Remuneration summary report

This report is part of the remuneration report and will be put to a non-binding advisory vote by shareholders at the upcoming AGM. It summarises the company’s remuneration policy for non-executive directors, executive directors and prescribed officers. The information provided in this report has been approved by the board on the recommendation of the remuneration committee. The full remuneration report is available on the company’s website, www.barloworld.com.

Role of remuneration committee

The remuneration committee operates under terms of reference, a copy of which can be found on our website www.barloworld.com. The remuneration committee chairman reports formally to the board on the proceedings of the remuneration committee after each meeting and, in line with King III, will attend the annual general meeting of Barloworld to respond to any questions from shareholders regarding the remuneration committee’s areas of responsibility.

Members of remuneration committee

The remuneration committee is constituted as follows: 

SB Pfeiffer (chairman) (independent non-executive) 
DB Ntsebeza (independent non-executive and chairman of the company)
AGK Hamilton (independent non-executive)
SS Ntsaluba (independent non-executive)
B Ngonyama (independent non-executive)

The CE attends remuneration committee meetings by invitation, but does not participate in the voting process, and is not present when his own remuneration is discussed or considered. PricewaterhouseCoopers (PwC), the company’s independent advisers, attend the meetings in an advisory capacity. The company secretary, Ms L Manaka, acts as secretary to the remuneration committee.

Advisers

During the 2014 financial year, the remuneration committee received advice and guidance from the following independent advisers:

PwC – standing adviser to the remuneration committee on all executive and non-executive remuneration matters including guaranteed pay, short-term incentives, long-term incentives,non-executive directors’ fees and general corporate governance standards
PE Corporate Services – executive salary benchmarking and job grading

Linking remuneration to strategic objectives

Our business strategy concentrates on six strategic focus areas, which are supported by performance indicators.

How we reward our staff, in particular our executive staff and prescribed officers, is in line with our dedication to achieving our strategic objectives. Below, we set out our six strategic focus areas, and how our remuneration policy and practices link in to these focus areas.

Strategic focus area   Strategic objectives   Link to remuneration policies and practices
  Achieve targeted compound growth in total shareholder returns over five years to September 2015.  
Executive remuneration is heavily weighted towards variable remuneration, to ensure the alignment of executive interests with those of our shareholders. As part of the variable remuneration offered to our executives, long-term incentive (LTI) awards under the Forfeitable Share Plan (FSP) and Share Appreciation Right Scheme (SAR) are made. The vesting of these awards is dependent on the achievement of stretching performance conditions
  Build an organisation that adds value to employees as our success is based on inspired, aligned, empowered, results-driven, globally competitive, passionate people who create value through strategic innovation and continuous improvement.  
Barloworld aims to provide a level of remuneration which attracts, retains and motivates staff, in particular executives, of the highest calibre
Barloworld’s overall remuneration philosophy is to ensure that executive directors and the senior executive team are fairly rewarded for their individual contribution to the company’s operating and financial performance in line with its corporate objectives and strategy, and in line with this, we are committed to paying remuneration that is competitive relative to the target labour market in each country based on industry and market benchmarks reviewed by the company on an annual basis
  Drive market leadership through competitive differentiation by accelerating the evolution of our business model from pure distribution to the provision of flexible, value-adding, integrated customer solutions.  
The short-term incentive (STI) rewards and motivates the achievement of agreed group, divisional and individual performance objectives.
In respect of personal scorecard objectives for the STI, key performance indicators (KPIs) such as the following would be included to drive performance in line with this strategic objective:
Market share targets
Customer loyalty and growth
Aftermarket growth targets
  Develop products and services to capitalise on emerging sustainable business opportunities, realise cost savings through energy efficiency and other sustainable business practices, and enhance Barloworld’s reputation by leading in sustainable development.  
The STI rewards and motivates achievement of agreed group, divisional and individual performance objectives, and sustainable development KPIs are included in personal scorecard objectives
  Enhance competitiveness, credibility, legitimacy and reputation in the eyes of all stakeholders by leading in broad-based empowerment and transformation.  
In respect of personal scorecard objectives for the STI, key performance indicators such as the following would be included:
B-BBEE rating level targets
Workforce diversity targets
Further, careful consideration is also given to internal equity within the group and to align the remuneration paid with shareholder interest and best practice
  Achieve top-quartile financial returns as measured against peer groups in each of our chosen business segments.  
For the STI, a combination of the following metrics are used to ensure that financial returns remain a top priority for our executives:
Operating profit
Cash flow
Return on equity (ROE)
Headline earnings per share (HEPS)
For the LTI, returns on net operating assets is a performance condition for the FSP
Additionally, HEPS has been used, and continues to be used as a performance condition for both the FSP and the SAR

Barloworld has adopted a holistic approach to its remuneration philosophy for senior executives and general staff and has implemented a balanced design which consists of the following monetary and non-monetary components:

Divisional incentive plans are aligned such that divisional executives and management are incentivised on similar financial targets to executive directors, with total incentives benchmarked against market comparisons for equivalent levels of management.

