP and to replace the DBP with performance linked CSP allocations of equal value. Unvested DBP allocated in previous years will continue to vest in accordance with the rules of the DBP scheme with the last allocation made in 2018 vesting in 2021. A portion of matching shares will be applied to the MSR.

Conditional share plan

Employees receive grants of conditional awards and the vesting is subject to performance conditions. The performance conditions for the CSP are based on performance targets set by the board. The conditional awards entitle a participant to be settled in Imperial Logistics shares to the extent performance conditions have been met.

The current performance conditions applicable to annual CSP allocations are as follows:

  • ROIC between 1% and 3% in excess of WACC:                                      50%
  • HEPS versus peer group between 50th percentile and upper quartile:      50%

CSPs are only awarded to the most senior employees and will replace annual DBP performance awards for allocations from 1 July 2019.

Allocation of SAR and CSP

Allocations of SAR and CSP are made annually based on the following criteria:

  • Performance of the participant.
  • The job grading of the participant.
  • Long-term contribution of participants.

The quantum of allocations of SAR and CSP are calculated using a model developed by PricewaterhouseCoopers and is determined using the expected value of an allocation expressed as a percentage of TGP. The percentage allocated is determined based on the level of seniority of the participant, which also determines whether a participant receives both SAR and CSP or only SAR or only CSP.

The expected value of CSP is determined in the financial year of allocation based on a valuation methodology taking into account the average VWAP of the two days before the date of award, and the estimated achievement of related performance conditions. The expected value of SAR is determined in the financial year of allocation using a valuation methodology based on a valuation methodology taking into account the average VWAP of the two days before the date of award, the life of the instrument, the expected rate of share price growth and the estimated achievement of related performance conditions.

The eventual gains from long-term share-based incentives will vary from year to year depending on vesting and exercise patterns, as well as the impact on share price performance and external factors such as market sentiment, interest rates, commodity prices and exchange rates. On award, both the expected value and the face value are disclosed. The face value is based on the VWAP for the two days before the award date.

  Benchmark awards for SAR and CSP     Expected value as % of TGP  
  Executive directors and prescribed officers     100%  
  Senior management     50% to 70%  
  Other senior staff     20% to 35%  
Reduction, forfeiture and clawback of share scheme awards

Share scheme awards are subject to reduction or forfeiture (in whole or in part) if:

  • There is reasonable evidence of misbehaviour or material error by a participant, or
  • The financial performance of the group or the relevant business unit for any financial years in respect on which an award is based has subsequently appeared to be materially inaccurate, or
  • The group or the relevant business unit suffers a material downturn in its financial performance, for which the participant can be seen to have some culpability, or
  • The group or the relevant business unit suffers a material failure of risk management, for which the participant can be seen to have some responsibility, or in any other circumstances if the committee determines that it is reasonable to subject the awards of one or more participants to reduction or forfeiture.

Vesting of any awards may be postponed while there is an ongoing investigation or other procedure being carried out to determine whether the forfeiture provisions apply in respect of a participant, or if further investigation is warranted.

Termination of employment

Resignation or dismissal

If a participant's employment terminates due to resignation or dismissal on grounds of misconduct, poor performance or proven dishonest or fraudulent conduct (whether such cessation occurs as a result of notice given by the employee or otherwise or if he/she resigns to avoid dismissal on grounds of misconduct, poor performance or proven dishonest or fraudulent conduct) before the vesting date, all SAR, CSP and DBP awards will lapse, unless the board determines otherwise.

Retrenchment, death, ill health, disability or other reasons for cessation of employment

If a participant ceases to be an employee due to retrenchment, death, ill health, disability or reasons other than resignation or dismissal, a pro rata portion of the unvested SAR and/or unvested CSP and/or DBP to vest on the date of cessation of employment.

The pro rata portion of the SAR, DBP and CSP that vest reflect the number of months served since the date of grant and the extent to which the performance conditions have been satisfied. The balance of the unvested SAR, DBP and CSP will lapse.

Retirement

In the event of retirement at the normal age, SAR, CSP and DBP vest on the dates originally set, subject to fulfilment of performance conditions as if the participant continued to be employed.

Share buy-backs and hedges

The group buys back shares or purchases hedges to limit its exposure to deliver shares in terms of share-based LTI schemes. The group's liability for SAR awards is hedged through a combination of shares purchased and the purchase of call options, after allowing for attrition over the vesting period. DBP and CSP obligtor are hedged by the group with shares held in treasury for that purpose.

