REMUNERATION POLICY
AND REMUNERATION IMPLEMENTATION REPORT
REMUNERATION PHILOSOPHY
The key goals of Tsogo Sun Hotels’ remuneration philosophy are to remunerate fairly, responsibly and competitively in order to:
- Attract, reward and retain executive directors and staff of the requisite calibre, with the appropriate knowledge, attributes, skills and experience to allow them to add meaningful value to the company
- Align the behaviour and performance of executive directors with the company’s strategic goals in the overall interests of shareholders and other stakeholders
- Promote a culture that supports initiative and innovation, with appropriate short and long-term incentives that are fair and achievable
REMUNERATION POLICY
Tsogo Sun Hotels’ job evaluation and grading philosophy and contracts of employment have remained consistent with those in place prior to its unbundling from the Tsogo Sun Group.
The remuneration committee approves the fixed and variable mix of the remuneration structure, which differs based on employee level.
Basic salaries and a 13th cheque are guaranteed for employees other than executive directors and management, and the cost of benefits are shared between the employee and the employer on a 50:50 basis. Basic salaries for executive directors and management are guaranteed and are structured on a CTC basis.
Tsogo Sun Hotels seeks to remunerate responsibly, fairly and transparently and seeks to achieve a balance of short-term and long-term incentives as part of a complete remuneration package that will motivate short-term returns and long-term value creation for shareholders.
The combination of these components ensures that above average pay is only received for above average performance and above average sustainable shareholder returns.
SHORT-TERM INCENTIVES (‘STIs’)
In order to allow for elements over which executive directors and management could exercise direct control and to keep management motivated towards achieving improved returns for shareholders, the board has split the STI targets into three components: Ebitdar and adjusted earnings targets (collectively, ‘financial achievement’), personal key performance objectives (“personal achievement”) and relative revenue growth (‘relative growth’). Executive directors and management participate in STIs, which are based on financial achievement, relative growth and personal achievement in proportions ranging respectively from 60:25:15 at the most senior level to 35:25:40 at the lowest management participant level. Executive directors have a larger portion of their potential total remuneration subject to the achievement of financial targets.
Relative growth is determined by comparing actual revenue growth year on year (as measured by Revpar) in Tsogo Sun Hotels with appropriate comparator performance and makes up 25% of the overall target weighting. The financial achievement target is weighted between Ebitdar and adjusted earnings apportioned relative to the contribution made at either a group, divisional, regional or hotel level, or any combination thereof as appropriate. At an executive management level, financial achievement is weighted 50% Ebitdar and 50% adjusted earnings against the target approved by the remuneration and nomination committee.
The financial achievement targets are set based on the budget approved by the board. The targets are adjusted for material structural changes during the year to ensure they remain fair. Any adjustments to the targets are recommended by the remuneration committee and approved by the board. The financial ‘threshold’ target is set at 90% of the approved target with a score of 0% and ‘stretch’ target is set at 115% of the approved target with a score of 100%, with interpolation between these points. This means that in order for participants to meet the financial performance target, the group’s actual performance must be within 90% of targeted Ebitdar and adjusted earnings and is capped at 115% of targeted Ebitdar and adjusted earnings.
In order to ensure that the achievement of short-term financial performance is not at the expense of future opportunities, key performance objectives, over which there is influence, are agreed upfront annually between the STI participant and his or her immediate manager. The objectives vary depending on the role the employee has within the organisation and would include elements such as growth, customer satisfaction, regulatory compliance, leadership, internal controls and cost control.
An evaluation of personal achievement against the objectives is completed at the end of the year and a ‘bell curve’ approach is applied to the scores as provided in the rules of the scheme.
