Remuneration report

Nampak produces a remuneration report which is compliant with the requirements of King IV. As such the following sections have been included in this report:

SECTION 1

A report from the chairman of the nominations and remuneration committee (the committee) that sets out the context for remuneration consideration and decisions as well as an outline of the material issues considered during the year.

SECTION 2

The remuneration policy and framework to be tabled at the AGM for a non-binding vote by shareholders.

SECTION 3

The implementation of the remuneration policy to be tabled at the AGM for a separate non-binding vote by shareholders.

SECTION 4

As required by the Companies Act, non-executive directors' fees for the financial year ending 30 September 2020 will be put to shareholders by way of a special resolution.

For details of the composition of the committee and attendance at meetings, please refer to the integrated report.

SECTION 1: REPORT FROM THE CHAIRMAN

Nampak's remuneration policy is designed to facilitate delivery of the group's strategy on a sustainable basis and to deliver equitable value for stakeholders over the short, medium and long term. This report provides details of our remuneration policy and framework as it relates to our employees, group executive committee members, executive directors and non-executive directors. It also includes our implementation report for executive directors, group executive committee members and non-executive directors.

At the AGM in February 2019, we received the required number of votes in favour of the remuneration policy and the implementation report after a series of consultations with various shareholders to obtain feedback on the remuneration report and their view of the remuneration practices.

The results of voting at the 2019 and 2018 annual general meetings are indicated in the table below:

Percentage vote in favour Required percentage   February 2019   February 2018  
Remuneration policy and framework 75% non-binding   84.04%   62.98%  
Implementation report 75% non-binding   85.85%   62.50%  
Non-executive directors’ fees and committee membership fees 75% binding   99.42%   99.82%  

Shareholders are encouraged to provide feedback and contributions regarding their position on the various voting requirements. We therefore invite shareholders wishing to engage with the chairman of the remuneration committee to do so via email at corporategovernance@nampak.com. Should a dissenting vote of 25% or more be received for either the remuneration policy or the implementation report, or both, we will include an outline of the process and timing of our proposed engagement with shareholders to resolve unsatisfactory results in the SENS announcement of the voting results of the AGM.

While the remuneration policy and framework as well as the implementation report were approved by shareholders, some further queries were raised by shareholders present at the AGM relating to the reviewed performance conditions for the STI and LTI. In addition, overseas shareholder proxy advisers suggested that it may be prudent to introduce performance conditions before release of matching awards under the Deferred Bonus Plan (DBP).

The significant financial underperformance of the group in the 2019 financial year is a further factor that needs to be considered in the remuneration policy and targets for 2020.

External independent review – changes for 2020

In response to shareholder feedback at the 2019 AGM and to regularly review the current approach against best practices, 21st Century was appointed to provide an independent review of the company's remuneration policy and practices and to provide recommendations to ensure that the STI and LTI achieved their stated objectives. The review confirmed that the remuneration policy and framework followed good practices and were appropriately market related. However, certain important aspects relating to the setting of performance metrics were highlighted for further consideration by the committee. After consultation with key large shareholders, some minor changes were made to the STI metrics, targets and weightings. A further important change is that the committee considered alignment between executives and shareholders would be better served if the earnings measure for financial performance is changed to fully inclusive HEPS rather than the narrower definition of HEPS for continuing operations which has been used up to 2019. This will apply to both STI and LTI targets going forward. Had this change been in place for 2019, there would have been no impact on incentives but the committee believes an important principle for the future is for all group operations to be taken into account for key performance measures. The STI structure for 2020 is shown in the table below. The targets are detailed on section 2.

STI metrics for 2020
Participant category       Strategy       Group (weighting)     Divisional (weighting)     Individual (weighting)
Executive directors     Actively manage our portfolio     HEPS1 (40%)           KPI (40%)
            EBIT (10%)            
      Prudently manage cash     Working capital (10%)            
Group executive committee: Operational     Prudently manage cash     Combined group (10%)     EBIT (30%)     KPI (10%)
      Buying, making and selling better           Working capital (20%)      
      Manage cash fixed costs           Operational efficiencies (10%)      
      Safety           Cost saving initiatives (10%)      
                  Safety (10%)      
Group executive committee: Support           Combined group (60%)           KPI (40%)
Total calculated incentives are subject to a discount of up to 15% for non-achievement of employment equity targets.

1 Based on headline earnings as defined by Circular 3/2013 of the South African Institute of Chartered Accountants (SAICA).

Proposed LTI metrics for the performance share plan 2020 awards
Metric     Weighting     Performance target     Performance period
Improvement in headline earnings per share (HEPS)1     40%     CPI +3% to CPI +15%     1 October 2019 to 30 September 2022
Improvement in total shareholder return (TSR)     30%     CPI +3% to CPI +15%     1 December 2019 to 1 December 2022
Return on net assets (RONA)     30%     60% = 11.5%
70% = 12.0%
80% = 12.5%
90% = 13.0%
100% = 13.5%
    1 October 2019 to 30 September 2022

The committee has the discretion to adjust the targets in the event of strategic investment decisions, extraordinary share price volatility or financial impacts out of the control of management.