Minimum shareholding requirements

The group adopted a minimum shareholding requirement (MSR) for executive directors and prescribed officers in line with best practice developing in the market.

Each executive's MSR target is determined using the executive's fixed remuneration. The target must be achieved within five years from 1 July 2019 (or from joining in the case of new appointees), unless otherwise determined by the committee after considering market conditions and related factors. It is not the intention of the scheme to compel executives to incur debt to acquire Imperial shares but rather that executives should retain shares acquired through the share incentive schemes up to the MSR target.

Compliance with the MSR will be measured annually and executives subject to MSR will have to declare the extent of their personal shareholdings in the company at each year-end or as and when directed by the company. The committee will assess compliance with the MSR before making future discretionary LTI awards.

  MSR targets are set as follows        
  CEO     1,75 times fixed remuneration  
  CFO     1,50 times fixed remuneration  
  Prescribed officers     1,00 times fixed remuneration  
Retirement schemes

Executives participate in contributory retirement schemes which include pension and provident funds established by the group. Executive retirement is governed by their retirement scheme rules, subject to the ability of the company to enter into fixed-term contracts to extend the services of any executive within certain prescribed limits.

Non-executive directors' fees

The remuneration committee reviews and recommends to the board fees payable to non-executive directors. The board in turn makes recommendations to shareholders after considering the fees paid by comparable companies, responsibilities of the non-executive directors and considerations relating to the retention and attraction of high-calibre individuals. The group has decided to maintain a structure where directors' fees are not split between membership and attendance fees, as the efforts and contribution of non-executive directors goes well beyond their attendance at formal board or sub-committee meetings, and the group has not had significant instances of non-attendance of meetings.

5. Implementation of remuneration policy

Historical Imperial share schemes

Motus employees who had been awarded rights in Imperial's share schemes prior to the unbundling and separate listing of Motus continue to participate in those schemes. Upon exercise, their SARs will be settled by Motus in Motus shares and their DBP will be settled by Motus in Imperial and Motus shares. A total of 7 004 824 of such SAR remain unexercised at an average combined price of R152,64 per SAR. A total of 373 584 DBP remain unvested in the Imperial DBP scheme.

Total share scheme allocations

A total of 13 565 206 SAR allocated to Imperial employees before and after the unbundling of Motus remain unexercised in terms of the SAR scheme at an average combined price of R106,05 per SAR. A total of 677 194 DBP allocated to Imperial employees before and after the unbundling of Motus remain unvested. A total of 1 858 964 CSP remain unvested.

The SAR allocated since F2016 lapse two years after vesting. The core EPS performance measure was replaced by HEPS from the F2017 allocation.

Annual share scheme allocations

The group will be making annual F2019 allocations of SAR and CSP during September 2019 according to the allocation benchmarks in the remuneration policy.

The current performance conditions set for the F2019 allocations of SAR and CSP are the achievement of the following targets set by the committee:

  Performance condition     Percentage of award
subject to condition		  
  Growth in HEPS relative to the growth in HEPS of a peer group of sixteen JSE-listed companies     50%  
  ROIC exceeding WACC by 3%, over the performance period     50%  

An extensive review of the peer group of companies was conducted during the year with the assistance of PricewaterhouseCoopers and the peer group has been determined based on their independent advice, based on comparative metrics including revenue, number of employees, industry and complexity.

  Current peer group        
  AVI Limited     Consumer goods  
  Barloworld Limited     Industrials  
  Bidvest Limited     Industrials  
  Clicks Group Limited     Consumer services  
  Grindrod Limited     Industrials  
  Kap Industrial Holdings Limited     Industrials  
  Massmart Holdings Limited     Consumer services  
  Mr Price Group Limited     Consumer services  
  Pick n Pay Stores Limited     Consumer services  
  RCL Foods Limited     Consumer goods  
  Steinhoff African Retail Limited     Consumer services  
  Super Group Limited     Industrials  
  The Spar Group Limited     Consumer services  
  Tiger Brands Limited     Consumer goods  
  Truworths International Limited     Consumer services  
  Woolworths Holdings Limited     Consumer services  

The extent to which each performance condition has been met is determined on the vesting date as follows:

  HEPS growth over the performance period     % vest  
  If the HEPS growth of the company is below the lower quartile of the peer group     0% of SAR vest  
  If the HEPS growth of the company is below the 50th percentile of the peer group     0% of CSP vest  
  If the HEPS of the company is equal to the lower quartile of the peer group     30% of SAR vest  
  If the HEPS of the company is equal to the 50th percentile of the peer group     30% of CSP vest  
  If the HEPS of the company is equal to or above the upper quartile of the peer group     100% of SAR and CSP vest  

Linear vesting occurs between 30% and 100%, depending on the company’s performance relative to the peer group. Executive directors receive CSP only, which start to vest at the 50th percentile.