Overview of remuneration

Role of benchmarking and salary adjustments

Barloworld operates the Towers Watson global grading methodology and structure. This assesses an executive’s remuneration against an independently determined grade which is based on a number of factors including the “size” of the job (as measured by revenue and number of employees) as well as its “complexity” (incorporating aspects such as whether it is a domestic, international or global business).

Remuneration of divisional executives and senior management below executive director level is also benchmarked to independent market information based on the same grading system.

The remuneration committee approves salary increases and incentives for executive directors and prescribed officers on an individual basis. The salary adjustments for other employees are cascaded downwards throughout the group to the appropriate heads of divisions starting with the divisional CEO that approves the salary increases and incentives for executives on the divisional management boards.

 

 

 

Package design

Executive remuneration is heavily weighted toward variable remuneration as is illustrated below.

Elements of remuneration

The table below summarises the composition of the total remuneration package for executive directors and prescribed officers during the 2014 financial year. No material changes to the remuneration philosophy and practices in respect of executive directors and prescribed officers were made during the year, and none are envisaged for the 2015 financial year.

  Element   Objective   Policy   Changes
for 2015
      FIXED    
  Base salary   Reflects scope and nature of role, performance and experience.   In most cases, base salary is benchmarked around the median of the market. Variations around the median may be influenced by factors such as the nature of the assignment, level of experience of the executive, changes in responsibilities, performance track record, and strategic importance of the role.

The company uses independent consultants, namely PE Corporate Services, to conduct the annual benchmarking exercise, and the results are discussed with PwC, as standing advisers to the remuneration committee.

The level of base pay paid to executives is considered to be competitive in the appropriate labour market where the executive operates, as a result of the independent benchmarking performed, as well as the selection of comparator companies used.

  None
  Benefits   Provides employees with contractually agreed basic benefits such as medical aid, retirement funding and a company car or car allowance as per the human resource policy.   The percentage company contribution to benefits varies by country. In South Africa, a 14% company contribution to retirement funds applies.   None

      VARIABLE    
  Short-term incentive   Rewards and motivates achievement of agreed group, divisional and individual performance objectives.   Short-term incentives (annual bonuses) are paid in cash and are based on achievement against 12-month targets aimed at increasing shareholder value. The bonus operates on an additive basis and is capped at 125% of annual basic salary for executives and 150% for the CE. The criteria for earning a bonus consist of two elements, namely:
Personal objectives (incorporating non-financial measures). The attainment of agreed personal objectives will yield a maximum value of up to 30% of annual basic salary. The participant will need to have achieved a minimum of 70% of these objectives to qualify for this portion of the bonus
Financial performance targets. The attainment of financial objectives will yield a maximum value of up to 95% of annual basic salary for executives and 120% for the CE.

Threshold, target and stretch performance targets are set by the remuneration committee annually in advance.

In addition, the remuneration committee reviews the actual performance of the executives against the targets set at the beginning of the relevant year. The ultimate bonus payment is at the discretion of the remuneration committee.

  No material changes expected
  Long-term incentive   Creates loyalty and ownership among employees and acts as a retention mechanism. Also aligns with shareholder interests and long-term value creation.   The company operates the following long-term incentive plans:
Forfeitable Share Plan (FSP)
Share Appreciation Right (SAR) Scheme

It is essential for the group to retain skills over the longer term and to motivate and incentivise executive directors and other senior employees to drive sustainable value creation over multiple reporting periods and to be shareholders of the company. This is achieved through long-term incentive plans and annual awards using the FSP and SAR Scheme. In line with these objectives, in the case of the executive directors and prescribed officers, the FSP is 25% retention driven and 75% performance driven, and the SAR Scheme is 100% performance driven.

An aggregate limit of 22 744 049 (twenty two million, seven hundred and forty four thousand and forty nine) shares equating to approximately 10% (ten percent) of the current issued share capital of the company applies to the all the share plans (including the old share option scheme). The maximum number of unvested FSP awards which may be made to any one participant is 0.25% of the issued ordinary share capital and the maximum number of unvested SARs granted to any one participant may not exceed 1% of the issued ordinary share capital of the company.

On an annual basis, the remuneration committee determines the quantum of awards to be made, the performance targets and mix of instruments to be granted to eligible employees.

Forfeitable Share Plan (FSP)

Awards are structured as forfeitable share awards. This means that participants receive shares (including dividend and voting rights) on the date of award but those shares are subject to restrictions and a risk of forfeiture during a three-year vesting period. In addition, in respect of executive directors, the vesting of the majority of the forfeitable share award is subject to the satisfaction of performance targets. To the extent that the performance targets are not achieved, those shares subject to the targets will be forfeited and there will be no re-testing of the performance targets. The performance targets are measured over a three-year period.