1 Headline earnings as defined by Circular 3/2013 of SAICA.

The committee considered the suggestion by overseas proxy advisers to introduce performance conditions aligned to the release of matching awards. The DBP remains the preferred vehicle in the overall remuneration structures for encouraging executives to hold shares in the company as well as being a practical retention solution. In terms of this plan, a portion of the after-tax STI of executives and senior managers may be voluntarily invested in shares to encourage share ownership. These shares need to remain invested in the company for three years prior to the release of a matching number of shares. In order to participate in the DBP, participants needed to have earned a STI which would have been subject to challenging performance conditions. The committee views this position annually and remains of the view that there is sufficient stretch in the performance conditions for achievement of the annual STI and that the opportunity for matching awards will increase executive and senior management shareholding over time without specifically setting minimum shareholding requirements at this stage. For the overall weighting in the remuneration structure, please refer to the remuneration mix.

Other changes for 2020

The 2019 base of HEPS is substantially depressed by a number of items including the Zimbabwe devaluation loss and losses in discontinued operations, resulting in a headline loss per share. For reasons of practicality and to avoid a base for incentive purposes that is too low, the committee is planning to set the base for 2020 HEPS targets at the 2019 continuing operations HEPS figure of 54.1 cents, but adjusted upwards for the HEPS effect of the Zimbabwe devaluation loss.

Nampak operates a share appreciation plan (SAP) for senior managers below the levels of executive director, group executive committee members and divisional managing directors.

In order to simplify and streamline our LTI structures, the committee has taken the decision to cease making awards to certain senior managers under the SAP, and to rather make awards under the Performance Share Plan (PSP). Another reason for this decision is to align the entire management structure of Nampak under the PSP. Unvested awards under the SAP will remain in operation under the scheme and are subject to the rules of the scheme.

Accordingly, the committee has approved that no further awards will be made under the SAP, with senior managers participating in the PSP.

These proposals have been incorporated into the remuneration policy and framework and more details are available in section 2 of this report.

Other activities undertaken in 2019

The committee attended to all activities set out in its charter and the annual committee work plan during the year.

The committee charter is available on the website at http://www.nampak.com/Content/Documents/About/remuneration-committee-charter.pdf.

Achievement of objectives

The absolute change to guaranteed packages for executive directors and group executive committee members overall amounted to a 10.9% decrease when compared to the average annual increases granted to other staff. This is in line with our objective to improve wages and the socio-economic conditions of our lower level workers.

The group headline earnings per share targets linked to the STI were improvement in HEPS on continuing operations of 4.13% to 10.13%. These were not achieved and consequently there was zero STI awarded to executives for the group financial results component of the measure. This was the key reason that total STI awarded to executive directors was down by 68% from the prior year. Various levels of EBITDA adjusted for interest, trading income, safety and individual performance objectives were achieved and these are reflected in the incentives earned by the operational and support executives.

The performance conditions aligned to the PSP and SAP for the December 2016 awards and allocations were not achieved, therefore no vesting will occur in December 2019.

The actual earnings reported under section three of this document reflect the levels of achievement against the performance targets at executive director and group executive committee levels.

Decisions taken during 2019

The committee:

  • approved the guaranteed packages for executive directors and group executives;
  • reviewed and approved three-month notice periods in terms of the contracts of employment of the chief executive officer and chief financial officer;
  • approved the STI payments for executive directors and group executives after considering achievement against performance conditions;
  • approved the LTI awards for all participants and determined the performance conditions;
  • suspended the allocation of LTI awards (normally issued in December each year) while the company remained in a prohibited period and the executives and employees were unable to trade in company shares. The PSP awards and the SAP rights approved in December 2018 were implemented in September 2019 when the prohibited period terminated;
  • suspended implementation of the December 2018 release of share awards/allocations while the company was in a prohibited trading period and the executives and employees were unable to trade in company shares. These share awards/allocations will be released once the September 2019 results have been published and executives will be provided an opportunity to purchase shares in terms of the rules of the DBP in respect of STI awards for the September 2018 financial period;
  • reviewed the defined benefit retirement fund liability strategy and implementation against plans; and
  • reviewed the fee recommendations for non-executive directors and committee fees, excluding the fees for the nominations and remuneration committee before submission to the board for consideration.

In conclusion, the significant financial underperformance evident in the 2019 group results is an important catalyst for further review of executive remuneration practices. There were some major macro-economic and legislative factors, outside of executive control, which impacted the results and it is crucial that key executive talent is retained and rewarded for the hard work and innovation required to remediate the group's financial performance in the markets where the group operates. However, the committee has resolved that further work is required in 2020 to analyse key drivers of the group's performance and critically review both group and individual executive KPIs to ensure the best possible alignment with shareholder interests.

SP Ridley

Chairman of the nominations and remuneration committee

26 November 2019

SECTION 2: REMUNERATION POLICY

Our remuneration policy at executive level remains largely unchanged from previous years and continues to focus on delivery of longer-term strategic objectives and shorter-term financial and non-financial targets that underpin the group's sustainable profitability intentions. This is accomplished through a governance and application framework that primarily aims to attract and retain talent through fair, transparent and competitive remuneration.

The components of the remuneration structures applicable to other managerial and non-managerial employees are set out in the Elements of remuneration and policy table below.

