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This report sets out Italtile’s remuneration philosophy and policy for non-executive directors, executive directors and prescribed officers. It also provides a description as to how the policy has been implemented and discloses payments made to non-executive and executive directors and prescribed officers during the year under review.
The report focuses on the fixed and variable elements of executive remuneration, as well as fees paid to non-executive directors and uses the single figure disclosure format. Assessed against King IV™ and the amended JSE Listings Requirements, the Remuneration Committee is satisfied with the Company’s compliance.
In line with leading practice as prescribed by King IV™ this report is divided into three sections:
01Background statement with feedback from the Chairperson of the Remuneration Committee
02Our remuneration philosophy, policy and framework
03Implementation report and remuneration disclosure of executive directors and prescribed officers
I am pleased to present Italtile’s Remuneration report for the year ended June 2018.
As members of Italtile’s Remuneration Committee, our focus has been to assist and advise the Board on matters relating to remuneration governance and matters relating to the remuneration of senior management. The Committee is focused on responsible remuneration practices across the Company and strives for fair, responsible and transparent remuneration through the review of remuneration practices.
A core responsibility of the Remuneration Committee is to ensure that the remuneration philosophy and policy supports Italtile as follows:
- Aligns executive reward with the Group’s commercial success and sustainability; and
- Supports the Group’s strategic objectives and allows for the recruitment, motivation and retention of senior executives, ultimately maximising shareholder value while complying with relevant legislation and requirements of the King IV™ Report on Corporate Governance for South Africa (2016).
Satisfactory progress has been made against the objectives set in the strategic plan as approved by the Board.
Some strategic successes include:
- The conclusion of the deal to acquire a further 75% of Ceramic Industries with effect from 2 October 2017;
- Continued roll out of TopT stores, ending the year with 77 stores in operation;
- A 99% take up of the Rights Offer undertaken by the Company;
- Growth in basic and headline earnings per share; and
- At a JSE Top 100 Companies event, Italtile achieved position 37 based on best returns for Shareholders over five years.
The Group’s financial performance was satisfactory, despite lower than expected sales in a difficult trading environment.
However good progress was made in improving profitability through expense control, cost reduction and focused stock management.
The solid performance is testimony of effective leadership and efficiency, with the senior executives leading from the front and setting the example of high performance.
Significant progress was made in many operational areas, with the biggest challenge remaining sales growth and the further development of the people pipeline.
Remuneration Committee at a glance
As tasked by the Board, and mandated in its terms of reference, the Committee’s responsibilities are to:
- Assist the Board in developing and setting the Group’s remuneration policy;
- Determine and approve the total remuneration of executive directors and executive management;
- Determine and approve the performance measures for executive directors;
- Review the compensation basis and proposed average annual increases for the Group’s employees;
- Review remuneration and Board best practice and trends in order to assess the appropriateness of the remuneration policy;
- Review remuneration matters for top management promotions, transfers and termination of employment;
- Oversee any proposed major changes to employee benefit structures throughout the Group;
- Review and recommend short and long-term incentive policies and targets for directors, executive management and staff;
- Set the participation principles for the various remuneration schemes;
- Review and recommend performance management policies;
- Ensure compliance with applicable laws and codes;
- Advise on the fees for non-executive directors; and
- Review and evaluate the contribution of each executive director and member of senior management and determines their salary adjustments on an annual basis.
Key decisions taken by the Remuneration Committee during the year under review include:
- Approval of increases and adjustments for executives and senior management, as well as the framework for increases for all other employees;
- Approval of short and long-term incentive structures and awards for executives and senior management as well as the framework for all other employees;
- Approval of the key performance indicators for the executives; and
- Recommendation of non-executive director fees for approval to the Board.
As required by the Companies Act and King IV™, the following resolutions will be tabled for shareholder voting at the annual general meeting (“AGM”), details of which can be found in the AGM notice:
- Binding vote on non-executive directors’ fees; and
- A non-binding advisory vote on the Group’s remuneration policy.
