REMUNERATION REPORT OF THE SE&HR COMMITTEE
In line with Northam’s intention to comply with the King IV Report on Corporate Governance for South Africa 2016 by F2018, transition to full compliance begins in the F2017 integrated report with the adoption of the recommended three-part remuneration report, which comprises the following sections:
- background statement;
- remuneration policy; and
- implementation report.
PART 1: BACKGROUND STATEMENT
The board, through the social, ethics and human resources committee (SE&HR committee or the committee) is ultimately responsible for establishing a remuneration policy and for implementing the remuneration policy. The committee is responsible for appointing competent individuals as senior managers, and to ensure that the group’s leadership delivers on the group’s strategic targets for fair remuneration.
Remuneration must align executive management actions with shareholder interests of sustainable long-term growth in returns, and incentivise the right outcomes for other stakeholders, whilst still being competitive and linked to performance.
The SE&HR committee is also responsible for mandating management on appropriate wage increase thresholds for union negotiations and for advice on the scale of fees to be paid to non-executive directors, which is submitted to shareholders for approval. The committee has overseen its duties with these in mind throughout the financial year. Most pay increases were as follows for the 30 June 2017 financial year:
- For employees represented in collective bargaining structures an average 9.4% wage increase was implemented on 1 July 2016. This increase represents the last annual wage adjustment in terms of a three-year agreement signed with the National Union of Mineworkers (NUM) in 2015.
- Latest salary adjustments to senior management were made on 1 July 2016 with increases of 5.5%. For the 2018 financial year senior management have been offered an increase of 6% per annum, plus a personal performance element of a maximum of 2%.
Employees represented in terms of collective bargaining arrangements
There are various unions representing workers at the group’s operating mines. The majority of the group’s employees, approximately 90.7% at Zondereinde, are contributing members of the NUM – primarily in the category 2 to 10 bargaining units. Their salary levels, annual increases, allowances and benefit packages are therefore negotiated on a collective basis.
At Booysendal, approximately 90% of the workforce is covered by collective bargaining agreements through the contracting companies working at the operation. Approximately 70% of unionised indirect employees belong to the Amalgamated Mine and Construction Workers Union (AMCU).
Northam also engages with other unions representing smaller groups of employees. The group’s labour relations policies provide for organisational rights to any union which meets a 15% representation threshold within a bargaining unit. When a registered union reaches a representative threshold of 33.3% within a bargaining unit, it acquires the right to bargain for that particular unit. Northam’s objective is to engage in good faith in order to reach agreement on matters such as wages, substantive conditions of service and other matters of mutual interest.
In addition to their wages, employees also earn various forms of bonuses to incentivise performance.
Executive directors, management and non-unionised staff
Executive directors (executives) and members of corporate and operational management staff are employed in terms of their contracts of employment and the remuneration and benefit schemes and practices applicable to their job grades. Salaries are reviewed once annually, effective 1 July. Salary increases are determined individually, according to individual performance, retention and market-matching criteria.
All non-unionised staff, managers and executives have detailed job profiles which stipulate the key performance areas of their positions. These serve as the basis for performance assessment and measurement and performance-linked salary increases and bonuses.
Remuneration takes the form of:
- 1 appropriate salary packages, including those of the executive directors which incorporate basic remuneration pay including death, disability, medical aid (BRP) and pension contribution benefits;
- 2 various allowances, which when included with (1) above is the total guaranteed package;
- 3 various short-term incentive bonus schemes depending on the grade of the employee;
- 4 a long-term incentive scheme which replaced the prior share option scheme and includes a lock-in and incentive mechanism;
- 5 key person insurance cover is available for the executives and the general managers of the group.
Change of control conditions
In the event of a change of control of the business, executive directors will receive certain payouts due to them within 12 months of the effective date of such change of control. In terms of their contracts they shall be entitled to the following:
- lump sum compensating payment equal to twice the then total guaranteed package;
- the average of the short-term incentive (STI) bonuses paid by the group during the previous two years;
- a pro rata portion of the bonus incentive earned in respect of the prevailing financial year; and
- any other contractual benefits due.
A change of control is defined in the Companies Act and the Companies Regulations, 2011.
External directorships
Directors are required to consult with the chairman of the board and the chief executive should they wish to hold external directorships.
PART 2: REMUNERATION POLICY
The Northam remuneration policy resolution was approved at the November 2016 AGM with a majority of 87.5% of votes cast in favour, based on a 95.1% shareholder participation rate.
Wage and salary levels are determined in terms of the group’s remuneration policy. Through fixed and variable remuneration, the group aims to attract, retain, incentivise and reward top quality staff at all levels, particularly where scarce or critical skills are involved.
Pay must be linked to the group’s performance generally and the total guaranteed pay is set in line with the level of the platinum industry companies’ remuneration, benchmarked every two years, with the last benchmark done during the 2016 financial year. The findings of the assessment indicated that management was paid in line with the industry except for the chief executive who was being paid below the market benchmark.
The remuneration policy is designed to support the group’s strategic goals of the group in a way that aligns the interests of employees, managers and executives with those of stakeholders.
