Remuneration report
| Remuneration Policy
This report describes the activities of the Remuneration Committee for the period ending 31 December 2015. Our Remuneration Policy, a summary of which is set out below, was approved by
shareholders on 6 May 2015 and is on our website and forms part of our online Merafe’s primary remuneration intent is to employ and reward high calibre and
high performing employees who subscribe to the values and culture of our
Company. We recognise that our employees are integral to the achievement of
our corporate objectives and that they should be remunerated accordingly for Our remuneration strategy is designed to be aligned with our business strategy
and its execution. As we strive to attract, retain, motivate and reward employees
The Remuneration and Nomination Committee Responsibility for the Company’s remuneration policies rests with the Merafe
Resources Board of Directors, which has in turn appointed the Remuneration and The committee comprises three members, all of whom are non-executive directors. The Chairperson of the committee and the majority of its members are independent. The committee is governed by formal terms of reference approved by the Board. The primary role of the committee is to ensure that the Company’s directors and
senior executives are paid fairly for their individual contributions to the Company’s This role essentially consists of:
The committee is responsible for making recommendations to the Board on
Remuneration Policy for the directors and, to the extent it deems necessary, The committee meets formally at least three times a year. The Chairperson of
the Board and the CEO attend meetings to discuss the performance of other The Chairperson of the committee may meet with the CEO and the Company
Secretary to discuss important issues and agree on the agenda. The CEO, other The Remuneration Committee reviews the benefits offered by the Company to
determine whether they are appropriate and competitive given the industry, the The Board performs an evaluation of the effectiveness of the committee on an annual basis. Remuneration PolicyThe key principles of Merafe’s Remuneration Policy are:
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Executive remuneration
Executive remuneration as set out in the Remuneration Policy is aligned with the Company’s strategic objectives. The Remuneration and Nomination Committee conducted an independent benchmark of executive remuneration during 2015.
Executive pay mixExecutive pay mix is defined as the balance targeted between the major components of executive remuneration, namely:
| • | Guaranteed pay – based on total guaranteed cost to company (TCTC), being the combination of basic salary and benefits Guaranteed pay is designed to attract and retain talented employees, reflect the scope and nature of the role and provides competitive pay and rewards performance. |
| • | Performance variable pay, being made up of on target reward from short-term incentives in the form of annual cash incentives and the expected value from long-term (share-based) incentives. Performance variable pay is designed to motivate and rewards achievement of business and individual performance and keep employees focused on the defined business imperatives |
| • | Long-term incentives are designed to drive sustainable longer-term performance, retain key skills by linking performance to long-term value creation, encourage loyalty and ownership (by aligning the interests of executives to those of the Group and its shareholders), and wealth creation. |
The balance between guaranteed pay (total cost to company), targeted annual
cash incentives and the expected value from long-term (share-based) incentives for
executives is shown in the pie charts on the right and in the diagram below.
Note: Expected value is defined as the present value of the future reward outcome of an offer, given the targeted future performance of the Company and of its share price. It should not be confused with the term ‘fair value’ which is used when establishing the accounting cost for reflection in a company’s financial statements. Neither should it be confused with the term ‘face value’ which is used to define the current value of the underlying share at the time of an offer.
Relative apportionment between the major elements of reward| Chief Executive Officer | Executive director |
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EXECUTIVE AND EMPLOYEE REMUNERATION PRINCIPLES/STRUCTURE
Note that, through acquisitions and business combinations over time, and due to the impact of individual and business performance, actual pay mix will inevitably deviate from the targeted pay mix structure.
Merafe’s executive remuneration aims to align employee incentives with the interests of our shareholders.
Guaranteed remunerationMerafe aims to establish and maintain an integrated pay line with pay levels that ensure that it is able to remain competitive, while managing costs. Salaries and benefits are reviewed annually and are targeted broadly at the median position in the relevant market. The Company conducts regular market pricing exercises against the top management reward surveys. The benchmark used is the median total guaranteed cost of employment for similar positions in similarly sized listed companies. When deciding on salary reviews the Remuneration and Nomination Committee also takes into account business performance, salary practices prevailing for other employees in the Company and, when setting individual salaries, the individual’s performance and experience in the role.
