Remuneration policy and implementation report

REMUNERATION PHILOSOPHY

Key tenets of our remuneration philosophy are that we act fairly and responsibly in our approach to employee remuneration and benefits at all times, ensuring our actions are sustainable, that they underscore our objective of being an employer of choice, and are aligned with the strategic and operational requirements of the business.

The objective of the group’s remuneration policy is to ensure that we attract and retain employees of the right calibre and skills and motivate them to achieve exceptional performance aligned with our strategic priorities. We aim to reward employees fairly and equitably through both financial rewards and non-financial benefits such as performance recognition, development and career opportunities. We believe our employees and their representative trade unions, where relevant, value the consistency and predictability of how the terms and conditions of employment are determined. The remuneration committee is satisfied that the remuneration policy has achieved its objectives.

Total rewards are set at levels that are competitive within the gaming, entertainment and hospitality sectors and the group utilises market surveys to ensure that the components of the remuneration structure are appropriate. The fixed and variable element mix of the remuneration structure differ depending on the employee grade.

The remuneration committee considers each element of remuneration relative to the market and takes into account the performance of the group and the individual executive in determining both quantum and design. The remuneration committee also considers the total remuneration (fixed pay plus short-term and long-term incentives) that may be earned at various levels of performance.

REMUNERATION POLICY

REMUNERATION POLICY

The group seeks to ensure an appropriate balance between fixed and performance-related elements of remuneration, and those aspects of the package linked to short-term financial performance and to those linked to longer-term shareholder value creation. The combination of the components ensures that high pay is achieved only for high performance and high shareholder returns. Senior executives have a larger proportion of their potential total remuneration subject to the achievement of performance-based targets. For additional information on the key components of remuneration refer to the table below.

Short-term incentives reflect a balance between annual financial performance and other specific strategic priorities over which the participant has influence in order to ensure that achievement of short-term financial performance is not at the expense of future opportunities. Performance is measured at Ebitdar and adjusted earnings against budget to ensure that both trading and profit post the financing cost of capital allocation decisions are considered. Between 15% and 40% of the potential award is based on the achievement of non-financial strategic priorities dependent on the employee grade. Where relevant and if the information is publicly available, an additional 25% of the potential award is linked to the relative performance of a business unit against a regional or national market set.

Long-term incentives are either cash-settled, resulting in income statement volatility but no dilutionary impact to shareholders, or, in the case of nominated senior executives, structured as an interest-free facility for the purpose of acquiring shares in the company. The value for the executives arising from the facility is derived from the shares acquired in the market and there will not be a cash cost to the group, as per the existing share appreciation scheme, nor a dilutionary impact to shareholders.

A significant change in the remuneration policy during the year was that for the 2018 financial year divisional short-term incentive targets were set and measurement was against Ebitdar rather than Ebitda due to the transfer of the majority of the hotel properties to HPF. The results of the non-binding advisory endorsement of the company’s remuneration policy and implementation report at the Annual General Meeting on 19 October 2017 were 83.6% and 84.3% in favour respectively. In the event that the remuneration policy or remuneration implementation report, or both are voted against by more than 25% of the votes at the Annual General Meeting of the company, the group will engage with dissenting shareholders within 30 days of the Annual General Meeting.

KEY ELEMENTS OF REMUNERATION       Fixed pay        
      Base salaries   Non-executive directors’ fees   Retirement benefits
Purpose and link to strategy       Provides a fixed level of earnings appropriate to the requirements of the role   Remunerates non-executive directors for their responsibilities and time commitment   Provides the basis for retirement savings
Application dependent on employee type and level       All employees   Non-executive directors   All employees entitled to benefits are required to belong to an approved pension/provident fund
Operation and performance measures      

Base salaries

Base salaries are subject to annual review using an inflationary adjustment for executives and management and higher increases for lower levels of staff to address the remuneration gap. Tsogo Sun’s policy is to be competitive at the median level with reference to market practice in companies comparable in terms of size, market sector, business complexity and international scope. However, base salaries of individuals and incumbents in key roles are aligned with the upper quartile level of the market. Group performance, individual performance and changes in responsibilities are also taken into consideration when determining increases to base salaries

 

Non-executive directors’ fees

The fees for the non-executive directors have been recommended by the remuneration committee to the board for its approval, taking into account fees payable to non-executive directors of comparable companies and the importance attached to the attraction and retention of high-calibre individuals as non-executive directors. Levels of fees are also set by reference to the responsibilities assumed by the non-executive directors in chairing the board and in chairing or participating in its committees and are approved by special resolution of the shareholders. The increases are subject to an inflationary adjustment

