Group Five 2012 - Integrated Report

2012 INTEGRATED REPORT

Remuneration
review

Following the group’s board review in 2011, the remuneration committee (remco) was reconstituted. After five years of chairing the committee, Stuart Morris handed over responsibility to John Job, an independent non-executive director, as the new chairman of the remuneration committee. This was effective from August 2011.

Refer to page 9 of the printed report, as well as the online section of the report at www.groupfive.co.za or details of John Job’s credentials.

To ensure an effective hand over, Stuart Morris remained on the remco as an invitee for the first two committee meetings. New appointments to the committee during the financial year were Lindiwe Bakoro and Oyama Mabandla, both non-executive directors.

The remco implemented the remuneration policy as approved by shareholders by a 65.8% vote at the 2011 annual general meeting. It used its terms of reference as its guiding document on decisions made in the year.

Role of the committee

The role of the remco is to assist the board with the setting and administration of the remuneration polices of the group, as approved by the shareholders.

The group this year reviewed its approach to reporting on its remuneration and has as far as possible ensured that it complies with the principles and recommended practices of the King III report. Shareholders also provided us with their views on remuneration, which were incorporated in our principles.

The performance of the board and the executive team is appraised against a set of clear objectives and key performance areas (refer to page 102 of the printed report, as well as the online section of the report) to ensure they are remunerated fairly and responsibly.

Executive and senior management members are measured and remunerated according to the alignment, achievement and contribution to the group’s strategy, the group’s financial per for mance, business unit performance and individual performance.

Remuneration policy

The remuneration policy of Group Five is based on rewarding employees in line with company and individual performance. A pay for performance policy applies. The policy therefore aims to attract, retain and motivate skilled and performing employees to execute the current business strategy and to create sustainable growth.

The group offers an integrated remuneration and reward model which is made up of a cost to company component (CTC), a short term incentive (STI) and a long term incentive programme (LTIP). The group’s pay mix is compared to the market from which it attracts and recruits employees with the skills required by the group.

We offer an integrated approach to remuneration.

Cost to company

Base pay or guaranteed pay

Group Five benchmarks its remuneration practices against both the market from which it recruits and the most relevant markets from which employees regularly seek alternative employment. We also utilise the available reputable benchmark remuneration surveys to ensure our remuneration packages are both competitive and fair.

Accurate construction sector remuneration data remains challenging as not many construction companies participate in these remuneration surveys.

The group follows a job grading system to ensure that salaried employees are paid at a level which meets market expectations for that particular job category. The group also uses an independent remuneration consultant to ensure appropriate benchmarking of jobs and salary bands.

Our policy is to pay competent performing employees on the 62nd percentile of the market to ensure employees are competitively above the market median on their guaranteed pay. Our executives’ guaranteed pay is pegged at the median of the market while their incentives are more competitive to drive performance.

BASED ON MARKET CONDITIONS AND COMPANY PERFORMANCE, THE EXECUTIVE TEAM ELECTED TO RECEIVE A ZERO INCREASE IN BASE PAY. THE EXCEPTION TO THIS WAS TWO EXECUTIVES WHO RECEIVED MARKET-RELATED PROMOTIONAL AND TASK-RELATED BASE PAY ADJUSTMENTS. THE
OVERALL AVERAGE INCREASE FOR THE REMAINING OFFICERS OF THE COMPANY AND SALARIED EMPLOYEES WAS 5.7%.

The annual CTC increase in base pay is determined based on individual performance criteria and company financial performance being met.

Our wage-based employees are paid either in line with relevant sectoral determinations as set out by the Department of Labour or in line with union-negotiated wages.

Benefits

Group Five offers a number of employee benefits, as approved by the remuneration committee. All permanent employees are required to participate and contribute to a retirement fund. Over and above this, all salaried employees are required to be members of a medical aid either through Group Five or as a member of a spouse’s medical aid. The group also offers life assurance cover through the Group Personal Accident (GPA) fund to permanent and temporary employees. As with the base pay, the group reviews these offerings on a regular basis to ensure we remain competitive to prevailing market trends.

Variable pay

Short term incentives

The group grants management and most salaried employees an annual performance incentive. This is based on group, business unit, contract and individual performance over the past financial year of the company. Employees are measured against a set of individual, job or site-specific criteria. These standards have to
be met or exceeded for an incentive to be paid. Non-executive directors do not participate in any variable pay offering.