Short-term incentives 2015Merafe’s annual incentives are aimed at rewarding a combination of both business and individual performance. Business performance (a weighted combination of financial performance and key strategic metrics) determines the size of a bonus pool for the Company and individual contributions to this performance (measured in terms of individual value driver scorecards) determine the bonus pool’s distribution to individuals.
Business performance is assessed in terms of a select scorecard of performance indicators, covering both financial and non-financial sustainability elements. Actually achieved performance against a targeted EBITDA which is given a weighting of 60% as is the achievement of additional ferrochrome business (as defined from time to time) and other sustainability factors, which include optimal funding, growth and (as submitted in a body of evidence and approved by the Remuneration and Nomination Committee) which is given a weighting of 40%.
These metrics are assessed against a five-point scale as follows:
| Role | On-target bonus | |
| Chief Executive Officer | 50% of TCtC | |
| Executive directors | 40% of TCtC | |
| Senior management | 30% of TCtC | |
| Management | 25% of TCtC | |
| Admin | 15% of TCtC |
The formula for determining the cash bonus is described by the following
example:
| • | TCTC X 50% (CEO) + TCTC X 40% (exec directors) etc. = On-target bonus |
| • | Individual Performance Score 3.25 = 110% of On-target bonus |
| • | Performance pool created using the measurements of EBITDA and Business metrics described above. |
| • | Example rating out of five against the two measurements = 2.5 |
| • | On-target bonus pool = the sum of all on-target bonuses |
| • | Pool to be distributed = 50% of the on-target bonus pool i.e. score of 2.5 / 5 results in 50% of the potential bonus being created as an actual bonus. |
| • | The sum of all bonus claims (i.e. all employees who qualify for a bonus) is modified against the pool to be distributed and each participant receives this modified percentage of their personal score |
| • | This individual receives 110% of the modified pool to be distributed % |
Intended changes to the short-term incentive policy 2016
During February 2016, a decision was made by the Remuneration and Nomination Committee to follow a less mechanistic approach in determining the bonus awards. In this regard, the incentive scheme performance measures are assessed by the Remuneration and Nomination Committee and these measures are determined by taking into account corporate, individual, financial and nonfinancial criteria (see the updated Remuneration Policy on our website and 2015 online report). The total short-term incentive pool available is capped at 3% of net profit after tax. No bonuses are payable where the net profit after tax in any financial year is less than R100 million. In addition, the percentage for short-term incentives is capped for the various categories of employees as set out below:
| Position | Maximum % of TCTC | |
| Chief Executive Officer | 100 | |
| Executive directors | 80 | |
| Senior management | 60 | |
| Management | 50 | |
| Admin | 30 |
Long-term (share-based) incentives
The intention behind the offer of long-term (share-based) incentives is both to reward employees, including executive directors, for long-term performance and shareholder alignment, and to serve as a retention mechanism for employees whose services are regarded by the Company to be crucial to its future growth and sustainability.
Share incentive schemesOn 14 December 1999, Merafe’s shareholders approved a share option scheme for employees (including executive directors) of the Company and its subsidiaries to encourage employees to identify more closely with the activities of the Company and to promote its continued growth by giving them an opportunity of acquiring shares in the Company.
All options vest one third per year on the third, fourth and fifth anniversaries and are settled by physical delivery of shares against receipt of payment of the option price. These options lapse if not exercised after 10 years by employees and options are forfeited when an employee resigns from the Group not having exercised his/her options.
On 13 April 2010, a new share incentive scheme was approved by shareholders providing for offers of both share options and full value (free) shares. The offers of full value (free) shares for directors were split 50%/50% between performance-oriented awards being subject to performance vesting conditions and retention-oriented grants with no performance conditions other than continued employment.
All offers vest in equal tranches on the third, fourth and fifth anniversary and are settled by physical delivery of shares. Alternatively, the Company has the right to settle the value accruing to an individual via the payment of an equivalent value cash bonus as per the policy guidelines.