Share Appreciation Rights (SARs)

The SAR Scheme was developed with the object and purpose of providing employees with an opportunity to benefit from growth in the value of the ordinary shares of Barloworld. The SARs are subject to a three, four and five-year vesting period. All SARs will lapse if not exercised within six years from date of grant. The first four awards (2006 to 2009) were cash-settled. From 2011, awards are equity-settled. From 2007, the entire SAR award was subject to a performance target.

  None

Performance targets

The financial metrics for short and long-term incentives are set by the remuneration committee on an annual basis, and are carefully selected based on key business drivers over the short and long term.

The metrics which have been used in the past, and are envisaged to be used in future, are as follows:

Short-term incentive

Financial metrics

The financial metrics are set by the remuneration committee on an annual basis. These metrics are elected based on key business drivers over the short term. A combination of the following metrics has been used in the past and is envisaged to be used in future:

Operating profit
Cash flow
Return on equity (ROE) 
Headline earnings per share (HEPS)

Group targets apply in the case of the CE and financial director. Group targets are considered appropriate for these individuals due to the strategic nature of these roles, and their responsibilities for the performance of the group as a whole.

Divisional targets apply for the rest of the executive directors and prescribed officers, with the exception of HEPS, which is measured for all on a group basis in recognition of the collective responsibility they bear for the performance of the group as a whole.

The targets set take into account the current trading conditions and challenges being faced by the company or relevant division and incorporate a meaningful level of stretch to motivate and retain senior employees. The threshold targets are set at a level which represents the minimum level of acceptable performance for the business.

Personal objectives

In respect of personal scorecard objectives, these would typically include aspects such as:

Safety performance
Market share targets
People development and training
Sustainable development key performance indicators
Empowerment and transformation objectives
Customer loyalty and growth
Relationships with principals
Aftermarket growth targets
Acquisitions and disposals
Special projects

The personal objectives component of the scheme is the same for the CE, executive directors and prescribed officers. The percentage of annual basic salary which will be paid as the portion of the STI which is attributable to personal performance is represented below.

Earning levels

The percentage of basic salary eligible to be paid as a bonus based on relative achievement against targets (threshold, target and stretch) is:

CE

Performance metric Threshold
%
  Target
%
  Stretch
%
 
Bonus based on financial targets 25   75   120  
Bonus based on personal scorecard objectives 15   22.5   30  
  40   97.5   150  

Executive directors and prescribed officers

Performance metric Threshold
%
  Target
%
  Stretch
%
 
Bonus based on financial targets 25   60   95  
Bonus based on personal scorecard objectives 15   22.5   30  
 Total bonus 40    82.5    125   

Long-term incentives

Details surrounding the performance conditions for the LTIs are set out below:

    SAR   FSP
Performance condition(s) and weighting   Headline earnings per share (HEPS)

SARs are also subject to the inherent performance condition of share price appreciation above the strike price (being the current share price at the date of issue)

  The following performance targets have been used and are envisaged to be used in future:
Relative total shareholder return (TSR)
HEPS
Return on net operating assets (RONOA)
Vesting of awards at threshold performance   25%   30%
Vesting of awards at on-target performance   100%   100%
Performance period   The performance conditions are measured over a three-year period, commensurately with the financial years of the company.

Executive contracts

The main terms of the service contracts applicable to executive directors are summarised below:

PROVISION   POLICY
Contract term   Indefinite (or until normal retirement age in the relevant jurisdiction) subject to specified notice periods by the executive and the company
Notice period  
Nine months for the group CE
Six months for other executive directors
Termination of employment and change of control payments and/or automatic vesting of long-term incentives   Change of control clauses are covered by FSP and SAR rules and allow for proportionate vesting of awards. Change of control clauses in employment contracts provide for redundancy terms, based on established guidelines, in the event of termination of employment within six months of change of control
Restraint of trade   Not applicable
Other benefits   Certain executives may be employed in terms of expatriate contracts which include typical expatriate benefits in addition to the standard benefits

Non-executive directors

The appointment of non-executive directors (NEDs) is governed by a letter of appointment that sets out, among other things, the term of appointment, duties and responsibilities, fees and other payments, and termination of services.

NEDs receive a standard fee for their services on the board and board committees. The remuneration committee reviews the level of fees and makes recommendations to the board for consideration. A benchmarking exercise was conducted in November 2014 by PwC, the company’s independent remuneration adviser. In terms of Barloworld’s Memorandum of Incorporation, fees payable to NEDs must be approved by shareholders in general meeting. The current level of fees payable to non-executive directors was approved by Barloworld’s shareholders at the annual general meeting held on 29 January 2014. Proposed fees for the 2015 financial year are set out in the notice to the annual general meeting.

Barloworld full Remuneration Report 2014