Remuneration report


This report reflects the current arrangements for the remuneration of senior executives including, where appropriate, executive and non-executive directors, as approved by the remuneration committee. As noted below, these arrangements are being reviewed and any changes will be communicated to shareholders.

The committee met on three occasions in the 2010 financial year and it considered and approved the following:
  • A review of base salary and other compensation elements of the executive directors’ and group executives’ remuneration
  • Approval of bonuses earned during the 2010 financial year
  • Performance measures, targets and allocation guidelines for short-term incentives for the 2011 financial year
  • Performance criteria that will guide the award of share options to executive directors and group executives in 2011
  • A comprehensive review of the group’s remuneration philosophy.

Terms of reference

The board has delegated authority to the committee to review and approve annual salary increases, incentive arrangements, service agreements and other employment conditions for group executives and, in aggregate, for the group’s employees. The committee is tasked with ensuring that individual awards are linked to performance and aligned with the interests of the company’s shareholders. This requires that cost-effective packages are provided which are suitable to attract and retain executives of the highest calibre and to motivate them to perform to the highest standards. The committee oversees the implementation of performance criteria for long-term incentives for executives to ensure that these are aligned with shareholders’ interests.

Remuneration committee members and advisers

In 2010 the committee consisted of:
NDB Orleyn (chairman), SD Jagoe, TS Munday and JC van der Horst.

With the exception of the chairman, all are independent non-executive directors. As noted here, the board is satisfied that the chairman’s non-independence does not impact her ability to chair the committee. Other directors who attended some or all of the meetings and who provided material, advice or services to the committee during the year were:
Gerrit Pretorius
Chief executive until 2 August 2010
Nick Wentzel
Chief executive from 1 August 2010
Gerrit Oosthuizen
Commercial director
John Simmonds
For group secretaries

Current remuneration considerations

Considerable time was spent considering remuneration issues, including both current and future incentive plans, performance criteria for the Reunert Share Option Scheme, and remuneration related requirements of the King III Report that will be introduced in 2011.

The short-term incentive plans for 2011 are, in general, aligned with the plans that were in place in 2010. During 2010 a number of group companies performed well against the challenging performance targets set by and expected of group companies. However, the difficult macroeconomic environment resulted in some group companies not being able to reach their targets. The committee is mindful of the need in times of economic turbulence to keep remuneration systems under constant review to provide an appropriate balance between salary and incentive payments, to ensure employees are challenged and that the group is able to attract and retain employees of the highest calibre.

The committee sought advice from the HayGroup in respect of appropriate performance criteria for long-term incentives, which included information on international best practice, competitors and other businesses.

Reunert has insufficient South African peers to enable relative performance measures to be determined. The committee was advised to lean towards absolute measures in establishing appropriate performance criteria.

Remuneration policy principles

Remuneration paid to executives is made up of a fixed-pay component (cash and benefit costs), a short-term cash incentive (variable) component and a long-term incentive, being a share option plan.

The following general principles apply to executive remuneration in the Reunert group:
  • To ensure long-term and sustainable performance while ensuring that staff of the right calibre are attracted and retained
  • A significant portion of the total remuneration should be linked to value-creating objectives
  • The reward structure should provide alignment between senior executives and shareholders.

The committee will be revising the policy during 2011, and in particular, the balance between fixed remuneration and variable short-term cash incentives. During the course of such revision the long-term option plan may have to be adjusted to ensure that all the remuneration components remain integrated.

Share-based awards and dilution

The board ensures that the shares issued in terms of the share option schemes provides appropriate market-related incentives for senior executives at a reasonable cost to shareholders, and which does not exceed the guidelines laid down by the King Report and the JSE Limited. These provide that options issued to employees should not exceed an aggregate amount equal to 10% of the company’s issued share capital. The available dilution capacity on the basis expressed as a percentage of the company’s total issued ordinary share capital on the last day of each of the last financial years was as follows:

2007   2008   2009   2010  
1,7%   2,4%   3,1%   2,9%  

Balance between fixed and variable pay

The variable (incentive) component of senior executives’ (including executive directors) pay is linked to performance and capped at 140% of the executives’ fixed salary, including all cost-to-company items. The performance criteria for determining variable pay are the same for all the executive directors, and are set annually.

The current philosophy is to have a lower base salary and to provide executives with a higher cash incentive component. The appropriateness of this structure will be re-evaluated during 2011.

Service contracts

All executive directors’ service contracts provide that, where a service contract becomes terminable, the notice period will be less than one year.

A predetermined compensation on termination of service will be payable to executive directors in line with circumstances which would ordinarily give rise to an obligation requiring an employer to pay severance pay in terms of the provisions of the Labour Relations Act, 1995 or the Basic Conditions of Employment Act, 1997. In such event, a severance package shall be equal to the multiple of the relevant individual’s monthly remuneration, such multiple ranging between 12 and 36 months. However, the multiple is limited to the number of months to retirement. This termination payment is calculated by reference to the relevant individual’s cash earnings plus the value of medical aid, pension contributions and pensionable service, group life and permanent health insurance benefits and the performance bonus earned by the employee in the preceding year. In addition, the relevant employee will be granted permission to exercise share options and to repay loans which may be due to a share purchase scheme.