The balance of the report is focused on executive director and group executive remuneration policy and frameworks and this is also the case for the implementation report.

Remuneration mix

The remuneration structure for executive directors and group executive committee members has been designed to reward consistent improvements in short and medium term sustainable profitability which underpins value creation for shareholders. Guaranteed packages are generally clustered at the median of the benchmark. There is a larger weighting towards at-risk or variable pay components which are provided in the form of an annual STI and LTI participation. Challenging performance conditions that are aligned with shareholder requirements and expectations are set and must be achieved for earnings to accrue to participants. If these targets are achieved, upper quartile remuneration should be delivered from the variable pay structure for executive directors, group executive committee members and certain senior managers. For purposes of illustration, 60% of maximum is assumed to represent target performance and stretch reflects full achievement for both the STI and LTI components.

Chief executive officer (R’000)

Chief financial officer (R’000)

GEC – operations (R’000)

GEC – support (R’000)

Alignment to value creation

The remuneration structures for executive directors and group executive committee members have been designed to encourage sustainable profitability on a consistent basis. This has been achieved by consistent application of appropriate financial targets linked to the STI and LTI components. The social, environmental and governance performance will ultimately reflect in consistent financial performance over the long term. Therefore, and in order to ensure the self-funding nature of STI and LTI remuneration structures, the performance targets are more heavily weighted towards quantitative achievements.

Individual KPIs form up to 60% of the STI for executive directors and group executive committee members. These are reviewed and set annually and focus on essential drivers of value that may impact negatively on short-term performance, as well as focus on material issues that could have a negative impact on the group's sustainability. Individual KPIs form up to 40% of the STI for executive directors and group executive committee members for 2020. For 2019 and going into 2020 the individual key deliverables include drivers such as:

  • attraction, retention and development of a diverse, transformed and skilled workforce with focus on the achievement and maintenance of an appropriate broad-based black economic empowerment rating in South Africa;
  • a safe and healthy working environment;
  • a strengthened balance sheet and focus on cash and liquidity management;
  • a focus on revenue growth using the existing operational footprint;
  • improvements in operational efficiencies and asset utilisation that positions the company to take advantage of future growth opportunities as macro-economic conditions improve;
  • where necessary, appropriate site consolidations and operational footprint;
  • a competitive fixed cost baseline; and
  • management of governance and ethics.

The LTI elements provide the board with a tool to attract and retain the right calibre of executives. The performance targets are set over three-year performance periods and require consistent achievement of challenging financial performance conditions. Experience of executives is aligned with that of shareholders as once vested, the shares are released in three tranches and executive earnings are impacted by movements in the share price and dividends earned. The DBP has been included in the LTI components to encourage executives to purchase and hold shares in the company. These shares may only be purchased using proceeds from STI earnings once those performance conditions have been achieved.

Contractual terms and payments on termination of employment

The chief executive officer, chief financial officer and group executives have indefinite service contracts with notice periods of three months.

In the event of redundancy, executive directors and other group executive members are entitled to receive payment, in addition to notice pay, in terms of the Nampak redundancy policy. Redundancy pay is calculated based on length of service and age and varies between two weeks and four weeks for every completed year of service. The payment is calculated using 75% of guaranteed package. The maximum entitlement is capped at 60 weeks. Certain long-service executives are entitled to a retirement gratuity from a legacy policy which was capped at R500 000 and then closed to future appointments after December 2013. The executive directors are not entitled to the retirement gratuity, however, certain of the other group executive committee members have retained this capped benefit.

The service contracts do not contain any other provisions relating to payments due on termination of employment (for whatsoever reason) or following a change of control of the company. In the event of a change of control, executive share allocations will be dealt with in terms of the rules of the relevant share plans. Further, the directors and executives have no entitlement to a restraint of trade payment and are not entitled to any other material payments.

Elements of remuneration and policy

Remuneration principles

Basic salary

Designed to attract and retain executives with appropriate competence and experience levels and diversity of skills and views to deliver sustainable profitability for the benefit of all stakeholders

Benefits

There is a trade-off between receiving compulsory benefits and voluntary benefits from an employee value proposition. The company understands the importance of saving for retirement from an early age and therefore continues to provide the benefit

Short-Term Incentive (STI)

Intended to provide a variable pay element for executive directors and group executive committee members which is earned against stretch performance targets

Places emphasis on delivering strategic imperatives which may impact negatively on short-term financial performance and which are vital to long-term sustainability

Covers all aspects which underpin sustainable profitability and ethical governance

Performance Share Plan (PSP)

Aimed at aligning executive remuneration directly with that of shareholders’ interests

Challenging performance targets underpin executive earnings and, if achieved, will deliver sustainable value to shareholders and underlying investors over the longer term

Because of staggered release of shares at the end of the third, fourth and fifth years from the original award date, executive remuneration is directly aligned to share price movements and dividend performance along with investors

Deferred Bonus Plan (DBP)

Provides a retention element to the remuneration structure

Encourages executives to build shareholding in Nampak Limited

Aligns executive remuneration with share price and dividend performance experienced by shareholders

Share Appreciation Plan (SAP) (not applicable for executive directors and group executive committee members)

Provides the chief executive officer with a reward and retention element for employees at middle management levels