The remuneration policy is not intended to be a ‘one size fits all’ set of rules and procedures, but rather to serve as the basis for a flexible approach to the variable and changing needs of a dynamic and competitive mining employment environment. The policy is underpinned by the following key principles:
-
Harmonising working conditions, salaries and wages throughout the group -
Compliance with all statutory and regulatory requirements and a commitment to applying best practice guidelines in all aspects of remuneration and benefits -
Attracting and retaining core skills, such as artisans, engineers and management -
Offering remuneration packages that are competitive, fair, and reasonable in all respects and at all levels
Features of the remuneration practices
Employment contracts are concluded on a permanent basis as a general principle (i.e. for an indefinite period), except where fixed- term or short-term temporary contracts are required for specific projects. The notice period for the termination of employment contracts is typically one month, but for critical positions this can be extended by mutual agreement to a maximum of 12 months.
Northam’s objective is to provide a market-competitive basic salary plus compulsory medical aid and retirement fund membership. Various fixed and variable allowances are paid at certain job/ grade levels or to certain job categories. The job grading system is based on the Paterson model. Remuneration experts who are considered independent and objective by the committee are consulted from time to time as circumstances dictate.
Salary scales and employee benefits are benchmarked against mining industry standards and are reviewed annually. The midpoints of the group’s salary scales are compared with industry percentiles and adjusted annually, in line with the changing size, structure, financial performance and general circumstances of the group over time.
The group’s salary scales have a range which allows an overlap on scales which have steps of 15% between grade ranges to allow for the appropriate positioning of individuals according to qualifications, experience, performance, growth, development and market imperatives. However, in a competitive market where skills are scarce, market comparisons may result in pay amounts above the range being considered and paid.
The committee approves salary increases for all categories of staff in advance each year. Any material changes to allowances, benefits, bonus schemes, or any other aspect of remuneration policy are approved by the committee prior to implementation.
In the case of retrenchment, the group’s policy at all job levels is to pay the contractual notice period (if not worked) and severance pay in line with legislation (the Basic Conditions of Employment Act), being one week’s remuneration per completed year of service with the group. Severance payments upon termination of service are governed by legislation, agreements with unions, individual contract and/or group policy and practice.
No provision is made for special retirement benefits for group employees other than the standard benefits in terms of two of the group’s recognised retirement funds, with the exception of employees in Category 9 and above who were in service with the group on 31 December 1998. In respect of these employees, a contribution is made to a post-retirement healthcare fund. These contributions cease when the employee leaves the service of the group. All components of the group’s remuneration system are subject to regular internal and external audits, as well as routine monitoring by the South African Revenue Services. The committee is satisfied that the group is compliant with all pertinent regulations.
Executive directors’ and other key management service contracts
The chief executive, Mr PA Dunne has a service contract with the company which is subject to a notice period of one year. The chief financial officer, Mr AZ Khumalo has a service contract with the company which is subject to a notice period of three months.
Other key management individuals also have a notice period of three months.
Fixed remuneration: total guaranteed pay (TGP)
Employees are paid market-related salary packages on a cost to company basis which represents their guaranteed pay. Increases in pay take account of the global economy and the group’s economic performance, the prevailing inflation rate and may include a merit component of no more than 2% over and above the prevailing inflation rate.
| Director | R000 |
|---|---|
| PA Dunne | 8 155 |
| AZ Khumalo | 3 984 |
Performance bonuses and the gain on share-based payments cannot be estimated due to the variety of inputs into such calculations that cannot be predicted.
Short-term: variable remuneration
Employee bonuses
The group has a variety of bonus schemes for employees. Bonuses are not guaranteed and are based on approved formulae designed to incentivise employees in line with the group’s strategic objectives. Executive directors and all senior management may earn a bonus based on the extent to which they have achieved the targets and objectives set for them by the committee and/or the board of directors. Bonuses are payable half-yearly.
Short-term incentive – senior officials’ bonus scheme
The board of directors, through the SE&HR committee, determines the performance targets and objectives of the chief executive and the chief financial officer, conducts their performance assessments and decides the quantum of their performance bonuses. The chief executive also has input into the evaluation of the chief financial officer.
The chief executive and the SE&HR committee determine the performance targets and objectives of other senior managers, conduct their performance assessments and determine the quantum of performance bonuses for approval by the board of directors.
Bonuses are paid subject to the achievement of targets, and an individual performance rating. Bonus amounts vary per grade as they are based on the relative BRPs of executive directors and senior officials.
Based on the cost to company, being the basic remuneration package plus pension contribution, the average group bonus paid under this scheme was 75.6% of group remuneration cost in F2017 (F2016: 58.4%).
| Committee approved formula | Achievement (excess or shortfall of actual over target), rated in terms of achievement factors (i.e. below 90% achievement = zero achievement factor and above 110% = 125% achievement factor) by (x) weighting of key performance area (scoring) x BRP x weighting of the two mines (on production) – this is calculated half yearly and per annum – all annualised = bonus of executive directors and senior management. |
|---|---|
| Payment frequency | Bonuses are paid twice annually based on the actual results achieved for each of the six months ending December and June. 75% of the calculated bonus is paid for each six-month period with the final 25% being calculated on the results for the full year. |
| Performance conditions | Set during the financial year by the committee and the board. Corporate office bonuses are paid on an average based on the performance of the two operating mines, Zondereinde and Booysendal. |
| Minimum and maximum possible bonus opportunity | Minimum can be zero and maximum 125% of BRP. |
| Proposed changes for F2018 | For the Booysendal mine the weighting of targets changed compared to F2017 in line with the development of Booysendal South. |
| SE&HR committee discretion | In consultation with the chief executive, the committee may vary both the formula, targets and/or the amounts payable. |
Short-term incentives: retention bonus scheme
The bonus is designed to retain skills within the company. Accordingly, any employee who is discharged or resigns before such bonus becomes payable forfeits the total amount accumulated.
