The employee value proposition offered by the group must be sufficient to attract people of the required calibre. Failure to attract the right people may have a negative impact on the performance of the group and, consequently, on the returns to its stakeholders.
People are the most important part of the group's business and remuneration therefore receives considerable attention. All members of RemCom are categorised as independent non-executive directors.
The members of RemCom are:
- SA Zinn (chair);
- CH Boulle;
- JM Hofmeyr; and
- KDM Warburton
RemCom meets as and when required and, during the year under review, the committee met five times.
RemCom seeks to entrench a culture of high performance by aligning the group's remuneration philosophy with its business objectives, values and strategy. It also ensures that remuneration practices are based on principles of sound governance.
The independence of RemCom in determining the remuneration and bonus policies for all employees, and in review and approval of remuneration and bonuses payable to executive management, is key to this process.
Remuneration is required to be benchmarked periodically against the market and aligned with group performance. This aims to ensure that remuneration packages remain competitive and appropriate. Remuneration, by its structure and level, seeks to attract and retain outstanding individuals and provide incentives for exceptional performance. This is achieved through a combination of guaranteed remuneration, incentive rewards of a long- and short-term nature, and conditions of service. Guidance is provided in the group's integrated remuneration policy, which seeks to combine and calibrate all forms of remuneration.
Overall, the committee is satisfied that the group's remuneration policy has achieved its objectives for the year under review.
Conditions of employment are reviewed from time to time against best practice and, where necessary, improvements to conditions of employment are implemented with due regard to the cost implications and their impact on staff. In an education environment, non-material aspects (such as study leave and study assistance) are welcomed by employees.
During the year under review, the group was re-certified as a Top Employer with an improved score. While delighted with the acknowledgement of its policies and processes, the group is currently assessing those areas where it can further improve its practices and processes.
The non-binding remuneration vote on the remuneration policy was referred to shareholders for approval at the annual general meeting (AGM) held on 31 May 2017. Shareholders approved the group's remuneration policy with a non-binding advisory vote of 89.72%. In event that either the remuneration policy or the implementation report, or both, are voted against by 25% or more of the votes exercised, the board will send out an invitation to engage with dissenting shareholders in this regard.
Guaranteed remuneration is offered on a cost-to-company basis. This includes benefits such as medical aid (optional) and retirement funding (mandatory). Employees who are not on medical aid are offered free accident insurance, including funeral cover.
Performance remuneration in the form of incentives, bonuses and profit sharing is included in certain employment categories, where it is likely to lead to enhanced performance of the group. Incentive opportunities range from 5% to 100% (and, in exceptional circumstances discussed below, may exceed 100%) of guaranteed cost-tocompany packages. Performance management requires the setting of agreed key performance indicators (KPIs) with management at the beginning of each year.
Employees' performance is measured against the agreed indicators and increases, bonuses and other incentive-related remuneration are determined according to the achievement of these agreed KPIs. Performance remuneration and salary increases are based on review of the market data at the time; consideration of individual performance and overall brand and group performance.
The group has disclosed the remuneration of its prescribed officers.
They are the three highest paid employees and are not directors of the group.
Incentive remuneration principles
In implementing the remuneration policy at executive management level:
- management continues to work towards their stretch target (set in 2015) of achieving normalised earnings per share (NEPS) of 100 cents by 2018, which forms the basis of financial performance aspect of the group's strategy as approved by the board;
- annual interim targets, which are in effect building blocks leading towards the achievement of the stretch target, were set and have been agreed with executive management;
- failure to meet certain pre-agreed goals could lead to penalties of up to 50% of an executive's bonus being imposed per instance of non-achievement;
- the scheme provides for payment of annual bonuses over a four-year period, which rewards management for meeting budget, but provides further incentive to exceed budget and the stretch target;
- having regard to the target of 100 cents set by management, the board formulated a scheme for payments of executive bonuses on the achievement of a stretched target of NEPS of 102 cents by 2018. Predetermined criteria and annual steps towards this target have been established;
- executives have KPIs based on the achievement of a combination of group and divisional or individual targets with detailed individual hurdles set and calibrated according to each executive's specific area of responsibility and performance targets for that area;
- a bonus opportunity of 100% of annual package is available to the group CEO upon achievement of agreed KPIs, with provision made for the CEO to earn in excess of 100% of his cost to company package for significant outperformance of the agreed stretch target;
- other executives have sliding scale bonus opportunities of up to 80% of annual package, again with provision made for the executives to earn in excess of 80% of their cost to company package for significant outperformance of the agreed stretch target;
- for the 2017 financial year, executive bonuses, accrued at year-end but paid after year-end, amounted to 8% (2016: 74%) of the bonus opportunity;
- Ex gratia payments may be considered by the RemCom.
Notes 16 and 17 to the annual financial statements contains more information regarding the share incentive scheme.