  ROIC     % vest  
  If the average ROIC for the company over the performance period is less than 1% more than the average WACC of the company over the performance period     0% of SAR or CSP vest  
  If the average ROIC over the performance period is equal to WACC plus 1% over the performance period     30% of SAR or CSP  
  If the average ROIC over the performance period is equal to or above the WACC plus 3% target     100% of SAR or CSP vest  

Linear vesting occurs between 30% and 100%, depending on the company’s performance if ROIC is between WACC plus 1% and WACC plus 3% the target of ROIC minus WACC has been adjusted upwards by 1% to take account of the increase in ROIC versus WACC following the impairment of goodwill in the F2019 year.

In addition to performance of the group, the minimum core EPS/HEPS and ROIC target threshold level takes into account the important objective of incentivising key employees during times when business conditions are challenging.

Exceptional CSP allocations

As previously disclosed, on the unbundling and separate listing of Motus, the group made exceptional CSP allocations to certain members of management who were viewed as essential to the continued success of Imperial in the future. The CSP is subject to performance criteria set out below. The awards were considered exceptional but warranted in the circumstances to serve both as a retention tool and an incentive aligned to the interests of shareholders. The awards were detailed in a SENS announcement published on 5 December 2018.

The cumulative performance conditions applicable to the exceptional CSP award are set out below:

  Condition     Target     Weighting  
  HEPS     Compared to peer group with 30% vesting if performance is above the lower quartile and 100% vesting if performance is in the upper quartile of the peer group.     35%  
  ROIC     2% over weighted average cost of capital.
0% vests if performance is below target.		     20%  
  Operating profit growth     Inflation plus twice GDP growth in primary territories, weighted for the operating profit contribution of each territory. 0% vests if performance is below target.     20%  
  Succession planning     Must be in place at each vesting date. The board must approve the adequacy of succession.     15%  
  Discretionary     To assess non-quantifiable performance over the vesting period.     10%  
Proposed non-executive directors' fees

At the AGM to be held on 30 October 2019, shareholders will be requested to approve the following increases in non-executive directors' remuneration by special resolution in terms of section 66(9) of the Companies Act, granting authority to pay fees for services as directors, which will be valid with effect from 1 July 2020 until 30 June 2021.

Shareholders approved the fees for the year from 1 July 2019 to 30 June 2020 at the AGM of 30 October 2018 and no change is proposed to those fees except those relating to divisional finance and risk committees. An inflationary increase of 5% is proposed in respect of fees for the period from 1 July 2020 to 30 June 2021.

In light of the increasing expansion of the group outside of South Africa and the resultant appointment of directors who are not South African, fees for foreign directors who are not South African and are based outside of South Africa are proposed in Euro, appropriate for directors based there to ensure the competitiveness of Imperial Logistics when considering the appointment of foreign directors with international expertise.

        Fees from
1 July 2019 to
30 June 2020		 Fees from
1 July 2020 to
30 June 2021		 Euro fee from
1 July 2019 to
30 June 2021		  
  Chairman*     R1 052 500 R1 100 000 €300 000  
  Deputy chairman and lead independent director*     R526 000 R552 000 €150 000  
  Board member     R301 000 R316 000 €86 500  
  Assets and liabilities committee chairman*     R192 000 R202 000 €55 000  
  Assets and liabilities committee member     R128 000 R135 000 €36 500  
  Audit and risk committee chairman*     R397 500 R417 000 €114 000  
  Audit and risk committee member     R198 000 R208 000 €56 500  
  Divisional board chairman*     R179 000 R195 000 €51 000  
  Divisional board member     R123 000 R130 000 €35 000  
  Divisional finance and risk committee chairman*     R148 500 R156 000 €42 500  
  Divisional finance and risk committee member     R99 000 R104 000 €28 500  
  Remuneration committee chairman*     R143 500 R151 000 €41 000  
  Remuneration committee member     R95 500 R100 000 €27 000  
  Nomination committee chairman*     R143 500 R151 000 €41 000  
  Nomination committee member     R95 500 R100 000 €27 000  
  Social, ethics and sustainability committee chairman*     R192 000 R202 000 €55 000  
  Social, ethics and sustainability committee member     R128 000 R135 000 €36 500  

* Fee paid in addition to a member’s fee.