 

Retirement fund membership

Retirement funding for management, who are remunerated on a total package basis, is non-contributory and is included in their total cost of employment. For staff, retirement funding consists of employer and employee contributions dependent on fund membership. The group offers a pension fund (Tsogo Sun Group Pension Fund) and three provident funds (Alexander Forbes Retirement Fund (Provident Section), Gold Reef Resorts (Provident Fund) and Vukani Super Fund Provident Fund. Other approved funds include union-negotiated funds and funds to which members have historically belonged


KEY ELEMENTS OF REMUNERATION       Fixed pay   Short-term incentives   Long-term incentives  
      Other benefits   Annual bonus plan   Executive facility and share appreciation plan
Purpose and link to strategy       Provides benefits appropriate to the market and the role   Rewards the achievement of annual financial performance balanced with other specific strategic priorities and ensures that above-market pay cannot be achieved unless challenging performance targets are met. The non-financial element ensures that the achievement of short-term financial performance is not at the expense of future opportunities   Long-term incentives are utilised to reward long-term sustainable group performance improvement, retain senior management expertise and ensure that executives and key talent share a significant level of personal risk and reward with the company’s shareholders to align executive pay and long-term value creation for shareholders
Application dependent on employee type and level       All employees entitled to benefits are eligible for membership of an approved medical scheme and other benefits   All executives and senior management and selected middle management   Senior executives Executives and selected managers (252 participants)
Operation and performance measures      

Healthcare

The majority of employees with medical cover belong to the Tsogo Sun Group Medical Scheme, a restricted membership scheme administered by Discovery Health. The scheme offers hospital, chronic illness and day-to-day cover for 5 057 principal members (11 145 beneficiaries)

Risk and insured benefits

Arising through membership of the group’s pension and provident funds, competitive death, disability and funeral benefits are made available to employees

Long-service awards

Full-time employees of the organisation receive long-service awards calculated based on the tenure of the employee linked to their guaranteed package. Employees receive an award for every 10 years of continued service with the group

 

Annual cash incentive

Potential bonus earnings are reviewed periodically by the remuneration committee with minimum and maximum bonus percentages of total package set for each broadband level for the achievement of ‘threshold’, ‘on-target’ and ‘stretch target’ performance. Financial ‘threshold’ target is set at 90% of target with a payout of 0%, ‘stretch target’ is set at 115% of target with a payout of 100%, with interpolation between the points. Targets are based on the annual budget approved by the board

Bonus awards are based on individual ratings achieved against the targets set for financial performance, relative growth against the market, where relevant, and personal performance against non-financial strategic priorities. The remuneration committee approves the scheme’s targets and hurdles annually

 

Executive facility

A R200 million facility was made available in 2014 to senior executives for the sole purpose of acquiring shares in the company at R25.75 per share. The shares were acquired on 12 August 2014

The board determined the allocation of the facility as follows:

MN von Aulock R86 million
J Booysen R47 million
RB Huddy R27 million
FV Dlamini R20 million
GD Tyrrell R20 million

The facility is interest-free and has no fixed repayment date but must be repaid if the shares are sold or if the executive leaves the employ of the company. The executives are subject to fringe benefits tax on the facility. MN von Aulock disposed of his shares in an orderly manner during the year and repaid the loan in December 2017

The executives are not eligible for any new allocations under the existing share appreciation scheme until the loan is repaid in full. Allocations of appreciation units made prior to the provision of the facility remain unaffected

Share appreciation plan

Tsogo Sun has in operation a phantom share scheme with cash settlement designed to align the interests of participants with those of the company’s shareholders. The essential elements of the scheme are that the plan is essentially a ‘phantom’ version of a share scheme where each appreciation unit is in effect linked to an underlying share in Tsogo Sun

Annual allocations of appreciation units at market price are made to executives and selected managers. They are available to be settled on the third anniversaries of their allocation, but must be exercised by the sixth anniversary, or they will lapse. On settlement, the value accruing to participants will be the full appreciation of Tsogo Sun’s share price over the allocation price plus dividends declared and paid post-grant date, which value will be settled in cash

Vesting and encashments during the 2018 financial year resulted in a charge of R33 million, with a R1 change in the Tsogo Sun share price impacting the charge by R23 million

Composition of total remuneration package – executive directors and senior executives

The charts below provide an indication of the remuneration outcomes for the year ended 31 March 2018 for the executive directors and the GEC (excluding the executive directors) showing potential total remuneration of maximum, on target and minimum performance levels:

Chief Executive Officer – value of package (Rm)   Chief Executive Officer – composition of package (%)
Chief Executive Officer – value of package (Rm)   Chief Executive Officer – composition of package (%)
Chief Financial Officer – value of package (Rm)   Chief Financial Officer – composition of package (%)
Chief Financial Officer – value of package (Rm)   Chief Financial Officer – composition of package (%)
Group executive committee – value of package (Rm)   Group executive committee – composition of package (%)
Group executive committee – value of package (Rm)   Group executive committee – composition of package (%)

The scenario charts assume:

  • Guaranteed package – fixed pay and benefits for the year ended 31 March 2018
  • Short-term incentives – based on scheme rules with maximum bonus paid at maximum performance and nil bonus below threshold performance
  • Long-term incentives – excluded from the charts as issued at market price and participants rewarded through variable share price increases

REMUNERATION IMPLEMENTATION REPORT

Non-executive directors’ fees

Non-executive directors receive fees for services on board and board committees. Non-executive directors do not receive short-term incentives and do not participate in any long-term incentive scheme. Increases are presented to the shareholders at the company’s Annual General Meeting and reflect the market dynamics and the increasingly heavy demands being made on the individuals. Proposed non-executive directors’ fees, for shareholder approval until the 2019 AGM, appear in the table below:

  Actual
2017/2018
R’000
  Proposed
2018/2019
R’000
 
Chairman of the board 1 028   1 090  
Lead independent non-executive director and member of all board committees 607   645  
Chairman of the audit and risk and social and ethics committees 607   645  
Chairman of the remuneration committee 454   485  
Non-executive director and member of a board committee 374   400  
Non-executive director 295   315  
Fees and services 2018
Directors’
fees
R’000
  2017
Directors’
fees
R’000
 
Paid by subsidiaries        
JA Copelyn 981   920  
BA Mabuza(3) 579   390  
MSI Gani(1) 579   276  
MJA Golding 282   264  
VE Mphande 282   264  
RG Tomlinson(2)   401  
JG Ngcobo 357   335  
Y Shaik 433   407  
  3 493   3 257  
(1) Appointed 11 August 2016
(2) Resigned 11 August 2016
(3) Appointed as Lead Independent Non-executive Director 11 August 2016

Executive Directors and executive management’s remuneration

The remuneration disclosure is based on the IoDSA guidance issued in November 2017 on remuneration disclosure in accordance with King IVTM and presents the remuneration for executive management consisting of the executive directors and heads of divisions.

Executive directors’ remuneration for the year ended 31 March

 
    2018         2017    
  MN von Aulock(1)
R’000  
J Booysen(2)
R’000  
RB Huddy  
R’000  
Total
R’000
  MN von Aulock
R’000
RB Huddy
R’000
Total
R’000
 
Salary  1 723  4 933  3 546   10 202     6 476  3 213  9 689    
Pension fund contributions  93  254  386   733     350  350  700    
Other benefits  60  318  863(5) 1 241     222  150  372    
Current year STI accrued  –  2 562  1 315   3 877     3 456  1 630  5 086    
Fair value of cash-based LTI  –  –  –   –     –  –  –    
Ad hoc payment(4)  28 887  –  –   28 887     –  –  –    
Total single figure of remuneration  30 763  8 067  6 110   44 940     10 504  5 343  15 847    
Current year STI accrued not yet settled  –  (2 562) (1 315) (3 877)    (3 456) (1 630) (5 086)   
Prior year STI accrual settled  3 456  –  1 630   5 086     5 237  2 277  7 514    
Settlement of cash-based LTI on award date  12 357  –  –   12 357     13 175  8 202  21 377    
Total cash equivalent value of remuneration  46 576  5 505  6 425   58 506     25 460  14 192  39 652    
Fair value of cash-based LTI on award date  –  –  –   –     –  –  –    
Financial statement remuneration(3)  46 576  5 505  6 425   58 506     25 460  14 192  39 652    
(1) Resigned 1 June 2017
(2) Appointed as an executive director 1 June 2017
(3) As per 2018 consolidated financial statements page 58 in accordance with IFRS
(4) Ad hoc loss of office settlement approved by the board
(5) Long service award paid during the year

Other key management and prescribed officers for the year ended 31 March

  2018     2017    
  J Booysen(1)
R’000   
G Joseph
R’000
R Nadasen
R’000
RF Weilers
R’000
Total
R’000
  J Booysen
R’000
RF Weilers
R’000
Total
R’000
 