External advisers

Basic salary

The Deloitte SA Executive Guide

PwC Research Services’ REMchannel®

Benefits

Various professional advisers and administrators recognised in their respective jurisdictions

Short-Term Incentive (STI)

21st Century

The Deloitte SA Executive Guide

PwC Research Services’ REMchannel®

Performance Share Plan (PSP)

21st Century

PwC People and Organisation (Reward) (PwC)

Deferred Bonus Plan (DBP)

21st Century

PwC

Share Appreciation Plan (SAP) (not applicable for executive directors and group executive committee members)

21st Century

PwC

Competitiveness of offer

Basic salary

Benchmarked using survey data from external advisers. The published remuneration of other listed companies of similar size and complexity is also considered

Benefits

Compulsory levels of retirement saving and life and disability cover are set using published survey data

Optional medical aid membership

Car allowance linked to requirements for business travel

Short-Term Incentive (STI)

Benchmarked using survey data from external advisers

Relevant to strategic intent

Performance Share Plan (PSP)

PwC are formally engaged annually to provide recommendations against market data for share plan awards to executive directors, group executive committee members and senior managers. They also provide guidance on whether vesting performance conditions linked to prior year allocations have been achieved and should be released to participants

Deferred Bonus Plan (DBP)

PwC as advisers to the remuneration component offset potential earnings under the DBP when determining the recommended awards under the PSP

Share Appreciation Plan (SAP) (not applicable for executive directors and group executive committee members)

In order to simplify and streamline Nampak’s LTI structures, the committee has taken the decision to cease making awards to senior managers under the SAP, and to rather make awards under the PSP. Another reason for this decision is to align the entire management structure of Nampak under the PSP. Unvested awards under the SAP will remain in operation under the scheme

Performance metrics

Basic salary

Individual performance, contribution and future growth potential are considered

Benefits

Not applicable

Short-Term Incentive (STI)

A combination of group, divisional and individual metrics for 2019 are set out in the table below:

Weighting within STI Component Metric Threshold On-target Stretch
Between 20% and 70% Group financial Improvement in HEPS CPI CPI + 3.6% CPI + 6%
Operational executive only – up to 50% Divisional financial EBITDA adjusted for interest or trading income Improvements is required by each division are set at commencement of the performance period Sufficient stretch and aligned to achievement of the group financial target    

Up to 60% (all executives)

Up to 40% (other managers)

Individual key performance indicators Linked to strategic issues and material matters that underpin sustainable profitability
Total calculated incentives are subject to a discount of up to 10% for non-achievement of the B-BBEE target.

The metrics for 2020 are as follows:

Participant category Strategy Group (weighting) Divisional (weighting) Individual (weighting)
Executive directors Actively manage our portfolio HEPS1 (40%)   KPI (40%)
    EBIT (10%)    
  Prudently manage cash Working capital (10%)    
Group executive committee: Operational   Combined group (10%) EBIT (30%) KPI (10%)
  Buying, making and selling better   Working capital (20%)  
  Buying, making and selling better   Operational efficiencies (10%)  
  Manage cash fixed costs   Cost saving initiatives (10%)  
  Safety   Safety (10%)  
Group executive committee: Support   Combined group   KPI (40%)
Total calculated incentives are subject to a discount of up to 15% for non-achievement of employment equity targets.
The group targets for improvement in HEPS for 2020 are as follows:
Threshold CPI        
On-target CPI + 4.8%        
Stretch CPI + 8%        
1 Based on headline earnings as defined by Circular 3/2013 of SAICA.

Performance Share Plan (PSP)

The performance metrics for the allocations in the 2019 financial year were:

Weighting within
allocation
Performance
condition
Target range
40% Cumulative improvement in HEPS Straight-line vesting between entry of CPI
+ 3% to CPI + 15%
30% Cumulative improvement in total shareholder return (TSR) Straight-line vesting between entry of CPI
+ 3% to CPI + 15%
30% Return on net assets 60% release for 11.5%
    70% release for 12%
    80% release for 12.5%
    90% release for 13%
    100% release for 13.5%

The metrics and targets for the 2020 financial year remain unchanged except for the use of all in HEPS and an adjusted 2019 HEPS base as defined in Section 1.

The committee may adjust the targets in the event of strategic investment decisions, extraordinary share price volatility or financial impacts out of the control of management. No shares will vest for resignation or dismissal. Pro-rated shares will vest for good leavers such as retirees.

Deferred Bonus Plan (DBP)

Executives and group executive committee members are able to use a percentage of after-tax STI earnings which are paid after achieving challenging performance conditions annually to purchase shares in Nampak Limited

Executives will receive a matching number of shares after three years provided they have remained in employment

No shares will vest for resignation or dismissal

Pro-rated shares will vest for good leavers such as retirees

Share Appreciation Plan (SAP) (not applicable for executive directors and group executive committee members)

The threshold performance target for the 2019 allocation was cumulative CPI growth over the three-year performance period

No shares will vest for resignation or dismissal

Pro-rated shares will vest for good leavers such as retirees

Maximum limits

Basic salary

Target level for guaranteed packages for executives and group executive committee members is clustered around the median

Benefits

Flexibility within guaranteed package governed by income tax regulation

Short-Term Incentive (STI)