At the level of executive and prescribed officers of the company, two thresholds need to be met before an incentive pay-out is considered by the remuneration committee. These are:

Should the two thresholds be met, a maximum of 20% of profit after tax (PAT) is made available as an incentive pool. The individual incentive value is then based on a pre-determined participation percentage of company and business unit profit after tax. This is set subject to job scope and individual contribution to the group. The performance criteria and their respective weightings are as follows:

Executives can earn up to three times their cost to company (CTC) should they exceed their performance targets, with the expected on-target performance being 1,4 times their individual CTC. The incentive earned is divided into four tranches which are paid out respectively at six monthly intervals starting in September following the financial year end. This staggered payment contributes to retention and sustainable performance of the individual.

The remuneration committee has a discretionary clause in its mandate according to which it may consider external and internal factors that may have contributed to the thresholds not being met. They may then consider purely discretionary short term bonuses on an individual and business segment basis.

Long term incentives

The Share Appreciation Rights (SARs) scheme is currently the only long term incentive programme used by the group.

In terms of this scheme, SARs are allocated to executive and prescribed officers of the company. The intention of this scheme is to attract, retain and reward management that are able to influence the group’s performance. The performance expectation of this scheme is based on a theoretical 15% compounded annual
growth rate (CAGR) in the share price and targets to deliver an annualised average appreciation of 60% of an individual’s CTC at the time of the award.

The annual SARs allocations made are based on seniority and based on an annual multiple of an individual’s guaranteed earnings.

	Employee category		Annual multiple of guaranteed earnings (AMOGE)*
	CEO		1,5
	Executive committee members		1,2
	Managing directors of business units		0,9
	Business unit directors (other than managing directors)		0,6

The SARs issued are based on the targeted AMOGE. The base number of SARs to be issued is determined by dividing the 30-day volume adjusted weighted average price achieved in the 30 days prior to the issue into the employee’s annual guaranteed cost to company package. This number is then multiplied by the AMOGE to give the seniority differentiated individualised SARs issue.

No specific performance criteria are stipulated, although it is expected that employees who are granted these SARs are employees who have and will continue to meet or exceed expectations for at least the vesting period. A vesting period of three years is applicable to this scheme. 33% of the SARs allocation can be exercised per year over the following three years with a maximum life of the scheme being seven years from the grant date.

The SARs scheme has been in existence for the last six years and was approved by shareholders in 2005.

The continued under-performance of the share price in the market downcycle rendered a negative value to all SARs issued under this scheme since inception. The scheme in its current form has therefore proven ineffective in
its ability to motivate or retain the participants to the scheme due to its reliance purely on an increasing share price performance. It therefore does not cater well for the cyclical nature of the construction sector.

To address this, a number of alternatives have been reviewed and proposed to the remuneration committee. After due consideration the committee made a recommendation to the main board for the introduction of the new long term incentive programme (LTIP) that caters for actual company performance against targets, as well as share price performance.

The board accepted this recommendation as well as approved the submission for shareholder approval. A separate circular will be issued to shareholders. The circular will detail the salient points of the proposed LTIP scheme and requires shareholder approval at the next AGM.

Employee and director contracts of employment

Permanent employees sign an employment contract that complies with the labour law requirements of the country of employment. Employees have a retirement age of 65. The CEO, executives and directors of the organisation have a retirement age of 60. The notice period of employees is one month and extends to two months for business unit directors and three months for general managers, managing directors, executives and the CEO. The group applies the standard statutory requirements
to executives should their permanent employment contract be terminated.

Non-executive directors’ fees

The remuneration committee reviews the annual increases in non-executive directors’ fees and recommends these to the board. They in turn recommend the fees to the shareholders at the annual AGM. The current fee schedule was approved by shareholders at the AGM in November 2011.

Non-executive directors are approved by shareholders. The group’s policy is that one third of directors are required to retire on an annual basis. The determination of candidates for retirement is informed by the longest-standing serving director.Therefore, depending on the size of the board, this may translate to retirement on a two or three year basis.

The chairperson of the board is remunerated on a fixed fee for the year. The rest of the non-executive board members are paid a base fee for being a main board member and then paid an attendance fee for each meeting.