Salary  1 054  2 024  1 648  4 090  8 816     3 849  3 986  7 835    
Pension fund contributions  95  260  228  –  583     350  –  350    
Other benefits  327  439  199  –  965     361  –  361    
Current year STI accrued  –  1 055  1 063  1 625  3 743     1 693  1 543  3 236    
Fair value of cash-based LTI on award date  –  1 639  1 238  –  2 877     –  726  726    
Total single figure of remuneration  1 476  5 417  4 376  5 715  16 984     6 253  6 255  12 508    
Current year STI accrued not yet settled  –  (1 055) (1 063) (1 625) (3 743)    (1 693) (1 543) (3 236)   
Prior year STI accrual settled  1 693  –  –  1 543  3 236     2 509  2 041  4 550    
Settlement of cash-based LTI  –  –  –  –  –     15 479  823  16 302    
Total cash equivalent value of remuneration  3 169  4 362  3 313  5 633  16 477     22 548  7 576  30 124    
Fair value of cash-based LTI on award date  –  (1 639) (1 238) –  (2 877)    –  (726) (726)   
Financial statement remuneration(2)  3 169  2 723  2 075  5 633  13 600     22 548  6 850  29 398   
(1) Appointed as an executive director 1 June 2017
(2) As per 2018 consolidated financial statements pages 58 and 59

Short-term incentive

The following table reflects the percentage achievement against the short-term incentive targets for the executive directors and the GEC (excluding the executive directors):

  Financial
and relative
performance
%
Non-financial
strategic
priorities
%
Total 2017  
achievement(1)
%  
 
Executive directors 13 86 26  
Group executive committee 18 85 33  
  Financial
and relative
performance
%
Non-financial
strategic
priorities
%
Total 2018  
achievement(2)
%  
 
Executive directors 24 87 35  
Group executive committee 26 83 37  
(1) To be paid during the 2019 financial year
(2) Paid during the 2018 financial year

The financial performance is measured at 50% Ebitdar and 50% adjusted earnings against the target approved by the remuneration committee. The target is set as the budget approved by the board, adjusted for the percentage variance between the final forecast that forms the base for the budget and the final results for the year. The target is adjusted for material structural changes during the year to ensure the target remains fair. Any adjustments to the targets are approved by the remuneration committee. The only significant adjustment made during the 2018 financial year was for the Gameco transaction which was not budgeted and would not have been equitable to include the earnings in the actual results. The financial performance score against the adjusted target for the 2018 financial year was 12% for Ebitdar and 14% for adjusted earnings at a group level.

The relative growth performance is measured against the market in the hotel division where there is a relevant competitor set. There are no relevant competitor sets in the gaming division. For employees in the hotel division the relative growth score in aggregate for the 2018 financial year was 24%.

Where there is a relevant competitor set, relative growth contributes 25% of the score with financial performance contributing 75%, and where there is no relevant competitor set, only the financial performance is applied. The relative weighting of the financial and relative growth scores and the relative weighting of the divisions resulted in an average score for the financial and relative growth component of 13% for the executive directors and 18% for the GEC for the 2018 financial year.

The non-financial strategic objectives are set annually per employee aligned to the strategic objectives of the group. The objectives vary depending on the role the employee has within the organisation and would include elements such as growth, customer satisfaction, regulatory compliance, leadership, internal controls and cost control. An evaluation of the performance against the objectives is completed at the end of the year and a bell curve is applied to the scores. The average score for the executive directors and GEC for the 2018 financial year was 85%.

The weighting of the financial and relative growth performance and the non-financial strategic objective performance varies by employee grade. For the CEO, the financial and relative growth performance contributes 85% of the total achievement, with 80% for the CFO and other A2 level employees and 75% for the B level employees. The financial and relative growth performance contribution reduces per grade with the lowest level of employees on the scheme at 60%.

The weighted total achievement for the 2018 financial year was 26% of entitlement for the executive directors and 33% of entitlement for the GEC. The maximum bonus entitlement varies per grade from 105% of total package for the CEO, 90% for the CFO and other A2 employees, 75% for the B level employees and down to 35% for the lowest level of employees on the scheme.

