Remuneration report

Role of the remuneration and nomination committee and terms of reference

The remuneration and nomination committee (the committee) is responsible for considering and making recommendations to the board on:

  • Significant changes in personnel policy
  • Approval of remuneration and benefits of executive directors
  • Significant changes to the group pension and provident funds and medical aid schemes
  • Share incentive schemes and allocations under the schemes
  • Executive succession
  • Increases to non-executive directors’ fees
  • Candidates for appointment to the board

Membership of the committee

The members of the committee during the year were Thulani S Gcabashe (chairman), Phumzile Langeni, Roy McAlpine, Roddy Sparks and Oshy Tugendhaft*, all of whom are non-executive directors. (*Not independent)

The committee had five meetings during the past financial year. The Chief Executive Officer and Group Financial Director attend committee meetings and assist the committee in its deliberations, except when issues relating to their own remuneration are discussed. No director is involved in deciding his or her own remuneration.

Remuneration policy

Principles of executive remuneration

Imperial’s remuneration policy is formulated to attract and retain high-calibre executives and motivate them to develop and implement the company’s business strategy in order to optimise long-term shareholder value. It is the intention that this policy should conform to best practice standards. The policy is framed around the following key principles:

  • Total rewards are set at levels that are responsible and competitive within the relevant market;
  • Total incentive-based rewards are earned through the achievement of demanding growth and return targets consistent with shareholder interests over the short, medium, and long term;
  • Incentive plans, performance measures, and targets are structured to operate soundly throughout the business cycle; and
  • The design of long-term incentive schemes is prudent and does not expose shareholders to unreasonable financial risk

Elements of executive remuneration

Executive directors’ remuneration comprises the following four principal elements:

  • Base salary;
  • Annual incentive bonus;
  • Share Incentive Scheme; and
  • Benefits.
     

The committee seeks to ensure an appropriate balance between the fixed and performance-related elements of executive directors’ remuneration and between those aspects of the package linked to short-term financial performance and those linked to longer-term shareholder value creation. The policy relating to each component of remuneration is summarised below:

Base salary

The base salary of each executive director is subject to annual review and is set to be responsible and competitive with reference to external market practice in similar companies, which are comparable in terms of size, market sector, business complexity and international scope. Company performance, individual performance, and changes in responsibilities are also taken into account when determining annual base salaries.

Annual incentive bonus

All executive directors are eligible to receive a performance related annual bonus. The bonus is non-contractual and not pensionable. The committee reviews bonuses annually and determines the level of the bonus based on performance criteria set at the start of the performance period. The criteria include targets relating to HEPS growth, return on invested capital, Black Economic Empowerment and certain discretionary elements.

Share Incentive Schemes

Three long-term incentive plans were approved by shareholders on 18 April 2008. Participation in the schemes by executive directors and other senior executives is based on criteria set by the committee. The schemes embody the following elements:

The Share Appreciation Rights Scheme (SAR)

Selected participants will receive annual grants of Share Appreciation Rights, which are conditional rights to receive Imperial shares equal to the value of the difference between the exercise price and the grant price. Vesting of rights is subject to performance conditions. The performance conditions and performance period are determined by the board on an annual basis in respect of each new grant of rights.

The targets and measuring terms relating to each issue are detailed in the letter of grant. After vesting, the rights will become exercisable. Upon exercise by a participant the relevant employer company will settle the value of the difference between the exercise price and the grant price by delivering Imperial shares that will be purchased on the open market, alternatively, as a fall back provision only, by settling the value in cash or lastly the issue of new shares.

The Conditional Share Plan (CSP)

The CSP will be utilised in exceptional circumstances only. Employees will receive grants of conditional awards. Vesting of the conditional awards is subject to performance conditions. The performance conditions for the CSP will be based on individual targets set by the board. If the performance conditions are satisfied, the conditional awards will vest. If the performance conditions are not met, the conditional awards will lapse. No allocations have been made in terms of this scheme during the year.