The Committee Chairperson reports to the Board after each committee meeting and attends the AGM to answer questions from shareholders on the Committees area of responsibility.
The Committee is focused on responsible remuneration practices across the Company. Our industry faces many challenges and we recognise the need to retain top talent to ensure a focused drive to meeting shareholder expectations. It is important that Italtile presents a competitive value proposition in remuneration and benefits.
Remuneration Committee composition
The Remuneration Committee is a sub-committee of the Board. The Committee meets at least twice per annum. The Committee is chaired by an independent non-executive director and comprises three directors. The majority of directors on the Committee are independent.
The current members of the Committee are: Mrs S M du Toit (Chairman), Mr G A M Ravazzotti and Mr S G Pretorius.
The Board considers the Committee’s composition to be appropriate in terms of the necessary knowledge, skills and experience of its members.
The Italtile Group Company Secretary, E J Willis, attends all meetings of the Committee as secretary. The Chief Executive Officer and Commercial Director attend all meetings by invitation in order to provide input and guidance with regard to executive director and senior management remuneration.
No attendee may participate in any discussion or decision regarding his or her own remuneration.
The Committee met twice during the year. Attendance at the meetings was as follows:
|Members||Attendance at meetings|
|S M du Toit||2/2|
|G A M Ravazzotti||2/2|
|S G Pretorius||2/2|
At the AGM on 17 November 2017, our remuneration policy was endorsed by 95,5% of our shareholders. We believe this reflects recognition of our ongoing commitment to engage with our shareholders, and act on concerns where necessary.
In the event that the remuneration policy or implementation report is voted against by shareholders exercising 25% or more of the voting rights, dissenting shareholders will be invited to engage with the Company. The manner and timing of such engagement will be provided, if necessary.
We trust this remuneration report provides an accurate overview of the Company-wide remuneration policy and its implementation and specifically an in-depth view on executive management remuneration in the past year as the business is managed for a low-price environment in the protracted commodity downturn.
Susan du Toit
Remuneration Committee Chairman
20 September 2018
Italtile is committed to maintaining pay levels that reflect an individual’s worth to the Group. The Group’s philosophy is to treat employees as business partners, developing a sense of ownership.
Our remuneration philosophy is governed by the principles of equity, fairness and affordability, ensuring alignment between management and shareholder requirements.
Remuneration policies are designed to attract, reward and retain the executives and employees needed to deliver on Italtile’s business strategy.
The remuneration policy subscribes to King IV™ recommendations and principles on which it is based include the following principles:
- Remuneration practices are aligned with Company strategy;
- Total rewards are set at competitive levels in the relevant market to ensure we attract, motivate and retain highly talented individuals;
- Total rewards are managed to align to the principle of responsible and fair pay;
- Total remuneration costs need to be affordable at an individual corporate entity level and justifiable to employees and stakeholders;
- Incentive-based results are linked to achieving demanding performance conditions consistent with shareholder interest over the short, medium and long term; and
- Performance measures and targets for incentive plans are structured to operate effectively throughout the business cycle and support the business strategy.
Elements of remuneration
Italtile has an integrated remuneration and reward model which includes guaranteed remuneration, short-term incentives and long-term incentives. The components of total remuneration for permanent employees are fixed remuneration and variable remuneration.
Fixed remuneration comprises a basic salary and benefits, aligned to roles and performance. Variable remuneration comprises short-term incentives and long-term incentives, aimed at retention of critical employees. For employees, performance is measured against set performance indicators. Further detail is provided below.
All employees share in Group profits, based on an individual’s contribution to the Group. The Group has a minimum cost to company target of R120 000 per employee.
During the 2014 financial year, the Group implemented a Share Incentive Scheme for all qualifying employees of the Group and its franchisees that had been in the employ of the Group and/or franchise network for a period of three uninterrupted years at each allotment date in August, every year from the implementation date. Until vesting, the shares will continue to be accounted for as treasury shares and have an impact on the diluted weighted average number of shares.