Long-term incentive liability – cash-settled

The following table reflects the liability for long-term incentives and summarises details of the bonus units awarded to participants per financial year, the units vested at the end of the period and expiry dates of each allocation for the Tsogo Sun Share Appreciation Bonus Plan:

  Appreciation units granted
and still outstanding
Strike
price
R
  Appreciation units vested
and still outstanding
    Liability
2018
Rm
  Liability
2017
Rm
 
Grant date 2018   2017 2018   2017 Expiry date      
All scheme participants                            
1 April 2012   2 198 145 17.66     2 198 145 31 March 2018     32  
1 April 2013 4 450 589   5 533 403 24.56   4 450 589   5 533 403 31 March 2019   25   39  
1 April 2014 6 279 865   7 814 913 25.72   6 279 865   7 814 913 31 March 2020   23   40  
1 April 2015 6 122 937   6 650 450 26.54   6 122 937   31 March 2021   12   15  
1 April 2016 7 975 525   8 643 804 22.82     31 March 2022   25   18  
1 April 2017 7 473 372   7 794 807 28.00     31 March 2023      
Other 1 017 784   1 082 822     349 652         2   4  
Liability at 31 March             87   148  
Share price utilised to value the liability at 31 March             R25.50   R28.00  
      Appreciation units
granted and still
outstanding
Strike  
price(6)
R  
  Appreciation units
vested and still
outstanding
  Grant
date
  2018   2017   2018   2017
Executive directors                    
MN von Aulock(1) 01/04/2013     447 883 24.56     447 883
  01/04/2014     524 883 25.72     524 883
J Booysen(2) 01/04/2013   264 658   * 24.56   264 658   *
  01/04/2014   291 602   * 25.72   291 602   *
RB Huddy 01/04/2013   264 658   264 658 24.56   264 658   264 658
  01/04/2014   184 681   184 681 25.72   184 681   184 681
                     
Other key management and prescribed officers                    
J Booysen(2) 01/04/2013   *   264 658 24.56   *   264 658
  01/04/2014   *   184 681 25.72   *   184 681
G Joseph(3) 01/04/2014   97 201   * 25.72   97 201   *
  01/04/2015   94 198   * 26.54   94 198   *
  01/04/2016   131 464   * 22.82     *
  01/04/2017   125 000   * 28.00     *
  01/10/2017   120 949   * 20.67     *
R Nadasen(4) 01/10/2012   32 978   * 19.71     *
  01/04/2013   81 433   * 24.56   81 433   *
  01/04/2014   97 201   * 25.72   97 201   *
  01/04/2015   94 198   * 26.54   94 198   *
  01/04/2016   131 464   * 22.82     *
  01/04/2017   125 000   * 28.00     *
  01/10/2017   48 380   * 20.67     *
RF Weilers 01/04/2013   122 150   122 150 24.56   122 150   122 150
  01/04/2014   97 201   97 201 25.72   97 201   97 201
  01/04/2015   94 198   94 198 26.54   94 198  
  01/04/2016     109 553 22.82    
                     

  Fair value  
of award  
on grant  
date(5)
R’000  
Expiry
date
  Liability
2018
R’000
  Liability
2017
R’000
 
       
Executive directors              
MN von Aulock(1) 2 405 01/04/2019     3 158  
  3 218 01/04/2020     2 672  
J Booysen(2) 1 421 01/04/2019   900   *  
  1 788 01/04/2020   420   *  
RB Huddy 1 421 01/04/2019   900   1 866  
  1 132 01/04/2020   266   940  
        2 486   8 636  
Other key management and prescribed officers              
J Booysen(2) 1 421 01/04/2019   *   1 866  
  1 132 01/04/2020   *   1 484  
G Joseph(3) 596 01/04/2020   140   *  
  599 01/04/2021     *  
  871 01/04/2022   334   *  
  971 01/04/2023     *  
  668 01/10/2023   445   *  
R Nadasen(4) 166 01/10/2018     *  
  437 01/04/2019   277   *  
  642 01/04/2020   140   *  
  599 01/04/2021     *  
  871 01/04/2022   334   *  
  971 01/04/2023     *  
  267 01/10/2023   178   *  
RF Weilers 656 01/04/2019   415   861  
  596 01/04/2020   140   495  
  599 01/04/2021     318  
  726 01/04/2022   278   678  
        2 681   5 702  
(1) Resigned 1 June 2017
(2) Appointed as an executive director 1 June 2017
(3) Appointed as Chief Operating Officer – Gaming 1 July 2017
(4) Appointed as Chief Operating Officer – Hotels 1 July 2017
(5) Calculated utilising a Black-Scholes model at grant date as there are no performance conditions
(6) The appreciation units are granted at the seven-day VWAP prior to the grant date and vest over three years
* Not considered an executive director or other key management and prescribed officer during the period

Long-term incentive – executive facility

The fair value of the executive scheme was expensed in accordance with IFRS during the 2015 financial year and detail is included in the remuneration report on page 76 of the 2015 integrated annual report. Details of the scheme are included on page 83.