The Deferred Bonus Plan (DBP)

Qualifying senior employees are permitted to use a portion of the after-tax component of their annual bonus to acquire Imperial shares (bonus shares) which are held in escrow. A simultaneous conditional matching award of Imperial shares is made to the participant on the condition that the participant remains in the employ of the group and retains the bonus shares over a fixed three year period. The participant remains the owner of the bonus shares for the duration of the three year period and will enjoy all shareholder rights in respect of the bonus shares. Bonus shares can be withdrawn from escrow at any stage, but the matching award is forfeited to the extent of the bonus shares withdrawn from escrow during the period. Bonus shares are settled by delivering Imperial shares that will be purchased on the open market, alternatively, as a fall back provision only, by the issue of new shares or lastly by settling the value in cash.

Proposed amendments to the share schemes

In line with the requirements of the JSE, certain amendments are being proposed to the schemes in order to align the rules of the schemes with the provisions of schedule 14 of the JSE Listings Requirements which have recently been updated. Details of the proposed amendments are included in the notice of annual general meeting here.

Eligibility

Any senior employee with significant managerial or other responsibility, including any director holding salaried employment or office in the group, is eligible to participate in the SAR, CSP and DBP.

A total of 15 313 524 share appreciation rights have been allocated in terms of the SAR scheme at an average price of R51,11 per share and a total of 417 865 DBP rights have been allocated.

Retirement schemes

Executive directors participate in contributory retirement schemes established by the group.

Other benefits

Executive directors are remunerated on a cost to company basis and as part of their package are entitled to a car allowance or a fully expensed car, provident fund contributions, medical insurance, death and disability insurance, and reimbursement of reasonable business expenses. The provision of these benefits is considered to be market competitive for executive positions.

Other matters affecting remuneration of directors

External appointments

Executive directors are not permitted to hold external directorships or offices without the approval of the board, other than those of a personal nature.

Non-executive directors

Fees payable to non-executive directors are proposed by the executive committee, reviewed by the remuneration and nomination committee and recommended to the board, which in turn makes recommendations to shareholders with reference to the fees paid by comparable companies, responsibilities taken by the non-executive directors and the importance attached to the retention and attraction of high-calibre individuals.

Directors’ fees

For the past financial year, each of the non-executive directors received directors’ fees at the rate of R143 000 per annum (2008: R124 000). The Chairman received R357 500 (2008: R310 000) and the deputy chairman R253 400 (2008: R220 000). Non-executive directors who serve on the group committees each received fees per annum as follows: audit committee R74 750 (2008: R65 000); remuneration and nomination committee R52 800 (2008: R48 000), risk committee R52 800 (2008: R48 000), asset and liability committee R52 800 (2008: R48 000) and transformation committee R52 800 (2008: R48 000).

Executive directors receive no directors’ or committee fees in addition to their normal remuneration.

Increase in directors’ fees

At the annual general meeting on 3 November 2009, members will be requested to approve the following increases in non-executive directors’ remuneration:

– Board  from R143 000  to R154 000; 
– Asset and liability committee  from R52 800  to R57 000; 
– Audit committee  from R74 750  to R81 000; 
– Risk committee  from R52 800  to R57 000; 
– Remuneration and nomination committee  from R52 800  to R57 000; 
– Transformation committee  from R52 800  to R57 000. 

Chairmen of committees receive a chairman’s fee of one and a half times a normal member’s fee in addition to their member’s fee, with the exception of the deputy chairman who receives a fee of R119 000 and the audit committee chairman who receives a fee of R161 250 in addition to his member’s fee.
 

In arriving at the proposed fees, cognisance was taken of market trends and the increased responsibilities of non-executive directors in terms of new corporate governance and JSE requirements.

Directors’ remuneration

The table below provides an analysis of the emoluments paid to executive and non-executive directors of the company for the period ended 30 June 2009.