The maximum limits for 2019 were as follows:

  Maximum potential STI as percentage of guaranteed package
Role Total Group Divisional Individual  
           
CEO 125% 85% 40%  
CFO 105% 53% 52%  
GEC – Operations 95% 19% 45% 31%  
GEC – Support 85% 34% 51%  

The maximum limits for 2020 are as follows:

  Maximum potential STI as percentage of guaranteed package
Role Total Group Divisional Individual  
CEO 125% 75% 50%  
CFO 105% 63% 42%  
GEC – Operations 95% 9% 76% 10%  
GEC – Support 85% 51% 34%  

Performance Share Plan (PSP)

  Set to deliver a percentage
of guaranteed package
 
  Expected
value
For superior
performance
 
CEO 80% 160%  
CFO 70% 140%  
GEC operations and support 60% 120%  

Deferred Bonus Plan (DBP)

Role Maximum
limit of
after-tax STI
CEO up to 50%
CFO up to 45%
Other group executives up to 40%

Share Appreciation Plan (SAP) (not applicable for executive directors and group executive committee members)

The maximum allocations are recommended to the committee after taking into account individual contribution, skills and future career progression

Performance period

Basic salary

Annual review

Benefits

n/a

Short-Term Incentive (STI)

Annual cash award payable in December Performance period 1 October to 30 September

Performance Share Plan (PSP)

Share awards vest to the level of achievement of the performance conditions at the end of the three-year performance period and are released in three equal tranches at the end of the third year, fourth year and fifth year from the original award date

Deferred Bonus Plan (DBP)

Vesting and release of matching awards after three years

Share Appreciation Plan (SAP) (not applicable for executive directors and group executive committee members)

Share allocations vest after three years if the performance condition is achieved. Participants have seven years from the allocation date to exercise their awards

Governance requirement

Basic salary

Set out in contracts of employment

Benefits

Set out in group policies

Short-Term Incentive (STI)

The committee has discretion to withdraw or change the STI. In addition, the committee holds overriding discretion on incentive bonus payments should circumstances warrant

Approval of STI payments only takes place after the annual financial statements have been audited and approved by the board

Performance Share Plan (PSP)

Governed in accordance with the share plan rules as approved by shareholders

Share awards are allocated annually usually in December to avoid allocations during closed periods

The extent of achievement against the performance targets is reviewed by PwC

Deferred Bonus Plan (DBP)

Governed in terms of the share plan rules as approved by shareholders

Eligible participants are provided with an option to purchase shares immediately after receipt of the STI payments and once the stock market had sufficient time to adjust to the published results

Share Appreciation Plan (SAP) (not applicable for executive directors and group executive committee members)

Governed in terms of the share plan rules as approved by shareholders

The extent of achievement against the performance targets is reviewed by PwC

Other employees

Basic salary

Managerial employees receive guaranteed packages

Other employees receive a basic salary, shift allowances, overtime and benefits on a build-up basis

The target guaranteed package for other employees is the median. The 75th percentile is considered for top performers and positions where we have scarce skill risks

Our levels of pay and benefits for our shopfloor employees are significantly higher than the agreed sector wage levels

Benefits

Employees in all jurisdictions have access to retirement funding and insured benefit arrangements in line with local regulations. Expatriate employees in certain countries receive remuneration for retirement funding and insured benefits where local options are not appropriate

Employees have voluntary access to medical aid or similar arrangements

Employees have access to EAP counselling

Short-Term Incentive (STI)

All managerial employees participate in the group’s STI scheme at different capped levels ranging between 7.5% and 65% of guaranteed package per annum

Individual KPIs generally form up to 40% of the maximum potential incentive with the balance accruing based on achievement of the divisional performance targets

Key performance targets address sustainable drivers for future success on a line of sight basis to their role requirements

Various productivity incentives provide line of sight rewards for non-managerial employees

Performance Share Plan (PSP)

Certain senior managers may receive awards under the PSP after considering remuneration benchmarks provided by PwC

Deferred Bonus Plan (DBP)

Certain senior managers may use up to 35% of their after-tax STI to purchase shares

Share Appreciation Plan (SAP) (not applicable for executive directors and group executive committee members)

It is proposed to close the SAP to future allocations to senior managers.

Future awards to certain senior managers will be benchmarked by PwC and will be considered under the PSP

 

SECTION 3: IMPLEMENTATION REPORT

The implementation report details the outcomes of executing the remuneration policy for executive directors and group executive committee members in the current financial year. The remuneration committee has applied the King IV recommendation that companies must disclose a single figure of earnings received and receivable for the reporting period.

Deviations from policy

The remuneration committee monitored the implementation of the remuneration policy and is able to confirm that there are no deviations from policy to report.

Contractual terms and payments on termination of employment

There were no deviations from policy implementation to the contractual terms of executives whose employment terminated during the year.

