Remuneration report

Role and responsibility of the Remuneration Committee

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, 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 the awards achieved in the prior year;
  • approves the annual award of options and shares in terms of the group’s longer term performance Phantom Share Scheme (PSS) and Forfeitable Share Plan (FSP) respectively;
  • 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 resultant report, the committee was satisfied that these are in line with positions of similar content and complexity in the market.

In terms of the committee’s Terms of Reference, the Chairman is required to report to the board after each meeting and attend the annual general meeting 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.

The committee strives to align 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. 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 include:

  • 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 HEPS, as well as achievement of relevant return on net assets (RONA) targets. The operational targets typically relate to the achievement of 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 are catered for by the phantom share scheme (PSS) referred to below, which is extended to key senior staff members. The PSS is directly aligned to the company’s share performance and incorporate a performance hurdle, thus only being of value when beneficial to shareholders.

Other substantive benefits include in-house health care 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 PRBS mentioned above is also applicable to executive management, focusing on specific annual targets (including social and environmental performance 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 average payments for the year under review were as follows:

Executive directors’ performance bonus criteria Bonus cap 
(% of annual 
achievement % 
Group financial results 80  5.0 
Working capital management 10 
Key performance objectives 35  27.6 
Total 125  32.6 

Long-term incentive
Long-term incentives were provided by the Illovo Sugar 1992 Share Option Scheme (the options under which have now all been exercised or forfeited) and later by the PSS, which was introduced in 2005. Recognising that the PSS does not necessarily provide an adequate incentive or retention 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, the company introduced the FSP in 2014 as an additional long-term incentive plan for directors and selected key executive senior employees. Details of these schemes are set out below.

Illovo Sugar 1992 Share Option Scheme (Option Scheme)

None of the directors hold any options in terms of the closed Option Scheme, all such options having been exercised.

Illovo Sugar Phantom Share Scheme

Further information regarding the PSS is set out in the Director’s Report.

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 154 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. In 2007, performance target hurdles were also introduced. During the period 2007 until 2014, the performance hurdles required that the group HEPS cumulative performance from year of grant must exceed the cumulative South African gross domestic product (GDP) for the same period, as follows:

  • 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.

Each option remains in force for a period for 10 years after the date of grant thereof (unless it lapses in terms of the rules of the scheme), but is only exercisable if and when the target hurdles are met. In addition, if the target hurdles are met, the options are only capable of being exercised in tranches, ie, as to one-third after three years from the date of grant, two-thirds after four years and the balance after five years.

The performance against the performance targets since 2007 has been as follows:

  • grant date 2007: HEPS outperformed GDP plus 5% at the end of year three (2010). Therefore, vested options are exercisable;
  • grant date 2008: HEPS outperformed GDP plus 2.5% at the end of year five (2013). Therefore, 50% of the options are exercisable as the hurdle has been met at GDP plus 2.5%. The GDP plus 5% target is still to be achieved and 50% of the options therefore remain un-exercisable;
  • grant date 2009: HEPS has underperformed GDP plus 2.5% to date (at the end of year six). Therefore, vested options remain un-exercisable;
  • grant date 2010: HEPS has underperformed GDP plus 2.5% to date (at the end of year five). Therefore, vested options remain un-exercisable;
  • grant date 2011: HEPS outperformed GDP plus 2.5% at the end of year three (2014). Therefore, 50% of the options are exercisable as the hurdle has been met at GDP plus 2.5% (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 un-exercisable;
  • grant date 2012: HEPS outperformed GDP plus 5% at end of year three. Therefore, 100% of the options for this allocation are exercisable (subject to the “vesting rule” referred to above); and
  • the 2013 and 2014 allocations are still to be measured against the three-year HEPS target.

Phantom options granted to executive directors

The table below 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 2015:

as at 
31 March 
the year 
during the
the year 
as at 
31 March 
Abdool-Samad M H 150 000  2 702  –  –  150 000  26.05.2021 
  63 100  2 573  –  –  63 100  22.05.2022 
  68 500  3 445  –  –  68 500  21.05.2023 
2 878  31 000  31 000  20.05.2024 
281 600  31 000  –  312 600 
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 
  77 500  3 445  77 500  21.05.2023 
2 878  75 000  75 000  20.05.2024 
260 000  75 000  335 000 
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 
  13 000  3 445  13 000  21.05.2023 
2 878  33 000  33 000  20.05.2024 
100 500  33 000  –  –  133 500 
MacLeod D G# 100 000  2 364  50 000  3 038  50 000  23.07.2017 
140 000  2 867  –  –  140 000  09.07.2018 
240 000  50 000  –  190 000 
Riddle L W 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 
  77 000  3 445  77 000  21.05.2023 
2 878  24 000  24 000  20.05.2024 
339 000  24 000  –  363 000 
1 221 1 00  163 000  50 000  –  1 334 100 

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

Forfeitable Share Plan

The FSP was approved in May 2014, with the intention of introducing a long-term incentive plan for directors and selected executive senior employees and providing a mechanism to enable the company to attract and retain executives and other key management whose skills are necessary to enable the company to fulfil its long-term goals, which the PSS does not provide due to the relative stability of the Illovo share price.