                    
     Retirement     Subsidiaries/       
     and     associates       
     medical  Other     and sub-       
     contri-  benefits  Directors’  committee  Total  Total 
Salary  Bonus  butions  (Note 1) fees  fees  2009  2008 
Name R’000  R’000  R’000  R’000  R’000  R’000  R’000  R’000 
                       
Non-executive                       
L Boyd                     348 
S Engelbrecht            143     143    
P Erasmus                     115 
TS Gcabashe            358  185  543  181 
P Langeni            143  204  347  297 
MJ Leeming            143  435  578  564 
WG Lynch                     1 200 
JR McAlpine            143  265  408  377 
VJ Mokoena                     1 509 
P Molefe                     124 
V Moosa            143  132  275  124 
CE Scott                     158 
MV Sisulu (Note 3)          143  270  413  394 
RJA Sparks            143  143  286  338 
A Tugendhaft            253  180  433  370 
Y Waja            143  393  536  440 
             1 755  2 207  3 962  6 539 


 

                       
         Retirement     Subsidiaries/       
         and     associates       
         medical  Other     and sub-       
         contri-  benefits  Directors’  committee  Total  Total 
   Salary  Bonus  butions  (Note 1) fees  fees  2009  2008 
Name  R’000  R’000  R’000  R’000  R’000  R’000  R’000  R’000 
Executive                         
OS Arbee  2 849  2 115  467  106        5 537  4 524 
HR Brody  4 189  3 100  676  93        8 058  6 176 
MP de Canha  3 028  1 900  489  227        5 644  4 876 
RL Hiemstra  2 919  2 500  478  103        6 000  4 519 
WS Hill                       2 710 
N Hoosen (Note 3) 892     151  5 577        6 620  3 503 
AH Mahomed  3 791  2 975  613  203        7 582  5 850 
GW Riemann (Note 2) 5 039  3 087  2 309  537  357     11 329  11 438 
   22 707  15 677  5 183  6 846  357     50 770  43 596 
Total  22 707  15 677  5 183  6 846  2 112  2 207  54 732    
June 2008  24 814  15 246  4 022  2 078  1 695  2 280     50 135 

Notes 
1.  Other benefits – These include the fringe benefit value of company cars and motor car allowances.
 
2.  Overseas based – GW Riemann is employed in Germany and his salary is paid in Euro based on the market conditions in that country. A special bonus of e250 000 was paid on extension of his contract until 2012.
 
3.  Resigned during the course of the year. In addition to normal remuneration, an amount equal to 24 months’ salary was paid as a benefit to N Hoosen and is included above.
 

Directors’ service contracts

Directors’ contracts are all terminable on one month’s notice, with the exception of GW Riemann, who is employed on a fixed term contract that terminates on 30 June 2012 and RL Hiemstra who has a 24 month notice period.

None of the non-executive directors have a contract of employment with the company. Their appointments are made in terms of the company’s articles of association and are initially confirmed at the first annual general meeting of shareholders following their appointment, and thereafter by rotation.

Incentive schemes

Executive directors participate in the incentive schemes, designed to recognise the contributions of senior staff to the growth in the company’s equity. Within limits imposed by shareholders, rights are allocated to directors and senior staff. The equity linked compensation benefits for executive directors are set out below.

Participation in bonus rights scheme

              
        Price on    
        commencement    
   Commencement  Number of  date    
   date  shares  R  Expiry date 
OS Arbee   26 June 2007  20 000  150,08  June 2011 
HR Brody   26 June 2007  20 000  150,08  June 2011 
MP de Canha   26 June 2007  20 000  150,08  June 2011 
RL Hiemstra   26 June 2007  20 000  150,08  June 2011 
AH Mahomed   26 June 2007  20 000  150,08  June 2011 

Bonus rights issued in November 2005 terminated in June 2009 with no rights vesting as the related performance conditions had not been met.