Details of the 2018 targets are set out below with a breakdown of the bonus opportunity available at various levels. The hurdles to be achieved by executives in 2017 were based on the third step in the 2018 targets.
Long-term incentive bonus scheme
The long-term incentive bonus scheme extends over a period of three years and is payable at various rates dependent on the compound annual growth rate of NEPS achieved by the group in the final year. This scheme comes to an end in 2019.
This scheme applies to employees in management that are not participants of either the share option or share award schemes.
Remuneration is structured according to the following framework:
To encourage a high-performance culture within the group, each employee has agreed KPIs that create a direct link between performance and remuneration. Managers review each employee's performance during the year against these KPIs, so that changes can be made in appropriate circumstances, and high performers can be rewarded.
Appropriate recognition is given to the qualifications of professional employees.
All remuneration is benchmarked annually, with remuneration of educators and academic employees being benchmarked against the State and other comparable institutions.
The remuneration of recruitment employees is based on an incentive structure linked to rigorous quality standards, with consultants and supervisors receiving performance-related packages that include a significant portion of variable pay. Remuneration of recruitment staff is reviewed quarterly and adjusted in appropriate circumstances.
Senior employees and management
The remuneration structure for senior employees and management encompasses three elements:
- guaranteed cost-to-company package;
- annual incentive remuneration based on predetermined KPIs; and
- variable long-term incentive remuneration in the form of an opportunity to participate in either the ADvTECH Limited share incentive scheme/Management Share Incentive Scheme (MSI) or the long-term incentive bonus scheme.
No new awards are being made under the ADvTECH Limited share incentive scheme and the long term incentive bonus scheme.
Executive management is offered a similar remuneration structure to that of senior employees and management, which consists of the same three elements.
Share incentive scheme
The MSI scheme which was approved at the AGM held on 31 May 2017, replaced the existing Share Incentive Scheme 2010 ("old scheme") that has been in operation since 18 May 2010.
The MSI has been designed to:
- promote good performance in relation to predetermined performance objectives;
- retain valuable skills and experience; and
- better align executive management with shareholders.
The MSI has the following objectives:
- drive the longer-term strategic and sustainable performance of ADvTECH;
- motivate participants to achieve the strategic objectives, thereby aligning shareholder and management interests;
- reward management for their contribution to the delivery upon the long-term strategic objectives;
- attract future key talent in a competitive market with market-related variable earnings;
- retain key talent to ensure sustainable performance of ADvTECH;
- facilitate succession planning; and
- alignment with current market practice and the King Code on Corporate Governance for South Africa
RemCom has absolute discretion in the interpretation and application of the following rules to the MSI:
- the allocation between performance and retention shares;
- performance measures, weightings and targets;
- vesting period and basis of vesting in relation to any new awards made;
- the level of awards based on market benchmarks; and
- classification of termination (bad leaver or good leaver) on a case by case basis.
The MSI makes use of Forfeitable Shares. The Forfeitable Shares are in the form of performance shares and retention shares. Annual awards of both performance and retention shares are made to eligible participants. Performance shares are awarded against strictly monitored targets, which, if not met, result in the forfeiture of the shares. An individual will only be considered for an award if they have attained a threshold individual performance rating in their most recent performance review. The shares automatically vest in full after three years, provided the individual is in employment on the vesting date, and provided a minimum individual performance rating has been achieved over the three year period.
The first awards (a total of 1 781 289 shares) were made on 28 September 2017, with the first vesting of shares to be in 2020. Unvested shares carry dividend rights and voting rights. In order to be eligible to receive an award of Forfeitable Shares under the new MSI, participants were required to relinquish their rights under the old scheme and all rights to vesting of the old scheme from 2020 onwards were forfeited. In order to qualify to be eligible for the MSI, an employee needs a minimum rating of "better than meets objectives".
The split in shares under the first award favours performance-based targets over retention-based awards, with weightings being 75% performance and 25% retention for executives, and 60% performance and 40% retention for other participants.
Shares are awarded proportionately between the minimum and maximum targets.
The fees payable to non-executive directors were approved by special resolution of the shareholders at the AGM held on 31 May 2017, as required by the Companies Act. The proposed fees for non-executive directors for 2018 will be placed before shareholders at the AGM on 31 May 2018 for approval. The remuneration committee makes recommendations to the board on fees to be paid to non-executive directors during the year.
Non-executive directors' remuneration is based on a combined annual retainer and a fee for attendance at meetings.
On behalf of remuneration committee
Professor SA Zinn
Chair: Remunerations committee
15 March 2018
* The return on funds employed is calculated by dividing the normalised EBIT by the average funds employed for the year. The funds employed for each year is calculated by taking total assets for the year less cash balances and all non-interest bearing liabilities.
** The average WACC that is applicable during the relevant performance period.