The allotment is funded by the Group and the shares are restricted instruments which will vest with employees following a further three years of employment. Until vesting, the shares will continue to be accounted for as treasury shares.
The various elements of remuneration are outlined below:
Guaranteed salary for employees
Guaranteed salary is reviewed annually and positioned competitively against peers that are comparable in size, sector and business. Company performance, affordability, individual performance and average industry and sector increases are considered in determining any annual adjustment. Increases are generally inflation linked and, where affordable, additional budget is allocated for adjusting remuneration levels that are not appropriately aligned to internal pay ranges and/or market rates for a specific job.
Benefits offered to employees include medical aid, provident fund and other benefits relevant to Italtile.
The Italtile Group administers incentive schemes to encourage and reward delivery of its strategic priorities over the short, medium and long term. The short-term incentive focuses on achieving business targets in that financial year, while the long-term incentive closely aligns the interests of executives with shareholders over the longer term. It encourages executive directors and prescribed officers to build a shareholding in the Company, which sustains ongoing performance and the creation of shareholder value.
Given the Group’s philosophy of partnership, more weighting is applied to long-term incentives.
As per the policy on short-term incentives, Executives take part in the Executive Profit Share Scheme. The scheme sets profit targets and drives a high performance culture. When annual targets are achieved in full, 100% of the on-incentive will be paid. In instances where target goals are exceeded, the incentive is capped at a percentage of the guaranteed basic salary. Where the bonus targets are not achieved in full, a pro rata incentive is paid only if the threshold performance level has been achieved.
Financial multipliers are applied as separate multipliers of the on-target percentages to determine the final award.
The financial targets are reviewed annually.
As per the policy on long-term incentives, there are two long-term incentive schemes within the Italtile Group, each rewarding performance in an appropriate manner, designed to reward and retain key personnel. The long-term incentives include the Italtile Share Appreciation Rights Scheme and the Executive Retention Plan, as well as the Ceramic Industries Retention Scheme and Notional Scheme.
- Share Appreciation Rights Scheme
In accordance with the Share Appreciation Rights Scheme (“SARS”), selected directors and employees of the Group are entitled to a conditional share award linked to the value of notional Italtile Limited shares (“shares”). An amount of 25% of the awards vest after three years from grant date, and the balance (75%) after five years. The value of an award is equal to the increase in the value of the shares between grant date and vesting date (the value at the latter date is defined as the volume weighted average price of Italtile Limited shares as traded on the JSE over the 10 trading days preceding and including the vesting date).
- Executive Retention Plan
The Italtile Limited Executive Retention Plan is an additional mechanism, over and above the existing Italtile Limited SARS, to retain and reward selected employees and directors in line with the Group’s values and remuneration philosophy of partnership. Italtile selectively enters into Retention Plan agreements with employees and directors in terms of which retention payments are made to them in conjunction with awards in terms of the Share Scheme. The payment of a Retention Award to an employee or director is subject to such employee or director remaining with the Group for a period of at least three years. The most recent awards made have a retention period of five years. The employee or director shall be the registered and beneficial holder of the shares acquired pursuant to the retention award from the date of transfer of such shares.
Awards from the above two schemes are to be applied towards the obligatory subscription and/or purchase of Italtile Limited ordinary shares.
- The Ceramic Industries Executive Share Scheme
The scheme has a retention period of five years. Shares are issued to an employee and placed in escrow. While in escrow, employees have voting and dividend rights. After five years, shares are transferred to the employee. Should the employee leave before five years, the award is forfeited.
There are no performance targets linked to the three retention schemes above.