The chairpersons of the sub-committees of the board are paid a fixed fee for the year and the members of these committees are. A penalty fee is applicable to a board member for failing to attend a scheduled meeting.

Details of non-executive directors’ fees are detailed below.

Remuneration committee key focus areasin the year

A key focus was to recommend a competitive rewards programme to the board to ensure that base remuneration of employees and executives balances responsible remuneration with market competitiveness and attracting the skills required.

In line with this, the committee:

	Reviewed the design of the remuneration and incentive programme for the senior management of the group
	Approved the pay-outs on both short and long term incentive programmes
	Approved the annual employee salary increase
	Reviewed and approved the executive salary reviews
	Reviewed and recommended for approval to the board a proposed new long term incentive programme
	Reviewed the proposal of the F2013 non-executive directors’ fees before seeking board approval
	Reviewed the proposed BBBEE employee scheme and bursary foundation

The committee met quarterly as opposed to three times a year as it has done in the past. Going forward, meetings will continue to be held quarterly. The committee developed a clear strategy to continue attracting, motivating and retaining key skills in the group against pressure on profitability and to ensure that the group adheres to its pay for performance policy.

Going forward

In the coming year, the remuneration committee will review the group’s pay mix against the market trend that is leaning to offering larger guaranteed pay versus pay-at-risk or bonus pay.

A challenge in the coming year for remco will be to balance the need to incentivise and reward individuals who outperform while the sector still struggles with tough market conditions.

Director and senior management remuneration

Non-executive directors’ fees

Fees, services expenses

Fees
30 June 2012
(R’000)

Expenses
30 June 2012
(R’000)

Total
30 June 2012
(R’000)

Fees
30 June 2011
(R’000)

Expenses
30 June 2011
(R’000)

Total
30 June 2011
(R’000)

Name

P Buthelezi

794

–

794

740

–

740

LE Bakoro

401

–

401

394

–

394

L Chalker

517

149

666

550

223

773

OA Mabandla^*

445

–

445

–

SG Morris

951

–

951

944

–

944

KK Mpinga

479

–

479

494

–

494

DDS Robertson^*

450

–

450

–

JL Job

580

–

580

524

–

524

4 617

149

4 766

3 646

223

3 869

*	Appointed 1 August 2011.

Non-executive directors proposed fees F2013, subject to shareholder approval

Position	F2013 proposed fees (R per annum)	Comment	F2012 proposed fees (R per annum)
Main board – chairperson	782 800	Includes all board and committee attendances	739 450
Lead independent non-executive director	337 000	includes basic fee plus attendance fee for four meetings	318 000
Main board – non-executive director	195 500	includes basic fee plus attendance fee for four meetings	184 440
Audit committee – chairperson	195 500	Four meetings	184 440
Audit committee – member and attendee	98 000	Four meetings	92 430
Remuneration committee – chairperson	130 400	Four meetings	92 430
Remuneration committee – member and attendee	68 600	Four meetings	64 660
Risk committee – chairperson	130 400	Four meetings	122 960
Risk committee – member and attendee	68 600	Four meetings	64 660
Nominations committee – chairperson*	98 000	Two meetings	92 430
Nominations committee – member and attendee	51 700	Two meetings	48 760
SED committee – chairperson	130 400	Four meetings	n/a
SED committee – member and attendee	68 600	Four meetings	n/a
Extraordinary services (per hour)	2 800	Applied for ad hoc and/or non–scheduled meetings. Capped at daily rate of R19 600	2 650

A deduction of R13 500 per meeting will apply for non–attendance at a scheduled meeting and R28 090 will be payable for attendance at a special board meeting.

*	Included in chairperson’s fee.

Executive directors

Salaries

Performance
and equity incentives

Total

(R’000)

30 June
2012

30 June
2011*

30 June
2012

30 June
2011

30 June
2012

30 June
2011

Name

MR Upton

3 799

3 691

5 045

7 323

8 844

11 014

CMF Teixeira

2 167

2 127

2 760

3 326

4 927

5 453

5 966

5 818

7 805

10 649

13 771

16 467

*	2011 has been restated to be comparable to 2012 such that both periods reflect total earnings and is more reflective of “cost to company”.

