Overview of remuneration policy

Responsibility for governing emoluments and developing relevant policy

Final responsibility for the remuneration policy rests with the Board, which in turn appoints the Remuneration Committee to aid it in fulfilling its duties. The Remuneration Committee is primarily responsible for providing input into and approving the reward strategy where remuneration is concerned. The Linde Group also provides significant input into the establishment of Afrox’s remuneration practices and a number of advisors are used to assist in tracking market trends where relevant. The remuneration policy is available online.

Changes to our remuneration policy

As part of the annual review process, the Remuneration Committee assessed the overall effectiveness of the remuneration philosophy. This review included the evaluation of the equity-settled long-term incentive plan (LTIP), which is benchmarked and modified based on current factors affecting the business.

The NGMR reviewed the current LTIP and, based on the results of the review, concluded that the current delivery mechanism of the LTIP is outdated and the allocations were not market-related. A new allocation method based on Total guaranteed pay (TGP) was approved for future allocations.

The new allocation method, in conjunction with amended performance conditions, was approved by the Board in November 2017. The Share appreciation right scheme (SARs) allocations will be discontinued with effect from the 2018 allocation. The Forfeitable share plan (FSP) will consist of a bonus share allocation (based on the percentage achievement of the previous year’s Short-term incentive plan [STIP]) and a performance share subject to the amended performance conditions.

Various changes to the remuneration policy have been made over the past years and each of these amendments was reviewed in terms of alignment with the overall remuneration philosophy and growth strategy.

The key areas of focus derived from the NGMR Committee’s activities were:

  • Further disclosure on the incentive schemes.
  • Review of best practice and the market alignment of the Afrox LTIP. This includes assessing the overall effectiveness of the LTIP as a retention mechanism.
  • Benchmarking of fees to non-executive directors and, where required, alignment to market practice.

Each of these focus areas was reviewed in terms of its alignment with the remuneration philosophy and our growth strategy as a Company. As a result, the Committee recommended increases to the non-executive director fees and retainers to the Board. This included changes to the LTIP, which are described below. The Committee is of the opinion that compliance with the remuneration policy was achieved this year.

Service contracts

Executive director service contracts with the Company have a notice period of three months that provides for compensation and benefits (excluding share-linked benefits vesting in terms of the applicable rules of the scheme). An exception may occur under mutual separation arrangements. An employment contract with a notice period of three months is in place to retain the services of our Managing Director. The Financial Director’s services are secured through an employment contract with The Linde Group.

Potential impact of total executive management remuneration

Afrox made no termination payments in respect of executive management during the year.

  Non-executives Executive management Senior manager to middle management Management/
professional
Junior management/ professional Skilled and general workers

Base pay

Retainer and fee per meeting Market-related base pay Market-related base pay Market-related base pay Market-related base pay Negotiated increases

Car allowance

Not applicable 30% of base salary 30% of base salary 30% of base salary Not applicable Not applicable

Guaranteed bonus

  Not applicable 13th cheque where applicable 13th cheque where applicable    

Company car

  Expatriates only    
  • Job-specific
  • Operational requirements
  • Operational requirements
  • Job-specific
  • Operational requirements

Allowances

  Not applicable    
  • Job-specific
  • Operational requirements
  • Operational requirements
  • Job-specific
  • Operational requirements

Benefits

 
  • Retirement funds (defined provident fund contribution and closed defined benefit pension fund)
  • Death and disability
  • Medical aid
  • Limited secured loan for buying or renovating a house
  • Mobile phone (job-specific, operational requirements)
  • Retirement fund
  • Death and disability
  • Medical aid
  • Limited secured loan for buying or renovating a house
  • Mobile phone (job-specific, operational requirements)
    Not applicable Not applicable Not applicable Not applicable First-time homeowner’s subsidy

Variable Bonus

 

­Global short-term incentive plan (STIP)

Medium-term incentive plan (MTIP)

Regional STIP/Sales incentive Plan (SIP) Regional STIP/SIP SIP  

Shareholder value/Sustain-ability

Long-term incentive plan (LTIP) LTIP LTIP Not applicable Not applicable Not applicable

These are the salient features of each of the remuneration components:

Remuneration component Policy principles Eligibility and application

TGP

Comprises:

  • Base salary
  • Guaranteed payments, i.e. 13th cheque, car allowance
  • Employer contributions to retirement fund.
  • All permanent employees receive a base salary, employer contributions to retirement fund and medical aid.
  • Base salary is determined in line with market levels.
  • Employees who are not on a variable incentive programme receive a 13th cheque, equivalent to one month’s base salary paid once in any leave cycle.
  • Management levels are permitted to structure a car allowance as part of their overall annual package.

