• Human capital report
• Socio-economic impact report
• Climate change report
• Corporate governance report
• Social and Ethics Committee report
• Remuneration report
• Risk management report

Remuneration report

Role and responsibility

The committee is tasked with the development and determination of the company’s general policy on executive and senior management remuneration, and the positioning of senior executive salary packages relative to local and international industry benchmarks, such that they are sufficient to attract, retain and motivate executives of the quality required by the company. The remuneration packages include basic salary, annual bonuses, performance-based incentives, share related incentives and retirement benefits.

For the year under review, the committee met its responsibilities in compliance with its Terms of Reference.

On an annual basis, the committee:

• reviews the company’s remuneration policy for approval by the board and shareholders;
• reviews and approves the remuneration packages of the executive directors and senior managers of the group;
• approves the salary mandate to be implemented for the group’s employees in the various countries of operation, which includes the foreign allowances paid to employees who are deployed on assignment into the countries of operation outside South Africa;
• approves the group’s short-term performance bonus scheme for the forthcoming year and signs off on the awards achieved in the prior year;
• approves the annual award of options in terms of the group’s longer aligned PSS;
• makes recommendations to the board on the fees payable to the company’s non-executive directors; and
• ensures compliance with relevant legislation.

During the course of the year, the committee engaged the services of remuneration consultants to audit and review the level of the executive directors’ remuneration packages when compared with the market. On the basis of the subsequent report, the committee was satisfied that these are in line with positions of similar content and complexity in the market.

In assessing the Chairman’s fee, regard is had to the length and depth of his experience in the sugar industry and the time that he devotes to his duties as Chairman of a group that operates in six African countries.

In keeping with the Remuneration Committee’s Terms of Reference, the Chairman is required to report to the board after each meeting and attend the AGM to respond to any questions from shareholders on remuneration.

Remuneration philosophy and policy

In line with the company’s strategy, the remuneration philosophy and policies recognise the importance of our people in the continued growth and sustainability of the group and its overall performance.

As far as possible, the committee aligns the outcomes of the remuneration policy with the interests of shareholders and also seeks to encourage and reward the longer-term sustainable growth of the group. The principles of the remuneration policy are designed not only to attract, retain and motivate employees, but also to reward them for their contribution to the group’s operating and financial performance, taking into account market conditions at both industry and country levels.

Apart from fixed remuneration, an element of variable remuneration that is aligned to value creation in the form of short and longer-term incentive schemes is also catered for and linked to the achievement and performance of specified targets and objectives, with payment being made out of increased returns. This also assists in attracting and retaining key personnel.

General salary and wage reviews

The committee ratifies the salary mandates, along with mandates that determine substantive wages and benefits for the unionised category of employees, through collective bargaining processes with representative trade unions in all countries of operation.

Criteria adopted for determining non-negotiated salary and wage increases are as follows:

• individual performance reviews;
• CPI (inflation);
• market surveys, where the group subscribes to pegging key high-performing employees at the median to upper quartile of the market;
• internal equity where applicable;
• short-term incentives, whereby all employees participate in a performance-related bonus scheme (PRBS) designed and implemented on a financial year basis, and are remunerated against pre-set performance criteria at the end of the group’s financial year. The targets are both of a financial and operational nature, directly relevant to the performance expectations for each operation in the ensuing year. The former are set against financial parameters such as growth in headline earnings per share (HEPS) and profit after tax (PAT), as well as achievement of relevant return on net assets (RONA) targets. The operational targets typically relate to the achievement of set line-of-sight production forecasts and safety standards and well defined operational efficiency metrics which are readily measured and in respect of which progress towards achievement thereof is communicated to participants on an ongoing basis; and
• long-term incentives which are catered for by the PSS, which is extended to key senior staff members, are directly aligned to the company’s share performance and incorporate a performance hurdle, thus only being of value when beneficial to shareholders. This scheme is more fully referred to below and here.

Other substantive benefits include in-house healthcare facilities, medical aid contribution subsidisation and provident and pension funds. In countries where these do not exist, company contributions to national security insurance-type funds are paid.

Executive remuneration

The executive directors are full-time employees of the company and, as such, each has an employment agreement, the terms of which are in accordance with the company’s standard conditions of service, but with a notice period of three months and more comprehensive confidentiality undertakings.

The group aims to adhere to the broad guidelines of executive remuneration as contemplated by King III, in respect of remuneration packages of the company’s executive directors and senior managers, ensuring that the following is achieved:

• Guaranteed remuneration

  The positioning of guaranteed remuneration packages is aligned between the market median and upper quartile of local and international industry benchmarks. To this end, external consultants are used to ensure that these levels are conducive to the attraction and retention of key skills. The guaranteed remuneration packages are based on the complexity of the role of each director and senior manager and his/her performance and contribution to the group’s overall performance. Contributions towards medical, retirement and disability benefits, as well as car allowances are applicable to all senior employees in accordance with the rules of the relevant company scheme.

• Short-term incentive

  The performance-related bonus scheme (PRBS) mentioned above is also applicable to executive management, focusing on specific annual targets.