Loans granted for the purchase of shares in terms of the Executive Share Purchase Scheme

              
         Number of  Loan balance 
         shares  R 
OS Arbee        150 000  26 244 861 
HR Brody        150 000  26 244 861 
MP de Canha        150 000  26 244 861 
RL Hiemstra        150 000  26 244 861 
AH Mahomed        138 600  22 781 313 
Participation in the share appreciation rights scheme* 
         Price on    
         commencement    
   Commencement  Number of  date    
   date  rights  R  Vesting date 
OS Arbee  5 June 2008  369 031  49,46  15 September 2011 
   18 June 2009  91 507  55,32  15 September 2012 
HR Brody  5 June 2008  529 904  49,46  15 September 2011 
   18 June 2009  154 700  55,32  15 September 2012 
MP de Canha  5 June 2008  369 033  49,46  15 September 2011 
   18 June 2009  100 186  55,32  15 September 2012 
RL Hiemstra  5 June 2008  369 031  49,46  15 September 2011 
   18 June 2009  93 590  55,32  15 September 2012 
AH Mahomed  5 June 2008  506 850  49,46  15 September 2011 
   18 June 2009  143 761  55,32  15 September 2012 
              

*The number of rights that will eventually vest is subject to the achievement of performance conditions linked to HEPS targets relative to a peer group selected from the Indi 25 index and ROIC targets relative to weighted cost of capital, and could be fewer than the number granted.

Participation in the share appreciation rights scheme# 
  
         Price on    
         commencement    
   Commencement  Number of  date    
   date  rights  R  Vesting date 
OS Arbee  18 June 2009  500 000  55,32  15 September 2012 
HR Brody  18 June 2009  500 000  55,32  15 September 2012 
MP de Canha  18 June 2009  500 000  55,32  15 September 2012 
RL Hiemstra  18 June 2009  500 000  55,32  15 September 2012 
AH Mahomed  18 June 2009  500 000  55,32  15 September 2012 
#  The number of rights that will eventually vest is subject to the achievement of performance conditions and could be fewer than the number granted. All rights to gains in terms of this allocation have been ceded to the Imperial Executive Share Purchase Trust and will be applied towards the outstanding loan balance owing by the directors in terms of that scheme. The final vesting date could be earlier if the conditions were met. In the event of earlier vesting, the executives in question will still be obliged to remain in the employ of the group until the original vesting date of 15 September 2012. 
 
 
Participation in the deferred bonus plan+ 
                 
         Number of       
         shares purchased  Balance    
   Allocation  Number of  and committed  available to    
   date  rights allocated  to the scheme  be taken up  Vesting date 
OS Arbee  5 June 2008  30 969  8 447  22 522  15 September 2011 
   18 June 2009  10 545     10 545  15 September 2012 
HR Brody  5 June 2008  45 096  18 732  26 364  15 September 2011 
   18 June 2009  15 280     15 280  15 September 2012 
MP de Canha  5 June 2008  30 969  16 253  14 716  15 September 2011 
   18 June 2009  11 545     11 545  15 September 2012 
RL Hiemstra  5 June 2008  30 969  13 773  17 196  15 September 2011 
   18 June 2009  10 785     10 785  15 September 2012 
AH Mahomed  5 June 2008  43 150  18 456  24 694  15 September 2011 
   18 June 2009  14 200     14 200  15 September 2012 
+  The number of shares committed to the plan will depend on the amount of after tax bonus committed by each executive and the share price prevailing when bonus shares are acquired. 
 

The gains on share schemes during the previous year were as follows:       
   2009  2008 
   R’000  R’000 
HR Brody     4 666 
RL Hiemstra     2 700 
N Hoosen     1 298 
AH Mahomed     7 553 
The benefits received on loans from the share trust with a lower rate of interest being charged during the year were as follows: 
   2009  2008 
   R’000  R’000 
AH Mahomed  974  741 

Approval

This directors’ remuneration report has been approved by the board of directors of Imperial.

Signed on behalf of the board of directors.

TS Gcabashe
Chairman of the committee

25 August 2009