The Board of Directors of the Company, on the recommendation of the Remuneration and Nomination Committee, made various offers of share options and full value (free) shares during 2010, 2011 and 2012.
| Performance/vesting curve |
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In 2012, the Remuneration and Nomination Committee made a decision to vary the balance between performance-oriented awards and retention-oriented grants and to simplify the performance criteria that determine vesting of the performance-oriented awards. From 2013 awards are governed by a single performance metric that compares Merafe’s total shareholder return over a three-year period with that of a selection of JSE-listed small cap mining and resources companies.
The peer group has been selected based on market capitalisation, using a basket of resource companies larger and smaller than Merafe.
The comparator group is set out in our Remuneration Policy and consists of 12 listed companies in the resource sector.
Using the above companies as a benchmark vesting of grants will be in accordance with the following curve:
If Merafe’s TSR over the three-year period places it in one of the top three positions, then the full number of performance granted shares will vest in equal proportions on the third, fourth and fifth anniversaries of their grant.
If Merafe’s TSR over the three-year period places it in sixth position, then one third of the number of performance granted shares will vest in equal proportions on the third, fourth and fifth anniversaries of their grant.
If Merafe’s TSR over the three year period places it in 10th or below 10th position, then none of the granted shares will vest.
If Merafe’s performance over the three-year period lies between any of the above, then a prorated number of performance granted shares will vest in equal proportions on the third, fourth and fifth anniversaries of their grant.
The fundamental principles governing Merafe’s revised long-term incentives are as follows:
| • | Share options and share grants are only offered at the discretion of the Board |
| • | Full value share offers are made annually to all employees, the targeted reward of which is dictated by the Company’s reward strategy – pay mix |
| • | Performance-oriented share awards and retention-oriented grants are offered to senior managers and above, with the proportion of awards, in relation to grants, increasing with seniority as per Table A set out below |
| • | Performance-oriented award values are calculated as a percentage of an individual’s total cost to company guaranteed package |
| • | Retention-oriented grant values in any one year are, at the discretion of the Board, calculated either as a percentage of the current total cost to company guaranteed package, or as a percentage matching of the past year’s annual incentive payout |
| • | Performance-oriented grants predominate over retention-oriented grants at senior levels. |
Table A
| Grouping | Participant numbers |
LTIP (expected value) |
Target offer value |
Balance performance/ retention |
Award value (performance) |
Target grant value (retention) |
Target grant value (retention) |
|
| % TCtC |
% TCtC |
% TCtC |
% TCtC |
% TCtC |
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| Chief Executive Officer | 1 | 70 | 50 | 70/30 | 35 | 15 | 33 | |
| Executive director | 2 | 50 | 35 | 60/40 | 20 | 15 | 40 | |
| Senior management | 3 | 40 | 30 | 50/50 | 15 | 15 | 55 | |
| Management | 2 | 30 | 25 | 0/100 | 25 | 100 | ||
| Administration | 4 | 20 | 15 | 0/100 | 15 | 100 |
Claw back
Any remuneration previously paid to executive directors that are subsequently found to have been the result of criminal or otherwise illegal activities must be repaid to the Company.
In the event of restatement of the Company’s results (other than a restatement caused by a change in accounting policy, standards or interpretation) which results in lower performance-based remuneration had it been calculated on the restated results, the Remuneration Committee shall review such performance based remuneration and determine the amount to be recovered from the executive.
Non-executive directors’ fees
In accordance with Merafe’s policy of ensuring that non-executive directors’ fees
are market related, the Company consults regularly with independent experts
regarding the appropriate fee structures and levels, the last review having been
undertaken in November 2015. The 2015 benchmark exercise concluded that the
fees of the current Board and committee fees were market related. The committee
decided not to increase the fees for 2016.
The fees for non-executive directors are provided in the context of good governance, and in line with the strategy of attracting and retaining high calibre individuals as custodians of the Company’s business.