Fair and responsible remuneration

The absolute change to guaranteed packages for the executive directors and group executive committee members relative to the change in basic salaries for other staff groupings in South Africa where the majority of employees are located is set out below:

Grouping  Percentage 
change 
2019 
   Percentage 
change 
2018 
  
Executive directors  (13.6)    5.7    
Group executive committee members    (8.7)      5.5    
Overall executive  (10.9)    5.6    
Managers  7.0     7.0    
Other employees  8.6     9.5    

This is in line with our approach to fair and responsible remuneration where we aim to realise:

  • higher merit increases for staff than those granted to executive management (other than promotion and market alignment);
  • total levels of executive remuneration that are not excessive in comparison to market benchmarks for the role and complexity;
  • other staff are paid competitively against benchmarks and are managed where practical within the overall budget mandate;
  • performance and contribution are considered when determining annual increases for non-bargaining unit employees; and
  • the increase percentages reflect implementation of the last year of a three-year wage agreement for the vast majority of South African unionised employees

In countries outside of South Africa, general staff also received increases in a range around local country inflation. Increase mandates are set in consultation with the CEO after considering prevailing economic conditions, market increase trends and inflation rates.

STI

The committee's assessment of performance against targets set for the various elements of the STI are as follows:

  • The group target in respect of HEPS was not achieved.
  • There were varying levels of achievement against the divisional financial targets, with some divisions not achieving the required threshold and others achieving 100%.
  • There were differing levels of achievement against the divisional safety targets.
  • There were varying levels of achievement by executive directors and group executive committee members against their individual key deliverables which covered the following broad categories:
Strategic objective     Value creation     Key performance indicator     Performance
Actively manage our portfolio           Resolution of Nampak Plastic Europe business and pension strategy and appropriate implementation    
             Sale of Glass    
             Sale of Ibadan                                                                     
Prudently manage cash     Financial capital     Supply chain finance    
            Group capital expenditure    
            Inventory management    
            Cash extraction from Nigeria, Angola and Zimbabwe    
Invest to compete           Growth and corporate action initiatives    
Manage cash fixed costs     Financial capital     Corporate overhead restructuring    
            Procurement savings    
            Digitisation journey for procurement, finance and human resources    
Improve business performance by buying,     Manufactured capital     Marketing initiatives    
making and selling better           Operating efficiency    
            De-risked Nampak Staff Pension Plan    
            Legacy Malbak funds ready for deregistration and liquidation    
      Governance and legal compliance     Provision of governance, legal, forensic auditing and secretarial services as required    
            Established POPIA compliance framework    
            Legal and secretarial intervention and support for the delivery of strategic interventions    
B-BBEE     Human capital     Protect/improvement B-BBEE rating for the group    
Safety     Human capital     LTIFR tolerance level of 0.3    
Good progress made Some progress, more to come Disappointing performance
STI achievement (as a percentage of guaranteed package)

The results of applying the financial and non-financial performance achievements are reflected graphically below against target and stretch levels. The B-BBEE target was achieved.

CEO

CFO

GEC – operations

GEC – support

Prohibited period – share trading restrictions

The company remained under a prohibited period for most of the financial year as a result of ongoing corporate activity. After extensive consultation with various external advisers, the committee agreed that it was appropriate to suspend all awards and allocations under its various share plans which ordinarily would have taken place in December 2018. These awards and allocations were made in September 2019 when the prohibited period was lifted as a result of the announcement of the Glass transaction.

The committee also suspended any trading of shares that would have been released in December 2018 in terms of the PSP and the DBP rules and prohibited trading under the SAP for all executives and employees. These suspensions will be lifted once the September 2019 financial results are published in November 2019 and the December 2018 releases will be implemented accordingly.

LTI awarded

The annual LTI awards for the executive directors and group executive committee members allocated in 2018 and awarded in September 2019 are reflected in the table below:

  Number
of awards
  Value % of guaranteed package  
Executive directors        
AM de Ruyter 623 644 3 453 740 42  
GR Fullerton 365 174 2 022 334 36  
Group executive committee members        
C Burmeister 150 274 832 217 27  
LD Kidd 93 281 516 950 17  
RG Morris 150 274 832 217 22  
EE Smuts 150 274 832 217 20  
IH van Lochem 93 281 516 950 18  

The PSP awards will vest in December 2022 to the extent that the performance conditions are achieved. Awards are valued taking into account targeted vesting. The performance targets are set out in section 2 of this report. No shares were purchased under the DBP during the financial year.

LTI performance assessment

Performance share plan

The performance conditions linked to the PSP awards in December 2016 were tested and were not achieved. The performance conditions for the three-year period were:

  • 40% based on a growth in HEPS on continuing operations measured on a straight-line basis between threshold of CPI + 9% and target of CPI + 24%.
  • 30% based on the cumulative growth in TSR on a straight-line basis between threshold of CPI + 9% to target of CPI + 24%.
  • 30% based on return on net assets (RONA) targets where 60% of shares vest for a RONA of 11.5%, 70% for 12%, 80% for 12.5%, 90% for 13% and 100% for 13.5%.
HEPS performance

The chart displays the HEPS on continuing operations which was required for the threshold and stretch achievement levels of this performance condition against the actual achievement. Actual HEPS on continuing operations achieved was 54.1 against the threshold HEPS on continuing operations of 133.18 cents and the stretch HEPS of 149.32 cents.

HEPS performance (cents)

TSR performance

The chart displays the cumulative TSR which was required for the threshold and stretch achievement levels of this performance condition against the actual achievement. Actual cumulative TSR achieved was -51.4% which was significantly below the threshold cumulative TSR and the stretch cumulative TSR.