  In addition to the financial targets mentioned above, individual specific objectives identified by the Remuneration Committee for that particular executive function are also set. The attainment of these targets contributes towards the achievement of the company’s strategic objectives, which are aligned to the delivery of sustained shareholder value. The principle of paying for performance is a key underpin to the PRBS and any variable payments achieved are directly aligned to performance outcomes.

  The PRBS is capped at 125% of annual salary for executive directors and senior general managers. For the executive directors the breakdown of the targets, the relative bonus caps as a percentage of annual salary and the averaged payments are as follows:

• Long-term incentive

  This is currently catered for by the PSS, referred to below, which was introduced in 2005, and previously by the closed Illovo Sugar 1992 Share Option Scheme.

  However, due to the relative stability of the Illovo share price, the board has recognised that the PSS does not provide an adequate incentive mechanism to enable the company to attract and retain executives and other key management whose skills are necessary for the company to fulfil its long-term goals. Accordingly, in line with global best practice and emerging South African practice, the company intends to introduce a forfeitable share plan (FSP) as an additional long-term incentive plan for directors and selected key executive senior employees. Details of the FSP are set out in the Directors’ Report and in the Notice of Annual General Meeting and Appendix 1 on this report.

Executive directors performance bonus criteria	Bonus cap (% of annual salary)	Executive directors performance average achievement (%)
Group financial results	80	0
Working capital management	10	8
Key performance objectives	35	27.5
Total	125	35.5

Illovo Sugar 1992 Share Option Scheme (option scheme)

None of the directors hold any options in the closed option scheme, all such options having been exercised. The shares in the company held by the directors as at 31 March 2014 are reflected here.

PSS

Further information regarding the PSS is reflected here. The PSS is “cash-settled” and therefore is not classified as a share incentive scheme in terms of the JSE Listings Requirements. It is directly aligned to the company’s share performance. It incorporates a financial performance hurdle and benefits only accrue where positive real growth in shareholder returns has been achieved, which entails that one-third of the options granted may only be exercised in each of the third, fourth and fifth years following the date of grant, provided that certain financial hurdles are met. During the year under review, there were 151 recipients of the scheme.

Financial performance hurdle, information and allocations:

A performance base is set as being the average HEPS achieved over the preceding three financial years, with one-third of the options granted in that year vesting in years three, four and five. A performance target hurdle is also set, which requires that the group HEPS cumulative performance from year of grant must exceed the cumulative South African gross domestic product (GDP) for the same period:

• cumulative GDP plus 2.5% for 50% of the vested options to become exercisable; or
• cumulative GDP plus 5.0% for 100% of vested options to become exercisable.

If the target hurdle is achieved at the end of the third financial year from date of grant, the options become exercisable, subject to the vesting rule referred to above. In the event that the target hurdle rate is not achieved at the end of the third financial year from date of grant, vested options accrue until the target is met, provided that this is within the 10-year option life.

The performance targets were introduced in 2007 and performance has been as follows:

• grant date 2007: HEPS outperformed GDP plus 5% at the end of year three. Therefore, vested options are exercisable (ie subject to the “vesting rule” referred to above);
• grant date 2008: HEPS outperformed GDP plus 2.5% at the end of year five. Therefore, 50% of the options for this year are exercisable as the hurdle has been met at GDP plus 2.5% (ie subject to the “vesting rule” referred to above). The GDP plus 5% target is still to be achieved and 50% of the options therefore remain unexercisable;
• grant date 2009: HEPS underperformed GDP plus 2.5% at the end of year five. Therefore, vested options remain unexercisable;
• grant date 2010: HEPS underperformed GDP plus 2.5% at the end of year four. Therefore, vested options remain unexercisable;
• grant date 2011: HEPS outperformed GDP plus 2.5% at the end of year three. Therefore, 50% of the options for this year are exercisable as the hurdle has been met at GDP plus 2.5% (ie subject to the “vesting rule” referred to above). The GDP plus 5% target is still to be achieved and 50% of the options therefore remain unexercisable; and
• the 2012 and 2013 allocations are still to be measured against the three-year HEPS target.

The Remuneration Committee have recently taken the decision that the performance target hurdle for the 2014 allocation will change from GDP to the South African Consumer Price Index (CPI) and will require that the group HEPS cumulative performance from year of grant must exceed the cumulative CPI for the same period:

• cumulative CPI plus 1.5% for 50% of the vested options to become exercisable; or
• cumulative CPI plus 3.0% for 100% of vested options to become exercisable.

Phantom options granted to executive directors

The table adjacent reflects the phantom options previously granted to executive directors, those granted during the year under review, any phantom options exercised during the year under review, and the unexpired and unexercised phantom options as at 31 March 2014.