Fees are primarily derived from a methodology which takes into account expertise, the contribution made by the director, and attendance. Independent benchmark advice is sought and the present policy is that non-executive directors’ fees are positioned midway between the median and upper quartile of those fees found in listed companies of a similar size. The fees vary according to the different roles that non-executive directors undertake in the various committees.
To avoid any conflict of interest, non-executive directors do not, and will not, participate in any share-based incentive scheme or any other incentive scheme that the Company may implement.
Non-executive directors’ fees are tabled annually for approval by the shareholders of the Company. The non-executive directors’ fees paid during 2015 are set out below, as are the proposed non-executive fees for 2016.
Fees are based on four meetings a year with a split of a 60% retainer and a 40% attendance fee. In addition, attendance fees are payable for special Board or committee meetings. Should the Chairpersons of the Board and committees be required to undertake ad hoc duties, additional remuneration is payable for the time spent, in accordance with Merafe’s Remuneration Policy and as determined by the Board.
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A detailed breakdown of share options and share grants can be found in note 8 of our annual financial statements. |
Directors’ remuneration, as presented for approval at the Annual General Meeting, is based on four meetings a year and is unchanged from 2015. It is proposed that the non-executive director fees for 2016 be kept the same as the approved fees for 2015.
| 2016 | |||||
| Committee | Membership | Proposed annual cost |
Proposed retainer per annum |
Proposed meeting fees per annum |
|
| Board | Chairperson | 492 291 | 295 375 | 196 917 | |
| Member | 265 350 | 159 210 | 106 140 | ||
| Audit and Risk | Chairperson | 191 500 | 114 900 | 76 600 | |
| Member | 120 085 | 72 051 | 48 034 | ||
| Remuneration and Nomination | Chairperson | 103 516 | 62 109 | 41 406 | |
| Member | 63 185 | 37 911 | 25 274 | ||
| Social, Ethics and Transformation | Chairperson | 103 516 | 62 109 | 41 406 | |
| Member | 63 185 | 37 911 | 25 274 | ||
None of the fees above result in a proposed fee being above the median. The restructuring of the Board to fewer non-executive directors in 2015 has resulted in a
saving in non-executive fees for 2015.
These fees are paid in accordance with the approved fees set out above. We held five Board meetings during 2015 including a strategy session. We also held four Audit and Risk Committee meetings, four Remuneration and Nomination Committee meetings and three Social, Ethics and Transformation Committee meetings in 2015.
| C Molefe (Chairman) |
N Majova | A Mngomezulu | K Nondumo | M Mamathuba | S Blankfield | M Mosweu | Z van der Walt | Total | ||
| Board | 541 521 | 291 886 | 265 350 | 265 350 | 25 152 | 172 478 | 265 350 | 291 886 | 2 118 973 | |
| Audit and Risk | – | 120 085 | 108 077 | 191 500 | – | – | – | 120 085 | 539 747 | |
| Remuneration and Nomination | 63 185 | – | – | – | – | 34 752 | – | 103 516 | 201 452 | |
| Transformation | 56 867 | 93 164 | – | – | 5 989 | – | 28 433 | – | 184 453 | |
| 2015 | 661 572 | 505 135 | 373 427 | 456 850 | 31 141 | 207 230 | 293 784 | 515 486 | 3 044 624 |
Executive directors' and prescribed officers' remuneration
| Salary R'000 |
Bonus and performance related payments R'000 |
Fringe benefits and leave pay R'000 |
Provident fund contributions R'000 |
Exercise of share options and share grants R'000 |
Severance pay R'000 |
Total R'00 |
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| 2014 | ||||||||
| Executive directors | ||||||||
| ZJ Matlala | 3 409 | 2 798 | 313 | 511 | 1 132 | – | 8 163 | |
