The Remuneration Committee (RemCom), which is a committee of the ADvTECH Board, has the responsibility to oversee fair, responsible and transparent remuneration within the group.

The RemCom is pleased to present the ADvTECH Remuneration Report for the financial year ended 31 December 2018.

In line with the principles and recommended practices of the King Report on Corporate Governance for South Africa (King IV™), this Report is presented in three parts: Introduction (which includes a background statement), Remuneration policy overview and Implementation report.

PART 1: INTRODUCTION

Background statement

The group remains committed to creating a culture of high performance as well as to attract and retain high calibre individuals. Failure to attract and retain the right people may have a negative impact on the performance of the group and, consequently, on the returns to its stakeholders. ADvTECH remains a people centred business and therefore recognising and rewarding high performance is a key part of our remuneration philosophy.

In line with King IV™, the group's non-binding advisory vote on the remuneration policy was referred to shareholders for approval at the annual general meeting (AGM) held on the 31 May 2018. The inaugural implementation report will be presented to shareholders for approval at the AGM to be held on the 30 May 2019.

Shareholder engagement

As shareholders representing more than 25% of the issued shares voted against the 2018 remuneration policy, engagements were held with dissenting shareholders. The purpose of this engagement was to ascertain reasons for dissenting votes, to address legitimate and reasonable objections and to amend or clarify our remuneration policy, governance and/or processes.

 

Shareholder engagement

As shareholders representing more than 25% of the issued shares voted against the 2018 remuneration policy, engagements were held with dissenting shareholders. The purpose of this engagement was to ascertain reasons for dissenting votes, to address legitimate and reasonable objections and to amend or clarify our remuneration policy, governance and/or processes.


We believe that the engagement undertaken during the year is in line with King IV™’s intended outcome of understanding the legitimate and reasonable needs, interests and expectations of our key stakeholders and that all issues raised have been appropriately addressed. Going forward, shareholder engagements will continue in order to obtain their feedback on our remuneration policy and its implementation.

This is in line with our commitment to enhance our reporting, meet shareholder expectations and maintain accurate, transparent and relevant disclosure on the performance measures used to determine the award of short- and long-term incentives.

Fair and responsible pay

Principle 14 of King IV™ encourages governing bodies to ensure that organisations remunerate fairly, responsibly and transparently, to promote the achievement of strategic objectives and positive outcomes in the short-, medium- and long-term.

During the year, ADvTECH reviewed and approved the balanced scorecards for all executives, to ensure alignment with our strategic imperatives. A core component of the executive incentive scheme is to reward individual and team performance, based on individual and collective success and output in meeting agreed performance objectives. This performance-based remuneration philosophy is underpinned by a detailed and documented methodology approved by the RemCom and sound governance and management principles.

In 2019, the RemCom will continue to review the appropriateness of the principles of fair and responsible pay and will report any changes in the next remuneration report.



Remuneration Committee opinion The RemCom is of the view that:

  • Its mandate and actions comply with the principles as outlined in King IV™, the Companies Act 2008 and the JSE Listings Requirements. This is demonstrated by the composition of the committee as well as the disclosures provided in the report.
  • Members of the RemCom possess the required skills and experience to promote the principles of responsible remuneration within the group.
  • The implementation of the remuneration policy reflects the alignment between the group's strategic imperatives and the interests of the shareholders.
  • Based on the group's performance during the year under review the strategic imperatives have been partially met.
  • The appropriate structures exist, both at and below board level, to recognise and retain ADvTECH's top talent.

Members

All members of RemCom are categorised as independent non-executive directors. They are: SA Zinn (chair), JM Hofmeyr, KDM Warburton and J Zimmermann.  JM Hofmeyr and J Zimmermann were appointed to the committee in September 2018 and subsequent to year-end CH Boulle stepped down as a member.

RemCom meets as and when required and, during the year under review the committee met five times.



Board approval

The RemCom reviewed and recommended the remuneration report to the board for approval, which was obtained on 14 March 2019.


PART 2: REMUNERATION POLICY OVERVIEW

Remuneration philosophy

ADvTECH seeks to attract, retain, reward and develop high performing individuals within the group to promote the achievement of its strategic objectives and to ensure the group's long-term sustainability. As such, the group is committed to ensuring it remunerates fairly, responsibly and transparently in order to promote and advance diversity and transformation within the group.

We have developed competencies for identified key roles which, together with psychometric assessments, are used to validate the people we hire. It is our policy to implement performance goals against which we measure each individual's performance and reward. Our reward incentive structures are based on both short-term incentives and long-term incentives.

The following key principles of our philosophy shape and guide our remuneration policy and support value creation:

  • Attracting crucial skills to provide world-class education and recruitment.
  • Rewarding our employees for achieving strategic and operational priorities which in turn strengthens our ability to retain talented individuals.
  • Short-term incentives to recognise superior performance.
  • Long-term incentives as a retention and reward mechanism for key executives and managers to ensure continued alignment between management and stakeholder objectives for the long-term sustainability of the business.

Remuneration policy

The 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 reviewing and approving of remuneration and bonuses payable to executive management, is key to this process.

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.

A review of the remuneration policy and its implementation is therefore undertaken annually to ensure that it fulfils its purpose.

Benchmarking

The guaranteed remuneration and other benefits of executive directors, prescribed officers and other key senior executives are benchmarked periodically against the market and are aligned with group performance to ensure that remuneration packages remain competitive and appropriate.