The on-target potential short-term incentive entitlement varies per level from 75% of annual total package for the CEO, 50% for other senior executives (Chief Operating Officer (‘COO’) and CFO), 40% for heads of function (‘HOFs’), 33% for senior managers and 20% for management level employees. The maximum bonus entitlement varies per level from 130% of total package for the CEO, 90% for other senior executives (COO and CFO), 75% for HOFs, 60% for senior managers and 35% for management level employees. The chart below is an illustrative example of the STI achievement by management level for on-target performance assuming an annual total package of R1 million:
LONG-TERM INCENTIVES (‘LTIs’)
On listing, Tsogo Sun Hotels adopted an equity-settled share incentive scheme, the Tsogo Sun Hotels Share Appreciation Rights Plan (‘SAR plan’), in which selected key senior employees of the group are eligible to participate with the goal to incentivise, motivate and retain these high calibre employees and recognise their contributions to the group:
The purpose of the SAR plan is twofold, namely:
| (1) | For new awards:
|
| (2) | For replacement awards:
|
Key features of the SAR plan
Share appreciation rights (‘SARs’) are allocated annually (‘award date’) to eligible employees as recommended by the remuneration and nomination committee and approved by the board. Each SAR confers the right on the holder to receive TGO shares equal to the appreciation of the awarded SARs over the vesting period. The appreciation of the SARs is calculated as the difference between the sevenday volume weighted average price (‘seven-day VWAP’) of TGO shares on the date on which notice is given to surrender the SAR (‘exercise price’) and the seven-day VWAP on the date on which the award was made to an eligible employee to participate in the scheme (‘the award price’) multiplied by the number of SARs awarded.
The number of annual SARs awarded to participants will primarily be based on the participant’s annual salary, level, performance, retention and attraction considerations, as well as market benchmarks. Annual allocations will be benchmarked and set to a market-related level of remuneration whilst considering the overall affordability thereof to the group.
The exercise price will be adjusted to take into account dividends (being a distribution as defined in the Companies Act and includes dividends in cash or in specie and the unbundling of an asset or share) that have been declared and paid at the time of exercise.
The vesting of SARs is subject to the participants’ satisfaction of the employment condition, being continued employment with the group for a period of three years after the award date. SARs will therefore vest on the third anniversary of their award date and will lapse, and accordingly not be capable of surrender for settlement in TGO shares upon the sixth anniversary of their award date.
On settlement, the value accruing to participants will be the full appreciation of Tsogo Sun Hotels’ share price over the award price plus dividends declared and paid, post the award date (net of corporate tax), which value will be settled in TGO shares.
LTI allocations (replacement awards and new awards if applicable) are listed in the remuneration implementation report.
MALUS AND CLAWBACK
The group understands the need for increased alignment between executive management and shareholders particularly in executive remuneration schemes operated by the group, and the growing emphasis on executive accountability. In response, the remuneration and nomination committee proposed a malus and clawback clause which was approved by the board for inclusion in both the STI scheme and the SAR plan. In terms of this clause, clawbacks may be implemented by the board for material misstatements of financial statements or errors in calculations that led to the overpayment of incentives to executives. Clawbacks may be implemented from all gains derived from any short-term or long-term incentive award in the form of a reduction in the value of these awards in future years, or (other than for executive directors) in the form of a repayment plan over a period of up to 12 months. Executive directors are required to repay the amount in full. In the event that an employee has left the services of the company, or there is limited possibility of recovering amounts from future incentive awards, the company may institute proceedings to recover such amounts.
REMUNERATION IMPLEMENTATION REPORT
Executive directors’ service contracts at 31 March 2020
Both the CEO and CFO are full time salaried employees of Tsogo Sun Hotels. Their employment contracts are subject to three months’ notice periods, contain no restraint of trade clauses and have no specific contractual conditions related to termination.
Non-executive directors’ terms of appointment
Non-executive directors are not subject to any other fixed terms of employment other than the conditions contained in the company’s MOI and, as such, no service contracts have been entered into with the company. Tsogo Sun Hotels’ remuneration for non-executive directors consists of either:
- A basic annual fee for board, audit and risk committee and social and ethics committee membership
- A per meeting attendance fee for members of the remuneration and nomination committee
Non-executive directors’ fees are approved in advance by shareholders by special resolution at the company’s AGM. No share options or other incentive awards geared to share price or corporate performance are made to non-executive directors.