Benefits

  • In addition to the benefits listed as part of TGP, the Company makes provision for a company car, mobile phone, bond subsidy and death and disability cover as part of the retirement fund benefits.
  • A Company car is provided to technical employees who require one to perform their duties.
  • Death and disability cover is provided to all permanent employees.
  • A mobile phone, deemed a business tool, is provided to an eligible employee as part of a job’s functional requirement.
  • A bond subsidy is paid monthly to eligible employees to assist in the repayments of their home loan (closed scheme).

STIP

  • Global STIP is the annual short-term incentive scheme for all executives.
  • Regional STIP is the annual short-term incentive scheme for regional employees as defined by the Regional Business Unit (RBU).
  • The variable cash emoluments for the STIP are based on an average of an 80% financial and 20% individual target. These are typically between 15% and 40% of fixed cash.
  • Financial targets are set at Group and own unit level, RBU.
  • There are generally three tiers measured by Group, RBU and individual targets.
  • Annual payments are made in April following Board approval.
  • The Board conducts regular reviews of the targets set and the calibration of the variable remuneration, including the performance hurdles, in order to prevent potential distortions.
  • STIP targets for 2017 include;

Group

  • Operating profit Linde Group
  • Operating segment EMEA
  • Operating profit own RBU
  • ROCE, and group operating profit

Regional business unit (RBU)

  • Regional operating profit,
  • Levels of fixed costs
  • Net trade working capital
  • SHEQ (recordable incidents, compliance and driver risk profiling).
  • Individual targets consisting of financial targets or measures aligned to the position.

SIP

  • The incentive is paid biannually on achievement of the sales objectives at all levels.
  • Based on both Company financial and non-financial KPIs and individual performance. These are typically up to 20% of base salary.
  • The split between Company and individual performance is typically 80% and 20%.
  • SIP targets for 2017 included gross margin, stock cover days, debt recovery, pricing.
  • SHEQ based on the measures for total recordable incidents, compliance and driver risk profiling.

MTIP

  • The plan rewards performance over a four-year period combined with annual payments recognising the contribution in each year as well as a cumulative bonus bank performance period of four years.
  • Paid in cash in May each year based on previous year’s performance.
  • The performance measurements here are related to KPIs in the respective functional areas of the Company. These are the KPIs that are meaningful and can be actively managed.
 

LTIP

  • The LTIP comprises a SARs scheme and Forfeitable Share Plan (FSP), both of which are equity-settled long-term incentive schemes.
 

STIP targets

The following table outlines the approved targets and weightings for the 2017 STIP plan measured over 12 months.

1 Regional Business Units
2 Region Africa

LTIP

Both executive directors and senior management participate in the Company’s share-based long-term incentive scheme. Allocations are approved by the Board on recommendation of the NGMR Committee. The Committee believes that the incentive scheme is directly linked to the achievement of sustained profitability as well as the Company’s market-related performance based on the performance of our share price. The Committee is of the opinion that the equity-settled schemes is an effective mechanism to attract and retain competent employees. The total interest of executive directors who held office on 31 December 2017 is 80 000 SARs. This is granted at an average price of R15.16 per share.

Forfeitable Share Plan

Executive directors who held office on 31 December 2017 had an indirect interest in 250 000 forfeitable shares. The vesting of certain shares is conditional only upon the employee being employed by the Company at the vesting date and, for other shares granted, both on continued employment and on reaching predetermined performance conditions. All dividends paid accrue to the employee during the vesting period.

Review of the LTIP

The Remuneration Committee reviews the LTIP regularly, considering relevant changes in tax legislation while ensuring alignment with the long-term objectives. Following the review of the LTIP in 2017, the following changes were recommended by the Committee and approved by the Board for implementation from 2018.

  • The scheme will continue to be a 100% equity-settled scheme and a share will be purchased on the open market.
  • The allocation of the FSP will be subject to performance conditions (performance shares) with the introduction of a bonus share which will replace the FSP with no performance conditions.
  • The bonus share allocation will be based on the previous year’s STIP achievement percentage.
  • The vesting period will continue being three years from date of issue and the performance conditions measured once. Non-vested instruments will be forfeited if vesting conditions are not met.

Performance conditions have been imposed in respect of an FSP and the terms of that performance. The table below summarises these:

1 Percentage will be reviewed during the next two measurement periods