In line with the requirements of the Companies Act 2008, the group discloses the remuneration paid to prescribed officers who are defined as the group’s executive committee.

The three highest paid members of management are also reflected in the table below as per the recommended practice suggested in 2.26.2 of the King III code.

Executive committee members (exco)

Salaries

Performance
and equity incentives

Total

(R’000)

30 June
2012

30 June
2011*

30 June
2012

30 June
2011

30 June
2012

30 June
2011

Name

PrescribedOfficer 1

2 793

3 048

2 822

6 052

5 615

9 100

PrescribedOfficer 2

2 763

2 772

2 251

3 399

5 014

6 171

PrescribedOfficer 3

2 531

2 533

2 870

3 545

5 401

6 078

PrescribedOfficer 4

2 481

2 285

1 790

3 364

4 271

5 649

PrescribedOfficer 5

2 080

2 011

2 380

3 081

4 460

5 092

PrescribedOfficer 6

1 945

2 067

2 113

2 778

4 058

4 845

PrescribedOfficer 7

1 890

1 838

1 932

2 766

3 822

4 604

16 483

16 554

16 158

24 985

32 641

41 539

Senior managementˇ (excluding CEO, CFO and exco)

Salaries

Performance
and equity incentives

Total

(R’000)

30 June
2012

30 June
2011*

30 June
2012

30 June
2011

30 June
2012

30 June
2011

Total earnings

24 932

26 318

15 272

25 121

40 204

51 439

The above represents earnings relating to senior managementˇ at year end date only.

Details of executive directors’ share options and share appreciations

Name of director	Options granted – opening balance	Options granted during the current year	Strike price	Options exercised and paid	Options lapsed	Options granted – closing balance	Strike price	Options vested – closing balance
MR Upton
2011
	400 000	–	30,44	–	–	400 000	30,44	400 000
	71 000	–	54,81	–	–	71 000	54,81	47 333
	100 000	–	50,20	–	–	100 000	50,20	66 667
	100 000	–	43,07	–	–	100 000	43,07	33 333
	166 000	–	28,63	–	–	166 000	28,63	55 333
	150 484	–	34,09	–	–	150 484	34,09	–
	–	138 154	27,70	–	–	138 154	27,70	–
	987 484	138 154		–	–	1 125 638		602 666
2012
	400 000	–	30,44	–	–	400 000	30,44	400 000
	71 000	–	54,81	–	–	71 000	54,81	71 000
	100 000	–	50,20	–	–	100 000	50,20	100 000
	100 000	–	43,07	–	–	100 000	43,07	66 667
	166 000	–	28,63	–	–	166 000	28,63	110 667
	150 484	–	34,09	–	–	150 484	34,09	50 161
	138 154	–	27,70	–	–	138 154	27,70	–
	1 125 638	–		–	–	1 125 638		798 495
CMF Teixeira
2011
	25 000	–	24,77	–	–	25 000	24,77	25 000
	25 000	–	54,81	–	–	25 000	54,81	16 667
	25 000	–	50,20	–	–	25 000	50,20	16 667
	200 000	–	42,84	–	–	200 000	42,84	66 667
	72 000	–	28,63	–	–	72 000	28,63	24 000
	71 740	–	34,09	–	–	71 740	34,09	–
	–	66 175	27,70	–	–	66 175	27,70	–
	418 740	66 175		–	–	484 915		149 001
2012
	25 000	–	24,77	–	–	25 000	24,77	25 000
	25 000	–	54,81	–	–	25 000	54,81	25 000
	25 000	–	50,20	–	–	25 000	50,20	25 000
	200 000	–	42,84	–	–	200 000	42,84	133 333
	72 000	–	28,63	–	–	72 000	28,63	48 000
	71 740	–	34,09	–	–	71 740	34,09	23 913
	66 175	–	27,70	–	–	66 175	27,70	–
	484 915	–		–	–	484 915		280 246

ˇ	As depicted on page 6.