EXECUTIVE DIRECTORS’ AND PUBLIC OFFICER’S EMOLUMENTS
| 2020 | 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| MN von Aulock R’000 |
L McDonald R’000 |
R Nadasen R’000 |
Total R’000 |
MN von Aulock(1) R’000 |
L McDonald R’000 |
R Nadasen R’000 |
Total R’000 |
||
| Salaries | 7 358 | 2 428 | 2 588 | 12 374 | 5 191 | 1 627 | 2 450 | 9 268 | |
| Benefits | 594 | 436 | 523 | 1 553 | 435 | 324 | 483 | 1 242 | |
| Current year STI accrued | 1 712 | 504 | 546 | 2 762 | 2 678 | 1 000 | 986 | 4 664 | |
| Fair value of equity-settled SARs(2) | 9 180 | 3 426 | 3 507 | 16 113 | – | – | – | – | |
| IFRS 2 charge on vested equity-settled SARs transferred to share-based payment reserve |
– | (1 631) | (1 723) | (3 354) | – | – | – | – | |
| Total single figure of remuneration | 18 844 | 5 163 | 5 441 | 29 448 | 8 304 | 2 951 | 3 919 | 15 174 | |
| Fair value of unvested equity-settled SARs(2) | (5 741) | (1 086) | (926) | (7 753) | – | – | – | – | |
| Settlement of cash-based LTI | – | – | 216 | 216 | – | 350 | – | 350 | |
| Financial statement remuneration | 13 103 | 4 077 | 4 731 | 21 911 | 8 304 | 3 301 | 3 919 | 15 524 | |
| Current year STI not settled | (1 712) | (504) | (546) | (2 762) | (2 678) | (1 000) | (986) | (4 664) | |
| Prior year STI settled | 2 678 | 1 000 | 986 | 4 664 | – | 469 | 1 063 | 1 532 | |
| Current year IFRS 2 charge on equity-settled SARs |
(3 439) | (709) | (858) | (5 006) | – | – | – | – | |
| Total cash equivalent value of remuneration |
10 630 | 3 864 | 4 313 | 18 807 | 5 626 | 2 770 | 3 996 | 12 392 | |
| (1) | Marcel von Aulock joined the group as CEO with effect from 1 June 2018 and the table reflects his remuneration from this date. |
| (2) | Reflects the fair value of all replacement SARs (vested and unvested) awarded on the conversion date, being 12 June 2019. Refer below for detail on the replacement awards granted on the conversion from the Tsogo Sun LTIP to the SAR plan. |
| Achievement of STIs in FY2020 | Financial weighted score % |
Relative growth weighted score % |
Personal weighted score % |
Total score % |
Bonus accrued R’000 |
|
|---|---|---|---|---|---|---|
| MN von Aulock | – | 4.7 | 10.0 | 14.7 | 1 712 | |
| L McDonald | – | 4.7 | 13.3 | 18.0 | 504 | |
| R Nadasen | – | 4.7 | 13.3 | 18.0 | 546 |
STIs are paid in May each year; however, due to the impact of the COVID-19 pandemic and the company’s focus on cash preservation, STIs for the 2020 financial year were calculated and approved by the remuneration committee, but payment thereof deferred until such time that it would be appropriate and responsible for payment to be made.
CONVERSION TO THE SAR PLAN AND REPLACEMENT AWARDS GRANTED
As a consequence of the listing of the group on 12 June 2019, employees of Tsogo Sun Hotels who participated in the Tsogo Sun LTIP were given the option to: (a) accelerate the vesting of all their notional shares (both vested and unvested) held under the Tsogo Sun LTIP and receive settlement in cash; or (b) to elect to convert their notional shares held under the Tsogo Sun LTIP to replacement awards administered in terms of the SAR plan.
The conversion calculation provided for participants to receive SARs that equate to the same fair value of the notional shares (both vested and unvested) previously held under the Tsogo Sun LTIP on the conversion date, being 12 June 2019. The conversion ensured that employees of the company are incentivised based on the performance of the company’s share price moving forward, and also served to align their interests more closely with those of shareholders.