TSR performance (%)

Return on net assets (RONA)

The chart displays the RONA which was required for threshold and stretch achievement levels of the performance condition against the actual achievement.

Actual RONA achieved was 11.3% which was below threshold performance. For this performance condition, 60% of the shares would vest for a RONA achievement of 11.5%, 70% for a RONA achievement of 12%, 80% for a RONA achievement of 12.5%, 90% for 13% and stretch for a RONA achievement of 13.5%.

Return on net assets (%)

Share appreciation plan

The performance condition linked to the SAP allocations in December 2016 was not achieved and therefore no awards will be released in December 2019.

HEPS performance

The chart displays the HEPS on continuing operations which was required for on-target achievement of this performance condition against the actual achievement. Actual HEPS on continuing operations achieved was 54.1 cents which was significantly below the target HEPS of 129.96 cents.

HEPS performance (cents)

The single total figure of remuneration

Remuneration 2019

The following table sets out the total remuneration received and receivable by executive directors and group executive committee members for 2019:

  Basic
salary
(rand)
Company
contribution
to retirement
(rand)
Guaranteed
package
(rand)
Value of
other
benefits1
(rand)
  Termination
(rand)
  STI2
(rand)
  LTI3
(rand)
Total single
figure
remuneration
(rand)
 
Executive directors                  
AM De Ruyter 8 058 80 8 138 21 2 669 10 828  
GR Fullerton 5 504 55 5 559 14 2 671 8 244  
MMF Seleoane4 1 298 36 1 334 3 123 1 460  
  14 860 171 15 031 38 123 5 340 20 532  
Group executive committee members                  
C Burmeister 3 016 81 3 097 8 662 3 767  
M Khutama5 1 217 16 1 233 3 1 001 2 237  
LD Kidd 2 970 80 3 050 8 1 460 4 518  
RG Morris 3 771 38 3 809 10 1 085 4 904  
EE Smuts 4 050 40 4 090 11 2 769 6 870  
IH van Lochem6 2 921 29 2 950 7 1 505 4 462  
  17 945 284 18 229 47 1 001 7 481 26 758  
1 Other benefits refer to group personal accident cover.
2 STI disclosed is based on performance during the 2019 financial year, but actual STI payments will only be made in December 2019.
3 LTI disclosed is nil. The performance conditions aligned to the PSP and SAP were not achieved. None of the December 2016 awards will vest. No purchases were made under the DBP in December 2018.
4 MMF Seleoane resigned with effect from 28 February 2019. Termination pay comprises leave pay of R123 266.
5 M Khutama was retrenched with effect from 28 February 2019. Termination pay comprises leave pay of R4 781, notice pay of R740 050 and severance pay of R256 368.
6 IH van Lochem received a 15-year long service award to the value of R3 000 during the year.
Remuneration 2018

The following table sets out the total remuneration received and receivable by executive directors and group executive committee members for 2018.

  Basic
salary
(rand)
Company
contribution
to
retirement
(rand)
Guaranteed
package
(rand)
Value
of other
benefits1
(rand)
Retention/
termination
(rand)
STI2
(rand)
LTI3
(rand)
Total
single
figure
remuneration
(rand)
 
Executive directors                  
AM de Ruyter 7 574 103 7 677 21 8 846 1 749 18 293  
GR Fullerton 5 049 98 5 147 14 5 305 656 11 122  
MMF Seleoane 2 916 119 3 035 8 2 406 131 5 580  
  15 539 320 15 859 43 16 557 2 536 34 995  
Group executive committee members                  
C Burmeister 2 887 120 3 007 8 1 708 234 4 957  
M Khutama 2 794 94 2 888 8 784 3 680  
LD Kidd 2 730 118 2 848 8 2 220 5 076  
RG Morris 3 566 96 3 662 10 1 987 183 5 842  
EE Smuts 3 767 92 3 859 10 3 666 610 8 145  
IH van Lochem 2 400 110 2 510 7 1 956 44 4 517  
  18 144 630 18 774 51 12 321 1 071 32 217  
1 Other benefits refer to group personal accident cover.
2 STI disclosed is based on performance during the 2018 financial year, but actual STI payments were only made in December 2018.
3 LTI disclosed is the award of matching shares under the DBP scheme in December 2017. Values are calculated using market value at purchase date. The performance conditions aligned to the PSP and SAP were not achieved. None of the December 2015 awards have vested.

Remuneration mix

Remuneration implementation

The achievement against target for the remuneration components is set out in the graphs below.

Chief executive officer (R’000)

Chief financial officer (R’000)

Group – HRD (R’000)

GEC – operations (R’000)

* Actual is for the period of employment to 28 February 2019. * Actual includes M Khutama for the period of employment to 28 February 2019.

GEC – support (R’000)

 
 
Share disclosure tables

Disclosure on the quantum and value of awards outstanding at the beginning of the reporting period, as well as new awards made during the reporting period have been provided in the separate and detailed remuneration report available at www.nampak.com.

SECTION 4: NON-EXECUTIVE DIRECTOR REMUNERATION

Policy

The non-executive directors do not have contracts of employment with the company and are appointed by rotation in terms of our memorandum of incorporation.