An amount equal to 20% of the annual BRP is accumulated monthly over 24 months and paid after two years’ service in terms of this scheme. On retirement or retrenchment all accumulated bonuses are payable to employees. Employees taking early retirement will receive this bonus on a proportional basis in line with the same percentages as the share incentive plan rules.
All officials within the D3 Paterson grading and higher, including executive directors, are eligible to participate in the scheme. In F2017 the average group retention bonus paid was 9.4% (F2016: 11.1%) of the group cost to company remuneration.
Long-term incentives: details of share option scheme, share incentive plan and lock-in and incentive mechanism
The group currently operates the Northam share incentive plan (SIP or plan), which plan incorporates a long-term BEE transaction incentive plan (BIP), further details of which are set out in the “lock-in and incentive mechanism” section of this report. The Northam share option scheme has been discontinued owing to its dilutive nature. The share options issued before its discontinuance will be allowed to run their course until October 2017. Details of the options issued under the scheme are more fully disclosed in the directors’ report which forms part of the 2017 annual integrated report available at www.northam.co.za
Remuneration of executive directors in terms of both basic pay and the Northam SIP payouts are disclosed below in the remuneration report.
The SIP was introduced in 2011 in order to attract, incentivise and retain skilled senior managers. The target group for the SIP includes all senior officials and executives in job grades D1 and above. The SE&HR committee is responsible for the approval of the annual allocation of shares based on an approved formula, as well as any changes to the SIP rules. Details of the shares issued under the SIP are more fully disclosed in the directors’ report.
The awarding of shares is determined by means of a share option formula, approved by the SE&HR committee, which was provided to Northam by external experts after a review of industry share schemes in 2011. The formula takes into account factors such as the share price on award or grant date and the vesting period of the shares to be awarded. Both retention shares (without performance conditions) and performance shares (with performance conditions) are awarded.
Usually the awarded shares are not the number of shares that eventually vest, but the allocated shares (that is, the awarded shares after measurement against the performance conditions, three years later) are the number that vest and are paid out.
| Instruments used |
|
|---|---|
| Eligibility levels | Executive directors and all senior officials in Paterson D grade and above. |
| Performance conditions and performance measurement | See tables on pages 130 and 131 for typical combination of performance conditions, each factor weighted accordingly. From F2015 onwards these include a rate of return performance target/factors with a weighting of at least 30%. These shares will vest during F2018. |
| Vesting period | Three years for all shares |
| Company and individual limits | Total company limit of approximately 19.9 million shares (which includes the 5 million shares available in terms of the BIP) and approximately 2.0 million shares per cycle for individuals. |
| Minimum and maximum possible share payout | Minimum is the value of retention shares (as they have no performance conditions attached) and maximum largely depends on operational performance of the company when targets are measured against actual performance for conditional shares. This determines the number of shares eventually allocated, (which are normally lower than those awarded because of the performance conditions test) as well as the share price when shares vest. On measurement of the achievement of these targets/factors, each factor’s achievement rank depends on the extent of achievement for each factor over the three-year period, ranging from a ranking of 1 (which represents a 90 to 100% achievement of target). This means, up to 100% award of the conditional shares. This rises up to a ranking of 4, an achievement of over 105%, which may equate to a share number allocation of up to 135% of the original award. |
Lock-in and incentive mechanism (LIM)
The implementation of the BEE transaction with Zambezi Platinum has resulted in a variety of benefits for the group. The guarantee provided by Northam however, to the holders of preference shares issued by Zambezi Platinum may result in a decline in shareholder value. A number of shareholders expressed concerns with regard to the risk that the guarantee holds for Northam and its shareholders, and recommended that the company appropriately incentivise management to mitigate this specific risk.
In response to the above, shareholders approved and the SE&HR committee implemented the LIM in 2016. The LIM appropriately addresses the long-term and short-term incentivisation of key management to consistently maintain the Northam share price above the related preference share liability value over the term of the BEE transaction. The performance conditions attached to benefits under the LIM are directly related to the terms of the BEE transaction and are intended to align the interest of the LIM participants directly with those of the company’s shareholders.
Salient features of the LIM
The LIM comprises two separate mechanisms structured with specific reference to the terms of the BEE transaction and, more specifically, the potential guarantee liability:
Long-term BEE transaction incentive plan (BIP)
The BIP addresses the long-term incentivisation and retention of its participants by aligning their interests with shareholders through equity participation. The BIP is implemented through the SIP which was amended to incorporate the specific elements of the BIP. The BIP is implemented in addition to the SIP and does not replace or affect the SIP.
Short-term cash incentive bonus in respect of the BEE transaction (CIBB)
In view of the exceptionally long term of the BIP incentive (i.e. 10 years) and the benefit of compounded growth in the share price over this period, the CIBB considers the short-term incentivisation of management to continuously maintain the long-term objectives introduced by the BIP. Importantly, the CIBB also acts as a strong retention tool by financially penalising CIBB recipients that leave the employ of the group.
The combination of the BIP and CIBB provide the company with an effective mechanism for addressing the guarantee liability risk, motivating shareholder value creation over the long term and retaining essential skills in a competitive market.
Details of the BIP incorporated into the SIP
Terms and conditions
The BIP is effected through the SIP. Subject to certain exceptions, shares awarded in terms of the BIP (BEE conditional performance shares (BEE CPS)) are subject to the same terms and conditions as the ‘conditional shares’ under the current SIP rules.