| DC Chocho* | 2 527 | 1 824 | 374 | 379 | 3 518# | 4 686 | 13 308 | |
| B McBride | 2 901 | 1 907 | 457 | 435 | 2 339 | – | 8 039 | |
| Prescribed officers | ||||||||
| K Bissessor | 1 224 | 1 224 | 172 | 169 | 292 | – | 2 635 | |
| A Mahendranath^ | 526 | 614 | 121 | 73 | 1 448+ | 1 269 | 3 821 | |
| 2015 | ||||||||
| Executive directors | ||||||||
| ZJ Matlala | 3 618 | 3 822 | 283 | 635 | 2 019 | – | 10 377 | |
| K Bissessor | 1 806 | 1 643 | 237 | 310 | 269 | – | 4 265 | |
| B McBride(a) | 6 456 | – | 448 | 91 | 4 441(b) | 5 411 | 11 037 |
| * | Resigned 31 December 2014 |
| ^ | Resigned 30 September 2014 |
| (a) | Resigned 2 March 2015 |
| # | Includes R990 000 retrenchment share grants |
| + | Includes R338 000 retrenchment share grants |
| (b) | Includes R1 014 000 retrenchment share grants |
Share options outstanding at 31 December 2015 in favour of directors and prescribed officers of the Company (000s)
| ‘000s | ZJ Matlala | K Bissessor | |
| Average exercise price (cents) | 136 | 69 | |
| Exercisable on 30 June 2009 | – | – | |
| Exercisable on 30 June 2010 | – | – | |
| Exercisable on 31 December 2010 | – | – | |
| Exercisable on 1 March 2011 | – | – | |
| Exercisable on 30 June 2011 | – | – | |
| Exercisable on 1 March 2012 | – | – | |
| Exercisable on 1 March 2013 | – | – | |
| Exercisable on 1 April 2012 | – | 1 000 | |
| Exercisable on 1 April 2013 | – | 1 000 | |
| Exercisable on 1 April 2014 | – | 1 000 | |
| Exercisable on 1 October 2013 | 885 | – | |
| Exercisable on 1 October 2014 | 1 770 | – | |
| Exercisable on 1 October 2015 | 1 770 | – | |
| Exercisable on 1 October 2016 | 885 | – | |
| Total | 5 310 | 3 000 |
Share grants outstanding as at 31 December 2015 to directors and prescribed officers
| Vesting | ZJ Matlala | K Bissessor | |
| 1 October 2014 | 114 275 | – | |
| 29 October 2016 | 457 094 | – | |
| 1 April 2014 | 17 456 | 4 100 | |
| 1 April 2015 | 17 456 | 4 100 | |
| 1 April 2016 | 139 650 | 81 991 | |
| 4 May 2016 | 183 950 | 70 754 | |
| 4 May 2017 | 183 950 | 70 754 | |
| 13 June 2016 | 1 488 584 | – | |
| 13 June 2017 | 1 488 584 | – | |
| 6 March 2016 | 759 575 | 166 600 | |
| 6 March 2017 | 759 575 | 166 600 | |
| 6 March 2018 | 759 575 | 166 600 | |
| 1 April 2017 | 626 752 | 136 182 | |
| 1 April 2018 | 626 752 | 136 182 | |
| 1 April 2019 | 626 752 | 136 182 | |
| 1 April 2018 | 850 548 | 302 337 | |
| 1 April 2019 | 850 548 | 302 337 | |
| 1 April 2020 | 850 548 | 302 337 | |
| Total | 10 801 624 | 2 047 056 |
| Notes: | |
| • | Share options granted under the share incentive scheme approved by shareholders on 14 December 1999 are not subject to performance criteria and vest one third per year on the third, fourth and fifth anniversaries and are settled by physical delivery of shares against receipt of the option price |
| • | Share options and share grants under the Company’s share incentive scheme approved by shareholders on 13 April 2010 are subject to performance conditions |
| • | In 2010, 2011 and 2012 the performance conditions related to market and non-market conditions, being capacity growth, assets under management, being a participant on the JSE SRI Index and performance against the JSE small capitalisation index and mining index (all with the weighting of 25% each) |
| • | In 2013, the performance criteria for share grants and/or options were amended and that from 2013 share options or grants would be governed by a single performance metric that compares Merafe’s total shareholder return (TSR) over a three-year period with that of a selection of JSE listed, small cap mining and resources companies |
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For more information on the performance conditions, see our Remuneration Policy and see our annual financial statements, which form part of our online integrated report for 2015. |