Remuneration report

Part one: Background statement

Introduction

The Capricorn Group board has embraced King IV™ and supports the shift to an outcomes-based approach to governance, where remuneration contributes to positive outcomes for all stakeholders.

This report reflects our journey towards the full application of remuneration disclosures as required by King IV™. We are committed to remuneration that achieves the four outcomes and will continue to align our practices and enhance our disclosure accordingly.

This report sets out the Capricorn Group remuneration philosophy and policy (the policy) and its implementation during the 2019 financial year. The policy has been consistently applied in all entities and markets, except Zambia, due to the significantly different market remuneration structure.

We continue to ensure that our remuneration practices and policies adhere to global best practice and align executive interest strongly to those of our shareholders. PricewaterhouseCoopers (PwC), whom the Group board remuneration committee (Remco) considers to be independent and objective, annually reviews and advises Capricorn Group on remuneration. Benchmarking practices are consistently applied across the group.

Attention was paid to the setting of the performance conditions for the long-term incentives and, consistent with the previous year, we have decided to disclose the performance conditions in this report. We are confident that the targets we have set for our performance conditions will stretch management, requiring strong company performance to unlock rewards for participants. The Remco also considers the qualitative measures associated with the strategies of the various entities as part of the overall performance conditions.

Consistent with previous years, we strive for appropriate transparency of our executive remuneration policies and practices and again present a three-part report. The three-part report contains the background and context to our remuneration approach and governance in part one, our forward-looking remuneration policy in part two and the actual implementation of our policy for the year under review in part three. This allows shareholders to observe the way our stated policy translates into actual outcomes for senior management and executives.

Governance of remuneration

Remuneration is governed by the Remco. Details about the committee’s roles and responsibilities are available in the governance report. Executive directors attend committee meetings by invitation but are requested to recuse themselves when matters are discussed that concern them.

The Remco confirms that it has discharged the functions and complied with its terms of reference for the year ended 30 June 2019.

The key activities and recommendations of the Remco regarding remuneration during 2019 included the following:

  • Benchmarking of executive directors’ and executive management’s total reward using the annual PwC survey primarily covering JSE-listed entities with the regional view as a subset
  • Benchmarking of non-executive directors’ fees and the approval of fees for recommendation to the board and shareholders
  • Consideration of the outcome of the annual performance assessment of the committee
  • Consideration of annual total guaranteed pay increases
  • Approval of short- and long-term incentive allocations to management

Non-binding advisory vote

At the annual general meeting (AGM) on 30 October 2018, shareholders had the opportunity to cast a non-binding advisory vote on the remuneration policy and the remuneration of the non-executive directors for the financial year ending 30 June 2019.

The voting results clearly show support for the remuneration policy. Accordingly, no changes were made to the policy. The actual implementation of the policy for the year under review is reflected in part three, allowing shareholders to observe the way the group’s stated policies translate into actual outcomes for senior management and executives. As in previous years, shareholders will be requested to cast a non-binding advisory vote on the remuneration policy contained in part two of this report at the forthcoming AGM.

Part two: Overview of the group remuneration policy

The group’s remuneration philosophy aims to ensure that all employees are rewarded fairly and appropriately for their contribution. In setting remuneration levels, the group board human resources and remuneration committees take appropriate market benchmarks into account, while ensuring that sufficient emphasis is placed on pay for performance. The group board human resources committee is responsible for the remuneration of general employees while the focus of the Remco is on executive management, managing directors and non-executive directors. This approach helps to attract, engage, retain and motivate key employees while ensuring that their behaviour remains consistent with Capricorn Group’s values as articulated in The Capricorn Way. The group’s guiding principles for managing remuneration are as follows:

  • Total rewards mindset – Reward is viewed in a holistic manner comprising a range of monetary (fixed and variable) and non-monetary components.
  • Performance differentiation – There is strong differentiation based on performance, particularly for senior, specialist and leadership roles where line of sight to strategic choices is evident.
  • Manager discretion – Management discretion is central to the Capricorn Group’s remuneration philosophy and is based on the requirement that the reward must always be based on merit.
  • Variable pay component – The variable pay component of the total reward increases with seniority (organisational level) as the ability to impact business results increases. This is reflected in the quantum of the opportunities offered by the short- and long-term incentives for more senior levels compared to junior employees.
  • Performance aligned with strategy – Performance is the cornerstone of reward practices, and there is a clear differentiation between performers and non-performers. Performance measures are an inclusive collective process that focuses on both the “what” and the “how”. The “what” is measured using an approach that focuses on the 5Cs: Company, Colleague, Citizenship, Conduct and Customer. The “how” is measured in terms of The Capricorn Way and how the employee lives the behaviours. The reward consequences for individual employees are, as far as possible, linked to and influenced by the interests of the shareholders, the performance of the company as a whole and the individual employee contribution.
  • Risk containment – Reward plans are structured to mitigate excessive risk-taking.
  • Consistency – The reward philosophy strives to be both consistent and transparent. Benchmarking is performed annually using consistent and recognised methodologies. The differential market value of various skill groups and roles is reflected in pay practices.
  • Attraction and retention – The focus is on competitive remuneration practices that attract, engage and retain talent to deliver on the business strategy. Capricorn Group did an extensive review during the September 2018 increase cycle to address any potential gaps between gender and race, as well as the complexity of work. We are comfortable that we are applying leading practices across the region.

Elements of pay

The table below sets out an overview of the elements of pay applicable to Capricorn Group employees:

Annual remuneration adjustments are effective on 1 September every year and increases are not guaranteed. During this process, remuneration structures and pay ranges are evaluated and adjusted where necessary, based on each individual’s salary compared to the salary scales. The following aspects are considered:

  • employee’s performance review
  • formal salary survey conducted to determine local and regional pay practices
  • adjustment of salary scales to reflect any market movement
Short-term incentives (STIs)

The group has a short-term incentive plan which aligns with market best practice in the industry and operates in the same manner for all employees in the group. A bonus pool from which all STIs are paid is calculated based on consolidated group profit.

The percentage of profit which forms the pool is modified according to company performance during the year, relative to profit before tax and return on equity targets, which are set yearly in advance. Where company performance is below the threshold level, no bonus pool will accrue for senior management and executives.

Each individual’s STI is then calculated based on individual performance and job grade, informed by the total pool. Where an employee’s performance is assessed to be unacceptable, that employee will not qualify for any STI payment during the year.

The remuneration committee approves the individual performance scores for the executive management teams of the different entities.

The maximum performance incentive remuneration of an employee is limited to twice the on-target incentive.

Entities acquired during a financial year are gradually phased in to ensure alignment, but no disruption, to their operational success.

Long-term incentives (LTI)
Share appreciation rights (SAR) plan
Conditional share plan (CSP)

Non-executive directors’ fees

The non-executive directors (NED) do not participate in any short- or long-term incentives and do not have contracts of employment with the company. Their fees are reviewed by the company and submitted to shareholders for approval on an annual basis.

NED fees reflect the directors’ roles and membership of the board and its committees. The NED fees have been benchmarked against the average of the median and upper quartile of medium-cap financial services companies listed on the JSE.

The resolution relating to non-executive directors’ fees for the 2019 financial year can be found in the notice of the AGM.

Part three: Implementation report

Remuneration paid

Number of SARs and CSPs awarded
Number of shares acquired under the share purchase scheme

The number of shares acquired by employees in the group’s share purchase scheme in September 2018 was 1,512,750 (September 2017: 1,137,175).

Dividends paid under the share benefit scheme

Staff members employed at non-managerial job levels below supervisory level are beneficiaries of the Capricorn Group Employee Share Benefit Trust. Dividends earned on the shares held by the trust have been distributed every year since the establishment of the trust in 2005.

Dividends to the value of N$2,175,300 were paid to 430 employees in September 2018 (September 2017: N$2,275,200 to 430 employees).

Compensation paid to key management
1 Expected value of the long-term incentives awards.

Compensation paid to key management comprises remuneration and other employee benefits to the executive management team, which excludes executive directors’ emoluments.

Executive directors’ emoluments
1 This represents the full year remuneration.
2 Expected value of the long-term incentives awards.

The executive directors did not receive any other fees for services as directors or any emoluments other than those disclosed.

Non-executive directors’ fees
Directors’ fees consist of a quarterly retainer and a fee for attendance of meetings. No fees relating to other services (e.g. commission) were paid during the 2019 and 2018 financial years.

The Remco is satisfied that the remuneration policy was applied during the year with no deviations.

Gerhard Fourie
Chairman: Group board remuneration committee