In determining the proposed fees, cognisance was taken of market trends and the additional responsibilities of non-executive directors in terms of increased legal and governance requirements.

Executive directors receive no director or committee fees for their services as directors in addition to their normal remuneration as employees.

Non-executive remuneration

The table below provides an analysis of the emoluments paid to non-executive directors for the year ended 30 June 2019.

    Directors’
fees
R000		 Subsidiary and
sub-committee
fee
R000		 2019
Total
R000		       2018
Total
R000		  
  Non–executive directors                
  P Cooper 284 632 916       878  
  GW Dempster 284 1 015 1 299       1 180  
  SP Kana1 426 452 878       1 714  
  RM Kgosana2 – – –       236  
  P Langeni 946 1 002 1 948       975  
  MV Moosa1 95 234 329       552  
  ST Skweyiya 284 697 981       634  
  RJA Sparks 781 1 266 2 047       1 835  
  A Tugendhaft1 260 517 777       1 019  
  Y Waja3 – – –       290  
  Total 3 360 5 815 9 175       9 313  

1 Resigned at the 2018 AGM.
2 Resigned on 7 September 2017.
3 Resigned on 13 October 2017.

Remuneration paid to executive directors who retired or resigned during the year

M (Marius) Swanepoel – CEO: Logistics to 22 November 2018 and Imperial Logistics Group CEO to 1 February 2019

M Swanepoel retired as CEO of Imperial Logistics on 1 February 2019 and retired as executive director and from the board on 30 June 2019. His 2019 compensation relates to the role he played until his retirement in ensuring a smooth handover and continuity post his retirement.

2019 REMUNERATION (to 30 June 2019)                    
R000                        
Basic salary Retirement
and medical
contributions		 Other
benefits		 Unbundling
incentive		 STI Total
cash
remuneration		 Gains on
exercise of
LTI
awards		 2019
Total
taxable
remuneration		       2018
Total
taxable
remuneration		  
9 035 460 180 5000 – 14 675 5 769 20 444       27 204  

OS (Osman) Arbee – Imperial Holdings Group CEO from 1 May 2018 and divisional CEO: Motus

OS Arbee resigned as a director on 22 November 2018 upon the unbundling of Motus to take up the position of CEO of Motus.

2019 REMUNERATION (to 22 November 2018)                    
R000                        
Basic salary Retirement
and medical
contributions		 Other
benefits		 Unbundling
incentive		 STI Total
cash
remuneration		 Gains on
exercise of
LTI
awards		 2019
Total
taxable
remuneration		       2018
Total
taxable
remuneration		  
3 260 153 120 3 000 – 6 533 6 494 13 027       30 268  
Executive remuneration

The group remunerated its executive directors during the year as further explained below.

M (Mohammed) Akoojee – Group CEO                    
2019 REMUNERATION                    
R000                        
Basic salary Retirement
and medical
contributions		 Other
benefits		 Unbundling
incentive		 STI Total
cash
remuneration		 Gains on
exercise of
LTI
awards		 2019
Total
taxable
remuneration		       2018
Total
taxable
remuneration		  
8 954 466 120 6 000 5 100 20 640 3 085 23 725       22 787  

Fixed compensation and benefits

Mohammed's annual fixed compensation and benefits increased a number of times during the year as a result of his appointment as acting CEO of Imperial Holdings then as CEO designate of Imperial Logistics and finally to R10 000 000 upon his appointment as CEO of Imperial Logistics, effective 1 February 2019. He received total fixed compensation and benefits during the year of R9 540 000 (2018: R7 500 000). His remuneration will be externally benchmarked against companies with a similar size, complexity and geographic spread in the coming year.

STI

Mohammed received an incentive bonus of R5 100 000 (2018: R11 250 000), based on performance measures applicable to the group CEO.

  2019 measure     Weighting Performance
against target		  
  Group HEPS growth above 6%     30% 0%  
  Group achievement of ROIC from 3% over WACC     30% 0%  
  Operating profit growth above 6%     20% 0%  
  Strategy execution     30% 70%  
  Discretionary     40% 75%  
Maximum as percentage of fixed compensation     150% 51%  

In determining the strategy execution and discretionary portion of his STI, the committee considered Mohammed's performance in a difficult trading environment and swift action taken to address unsustainable businesses that are being discontinued, the strategic coherence of the business going forward and the various roles fulfilled during the year in Imperial Holdings and Imperial Logistics.