Non-executive fees are benchmarked annually with the assistance of external consultants.

Remuneration structure

ADvTECH's remuneration structure consists of the three core elements:

  • Guaranteed remuneration;
  • Short-term incentive; and
  • Long-term incentive.

Remuneration is structured 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 short and long-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. Executive management is offered a remuneration structure similar to that of senior employees and management, and which consists of the same three elements.

Executive remuneration structure

Our remuneration policy seeks to achieve a suitable balance between guaranteed and variable remuneration. Variable short-term incentives and long-term incentives are each limited to a maximum of 100% for the group CEO of his guaranteed remuneration and 80% for the group FD.


The group CEO and group FD's total achievable remuneration packages are therefore made up as follows based on the maximum targets under the short- and long-term incentives schemes:



The RemCom considers this to be an appropriate mix to reward achievement of both short-term and long-term objectives.


Long-term incentives: MSI Scheme

The MSI scheme which was approved at the AGM held on 31 May 2017 replaced the previous Share Incentive Scheme 2010 ('old scheme') that had been in operation since 18 May 2010. Annual awards of forfeitable shares in the form of performance and retention shares are made to eligible participants.

The shares automatically vest in full after three years, on the achievement of the set targets and provided the individual is in employment on the vesting date and a minimum individual performance rating has been achieved over the three-year period.

The first award (a total of 1 781 289 shares) was made on

28 September 2017 and vests in 2020. The second award (a total of 2 266 166 shares) was made on the 27 September 2018 and vests in 2021. 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 2021 onwards were forfeited.

When considering retention, the RemCom takes the following into account:

  • Business critical skills;
  • Scarce skills;
  • Succession planning; and
  • Top performers.

The split in shares under the 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.

The MSI scheme has been designed to promote:

  • good performance in relation to predetermined performance objectives;
  • retention of valuable skills and experience; and
  • better alignment of executive management with shareholders.

Objective

The objectives are:

  • 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 of 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
  • alignment with current market practice and King IV™

Eligibility

Executive directors, prescribed officers, senior executives and managers participate in the MSI scheme.


Balance scorecard

The RemCom has approved the following performance conditions and targets:

Gateways:

  • achievement of the minimum average growth in normalised earnings per share (NEPS) target
  • achievement of the minimum return on funds employed target
  • achievement of a minimum individual performance rating

The participant must still be in the employ of the group at vesting date.

Committee discretion

The RemCom has absolute discretion in the interpretation and application of the rules to the MSI to determine the following:

  • individual participants based upon retention need
  • level of awards based on market benchmarks
  • allocation of awards between performance and retention share
  • classification of termination (good or bad leaver) on a case-by-case basis
  • performance measures, weightings and targets
  • vesting period and basis of vesting


Termination of employment or office

Non-executive directors are appointed in terms of a formal letter of acceptance and are not required to service notice periods.

Executive directors, prescribed officers and other key senior management are employed on standard employment agreements. Employment contracts for executive management do not provide for termination payments arising from incapacity, dismissal, voluntary resignation, retirement, retrenchment or redundancy. In addition, no contracted balloon payments are due to executives upon termination.

Notice period

The following notice periods are in place:


Voting on the Remuneration Policy

The shareholders of ADvTECH will be requested to cast a non-binding advisory vote on the remuneration policy at the AGM on 30 May 2019.

Our remuneration policy sets out the principles used to ensure competitive remuneration while complying with all applicable laws and codes. It applies to the payments, accruals and awards made to executive directors, non-executive directors, senior executives and prescribed officers for the year ended 31 December 2018.



PART 3: IMPLEMENTATION REPORT

Guaranteed remuneration – Executive directors, prescribed officers and senior executives

During 2018, the increases to executives' guaranteed remuneration were linked to CPI and adjusted according to individual performance ratings. The same method will be applied in 2019.

Short-term incentives

During the year under review, the NEPS target was not met.

Based on the group's balanced scorecard, additional non-financial performance goals or KPA's were formulated in line with our strategic objectives. These individual KPA's are aligned to the executive's area of influence.



Outcome of executive bonuses

The NEPS targets were not met for the year under review and therefore no bonus was earned in relation to this target. Bonuses approved for executives are due to their achievement against individual KPA's. The bonuses due to the group CEO and group FD are disclosed in section 3.3 below.

Executive bonuses due for the year under review amounted to 13% (2017: 8%) of the total bonus opportunity.




Non-executive director remuneration

ADvTECH seeks to appoint and retain high calibre non-executive directors to ensure meaningful deliberations of the board.

The fees payable to non-executive directors were approved by special resolution of the shareholders at the AGM held on 31 May 2018, as required by the Companies Act.

The voting outcomes on the non-executive director fees were as follows:


The RemCom recommends to the Board 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.


Annual fees payable to non-executive directors

The committee has proposed no increase in non-executive directors; fees for 2019, which will be tabled at the next annual general meeting, to be held on Thursday, 30 May 2019, for shareholder approval.


Committee statement

The RemCom is satisfied that it has fulfilled its role and responsibilities in terms of its mandate and that the group's remuneration policy has achieved its objectives for the year under review.

Approval

The board, on recommendation of the RemCom, has approved the remuneration report on the 14 March 2019. Shareholders will be requested to cast a non-binding advisory vote on the implementation report at the AGM to be held on 30 May 2019.

On behalf of Remuneration committee

Professor SA Zinn
Chair: Remuneration committee
13 March 2019