Details of prescribed officers’ share options and share appreciations (including three highest paid members of management)

Prescribed officer	Options granted – opening balance	Options granted during the current year	Strike price	Options exercised and paid	Options lapsed	Options granted – closing balance	Strike price	Options vested – closing balance
Prescribed Officer 1
2011
	18 750	–	12,55	–	–	18 750	12,55	18 750
	200 000	–	30,44	–	–	200 000	30,44	200 000
	42 000	–	54,81	–	–	42 000	54,81	28 000
	53 000	–	50,20	–	–	53 000	50,20	35 333
	100 000	–	28,63	–	–	100 000	28,63	33 333
	90 818	–	34,09	–	–	90 818	34,09	–
	–	83 377	27,70	–	–	83 377	27,70	–
	504 568	83 377		–	–	587 945		315 416
2012
	18 750	–	12,55	–	–	18 750	12,55	18 750
	200 000	–	30,44	–	–	200 000	30,44	200 000
	42 000	–	54,81	–	–	42 000	54,81	42 000
	53 000	–	50,20	–	–	53 000	50,20	53 000
	100 000	–	28,63	–	–	100 000	28,63	66 667
	90 818	–	34,09	–	–	90 818	34,09	30 273
	83 377	–	27,70	–	–	83 377	27,70	–
	587 945	–		–	–	587 945		410 690

Prescribed Officer 2
2011
	400 000	–	30,44	400 000	–	–	30,44	–
	42 000	–	54,81	–	–	42 000	54,81	28 000
	53 000	–	50,20	–	–	53 000	50,20	35 333
	99 000	–	28,63	–	–	99 000	28,63	33 000
	89 762	–	34,09	–	–	89 762	34,09	–
	–	82 408	27,70	–	–	82 408	27,70	–
	683 762	82 408		400 000	–	366 170		96 333
2012
	42 000	–	54,81	–	–	42 000	54,81	42 000
	53 000	–	50,20	–	–	53 000	50,20	53 000
	99 000	–	28,63	–	–	99 000	28,63	66 000
	89 762	–	34,09	–	–	89 762	34,09	29 921
	82 408	–	27,70	–	–	82 408	27,70	–
	366 170	–		–	–	366 170		190 921

Prescribed Officer 3
2011
	125 000	–	30,44	–	–	125 000	30,44	125 000
	34 000	–	54,81	–	–	34 000	54,81	22 667
	150 000	–	50,20	–	–	150 000	50,20	100 000
	91 000	–	28,63	–	–	91 000	28,63	30 333
	81 842	–	34,09	–	–	81 842	34,09	–
	–	75 469	27,70	–	–	75 469	27,70	–
	481 842	75 469		–	–	557 311		278 000
2012
	125 000	–	30,44	–	–	125 000	30,44	125 000
	34 000	–	54,81	–	–	34 000	54,81	34 000
	150 000	–	50,20	–	–	150 000	50,20	150 000
	91 000	–	28,63	–	–	91 000	28,63	60 667
	81 842	–	34,09	–	–	81 842	34,09	27 281
	75 469	–	27,70	–	–	75 469	27,70	–
	557 311	–		–	–	557 311		396 948

Prescribed Officer 4
2011
	12 500	–	12,55	12 500	–	–	12,55	–
	25 000	–	24,77	–	–	25 000	24,77	25 000
	100 000	–	54,81	–	–	100 000	54,81	66 667
	39 000	–	50,20	–	–	39 000	50,20	26 000
	75 000	–	28,63	–	–	75 000	28,63	25 000
	72 514	–	34,09	–	–	72 514	34,09	–
	–	66 889	27,70	–	–	66 889	27,70	–
	324 014	66 889		12 500	–	378 403		142 667
2012
	25 000	–	24,77	–	–	25 000	24,77	25 000
	100 000	–	54,81	–	–	100 000	54,81	100 000
	39 000	–	50,20	–	–	39 000	50,20	39 000
	75 000	–	28,63	–	–	75 000	28,63	50 000
	72 514	–	34,09	–	–	72 514	34,09	24 171
	66 889	–	27,70	–	–	66 889	27,70	–
	378 403	–		–	–	378 403	–	238 171