The FSP is not a share option scheme contemplated in Schedule 14 of the JSE Listings Requirements. Shares allocated under the FSP are purchased on the market and paid for by the company. The FSP therefore does not entail the issue of any equity securities (including options) and does not result in a dilution of the shareholdings of its equity securities holders.

The FSP provides for the award of shares to executive directors and a limited number of senior key employees. Ownership of the awarded shares vests immediately following an award, allowing participants to receive the benefits of ownership (ie, dividends and voting rights), but in order to achieve an alignment of the interests of management and shareholders, performance conditions in the form of continuing employment and financial hurdle achievements must be met, failing which the allocated shares are forfeited.

The total number of shares which may be allocated under the plan may not exceed 1% (one percent) of the issued ordinary shares (ie, a total of 4 607 305), and the maximum number of shares that may be issued to any one person in terms of the FSP is 0.1% of the issued ordinary shares, which equates to 460 730 shares.

In terms of the FSP Rules, the company’s Remuneration Committee (“Committee”) has the final authority to grant awards of shares to participants and to set the conditions attaching to each such award. Awards of Shares may comprise “Performance Shares” or “Restricted Shares”. Performance Shares may be awarded by the Committee on an annual basis as soon as practicable after the publication of the company’s annual or interim results for any period. Performance Shares are subject to the fulfilment of specified performance conditions (“Performance Conditions”) measured over a specified period which is aligned with the financial years of the company (“Performance Period”) determined by the Committee, as well as the condition that the participant remains employed with the Illovo group for a specified period determined by the Committee (“Employment Condition”). Restricted Shares will only be awarded in exceptional circumstances in order to retain or attract a key executive, and any award of Restricted Shares will also be conditional upon the participant remaining in the employ of the Illovo group for a specified period determined by the Committee.

In line with good corporate governance principles, Performance Conditions are not retested if they are not met at the end of the Performance Period. To the extent that the Employment Condition or Performance Condition(s) (as the case may be) are not met, the relevant Performance Shares or Restricted Shares (as the case may be) in relation to which the conditions are not met will be forfeited. Employees terminating employment due to resignation or dismissal on grounds of misconduct, proven poor performance or proven dishonest or fraudulent conduct will forfeit all unvested awards. Forfeited shares are sold on the market and not repurchased by the company.

The FSP is aimed at approximately 30 executives and senior managers of the Illovo group. The Committee may, however, in its discretion, include any other permanent employee of any company in the Illovo group for participation in the FSP in exceptional circumstances.

Award levels are determined by the Committee having regard to a participant’s salary, grade, performance, retention requirements and market practice, as well as other relevant circumstances at that time. Annual awards are made having regard to a market-related level of remuneration as well as the overall affordability to the employer company. Indicative fair value of allocations under the FSP and the PSS will in the aggregate remain similar before and after the introduction of the FSP.

The conditions of the FSP will continue to be reviewed in line with best practice.

In May 2014, the Committee awarded 224 000 shares to executive directors and senior employees. These shares were purchased and transferred to the relevant participants on 2 December 2014.

The table below reflects the forfeitable shares allocated, purchased and transferred to executive directors, as at 31 March 2015:

  Number of shares 
Abdool-Samad M H 31 000
Dalgleish G B 75 000
Hulley J P 33 000
Riddle L W 24 000

Compensation of directors/prescribed officers

Executive directors

The remuneration of executive directors for the year ended 31 March 2015 was as follows:

  Salary  Bonus  Retirement, 
and UIF 
R000  R000  R000  R000  R000 
Abdool-Samad M H 3 445  1 034  455  230  5 164
Dalgleish G B 4 806  1 300  587  379  7 072
Hulley J P 2 715  718  367  275  4 075
Riddle L W 2 659  997  370  295  4 321
Total 13 625 4 049 1 779 1 179 20 632

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

  Salary  Bonus  Retirement, 
and UIF
  R000  R000  R000  R000  R000  R000  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

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.

Non-executive directors

The fees paid to non-executive directors for the years ended 31 March 2014 and 31 March 2015 were as follows:

    2015  2014 
    R000  R000 
Hankinson M J   664  597 
Konar D   525  501 
MacLeod D G**   2 200  2 200 
Madi P M   430  447 
Molope C W N   484  436 
Mpungwe A R   421  317 
Munday T S   736  630 
Carr M I#   –  – 
Cowper J#  
Lister P A#   –  – 
Rhodes G M#   –  – 
Total   5 460  5 128 
** The chairman’s remuneration is approved by the Remuneration Committee, having regard to the extent of the duties that he assumes, the chairman attends all board committee meetings of the company.
# 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.

Post-retirement medical aid

Post-retirement medical aid contributions paid on behalf of past directors amounted to R128 685 for the year under review, compared to R83 463 for the year ended 31 March 2014.


Date: Wed, 15 July

Time: 14:00

Venue: Illovo Sugar Park

Notice of AGM


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