In the case of termination of service with cause, no compensation is payable to executive directors.

Contractual obligation to G Pretorius

The board, with the active support of Mr Pretorius, initiated the process of finding a chief executive as successor for Mr Pretorius before his retirement date. A successor was identified a year before Mr Pretorius’s employment contract ended. Consequently he was entitled to receive a severance benefit which is contractually determined. Mr Pretorius received a severance benefit of R7 113 000 and he had accumulated leave in the amount of R3 065 000. The details of the payments made to him appear in note 24.

Salaries and benefits for executives

In setting the base salary of each executive, the committee takes into account the group’s remuneration philosophy, the performance of each individual executive and the remuneration structure in place for executives used by comparable companies in South Africa.

In 2010, the rate of fixed salary increases for executive directors was on average 8,6%. The salaries of group executives below executive board level ranged between 7,5% and 9,4%.

Short-term incentive scheme

Incentive targets are set annually and take into account business plans and conditions. There is a threshold performance below which no cash award is paid, and a sliding scale for stretching performance at various levels. Senior executives, including executive directors, are eligible to receive up to a 140% cash award based on the total fixed salary. This payment is linked to economic value-added targets and includes other appropriate performance indicators and personal objectives that are determined by the committee each year. The 2010 award for executive directors was 42% of total fixed salary.

Long-term share option plan

In total, 94 senior executives, including the executive directors, were granted options in 2009. The award was made to those executives who have a clear capability of contributing towards the group achieving its objectives. The maximum number of options that may be awarded is capped. Options can be exercised in tranches over three-, four- and five-year periods after the options are granted.

In 2010, options were granted to four executives as part of benefits granted on joining the Reunert group.

Reunert offers a finance scheme to employees to encourage ownership of shares where options are exercised. These loans bear interest at the rate prescribed by the South African Revenue Services.

The group has the option to cash settle options instead of issuing shares. The appropriateness of the settlement method is constantly reviewed.

Historically, option awards were granted biennially. During 2011 consideration will be given to move to annual (smaller) awards.

The committee has recommended to the board to award share options in 2011. The board will consider this proposal
at its next meeting. The criteria to be applied for the 2011 award will be as follows:
  • 40% of options to be granted in 2011 will be subject to performance criteria whilst 60% of the options will be issued, for purposes of retaining and/or attracting executives.
  • In respect of performance-based options, a threshold performance will apply below which no award will be made and a sliding scale is in place for stretch-targets achieved at various levels.
  • Targets based on value-added performance criteria were set to be achieved at 2010 year-end for all the participating companies’ executives and the executive directors. These factors will apply when options are issued in 2011. The factors include economic value-added, cash-flow management, cost containment/reductions, retention or increase in market share, exchange rate management and commodity price factors.
  • To achieve threshold awards (i.e. 40% of the incentivised portion) performance will have to be above the previous year (with due regard to inflation).
  • For some companies in the group a small percentage of non-financial measures have been applied depending on the cycle and circumstances of a particular business.
  • Targets for the 2011 year-end are expected to be set on broadly the same terms, subject to possible changes being made to the long-term share option scheme.

Retirement and medical benefits

All executive directors and company executives are members of the Reunert Retirement Fund which is a defined contribution retirement plan.

As Reunert rewards on a total cost-to-company basis the retirement benefit forms part of the fixed remuneration received by executives.

The contributions that are made to the retirement fund are determined by the fund itself and additional contributions, subject to the requirements of the South African Revenue Services, are permitted by the fund rules. More details are provided in note 25.

Medical scheme contributions are also included in the basic fixed remuneration of executives. Since Reunert is a participating member of a number of medical schemes, executives are entitled to choose from a variety of medical plans to enable them to structure benefits that suit their personal needs.

Remuneration of non-executive directors

The remuneration of non-executive directors was benchmarked this year against the Spencer Stewart South African Board Index. Based on the information contained in the index, the non-executive directors’ fees at Reunert are significantly below the average numbers.

It will be proposed at the 2011 AGM that the directors’ fees and fees for committee members be increased by 12%, the chairman of the audit and risk committee by 39%, the chairman of the remuneration committee by 34% and the chairman of the board by 42% per annum as a first step in bringing non-executive remuneration in line with market rates. This follows consultation with the group’s largest shareholders who have confirmed their support for the proposal.

Given the increased demands on boards and board committees with additional regulatory requirements being introduced, it is recognised that the workload of non-executive directors and committees has increased considerably.

In the context of the above, the remuneration of non-executive directors has to be adjusted to ensure that the remuneration is suitable to attract and retain directors of the highest calibre and to motivate them to perform to the highest standard.

Directors’ remuneration 2010

The directors’ remuneration and interests and the non-executive directors’ remuneration for 2010 appear in note 24.