Prescribed Officer 5
2011
	150 000	–	51,00	–	–	150 000	51,00	100 000
	50 000	–	50,20	–	–	50 000	50,20	33 333
	68 000	–	28,63	–	–	68 000	28,63	22 667
	67 938	–	34,09	–	–	67 938	34,09	–
	–	62 668	27,70	–	–	62 668	27,70	–
	335 938	62 668		–	–	398 606		156 000
2012
	150 000	–	51,00	–	–	150 000	51,00	150 000
	50 000	–	50,20	–	–	50 000	50,20	50 000
	68 000	–	28,63	–	–	68 000	28,63	45 333
	67 938	–	34,09	–	–	67 938	34,09	22 646
	62 668	–	27,70	–	–	62 668	27,70	–
	398 606	–		–	–	398 606		267 979

Prescribed Officer 6
2011
	19 000	–	54,81			19 000	54,81	12 667
	100 000	–	50,20			100 000	50,20	66 667
	70 000		28,63			70 000	28,63	23 333
	63 362	–	34,09			63 362	34,09	–
	–	58 170	27,70			58 170	27,70	–
	252 362	58 170		–	–	310 532		102 667
2012
	19 000	–	54,81	–	–	19 000	54,81	19 000
	100 000	–	50,20	–	–	100 000	50,20	100 000
	70 000	–	28,63	–	–	70 000	28,63	46 667
	63 362	–	34,09	–	–	63 362	34,09	21 121
	58 170	–	27,70	–	–	58 170	27,70	–
	310 532	–		–	–	310 532		186 788

Prescribed Officer 7
2011
	45 000	–	12,55	–	–	45 000	12,55	45 000
	300 000	–	30,44	150 000	–	150 000	30,44	150 000
	30 000	–	54,81	–	–	30 000	54,81	20 000
	37 000	–	50,20	–	–	37 000	50,20	24 667
	69 000	–	28,63	–	–	69 000	28,63	23 000
	61 672	–	34,09	–	–	61 672	34,09	–
	–	56 619	27,70	–	–	56 619	27,70	–
	542 672	56 619		150 000	–	449 291		262 667
2012
	45 000	–	12,55	–	–	45 000	12,55	45 000
	150 000	–	30,44	–	–	150 000	30,44	150 000
	30 000	–	54,81	–	–	30 000	54,81	30 000
	37 000	–	50,20	–	–	37 000	50,20	37 000
	69 000	–	28,63	–	–	69 000	28,63	46 000
	61 672	–	34,09	–	–	61 672	34,09	20 557
	56 619	–	27,70	–	–	56 619	27,70	–
	449 291	–		–	–	449 291		328 557

Details of share options and share appreciation rights issued to senior management (excluding CEO, CFO and exco)

	Options granted – opening balance	Options granted during the current year	Strike price	Options exercised and paid	Options lapsed	Options granted – closing balance	Strike price	Options vested – closing balance
2011
	40 000	–	12,28	–	–	40 000	12,28	40 000
	75 000	–	20,00	–	–	75 000	20,00	75 000
	162 500	–	20,25	75 000	–	87 500	20,25	87 500
	350 000	–	24,77	–	–	350 000	24,77	350 000
	25 000	–	26,39	–	–	25 000	26,39	25 000
	75 000	–	31,87	–	–	75 000	31,87	75 000
	277 000	–	54,81	–	30 000	247 000	54,81	164 667
	377 000	–	50,20	–	42 000	335 000	50,20	223 333
	69 389	4 147	16,03	–	–	69 389	16,03	27 159
	100 000	–	33,63	–	–	100 000	33,63	33 333
	754 505	–	28,63	–	98 000	656 505	28,63	14 168
	714 454	–	34,09	–	–	714 454	34,09	–
	–	577 766	27,70	–	70 755	507 011	27,70	–
	3 019 848	581 913		75 000	240 755	3 281 859		1 115 160
2012
	40 000	–	12,28	–	–	40 000	12,28	40 000
	97 500	–	24,77	–	–	97 500	24,77	97 500
	75 000	–	31,87	–	–	75 000	31,87	75 000
	177 000	–	54,81	–	–	177 000	54,81	177 000
	219 000	–	50,20	–	–	219 000	50,20	219 000
	116 124	–	16,03	23 129	–	92 995	16,03	43 186
	457 000	–	28,63	–	–	457 000	28,63	304 667
	412 647	–	34,09	–	–	412 647	34,09	137 549
	391 943	–	27,70	–	–	391 943	27,70	–
	1 986 214	–		23 129	–	1 963 085		1 093 902

ˇ	As depicted on page 6.