- The Ceramic Industries Equity Incentive Scheme
The scheme is used to incentivise senior management on long-term profitability. A number of notional shares are awarded to an individual. These shares are due in two tranches (25% after two years, 75% after four years). Of the shares vesting in any one of the tranches, 20% are not conditional, while 80% are conditional. For conditional shares, there is a minimum profit target (below which no conditional shares are received) and a maximum profit target (at which 100% of conditional shares are received). A straight-line calculation is used to find the number of shares to be received if the profit lies between the minimum and maximum targets. The targets are based on the profit for two years (Year one and two for the first tranche and year three and four for the second tranche). The “shares” are cash settled. After tax is paid, the balance of the cash payment is applied towards the obligatory purchase of Ceramic Industries ordinary shares.
Executive and key management performance management
Executive and key management’s performance is measured in the following categories, with specific performance targets/indicators per category, namely:
- progress against the strategic plan milestones;
- financial performance;
- human capital;
- customer satisfaction; and
- cultural fit/values.
The key performance areas for executives for the year under review were as per the table below:
|Focus area||Desired outcome||Performance||Rating|
|1. Strategic plan||Approval of Five Year Plan by Board during January 2018 offsite session||Satisfactory progress||Achieve|
|Distribution/logistics solutions for long term||On track||Achieve|
|Property portfolio growth:||
|2. Financial performance||Grow Group profit before tax by 25% for the year||
|Working capital management||On target. Group stock holding improved and Group financial stock turn improved from 4,73 times last year to 6,26 times||Achieve|
|3. Human capital||Improve employee engagement score to 75 with next survey||Achieved a score of 73||Under|
|4. BBBEE||Achieve 63 points (Level 7 before discounting >55 and <70) through various initiatives. Level 3 by 2022||On target for 63||Achieve|
|5. Customer satisfaction||Improve score and measurement in all three retail brands||Improved mystery shop scores for all three brands||Achieve|
|6. Cultural fit/values||Entrench the Group’s core values of hands on approach, performance driven, entrepreneurial flair, high work ethic, transparency in communication, dignity, empowerment, integrity and putting the customer first||In progress, although more work needed on culture throughout the organisation.||Achieve|
Service contracts of executive directors and prescribed officers
Executive directors and prescribed officers have permanent contracts with notice periods prescribed by the contracts as one calendar month. Contracts are regularly reviewed to ensure they remain aligned with governance and legislative requirements.
Non-executive director fees
With regards to non-executive director fees:
- Non-executive director appointments are made in terms of the Company’s Memorandum of Incorporation and confirmed at the AGM of shareholders after the appointment;
- Fees reflect the directors’ role and Committee membership and are not linked to the Italtile share price. A fee applies for any additional ad hoc work but not exceeding 100 hours a year above Board and Committee meetings;
- Fees are reviewed by the Committee annually and require approval from shareholders at the AGM;
- Non-executive directors do not participate in any of the Company’s short or long-term incentive plans, and they are not employees of the Company; and
- The recommendation of the Remuneration Committee on the proposed fees is submitted to the Board for consideration before being proposed to shareholders for consideration and approval at the AGM. If approved, the fees become effective in the month following the AGM.
Non-executive director fees for 2018 are tabulated in section 3 of this remuneration report.
Use and justification of remuneration benchmarks
The Remuneration Committee reviews remuneration and Board leading practice and remuneration trends in order to assess competitiveness in the market. External remuneration benchmark reviews published by PwC, EY, the Institute of Directors in Southern Africa and Mercer are reviewed and taken into account when determining pay levels and structures.
Non-binding advisory vote
Shareholders are requested to cast a non-binding advisory vote on section 2 of this remuneration report (remuneration policy).
|Description||Assessment of performance||Impact on executive remuneration|
|Guaranteed basic salary||Achievement of scorecard KPIs and satisfactory overall performance||
|Short-term incentives||Profit share targets set (‘old’ Group):
|Long-term incentives||Awarded to high-performing, high-potential employees and executives in line with the Group’s philosophy of partnership||All three executives and the two prescribed officers share in long-term incentives as disclosed in section 3 of this report|
The Committee concluded that, on an overall basis, the executive directors met the expectations and achieved the targets set by the Board as per the scorecard in section 2, other than the people measure.