Participants
The company limits participants in the BIP to the key members of Northam’s current and future key executive management team including the chief executive officer, chief financial officer, chief commercial officer, chief geologist (CG), chief technical officer (CTO), executive officer HR and the senior general managers of Booysendal and Zondereinde mines (participants). The positions of the CG and CTO have not been filled and remain subject to the employment of suitable candidates by the group and the BEE CPS allocated to these positions will not be issued in the event that they are not filled.
Number of shares to be allocated
In terms of the BIP an aggregate of 3.6 million BEE CPS were conditionally awarded to the following participants:
| Shares awarded to: |
Number of BEE CPS awarded |
|---|---|
| Chief executive officer | 1 500 000 |
| Chief financial officer | 700 000 |
| Chief commercial officer | 500 000 |
| HR executive | 500 000 |
| General manager: Zondereinde | 200 000 |
| General manager: Booysendal | 200 000 |
| Total | 3 600 000 |
| Number of issued Northam Platinum Limited shares | 509 781 212 |
| % representation | 0.71 |
The aggregate number of BEE CPS to be issued represents less than 1% of Northam’s current issued stated capital and may be settled in cash or shares at the election of the independent committee of the board responsible for administering the SIP at that time.
Vesting
Vesting will be subject to the satisfaction of the performance condition that Zambezi Platinum:
- fully settles the redemption amount; and
- fully settles or makes adequate provision for all its tax liabilities arising from settlement of the redemption amount
on the basis that no guarantee liability will arise and no member of the group will be required to give any direct or indirect financial assistance for the purposes of or in connection with the settlement of the redemption amount (BIP performance condition).
Vesting of BEE CPS will occur 30 business days after the date on which the BIP performance condition is fulfilled (which is expected to be 18 May 2025) or, in the event that vesting of the BEE CPS is accelerated in certain exceptional instances, as set out in the current rules in relation to conditional shares, including a change of control of Northam or an earlier date determined in accordance with the rules.
In the event that the BIP performance condition is not satisfied, the BEE CPS will, subject to certain exceptions, not vest. If BEE CPS do not vest, they will not be settled and no value will accrue to participants.
Upon vesting, BEE CPS may be settled either through the issue of no more than the 5 million new shares or in cash at the election of the committee. If cash settlement is elected the settlement amount will be established using the 60-day volume weighted average price (VWAP) of a share calculated on the day preceding settlement.
In the event that the preference shares are redeemed before the expected redemption date (i.e. 18 May 2025) and if the BIP performance condition is satisfied at that time, the BEE CPS will vest on a pro rata basis relative to the number of years of the performance period that has been completed at that time. Those BEE CPS that do not vest in such circumstances will lapse.
In the event that Northam undergoes a change of control, all the BEE CPS that have not vested will be treated in the same manner as other conditional shares and vest in full at that time irrespective of whether the BIP performance condition has been met or not. This is consistent with the existing rules.
Termination of employment
In order to retain key management, BEE CPS will lapse if a participant leaves the employ of the group before the vesting date unless his/her employment is terminated by reason of a no fault termination or early retirement.
No fault termination includes, inter alia, termination of employment by reason of a participant’s death, retrenchment, retirement, ill health, injury, disability or any reason that is not a fault termination. A fault termination comprises termination of employment by reason of, inter alia, resignation or dismissal.
In the event that a participant leaves the employ of the group by reason of no fault termination or early retirement before the vesting date, and such date is:
- Prior to 18 May 2020, then the BEE CPS which have not vested will lapse immediately; or
- After 18 May 2020, the participant will retain a proportionate amount of their BEE CPS which have not vested, calculated by reference to what proportion of the period from 18 May 2020 to 18 May 2025 has elapsed prior to the termination of employment.
This provision is further illustrated in the table below:
| Termination of employment between years: | % of BEE CPS retained |
|---|---|
| 0– 6 | 0 |
| 6– 7 | 20 |
| 7– 8 | 40 |
| 8– 9 | 60 |
| 9-10 | 80 |
BEE CPS retained in these instances will remain subject to the BIP performance condition and will only vest and be settled on the vesting date, together with BEE CPS held by other participants. In the event that a participant’s employment is terminated as a result of death, injury or ill-health, and the committee is of the reasonable opinion that the BIP performance condition is likely to be fulfilled, it may, in exceptional circumstances, allow that participant’s BEE CPS to vest and be settled immediately.
The rationale for retention by a participant of a portion of their BEE CPS after year 6 is that the key strategic decisions and actions affecting the value of a share over the BIP performance period are likely to be made during the first 5 years of this period. Thereafter, value delivery will depend upon, amongst other factors, the successful execution of such decisions as planned. Accordingly, it is deemed appropriate to allow for continued participation post year 5 notwithstanding termination of employment.
In the event that a participant leaves the employ of the group before the vesting date by reason of fault termination, that participant’s BEE CPS that have not vested will lapse.
Details of the CIBB
The CIBB is intended to comprise an incentive mechanism and a retention mechanism and further aligns management with the interests of Northam’s shareholders.
Participants in the CIBB will include the participants in the BIP and may include, from time to time, other employees of the group deemed to be critical to the group’s operations and strategy from time to time. Management will be required to recommend additional participants, whose participation will be subject to approval by the SE&HR committee.
