Wrap Text
Revised executive remuneration policy, executive employment contracts and access to documentation regarding the grou
Adcorp Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 1974/001804/06)
Share code: ADR & ISIN: ZAE000000139
("Adcorp" or "the Company" or “the Group”)
REVISED EXECUTIVE REMUNERATION POLICY, EXECUTIVE EMPLOYMENT CONTRACTS AND
ACCESS TO DOCUMENTATION REGARDING THE GROUP’S STRATEGIC POSITIONING
Remuneration Policy
Shareholders are advised that, following a detailed review of the Group’s executive
remuneration practices by the Remuneration Committee and the Board, a number of changes
have been made to the Group’s remuneration policies and practices.
This review was informed by a number of key considerations including the following:
. The requirements as contained in the King IV Report on Corporate Governance for South
Africa 2016;
. Consultations with specialist advisors in this field regarding best practice;
. Feedback from various stakeholders including shareholders;
. The impending expiration of key executive employment contracts;
. The need for strategic alignment across the Group;
. Market research; and
. Various socio-economic drivers.
In terms of these changes, Adcorp’s remuneration philosophy is now centred around the
following key considerations:
. Unwavering commitment to best practice in areas of remuneration and reward,
underpinned by statute, regulations and related guidelines;
. Attracting, rewarding and retaining exceptional people who deliver sustainable growth,
enhance talent and who live the Adcorp values;
. Ensuring that sustainable performance and value creation required of executives are
aligned to the objectives of shareholders, where management share an appropriate level
of personal risk;
. Regular evaluations, peer-group reviews and related surveys to ensure comparative and
contextual pay-for-performance; and
. Driving a high performance culture.
Adcorp’s remuneration strategy is positioned to attract, retain and motivate outstanding
talent and thereby ensure business sustainability and the achievement of the key strategic
objectives of the company. Based on comparative peer group reviews, benchmarking and
international best practice, the remuneration strategy is underpinned by the following three
inter-dependent dimensions:
. Guaranteed remuneration in the form of a Total Guaranteed Package (TGP), which is
holistically comprised of salary, medical aid, pension, allowances and the like. The total
guaranteed package is the minimum remuneration receivable by an executive in the
instance where no short-term incentive is awarded and no long-term incentive awards
finally vest (see below);
. A Short-term incentive (STI) which is targeted at 100% of TGP and can vary upwards to
150% at maximum and down to 50% of TGP subject to the achievement of pre-determined
performance thresholds. Performance below threshold will result in zero STI awarded (the
STI metrics and ranges are described below); and
. A Long-term incentive (LTI) which is aimed at motivating those executives who influence
the long-term sustainability, value creation and strategic objectives of the company. The
LTI is an equity settled performance share award. The likelihood is that only 75% of the
LTI award will vest and the targeted LTI remuneration level of 100% of TGP is based on
this 75% vesting level. Hence, a maximum of 133% of TGP could potentially vest if all the
LTI vesting criteria are met and 100% of the award vests. There is a minimum performance
threshold level at which 50% of the LTI award will vest. Performance below the
performance threshold level will result in zero LTI vesting (the LTI metrics and ranges are
described later). The scheme is governed by the rules of “The Adcorp Holdings Limited
2006 Share Plan”.
Short-term Incentive (STI) targets and ranges
STI metrics and performance ranges will be set each year by the Remuneration Committee of
the Board for application in the coming financial year.
The following metrics, weightings and performance ranges will apply to the short-term
incentive scheme for executives for the financial year ending 28 February 2018.
Threshold Target Maximum
STI Metric Weight 50% x TGP 100% x TGP 150% x TGP
1 EBITDA growth 50% 10% 20% 30%
Cash conversion
2 ratio 25% 70% 80% 90%
Individual Sub-standard performance Met or exceeded all Exceeding performance
on most individual individual performance on all individual
3 performance 25% performance metrics metrics performance metrics
(EBITDA - Earnings before Interest, Tax, Depreciation and Amortisation).
For the sake of clarity it should be noted that performance below threshold on any metric
results in zero bonus for that proportion and there can be no “catch-up” for performance
above maximum on another metric (i.e. each metric is capped at the maximum). Linear
interpolation applies for results between the performance ranges indicated.
The individual performance component will have the following sub-metrics which the
Remuneration Committee is required to evaluate at year-end. These performance criteria are
not weighted.
. Strategic contribution
. Succession planning
. Transformation
. Governance, risk and compliance
. Living the group values
By its very nature, evaluation of individual performance is somewhat subjective and requires
thought and judgement from the Committee.
Long term Incentives (LTI)
The Group’s LTI scheme is aimed at fostering and sustaining financial performance and value
creation over time. The scheme is focused on the executive team (the Group CEO and his
direct reports) as well as the “tier two” managers being those that report directly to executive
managers.
100% of executives’ LTI awards will be subject to vesting targets (corporate performance
targets) and will not be awarded according to time-based, tenure criteria. For other LTI
recipients (tier two managers), a portion of any vesting award will be related to tenure. The
following is the split of performance vesting share awards versus time based vesting awards.
Executive
LTI Vesting Basis of vesting Management Others
1 Performance vesting 100% 75%
2 Time-based vesting 0% 25%
The vesting period over which performance will be adjudicated and vesting awards will be
made is three years.
For the performance vested portion of the LTI awards, the following criteria and performance
ranges will apply in respect of LTI awards made during the financial year ending 28 February
2018.