The committee recommends the non-executive fee structures annually after obtaining benchmarks from the Deloitte non-executive director report. Published non-executive directors' fees and committee fees of companies in manufacturing and companies with similar market capitalisation are also benchmarked. Consideration is given to any changes in the level of complexity of the roles when assessing the fee recommendations. These recommendations are then considered by the committee (excluding recommendations of their own fees) and the board before being submitted to shareholders for approval in terms of the Companies Act requirements.

The company's non-executive directors are paid based on their role and policy is applied using the following principles:

  • A board fee is paid for scheduled board meetings held each year and the committee members receive committee fees for participation. The fees consist of a base fee and then a fee based on meeting attendance. Differentiated fees are set for sub-committee chairpersons and sub-committee members.
  • The fees are paid every two months, in arrears.
  • Non-executive directors do not receive incentive bonus payments nor do they participate in any of the executive share plans.
  • Fees disclosed are exclusive of any value added tax (VAT) that might be applicable, depending on the individual circumstances of the director.
  • Non-executive directors are reimbursed for travel expenses, where necessary.

Implementation

Non-executive directors' remuneration 2019/2018

The non-executive directors' remuneration paid during the year under review (as approved previously by shareholders) and the total comparative figures are disclosed below.

  Directors’
fees
(rand)
Audit and risk
committee
total fees
(rand)
Nominations and
remuneration
committee
total fees
(rand)
  Remuneration
committee
total fees
(rand)1
  Nomination
committee
total fees
(rand)1
 
RC Andersen2 109 010 93 981 17 107   76 167   21 875  
E Ikazoboh3 298 400      
J John4 298 400 388 800      
RJ Khoza5 171 467 56 258     21 875  
NV Lila6 192 067 146 867      
PM Madi7 109 010      
TT Mboweni8 46 110      
IN Mkhari9 257 200 182 100 95 325   12 805    
KW Mzondeki10 36 883      
CD Raphiri11 175 783 63 550      
SP Ridley12 175 783 71 950 122 150      
PM Surgey13 1 831 697   4 347   2 158  
  3 701 810 883 698 354 390   93 319   45 908  
  Investment
committee
total fees
(rand)
Risk and
sustainability
committee
total fees
(rand)1
Social ethics and
transformation
committee
total fees
(rand)
  Total
2019
(rand)
  Total
2018
(rand)
 
RC Andersen2 30 365   348 505   910 533  
E Ikazoboh3 87 500 53 650   439 550   392 500  
J John4 31 775 21 875   740 850   624 167  
RJ Khoza5   249 600   374 200  
NV Lila6 61 075 46 358   446 367   690 100  
PM Madi7 30 365 31 775 78 182   249 332   702 000  
TT Mboweni8   46 110   1 870 000  
IN Mkhari9 176 300 31 775   755 505   717 000  
KW Mzondeki10   36 883    
CD Raphiri11 43 750 105 150   388 233    
SP Ridley12   369 883    
PM Surgey13 2 158 2 158   1 842 518   810 100  
  368 280 126 783 339 148   5 913 336   7 090 600  
  Directors’ fees are shown excluding VAT where applicable.
1 The committees were rationalised and consolidated with effect from 1 January 2019. The nominations and remuneration committees were combined into the nominations and remuneration committee. Risk and sustainability was incorporated into the audit and risk committee.
2 RC Andersen took over the role of chairman of remuneration committee from PM Surgey on 10 October 2018 until his resignation from the board and committees with effect from 6 February 2019.
3 E Ikazoboh was appointed to the social and ethics committee with effect from 1 April 2019.
4 J John was a member of the social ethics and transformation committee for the period 1 January 2019 to 31 March 2019.
5 R Khoza resigned from the board and committees with effect from 30 May 2019.
6 NV Lila resigned from the board and committees with effect from 30 May 2019.
7 PM Madi resigned from the board and committees with effect from 6 February 2019.
8 TT Mboweni resigned from the board and committees with effect from 9 October 2018.
9 IN Mkhari was appointed as member of the remuneration committee on 8 November 2018 and ceased to be a member of the social, ethics and transformation committee on 31 December 2018.
10 KW Mzondeki was appointed to the board with effect from 1 September 2019.
11 CD Raphiri was appointed to the board with effect from 1 March 2019 and as member of the nominations and remuneration committee, investment committee and chairman of the social, ethics and transformation committee with effect from 1 April 2019.
12 SP Ridley was appointed to the board with effect from 1 March 2019 and as member of audit and risk and chairman of the nominations and remuneration committee with effect from 1 April 2019.
13 PM Surgey took over as chairman of the board from TT Mboweni on 10 October 2018, moving to a single fee for participation in board and committee meetings.
Proposed fees for 2020

The proposed fees for 2020 are set out in the notice of annual general meeting of the integrated report. After considering recommendations from management and the committee the board has proposed no increase to committee fees for 2020, a decrease of 3.7% to the chairman fee and a market alignment adjustment of 9.7% to the non-executive director fees, excluding committee participation. There will be an overall decline in the total fees for 2020 as a result of a smaller board of directors and the revised committee structures which were implemented with effect from 1 January 2019.