LTI

Mohammed received an annual 2019 allocation of 373 982 Imperial CSP in line with LTI award benchmarks for executive directors with an expected value of R10 700 000.

The CSP are subject to performance criteria set out below and will vest in September 2022.

 CSP performance conditions        
 Condition     Weighting  
ROIC between 1% and 3% in excess of WACC     50%  
HEPS versus peer group between 50th percentile and upper quartile     50%  

Mohammed received a once-off allocation of 460 900 CSP with an expected value of R30 000 000 upon unbundling of Motus. The CSP are subject to performance criteria detailed in the beginning of this section of the report and 25% will vest in November 2021, 25% in November 2022 and 50% in November 2023. This allocation was also disclosed in the 2018 remuneration report.

JG (George) de Beer – Group CFO                    
2019 REMUNERATION                    
R000                        
Basic salary Retirement
and medical
contributions		 Other
benefits		 Unbundling
incentive		 STI Total
cash
remuneration		 Gains on
exercise of
LTI
awards		 2019
Total
taxable
remuneration		       2018
Total
taxable
remuneration		  
4 409 492 179 2 000 1 750 8 830 – 8 830       7 786  

Fixed compensation and benefits

George was appointed as group CFO and executive director effective 22 November 2018 and received fixed compensation and benefits of R5 080 000 for the year. His remuneration will be externally benchmarked against companies with a similar size, complexity and geographic spread in the coming year.

STI

George received a STI of R1 750 000 (2018: R3 253 242), based on performance measures applicable to the group CFO.

 2019 measure     Weighting Performance
against target		  
 Group HEPS growth above 6%     30% 0%  
 Group achievement of ROIC from 1% over WACC     30% 0%  
 Operating profit growth above 6%     20% 0%  
 Strategy execution     30% 50%  
 Discretionary     40% 50%  
 Maximum as percentage of fixed compensation     150% 35%  

In determining the strategy execution portion of his STI, the committee considered George's role as CFO of Logistics: South Africa. In determining discretionary portion of his STI, the committee considered George's rapid adjustment to the role of CFO of a listed company and role in the identification of and accounting for unsustainable businesses that are being discontinued.

LTI and retention payments

George received an annual 2019 allocation of 202 719 Imperial CSP in line with LTI award benchmarks for executive directors with an expected value of R5 800 000.

The CSP are subject to performance criteria set out below and will vest in September 2022.

CSP performance conditions:

 Condition     Weighting  
 ROIC between 1% and 3% in excess of WACC     50%  
 HEPS versus peer group between 50th percentile and upper quartile     50%  

In addition, George received a once off allocation of 307 267 CSP with an expected value of R20 000 000 upon the unbundling of Motus. The CSP are subject to performance criteria detailed in the beginning of this section of the report and 25% will vest in November 2021, 25% in November 2022 and 50% in November 2023.

Prescribed officers' remuneration

Prescribed officers are persons, not being directors, who either alone or with others exercise executive control and management of the whole or a significant portion of the business of the company.

N (Nico) van der Westhuizen – CEO: South Africa                  
2019 REMUNERATION                  
R000                      
Basic salary Retirement
and medical
contributions		 Other
benefits		 STI Total
cash
remuneration		 Gains on
exercise of
LTI
awards		 2019
Total
taxable
remuneration		       2018
Total
taxable
remuneration		  
4 401 70 1 094 668 6 233 – 6 233       10 033  

Fixed compensation and benefits

Nico's fixed compensation and benefits for 2019 was R5 565 000, which included a long-service award of R795 000 included in other benefits in the table above.

STI

Nico received a STI of R668 000 (2018: R4 080 119).

 2019 measure     Weighting Performance
against target		  
 Group HEPS growth 6% and above     10% 0%  
 Group achievement of ROIC from 3% over WACC     10% 0%  
 Growth in black senior and middle management, BEE scorecard, succession and talent management     20% 20%  
 Divisional operating profit growth 6% and above     20% 0%  
 Divisional ROIC in excess of 3% over WACC     20% 0%  
 Strategy execution*     10% 0%  
 Discretionary#     10% 100%  
 Maximum as percentage of fixed compensation     100% 14%  

* In light of the ongoing concerns regarding CPG and the financial impact of the related exit this condition was not met.
# The discretionary portion took into account performance on the implementation of the closure of CPG ahead of schedule.