The short-term incentive targets for executive profit share were met given headline earnings growth of 14% for the ‘old’ Group together with the Group growth in profit before tax of 32% for the consolidated Group, against a target of 25%. Executives were awarded a short-term incentive of two times basic monthly salary for the headline profit growth of the ‘old’ Group of 14% and were awarded an additional one times basic monthly salary for the growth of the consolidated Group.
Executive directors’ and prescribed officers’ participation in share incentive schemes
Executive directors’ holdings under the SARS are set out in the table below:
|Executive director||Awards held at
1 July 2017
30 June 2018
|J N Potgieter||4 000 000||—||(750 000)||—||3 250 000|
|B G Wood||2 587 500||—||(150 000)||—||2 437 500|
|T T A Mhlanga||—||500 000||—||—||500 000|
Executive directors’ holdings under the Executive Retention Plan are set out in the table below:
|Director||Awards held at
1 July 2017
30 June 2018
|J N Potgieter||4 000 000||—||—||—||4 000 000|
|B G Wood||1 500 000||—||—||—||1 500 000|
Post-year end, 500 000 Executive Retention Plan shares were allotted to T T A Mhlanga.
Prescribed officers’ holdings under the Ceramic Industries Executive Share Scheme are set out in the table below:
|Prescribed officers||Awards held at
1 July 2017
30 June 2018
|L Foxcroft||207 069||—||—||—||207 069|
|T Molefakgotla||165 656||—||—||—||165 656|
Directors’ and prescribed officers’ emoluments (‘single figure remuneration’)
|All figures in R000’s||Base
|N Booth#||11 046|
|J N Potgieter||2 660||—||440||17 522||316||20 938||15 491|
|B G Wood||2 112||—||338||5 356||163||7 969||10 626|
|T T A Mhlanga||1 471||106||233||—||178||1 988||—|
|2018||6 243||106||1 011||22 878||657||30 895|
|2017||6 308||2 329||1 028||25 883||1 615||37 163|
|All figures in R000’s||Base
|L Foxcroft||2 709||2 379||662||8 619||1 009||15 378||—|
|T Molefakgotla||1 541||1 190||368||6 895||670||10 664||—|
|2018||4 250||3 569||1 030||15 514||1 679||26 042|
Board meeting attendance of executive directors
Executive directors and prescribed officers do not draw any additional remuneration for attending the main Board or committee meetings.
Non-executive directors’ fees
Payments to non-executive directors
|All figures in R000’s||Board
|G A M Ravazzotti||1 610||—||1 610||1 359|
|S I Gamao||117||—||117||236|
|S M du Toit||772||—||772||752|
|S G Pretorius||453||—||453||479|
|M V Mtetwa#||244||—||244||94|
|N P Khoza†||28||—||28|
|2018||3 640||—||3 640|
|2017||3 309||—||3 309|
|Aggregate emoluments of directors who served during the year||60 577||40 472|
|The following fixed fees were in place for the year under review:|
|Basic annual fee||R50 000|
|Board meeting fee||R22 300|
|Committee fee||R19 000|
|Chairman of Committee||R23 000|
|Strategy session fee||R24 300|
|Hourly rate for ad hoc work, not exceeding 100 hours a year||R3 020 per hour|
|Chairman of the Board||R1 113 000|
Non-binding advisory vote
Shareholders are requested to cast a non-binding advisory vote on section 3 of this remuneration report.
We value our continued engagement with various stakeholders, and we endeavour to maintain our relationships with all in the hope that we will continue to receive their valued input.
This remuneration report was approved by the Board of directors of the Company on 20 September 2018.
|Date:||16 November 2018|
|Venue:||The Italtile Building,
Corner William Nicol Drive and Peter Place,
20 August 2018
FY18 Year-End Results
16 November 2018
Annual General Meeting