Payments in terms of the CIBB will be made annually, subject to the fulfilment of the CIBB performance conditions, as set out below, as at the 31st trading day following the publication of the company’s financial results for each financial year (condition date).
Participants will receive, on an annual basis, 15% of their cost to company remuneration excluding performance bonuses, if the value of a share at the condition date (calculated as the 60 day VWAP of a share) is equal to or greater than the redemption amount per preference share.
Furthermore, participants will receive, on an annual basis, an additional 15% of their cost to company remuneration excluding performance bonuses, if the aggregate value of the shares held by Zambezi Platinum at the condition date (using the 60 day VWAP of a share) is sufficient to
- fully settle the redemption amount; and
- fully settle or make adequate provision for all Zambezi Platinum’s tax liabilities arising from settlement of the redemption amount, on the basis that no guarantee liability will arise and no member of the group will be required to provide any direct or indirect financial assistance for the purposes of or in connection with the settlement of the redemption amount.
This will effectively incentivise achievement of the CIBB performance conditions on an annual basis.
For the avoidance of doubt, no CIBB payment will be made unless the CIBB performance conditions are achieved in that year.
The CIBB will also act as a robust employee retention mechanism. In the event that a CIBB recipient leaves the employ of the group within 12 months of receiving a CIBB (restraint period) for reason of a fault termination, that person will be required to repay to the company, before the deduction of PAYE, the pro rata amount of the CIBB received (calculated according to the number of months remaining in the restraint period) (CIBB refund). The CIBB refund penalty intends to dissuade CIBB participants from leaving the employ of the group by financially penalising them if they leave.
The CIBB will be terminated upon settlement or lapse of the BEE CPS.
Employee participation schemes
Toro Employee Empowerment Trust
The group operates an employee profit share scheme for eligible employees at the Zondereinde mine in terms of which 4% of the Zondereinde after-tax profits are contributed to a registered trust fund (The Toro Employee Empowerment Fund). Eligible employees receive payment at the end of each five-year cycle, with the first payments having been made in F2013.
BEE shareholding in Northam
Employees and communities are participants in the BEE transaction approved in F2015 in terms of which communities hold 5% of Northam shares and eligible group employees (excluding management) own 3% of Northam (this is in addition to the 4% share of Zondereinde after-tax profits through the Toro Trust).
PART 3: IMPLEMENTATION REPORT – DETAILS OF F2017 PAY AND PROPOSAL FOR F2018
Directors’ remuneration
| Fees | Remuneration package# | Performance bonus | Benefits# | Gain on share-based payments |
Total | Tax paid by employees |
Net pay | |
|---|---|---|---|---|---|---|---|---|
| R000 | R000 | R000 | R000 | R000 | R000 | R000 | R000 | |
| Executive | ||||||||
| PA Dunne | – | 7 291 | 6 217 | 191 | – | 13 699 | (5 607) | 8 092 |
| AZ Khumalo | – | 3 555 | 3 018 | 168 | 3 158 | 9 899 | (3 911) | 5 988 |
| Non-executive | ||||||||
| PL Zim | 409 | – | – | – | – | 409 | (151) | 258 |
| R Havenstein | 825 | – | – | – | – | 825 | (275) | 550 |
| CK Chabedi | 624 | – | – | – | – | 624 | (245) | 379 |
| HH Hickey | 418 | – | – | – | – | 418 | (166) | 252 |
| TE Kgosi | 732 | – | – | – | – | 732 | (281) | 451 |
| AR Martin* | 245 | – | – | – | – | 245 | (121) | 124 |
| KB Mosehla | 515 | – | – | – | – | 515 | (212) | 303 |
| TI Mvusi | 284 | – | – | – | – | 284 | (131) | 153 |
| JG Smithies** | 164 | – | – | – | – | 164 | (49) | 115 |
| 4 216 | 10 846 | 9 235 | 359 | 3 158 | 27 814 | (11 149) | 16 665 |
- # During the current year the pension benefits were allocated to the remuneration package.
- * Mr Martin retired from the board of directors at the conclusion of the AGM on 9 November 2016.
- ** Mr Smithies was appointed as an independent non-executive director on 1 January 2017.
| Fees | Remuneration package | Performance bonus | Benefits | Gain on share-based payments |
Total | Tax paid by employees |
Net pay | |
|---|---|---|---|---|---|---|---|---|
| R000 | R000 | R000 | R000 | R000 | R000 | R000 | R000 | |
| Executive | ||||||||
| PA Dunne | – | 6 165 | 4 353 | 834 | – | 11 352 | (4 122) | 7 230 |
| AZ Khumalo | – | 3 006 | 2 436 | 441 | 3 707 | 9 590 | (3 431) | 6 159 |
| Non-executive | ||||||||
| PL Zim | 412 | – | – | – | – | 412 | (145) | 267 |
| R Havenstein | 717 | – | – | – | – | 717 | (264) | 453 |
| CK Chabedi | 496 | – | – | – | – | 496 | (169) | 327 |
| HH Hickey*** | 209 | – | – | – | – | 209 | (69) | 140 |
| TE Kgosi | 609 | – | – | – | – | 609 | (221) | 388 |
| AR Martin | 565 | – | – | – | – | 565 | (203) | 362 |
| KB Mosehla | 357 | – | – | – | – | 357 | (96) | 261 |
| TI Mvusi*** | 154 | – | – | – | – | 154 | (50) | 104 |
| ME Beckett**** | 247 | – | – | – | – | 247 | (98) | 149 |
| 3 766 | 9 171 | 6 789 | 1 275 | 3 707 | 24 708 | (8 868) | 15 840 |
- *** Mrs Hickey and Mr Mvusi were appointed as independent non-executive directors on 1 January 2016.