LTI

Nico received an annual 2019 allocation of 175 055 Imperial CSP in line with LTI award benchmarks for executive committee members with an expected value of R5 008 500.

The CSP are subject to performance criteria set out below and will vest in September 2022.

CSP performance conditions:

 Condition     Weighting  
ROIC between 1% and 3% in excess of WACC     50%  
HEPS versus peer group between 50th percentile and upper quartile     50%  

As noted in respect of other executives above, Nico received a once-off allocation of 238 132 CSP with an expected value of R15 500 000 upon unbundling of Motus. The CSP are subject to performance criteria detailed in the beginning of this section of the report and 35% will vest in November 2021 and 65% in November 2022, linked to Nico's planned retirement date.

J (Johan) Truter – CEO: African Regions                  
2019 REMUNERATION                  
R000                      
Basic salary Retirement
and medical
contributions		 Other
benefits		 STI Total
cash
remuneration		 Gains on
exercise of
LTI
awards		 2019
Total
taxable
remuneration		       2018
Total
taxable
remuneration		  
2 643 558 299 1 400 4 900 – 4 900       5 772  

Fixed compensation and benefits

Johan's fixed compensation and benefits for 2019 was R3 500 000. The remuneration for this position will be externally benchmarked against companies with a similar size, complexity and geographic spread commensurate in the forthcoming year.

STI

Johan received a STI of R1 400 000 (2018: R2 765 112).

 2019 measure     Weighting Performance
against target		  
Group HEPS growth 6% and above     10% 0%  
Group achievement of ROIC from 3% over WACC     10% 0%  
Growth in black senior and middle management, BEE scorecard, succession and talent management     20% 100%  
Divisional operating profit growth 10% and above     20% 0%  
Divisional ROIC in excess of 3% over WACC     20% 0%  
Strategy execution     10% 100%  
Discretionary*     10% 100%  
 Maximum as percentage of fixed compensation     100% 40%  

* The discretionary portion took into account the successful closure of key M&A transactions and the further consolidation of the key business areas of this division in challenging markets

LTI

Johan received an annual 2019 allocation of 164 272 Imperial CSP in line with LTI award benchmarks for executive committee members with an expected value of R4 700 000.

The CSP are subject to performance criteria set out below and will vest in September 2022.

CSP performance conditions:

 Condition     Weighting  
ROIC between 1% and 3% in excess of WACC     50%  
HEPS versus peer group between 50th percentile and upper quartile     50%  

In addition, Johan received a once-off allocation of 238 132 CSP with an expected value of R15 500 000 upon unbundling of Motus. The CSP are subject to performance criteria detailed in the beginning of this section of the report and 25% will vest in November 2021, 25% in November 2022 and 50% in November 2023.

H (Hakan) Bicil – CEO: International                  
2019 REMUNERATION                  
CHF000                      
Basic salary Retirement
and medical
contributions		 Other
benefits		 STI Total
cash
remuneration		 Gains on
exercise of
LTI
awards		 2019
Total
taxable
remuneration		       2018
Total
taxable
remuneration		  
434 78 9 434 955 – 955       –  

Fixed compensation and benefits

Hakan was appointed during the year and received fixed compensation and benefits of CHF521 225 for the 10 months of his employment, equalling an annual fixed compensation and benefits of CHF625 470. The remuneration for this position was externally benchmarked against similar positions in Europe, where he is based.

STI

Hakan received a guaranteed STI of CHF434 350, in terms of his employment agreement and in future, he is entitled to a guaranteed minimum short term incentive of 30% of his basic salary with the remainder of his STI linked to performance conditions.

LTI

Hakan received an annual 2019 allocation of 279 167 Imperial CSP in line with LTI award benchmarks for executive committee members with an expected value of CHF521 225.

The CSP are subject to performance criteria set out below and will vest in September 2022.

CSP performance conditions:

 Condition     Weighting  
ROIC between 1% and 3% in excess of WACC     50%  
HEPS versus peer group between 50th percentile and upper quartile     50%  

In addition, Hakan received a once-off allocation of 253 495 CSP with an expected value of R16 500 000 upon the unbundling of Motus. The CSP are subject to performance criteria detailed in the beginning of this section of the report and 25% will vest in November 2021, 25% in November 2022 and 50% in November 2023.


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  • Imperial Logistics Integrated Annual Report 2019