ALEXANDER FORBES GROUP HOLDINGS LIMITED - Additional disclosure in relation to Remuneration Policy

Release Date: 20/08/2018 08:00
Code(s): AFH
 
Wrap Text
Additional disclosure in relation to Remuneration Policy

ALEXANDER FORBES GROUP HOLDINGS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 2006/025226/06)
JSE Share Code: AFH
ISIN: ZAE000191516
(“Alexander Forbes” or “the Company”)

Additional disclosure in relation to Remuneration Policy

In response to a number of queries received from shareholders in anticipation of their voting at the Company’s Annual General
Meeting to be held on 6 September 2018, additional information on the Company’s remuneration policy, specifically improvements
made in respect of the current financial year ending 31 March 2019, as well as the new Executive Long-Term Incentive Plan (Ambition
2022 Executive LTIP) approved in June 2018 are being disclosed.

1.       Introduction

Alexander Forbes commenced a detailed review of its remuneration practices in 2017, which was completed in 2018. In reviewing the
remuneration practices, key considerations included alignment of the reward philosophy with the group strategy to ensure the
remuneration policies and practices support and enable the achievement of Ambition 2022; recommendations in the King IV Report
on Corporate Governance for South Africa 2016 and alignment with best practice.

The remuneration philosophy aligns closely with the Company’s employee value proposition. It seeks to complement and support the
delivery of financial and non-financial key objectives which underpin the Ambition 2022 strategy. Furthermore, the philosophy aims
to align the remuneration of executives and senior managers with the creation of shareholder value.

The strategic aim of the remuneration policy is to enable the business to:
• attract, motivate and retain talented high-performing people;
• encourage performance to drive the achievement of both short-term results and long-term sustainability; and
• promote a culture that supports enterprise and innovation with appropriate short-term and long-term performance related
  rewards that are fair and achievable.

The Company is committed to the concept of total reward, which recognises that reward is multi-faceted and does not only have
direct financial components. The remuneration mix comprises both fixed and variable components:
• Total guaranteed package - Fixed
• Short-term incentive plan - Variable
• Long-term incentive plan - Variable

2.       Total Guaranteed Pay (TGP)

The Company positions itself to ensure competitive total reward within the parameters of affordability. The remuneration philosophy
targets to remunerate employees at the 50th percentile of the market from a guaranteed pay perspective. The TGP includes base pay
and contributions to retirement funding; medical aid, risk cover/insured benefits, and travel allowance (only if the employee qualifies
in terms of income tax legislation).

In determining the appropriate market against which to benchmark, inter alia, similar industries, jurisdictions and company
complexities are taken into consideration. The Company's relative market position strives to ensure that it attracts and retains the
core competencies required for organisational strategy achievement.

3.       Short-Term Incentive Plan (STIP)

The short-term incentive plan forms a fundamental part of our total reward philosophy and aims to reward for both organisational
and individual performance. One of the features of the revised remuneration policy includes a transition towards a total reward
approach and pay-for-performance model.
The core features for the revised STIP include:
• The bonus pool is determined in line with the Company’s full year financial performance.
• The value of an award is dependent on the overall Company performance, as well as the Group scorecard, relevant business
  segment objectives, as well as individual performance and contribution. For executives and senior management, greater
  weighting is placed on overall company performance.
• To qualify for the STIP, a minimum threshold of Company performance against the scorecard must be achieved.
• Scorecards are reviewed annually, influenced by specific requirements to achieve annual targets in support of the overall longer-
  term strategy. The weighting in respect of financial and non-financial measurements is typically 80:20.
     - FY19 Group scorecard factors include:
            - 80% Financial: net revenue, operating leverage, normalised headline earnings per share, cost to income ratio and
               technology modernisation delivery.
            - 20% Non-financial: customer net promoter score, employment equity, broad-based black economic empowerment
               and employee engagement survey results.
• For senior management: 50% of the bonus is paid in cash, with the remaining 50% deferred and allocated in the form of retention
  shares with a staggered vesting (with 50% vesting 6 months after award date and the remaining 50% vesting 12 months after
  award date).

4.1      Long-Term Incentive Plan (LTIP)

The long-term incentive plan is designed to align performance with achieving the Company’s long-term objectives; act as a retention
mechanism; and drive a culture of continuous and sustained growth and improvement. To align shareholders’ and executives’
interests, the vesting of shares is subject to achieving performance conditions measured over a period appropriate to the strategic
objectives of the Company.

Employee share ownership includes the conditional share plan (CSP), forfeitable share plan (FSP) and the employee share ownership
plan (ESOP). The ESOP exists for the benefit of all permanent employees in Africa who do not participate in the LTIP and there is a
significant weighting to qualifying South African black female employees, who enjoy 70% of the beneficial interest.

The Company has implemented changes to its remuneration policy relating to long-term incentives over the last two years, but with
more substantial changes made in relation to the FY19 allocations. These changes aim to ensure that long-term incentives align the
interests of eligible employees with those of shareholders and also link reward to performance over the medium- to long-term. The
table below highlights the high-level changes to the LTIP.