- **** Mr Beckett retired from the board of directors on 11 November 2015.
Below is an analysis of non-executive fees in respect of board and board committee services for the 2017 financial year. Fees are determined based on meetings attended.
| Board | Audit and risk committee |
Health, safety and environmental committee |
Investment committee |
Social, ethics and human resources committee |
Nominations committee |
Ad hoc fees |
Total | |
|---|---|---|---|---|---|---|---|---|
| R000 | R000 | R000 | R000 | R000 | R000 | R000 | R000 | |
| PL Zim | 366 | – | – | – | – | 43 | – | 409 |
| R Havenstein | 367 | 137 | 121 | 86 | – | 87 | 27 | 825 |
| CK Chabedi | 327 | – | 93 | 76 | 128 | – | – | 624 |
| HH Hickey | 284 | 134 | – | – | – | – | – | 418 |
| TE Kgosi | 327 | 138 | – | – | 157 | 60 | 50 | 732 |
| AR Martin | 115 | 91 | – | 11 | – | 28 | – | 245 |
| KB Mosehla | 327 | – | – | 60 | 128 | – | – | 515 |
| TI Mvusi | 284 | – | – | – | – | – | – | 284 |
| JG Smithies | 164 | – | – | – | – | – | – | 164 |
| 2 561 | 500 | 214 | 233 | 413 | 218 | 77 | 4 216 |
Below is an analysis of non-executive fees in respect of board and board committee services for the 2016 financial year. Fees are determined based on meetings attended.
| Board | Audit and risk committee |
Health, safety and environmental committee |
Investment committee |
Social, ethics and human resources committee |
Nominations committee |
Ad hoc fees |
Total | |
|---|---|---|---|---|---|---|---|---|
| R000 | R000 | R000 | R000 | R000 | R000 | R000 | R000 | |
| PL Zim | 340 | – | – | – | – | 72 | – | 412 |
| R Havenstein | 300 | 129 | 112 | 80 | 3 | 93 | – | 717 |
| CK Chabedi | 268 | – | 87 | 56 | 85 | – | – | 496 |
| HH Hickey | 154 | 55 | – | – | – | – | – | 209 |
| TE Kgosi | 268 | 129 | – | – | 113 | 72 | 27 | 609 |
| AR Martin | 273 | 160 | – | 56 | – | 76 | – | 565 |
| KB Mosehla | 219 | – | – | 53 | 85 | – | – | 357 |
| TI Mvusi | 154 | – | – | – | – | – | – | 154 |
| ME Beckett | 108 | 72 | 42 | – | 25 | – | – | 247 |
| 2 084 | 545 | 241 | 245 | 311 | 313 | 27 | 3 766 |
No individuals other than executive directors are considered to be prescribed officers. Details of the non-executive fees are disclosed above.
Mr Dunne did not have any retention or performance shares vesting as his tenure at the company remains below the three-year vesting period.
Details on the determination of existing and future short- and long-term incentives are included below.
Short-term incentives: senior management bonuses including executive directors
The elements used to determine the bonus paid out to senior management including executive directors were as follows for the year ended 30 June 2017:
| Zondereinde | Unit | Weighting | Achievement actual vs target | Scoring of achievement | Weighted score |
|---|---|---|---|---|---|
| % | % | % | % | ||
| Safety | TIIR | 30 | 103.4 | 115.0 | 34.5 |
| Linear metres | m | 10 | 93.3 | 30.0 | 3.0 |
| Square metres | m2 | 10 | 95.2 | 50.0 | 5.0 |
| Total tonnes milled | tonnes | 10 | 95.5 | 50.0 | 5.0 |
| Recoverable metals | kg | 15 | 93.3 | 30.0 | 4.5 |
| Total cash costs | R000 | 15 | 100.8 | 105.0 | 16.0 |
| Personal performance | rating | 10 | – | – | 0.0 |
| Net weighting percentage | 68.0 |
| Booysendal | Unit | Weighting | Achievement actual vs target | Scoring of achievement | Weighted score |
|---|---|---|---|---|---|
| % | % | % | % | ||
| Safety | LTIIR | 20 | 117.0 | 125.0 | 25.0 |
| Square metres | m2 | 30 | 102.2 | 110.0 | 33.0 |
| Total tonnes milled | tonnes | 15 | 108.2 | 123.0 | 18.5 |
| Total concentrator | |||||
| metals produced | tonnes | 15 | 102.8 | 110.0 | 16.5 |
| Total cash costs | R000 | 10 | 94.6 | 40.0 | 4.0 |
| Personal performance | rating | 10 | – | – | 0.0 |
| Net weighting percentage | 97.0 |
| Corporate office and shared service staff | % |
|---|---|
| Net weighting percentage | 83.0 |
The annual bonuses actually paid as a percentage of the basic remuneration plus benefits to executive directors were as follows for 30 June 2017:
| Bonus | Basic pay plus benefits | Bonus as % of basic pay plus benefits | |
|---|---|---|---|
| R000 | R000 | % | |
| PA Dunne | 6 217 | 7 482 | 83.1 |
| AZ Khumalo | 3 018 | 3 723 | 81.1 |
Typically, the bonus scheme is based on a weighted combination of key performance areas and targets which are largely under the control of management. By providing bonuses, the committee intends to incentivise management in areas/targets that they are able to influence. In this way, management is encouraged to manage the group to achieve best performance for the benefit of stakeholders. These targets are usually a weighted combination of safety performance, linear metres achieved, square metres achieved, total tonnes milled, recoverable metals produced, cash or total costs, and personal performance which includes transformation (referring to social employment quotas/criteria that must be met in terms of employment legislation in South Africa).