Threshold Threshold Threshold
LTI Metric Weighting 50% vesting 75% vesting 100% vesting
1 ROIC 50% 10% 14% 18%
2 Normalised EPS growth 50% 17.5% 22.5% 27.5%
. Return on Invested Capital (ROIC)
Return on invested capital (ROIC) is defined as the Earnings before Interest, Tax,
Depreciation and Amortisation (EBITDA) return on average invested capital (equity
capital, reserves and net debt). This ratio will be computed for each of the three financial
years and the corporate performance target (CPT) for this element of LTI vesting will be
evaluated as the simple average of ROIC for the three financial years (FY18, FY19 and
FY20) against the vesting scale as defined above.
. Normalised Earnings Per Share (EPS) growth
Normalised EPS is defined as headline earnings per share (HEPS) excluding amortisation
of intangible assets acquired in business combinations and excluding transaction costs
related to business combinations. This CPT will be computed as the three year compound
annual growth rate (CAGR) of normalized EPS from FY18 to FY20. The vesting for this
proportion will then be determined based on the vesting scale as defined above.
Price and quantum of units awarded
The quantum of LTI unit awards issued will be referenced to 133% of each individual’s TGP
divided by the prevailing Adcorp share price at the time of issue. The reason for this 33% uplift
relative to TGP is that the expectation and fair value assumption is that only 75% of the units
issued will vest.
LTI issues will only be made immediately after the release of the Group’s annual or interim
financial results.
The vesting date will be 3 years from the award date.
FY2017 LTI awards
Due to delays relating to the finalisation of the revised remuneration policy as well as the
finalisation of LTI targets as described above, no LTI awards were made to any employees
during the financial year ended 28 February 2017.
Accordingly, with the exception of the Group CEO and the Group COO, an LTI allocation will
be extended to eligible executives and tier two managers in line with the policy principles and
vesting criteria described above in order to compensate for the absence of any LTI allocation
in FY2017. This allocation will be issued immediately following the release of the Group’s
latest annual financial results.
In the case of the Group CEO and Group COO, the obligation to issue LTI shares as well as the
quantity to be issued is contractual in terms of their previous executive employment contracts
which expired on 28 February 2017.
As these executive employment contracts were the subject of renewal, the FY2017
contractual allocations (450 000 shares in respect of the Group CEO and 412 500 shares in
respect of the Group COO) were not allocated during the financial year ended 28 February
2017 as was required in terms of these contracts.
In fulfilment of these contractual obligations, these contracted allocations will be issued as
soon as is practically possible immediately following the release of the Group’s latest annual
financial results. No additional allocations in compensation for the absence of LTI allocations
in FY2017 will be issued to these two individuals.
Minimum shareholding requirements
Senior executives will be required to maintain a minimum exposure to the Adcorp share price
after units have vested.
To achieve this objective, a minimum shareholding requirement has been implemented as
follows.
Reporting level Minimum shareholding
requirement as a % of TGP
Executives 200%
Tier two managers 100%
Any executive or tier two manager participating in the LTI scheme will have five years from
the date of their appointment, or five years from the implementation of this policy for existing
employees, to build up to the required level of holding.
These holdings need to be fully vested and unencumbered shares registered for the direct
benefit of the employees. A “high watermark” principle will apply such that, when the officer
is verified to have met the criteria, the officer will then be required to hold that number of
shares as was used to determine the meeting of the level of holdings.
Executive Employment Contracts
As reported, the fixed term executive employment contracts of the Group CEO and Group
COO expired at the end of February 2017.
New employment contracts have been concluded with both the Group CEO, Richard Pike, and
the Group COO, Nelis Swart.
The key features of these contracts are as follows:
. The employment contracts continue on an enduring basis subject to three months’ notice
of termination served by either the employee or the employer;
. Remuneration consists of a Total Guaranteed Package (TGP), a Short Term Incentive (STI)
and a Long Term Incentive (LTI). TGP, STI and LTI are in line with the Group’s revised
remuneration policy as described above.
. Unlike the pre-existing executive employment contracts whereby the STI component was
guaranteed to be no less than 80% of the previous year’s STI, there is no guarantee of the
STI which is entirely performance driven in terms of the revised executive remuneration
policy as described above.
. As distinct from the previous employment contracts, there is no guaranteed allocation of
shares contained in the new employment contracts with regard to the issue of LTI
incentives. In terms of the new employment contracts, these two individuals will now
participate in the revised LTI scheme as described above.
. In terms of the pre-existing executive employment contracts which were five year fixed
term contracts, both of the contracted executives were entitled to a restraint of trade
payment at the end of the contractual period (28 February 2017). This restraint payment
obligation on the company was equivalent to one year’s TGP at that date plus an amount
equivalent to the average STI in respect of the past two years.
. The two executives have agreed to forgo this February 2017 restraint payment obligation
on the company. Accordingly, no payment has been made to these individuals as was
required in terms of these contracts.
. In terms of the new employment contracts, on termination of the employment contract,
should the company, at its sole election, wish to enforce a restraint of trade obligation on
either or both of these individuals, the company shall only then be obliged to make a
restraint payment. In such instance, a restraint payment will be equivalent to one year’s
TGP at that date plus an amount equivalent to the average STI in respect of the past two
years.
. The rest of the terms and conditions contained in the executive employment contracts
are the typical, standard terms for such executive employment contracts with regard to
hours of work, leave entitlement and basic conditions of employment.
Documentation regarding the Group’s strategic positioning
An information day was recently held at which a number of existing and prospective
shareholders attended.
A number of presentations pertaining to the Group’s strategic positioning were tabled at this
day.
Copies of these presentations tabled are available on the Group’s website at
www.adcorp.co.za.
Bryanston
24 March 2017
Sponsor: Deloitte & Touche Sponsor Services (Pty) Ltd
Date: 24/03/2017 02:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
Sharenet Sites 