High level LTIP changes

                                       FY 2017                    Current year      Future years
                                       and prior years            (FY 2018)         (from FY 2019)
                                                                                    
                                       CSP (80%) and              CSP (60%) and     CSP (60%) and FSP (40%) (eligible employees
Instruments used                       FSP (20%)                  FSP (40%)         other than Group Executive Committee)
                                                                                    Ambition 2022 Executive LTIP**

                                                                                    
                                                                  HEPS* (CSP) and   HEPS* (CSP) and retention (FSP)
Performance conditions                 HEPS*                      retention (FSP)   HEPS*, NPS, ACI, BEE (Ambition 2022 Executive
                                                                                    LTIP)**
                                                                                   
Vesting period                         3 years                    3 years           3 years (CSP and FSP)
                                                                                    4 years (Ambition 2022 Executive LTIP)**

Other conditions                                                                    Malus, claw-back (CSP, FSP and Ambition 2022
                                                                                    Executive LTIP)
                                       -                          -                 Minimum shareholding requirement (Ambition
                                                                                    2022 Executive LTIP)**
* Headline earnings per share is measured on a normalised basis
** Discussed in detail under item 4.2 below

4.2       Long-Term Incentive Plan (LTIP): Ambition 2022 Executive LTIP

Following the announcement of our turnaround strategy, Ambition 2022, work commenced to develop and design a revised executive
long-term incentive plan to ensure alignment of performance against the Company’s objectives and shareholder expectations, which
was approved in June 2018.

The Ambition 2022 Executive LTIP is specifically designed to:
• Encourage and reward exceptional performance;
• Attract and retain executives with the requisite skills and drive to execute the Group’s strategy;
• Strongly align the interests of the group executive remuneration with that of shareholders;
• Encourage personal shareholding in the Company by these executives; and
• Encourage a medium-term focus of five years and beyond.

The Ambition 2022 Executive LTIP focuses on members of the Group Executive Committee of the Company. The first Ambition 2022
Executive LTIP was awarded in July 2018 and two further annual awards will be made in 2019 and 2020 respectively.

Conditions for vesting
Three conditions must be met for the performance conditional shares to vest:
1. Continued employment until the vesting date.

2.    Achievement of stretched performance conditions (significantly more aggressive than those applicable in respect of other long-
      term incentives). The following performance conditions apply and will be measured over a four-year performance period:

        Condition                                                                  Weighting
        Headline earnings per share (HEPS)                                         80%
        Customer net promoter score (NPS)                                          6.7%
        African, Coloured and Indian (ACI) representation in talent pipeline       6.7%
        Broad-based black economic empowerment (Scorecard level)                   6.6%

3.    An additional requirement for the awards to vest to a specific participant, is that they must meet the minimum shareholding
      requirement as follows:
                                               MSR expressed as a % of         MSR expressed as a % of    MSR expressed as a % of
                                               CTC to be achieved by 31        CTC to be achieved by 31   CTC to be achieved by 31
                                               March 2022                      March 2023                 March 2024
        Group Chief Executive                  150%                            200%                       250%
        Other group executives                 100%                            125%                       150%

In addition, the Remuneration Committee decided to further align the Company’s incentive remuneration and the interests of
executives with that of shareholders by amending the Alexander Forbes long-term incentive share plan (forfeitable and restricted
share scheme 2015: the Plan) rules to provide for the recovery of vested shares (gross of any tax), or for the Executive to pay to the
Company an amount equivalent to all or part of the proceeds of sale at the time of disposal of all or some of the Plan shares acquired
pursuant to the vesting of the award (gross of any tax). This is also referred to as clawback and further details are contained in the
Annual General Meeting notice (ordinary resolution number 6). Once approved by shareholders, the clawback rules also apply to CSP
and FSP allocations to all other eligible employees.
Basis of Awards and Award Levels
A total of 8.9 million ordinary shares or 0.7 per cent of the Company’s issued share capital at 31 March 2018 will be allocated towards
each allocation of the Ambition 2022 Executive LTIP award, or 26.7 million ordinary shares in total for the three anticipated awards.
The standard award percentages are tabled below.

 Level                           Face value as percentage of Cost to Company (CTC)
 Group Chief Executive                                   250%
 Other Participants                                      125%


The maximum number of shares which may be allocated to a single participant in respect of awards, both vested and unvested may
not exceed 13 000 000 shares which equated to approximately 1% of the Company’s issued share capital when the Ambition 2022
Executive LTIP was approved.

Performance Period
Each Ambition 2022 Executive LTIP award performance condition is measured over a four-year performance period. The following
performance periods will therefore apply:
• 2018 award: 1 April 2018 to 31 March 2022
• 2019 award: 1 April 2019 to 31 March 2023
• 2020 award: 1 April 2020 to 31 March 2024

Settlement of Shares
The Company intends to settle the Ambition 2022 Executive LTIP by way of an on-market purchase of shares and the current limits as
provided for in the plan rules will apply, resulting in no dilution to shareholders.

The above disclosures will be incorporated in future integrated annual reports. The Remuneration Committee looks forward to further
engagement with stakeholders and refinement of the disclosure relating to remuneration during the FY19 financial year.

20 August 2018

Carina Wessels
Group General Counsel and Company Secretary
Sandton

Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)

CONTACT INFORMATION

  Investor Relations                                                 Media
  Zakira Amra                                                        Lynn Stevens
  Telephone: +27 11 269 0799                                         Telephone: +27 11 269 0024
  Email: InvestorRelations@aforbes.com                               Email: stevensly@aforbes.com

ABOUT ALEXANDER FORBES
Alexander Forbes is a diversified financial services group headquartered in South Africa providing a broad range of retirements, health,
investments, insurance and wealth management solutions to both corporate clients and individuals through an integrated platform.
Alexander Forbes is listed on the Johannesburg Stock Exchange (“JSE”), and its primary clients span both the private and public sector
market segments, including employers, retirement, health, investment and other special purpose funds on the institutional side, and
individual members and beneficiaries of these funds, as well as the wider individual market, on the retail side. Alexander Forbes’
principal geographic focus is in South Africa, where it has been operating since 1935, sub-Saharan Africa, the UK and other select
emerging market jurisdictions.

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