The following key performance targets have been set for the F2018 year:
| Zondereinde | Unit | F2017 weighting % |
F2018 weighting % |
|---|---|---|---|
| Safety | LTIIR | 30 | 30 |
| Linear metres | m | 10 | 10 |
| Square metres | m2 | 10 | 10 |
| Total tonnes milled | tonnes | 10 | 10 |
| Recoverable metals | kg | 15 | 15 |
| Total cash costs | R000 | 15 | 15 |
| Personal performance | rating | 10 | 10 |
| Net weighting percentage | 100 | 100 |
| Booysendal | Unit | F2017 weighting % |
F2018 weighting % |
|---|---|---|---|
| Safety | LTIIR | 20 | 20 |
| Square metres | m2 | 30 | 30 |
| Capital development: Booysendal South | m | – | 10 |
| Total tonnes milled | tonnes | 15 | 10 |
| Total concentrator metals produced | tonnes | 15 | 10 |
| Total cash costs | R000 | 10 | 10 |
| Personal performance | rating | 10 | 10 |
The reason for the change in the Booysendal key performance targets relate to the development of Booysendal South. Project execution will be key and it is therefore important that management is assessed based on the development at Booysendal South.
Long-term incentives: November 2013 allocation, vesting November 2016
The elements used to determine the long-term incentive payout were as follows for the year ended 30 June 2017:
| Factor | Target/criteria | Weighting % |
|---|---|---|
| Safety | An improvement of 10% on the previous financial years safety record | 30 |
| Estimated recoverable metals | Achieving the budgeted metal production | 40 |
| Unit cash costs | Achieving the budgeted unit cost | 30 |
| 100 |
| Factor | Target/criteria | Weighting % |
|---|---|---|
| Safety | An improvement of 10% on the previous financial years safety record | 35 |
| Estimated recoverable metals | Achieving the budgeted metal production | 30 |
| Unit cash costs | Achieving the budgeted unit cost | 25 |
| Capital development | Achieving the budgeted development metres | 20 |
| 100 |
Actual achievements for the financial year are indicated below for both Zondereinde and Booysendal:
| Factor and weighting and year | Safety | Recoverable metals | Unit cash cost | Total | ||
|---|---|---|---|---|---|---|
| 30% | 40% | 30% | 100% | |||
| Achievement per factor F2014 | Score | – | 79.0 | 93.0 | ||
| Achievement per factor F2015 | Score | – | 88.0 | 94.0 | ||
| Achievement per factor F2016 | Score | – | 97.0 | 109.0 | ||
| Achievement per factor F2017 | 0.0 | 0.0 | 100.0 | |||
| Percentage shares to be paid | 0.0 | 0.0 | 30.0 | 30.0 |
| Factor and weighting and year | Safety | Recoverable metals | Unit cash cost | Capital development | Total | |
|---|---|---|---|---|---|---|
| 25% | 30% | 25% | 20% | 100% | ||
| Achievement per factor F2014 | Score | – | 97.0 | 121.0 | 100.0 | |
| Achievement per factor F2015 | Score | – | 91.0 | 109.0 | 87.0 | |
| Achievement per factor F2016 | Score | – | 103.0 | 107.0 | 119.0 | |
| Achievement per factor F2017 | 135.0 | 100.0 | 135.0 | 100.0 | ||
| Percentage shares to be paid | 33.8 | 30.0 | 33.8 | 20.0 | 117.5 |
Corporate office and group services staff are incentivised based on the combined performance of Zondereinde and Booysendal. The percentage of shares paid was 73.8%.
For the 2018 financial year, the proposal is that the following targets and weightings should apply, as set out below:
| Factor | Target/criteria | Weighting % |
|---|---|---|
| Safety | An improvement of 10% on the previous financial years safety record | 30 |
| Estimated recoverable metals | Achieving the budgeted metal production | 30 |
| Unit cash costs | Achieving the budgeted unit costs | 20 |
| Absolute total shareholder return | Total shareholder return must be more than the weighted average cost of capital plus 1% | 10 |
| Relative shareholder return | Exceeding the platinum index return on the JSE on an absolute basis | 10 |
| 100 |
| Factor | Target/criteria | Weighting % |
|---|---|---|
| Safety | An improvement of 10% on the previous financial year’s safety record | 25 |
| Estimated recoverable metals | Achieving the budgeted metal production | 35 |
| Unit cash costs | Achieving the budgeted unit costs | 20 |
| Absolute total shareholder return | Total shareholder return must be more than the weighted average cost of capital plus 1% | 10 |
| Relative shareholder return | Exceeding the platinum index return on the JSE on an absolute basis | 10 |
| 100 |
Meeting or exceeding the proposed performance criteria requires considerable effort, and has a direct impact on the profitability of the group.