	Options  as at  31 March  2013	Option  price  (cents)	Options  granted  during  the year	Options  exercised  during  the year	Exercise  price  (cents)	Options  forfeited  during  the year	Options  as at  31 March  2014	Expiry  date
Abdool-Samad M H	150 000	2 702		–	–		150 000	26.05.2021
	63 100	2 573		–	–		63 100	22.05.2022
		3 445	68 500				68 500	21.05.2023
	213 100		68 500	–	–		281 600
Clark G J	16 700	1 634		16 700	3 100			29.10.2016
	60 000	2 364		60 000	3 100			23.07.2017
	70 000	2 867		35 000	3 100	35 000		09.07.2018
	240 000	2 808		–	–	240 000		13.07.2019
	172 500	2 856		–	–	172 500		20.07.2020
	162 000	2 702		–	–	162 000		26.05.2021
	155 500	2 573		–	–	155 500		22.05.2022
		3 445	129 500	–	–	129 500		21.05.2023
	876 700		129 500	111 700	–	894 500
Dalgleish G B	8 500	1 634			–	–	8 500	29.10.2016
	12 500	2 364			–	–	12 500	23.07.2017
	20 000	2 702			–	–	20 000	26.05.2021
	141 500	2 573			–	–	141 500	22.05.2022
		3 445	77 500				77 500	21.05.2023
	182 500		77 500				260 000
Hulley J P	5 500	2 364			–	–	5 500	23.07.2017
	20 000	2 867			–	–	20 000	09.07.2018
	25 000	2 808			–	–	25 000	13.07.2019
	11 000	2 856			–	–	11 000	20.07.2020
	10 500	2 702			–	–	10 500	26.05.2021
	15 500	2 573			–	–	15 500	22.05.2022
		3 445	13 000				13 000	21.05.2023
	87 500		13 000		–	–	100 500
MacLeod D G #	100 000	2 364			–	–	100 000	23.07.2017
	140 000	2 867			–	–	140 000	09.07.2018
	240 000				–	–	240 000
Riddle L W	20 000	1 634		20 000	3 860	–		29.10.2016
	33 500	2 364			–	–	33 500	23.07.2017
	25 000	2 867			–	–	25 000	09.07.2018
	60 000	2 808			–	–	60 000	13.07.2019
	56 000	2 856			–	–	56 000	20.07.2020
	36 000	2 702			–	–	36 000	26.05.2021
	51 500	2 573			–	–	51 500	22.05.2022
		3 445	77 000				77 000	21.05.2023
	282 000		77 000	20 000	–	–	339 000
	1 881 800		365 500	131 700	–	894 500	1 221 100

#    Options granted to Mr D G MacLeod while an executive director. 

Compensation of directors/prescribed officers 

Executive directors 

The remuneration of executive directors for the year ended 31 March 2014 was as follows: 

	Salary  R000	Bonus  R000	Retirement,  medical  and UIF  contributions  R000	Car  allowances  R000	Housing  relocation  allowance  R000	Option gains  R000	Total  reward  R000
Abdool-Samad M H	3 069	1 320	407	261	–	–	5 057
Clark G J*	2 942	–	843	260	–	2 713	6 758
Dalgleish G B	3 167	1 140	400	323	–	–	5 030
Hulley J P#	1 223	351	171	151	358	–	2 254
Riddle L W	2 361	826	330	240	–	445	4 202
Total	12 762	3 637	2 151	1 235	358	3 158	23 301

*   Resigned on 31 August 2013
#   Appointed on 1 September 2013   

The remuneration of executive directors for the year ended 31 March 2013 was as follows: 

	Salary  R000	Bonus  R000	Retirement,  medical  and UIF  contributions  R000	Car  allowances  R000	Housing  allowance  R000	Option gains  R000	Total  reward  R000
Abdool-Samad M H	2 732	2 787	363	224	208	–	6 314
Clark G J	4 663	4 780	745	325		–	10 513
Dalgleish G B	2 000	2 080	267	251		–	4 598
Riddle L W	1 981	2 060	281	240		–	4 562
Total	11 376	11 707	1 656	1 040	208	–	25 987

Other than the directors, there are no employees of the company who are “prescribed officers”, as defined in the Companies Act, the directors being the only persons who exercise, and who are empowered to exercise, or who regularly participate to a material degree in the exercise of, general executive control over and management of the whole, or a significant portion of the business and activities of the company, as contemplated in regulation 38 of the Companies Regulations.

Post-retirement medical aid

Post-retirement medical aid contributions paid on behalf of past directors amounted to R83 463 for the year under review, compared to R67 906 for the year ended 31 March 2013.

Non-executive directors

The fees paid to non-executive directors for the years ended 31 March 2013 and 31 March 2014 were as follows:

	2014  R000	2013  R000 ;
Hankinson M J	597	580
Konar D	501	440
MacLeod D G**	2 200	2 200
Madi P M	447	440
Molope C W N	436	405
Mpungwe A R	317	320
Munday T S	630	590
Carr M I#	–	–
Lister P A#	–	–
Pike R N#	–	–
Rhodes G M#	–	–
Total	5 128	4 975

**	The Chairman’s remuneration is approved by the Remuneration Committee, having regard to the complexity of his role and his expertise in the sugar industry.
#	These directors, who are nominated for appointment by Illovo’s majority shareholder, have each elected not to receive the payment of the fees due to them as non-executive members of the board and the board committees on which they serve.