Measurement of performance criteria will be calculated at the end of each three-year financial period over which the shares vest, by applying the achievement percentages in respect of the individual criteria against the performance shares awarded:
| Achievement | % shares to be awarded |
|---|---|
| Achieve an aggregate score of less than 90% | Nil |
| Achieve between 90% – 100% of target | 100 |
| Achieve between 100% – 105% | 125 |
| Achieve in excess of 105% | 135 |
An achievement of less than 90% of target results in no shares being allocated at all. Every year the committee, with the assistance of management, assesses the allocation of both retention and conditional performance shares per employee.
Full details of the shares granted to the executive directors during the financial year are set out below:
Details of share incentives granted to executive directors
Analysis of share incentives held as at 30 June 2017:
| 4 Nov 2014 Share award | 11 Nov 2015 Share award | 8 Nov 2016 Share award | Total | |
|---|---|---|---|---|
| Retention shares and performance shares | ||||
| PA Dunne | ||||
| Balance at 1 July 2016 | 150 300 | 193 200 | – | 343 500 |
| Retention shares awarded during the year | – | – | 42 900 | 42 900 |
| Performance shares awarded during the year | – | – | 127 200 | 127 200 |
| Shares cash settled during the year | – | – | – | – |
| Balance at 30 June 2017 | 150 300 | 193 200 | 170 100 | 513 600 |
| Balance at 1 July 2015 | 150 300 | – | – | 150 300 |
| Retention shares awarded during the year | – | 48 700 | – | 48 700 |
| Performance shares awarded during the year | – | 144 500 | – | 144 500 |
| Shares cash settled during the year | – | – | – | – |
| Balance at 30 June 2016 | 150 300 | 193 200 | – | 343 500 |
Analysis of share incentives held as at 30 June 2017:
| 6 Nov 2012 Share award | 15 Nov 2013 Share award | 4 Nov 2014 Share award | 11 Nov 2015 Share award | 8 Nov 2016 Share award | Total | |
|---|---|---|---|---|---|---|
| Retention shares and performance shares | ||||||
| AZ Khumalo | ||||||
| Balance at 1 July 2016 | – | 78 000 | 150 300 | 193 200 | – | 421 500 |
| Retention shares awarded during the year | – | – | – | – | 20 900 | 20 900 |
| Performance shares awarded during the year | – | – | – | – | 62 000 | 62 000 |
| Shares adjusted for performance conditions met during the year | – | (20 280) | – | – | – | (20 280) |
| Shares cash settled during the year | – | (57 720) | – | – | – | (57 720) |
| Balance at 30 June 2017 | – | – | 150 300 | 193 200 | 82 900 | 426 400 |
| Balance at 1 July 2015 | 98 000 | 122 000 | 150 300 | – | – | 370 300 |
| Retention shares awarded during the year | – | – | – | 48 700 | – | 48 700 |
| Performance shares awarded during the year | – | – | – | 144 500 | – | 144 500 |
| Shares adjusted for performance conditions met during the year | (28 420) | – | – | – | – | (28 420) |
| Shares cash settled during the year | (69 580) | (44 000) | – | – | – | (113 580) |
| Balance at 30 June 2016 | – | 78 000 | 150 300 | 193 200 | – | 421 500 |
Details of share options to executive directors
A summary of the options held by executive directors at 30 June 2017 is as follows:
| Earliest and latest exercise date | Price per share in R |
Total number of options |
|---|---|---|
| PA Dunne | – | – |
| AZ Khumalo | ||
| 12 October 2012 and 11 October 2017 | 46.57 | 62 500 |
| Claw back rights options | 40.00 | 2 450 |
| Number of options held at 30 June 2017 | 64 950 |
During the year under review, Mr Khumalo received a payout of R0.6 million on the exercising of 62 500 options during the course of the year.
Subsequent to year end, Mr Khumalo received a payout of R0.3 million from exercising the balance of his options held at 30 June 2017.
A summary of the options held by executive directors at 30 June 2016 is as follows:
| Earliest and latest exercise date | Price per share in R |
Total number of options |
|---|---|---|
| PA Dunne | – | – |
| AZ Khumalo | ||
| 12 October 2012 and 11 October 2017 | 46.57 | 125 000 |
| Claw back rights options | 40.00 | 4 901 |
| Number of options held at 30 June 2016 | 129 901 |
Long-term incentives: details of lock in and incentive mechanism (LIM) shares granted to executive directors
Reward under the LIM is contingent on success. Failure to achieve the performance conditions within the required period may result in complete loss of potential benefits. Given the long-term nature of the Northam BEE transaction (10 years, subject to early closure in certain instances), the LIM is designed to cater for continued incentivisation of management during the term with the majority of benefits only being realised upon the successful conclusion of the BEE transaction which is expected to be 18 May 2025.
In addition to being an incentive, the LIM has also been designed to act as a retention tool for purposes of assisting the group in retaining the skills and expertise of its key management team throughout the duration of the LIM. The LIM comprises two parts:
- the BEE transaction incentive plan (BIP); and
- the cash incentive bonus in respect of the BEE transaction (CIBB).
Summary of the BEE CPS shares held by executive directors at 30 June 2017:
| PA Dunne | AZ Khumalo | |
|---|---|---|
| Balance at 1 July 2016 | – | – |
| Shares awarded during the year | 1 500 000 | 700 000 |
| Balance at 30 June 2017 | 1 500 000 | 700 000 |
No payouts or additional amounts were received in terms of the BIP or the CIBB granted to directors or any other employees during the course of the 2017 financial year.
Ms TE Kgosi
Chairperson
22 September 2017