Details of replacement awards granted to executive directors and prescribed officers are set out below:
| Replacement award date | Replacement SARs awarded and still outstanding 2020 |
Replacement award price on conversion date |
Strike price(1) |
Replacement SARs vested and still outstanding 2020 |
Fair value of SARs on replacement award date(1) R’000 |
Vesting date | Expiry date | ||
|---|---|---|---|---|---|---|---|---|---|
| MN von Aulock | |||||||||
| 1 October 2018(2) | 10 893 353 | 4.13 | 4.03 | – | 9 180 | 30 September 2021 | 30 September 2024 | ||
| L McDonald | |||||||||
| 1 April 2014 | – | 4.22 | 4.22 | 592 805 | 544 | 31 March 2017 | 31 March 2020 | ||
| 1 April 2015 | – | 4.50 | 4.50 | 444 129 | 370 | 31 March 2018 | 31 March 2021 | ||
| 1 April 2016 | – | 4.01 | 4.01 | 747 218 | 716 | 31 March 2019 | 31 March 2022 | ||
| 1 April 2017 | – | 5.14 | 5.14 | 584 037 | 156 | 31 March 2020 | 31 March 2023 | ||
| 1 April 2018 | 324 907 | 4.62 | 4.57 | – | 231 | 31 March 2021 | 31 March 2024 | ||
| 1 April 2019 | 1 603 856 | 4.24 | 3.99 | – | 1 409 | 31 March 2022 | 31 March 2025 | ||
| R Nadasen | |||||||||
| 1 April 2014 | – | 4.22 | 4.22 | 592 805 | 544 | 31 March 2017 | 31 March 2020 | ||
| 1 April 2015 | – | 4.50 | 4.50 | 555 165 | 463 | 31 March 2018 | 31 March 2021 | ||
| 1 April 2016 | – | 4.01 | 4.01 | 747 218 | 716 | 31 March 2019 | 31 March 2022 | ||
| 1 April 2017 | – | 5.14 | 5.14 | 681 375 | 182 | 31 March 2020 | 31 March 2023 | ||
| 1 October 2017 | 255 913 | 3.91 | 3.86 | – | 220 | 30 September 2020 | 30 September 2023 | ||
| 1 April 2018 | 866 425 | 4.62 | 4.57 | – | 616 | 31 March 2021 | 31 March 2024 | ||
| 1 April 2019 | 872 685 | 4.24 | 3.99 | – | 766 | 31 March 2022 | 31 March 2025 |
| (1) | Calculated using a Black Scholes model at conversion date. Please refer to note 37.2 of the consolidated financial statements for details on the valuation assumptions applied on conversion. |
| (2) | No top-up award was allocated to Mr von Aulock during the 2020 financial year as requested by Mr von Aulock. |
LTIs are equity-settled and will therefore have a dilutionary impact to shareholders on settlement. Based on the seven-day VWAP as at 31 March 2020 of R1.38 and the average TGO share price for the 12 months to 31 March 2020 of R3.75, all vested SARs capable of being exercised are out-of-the-money and, accordingly, the scheme has no dilutionary impact on shareholders for the year ended 31 March 2020.
Refer to note 37.2 of the consolidated annual financial statements for further information.
The furlough implemented to reduce payroll costs in response to COVID-19 was accepted by all employees including the CEO, Mr von Aulock whose rate of pay has reduced to nil post-year end. The CFO, COO, heads of function and managers’ pay levels were initially reduced by 40% in April 2020 and by 60% from May 2020 to date. These salary rates will be continuously assessed against trading levels and cash generation and adjusted accordingly depending on affordability. LTI awards are normally granted in May of every year at the 7-day VWAP to 31 March, however the 1 April 2020 award has been deferred and will be reassessed at the next remuneration and nomination committee meeting.
NON-EXECUTIVE DIRECTORS’ FEES
| Non-executive directors 2020 | Directors’ fees paid by the company R’000 |
Directors’ fees paid by Hospitality R’000 |
Total R’000 |
|
|---|---|---|---|---|
| JA Copelyn | 418 | 77 | 495 | |
| M Ahmed | 453 | 492 | 945 | |
| JR Nicolella | 275 | 226 | 501 | |
| SC Gina | 355 | 234 | 589 | |
| ML Molefi | 361 | 318 | 679 | |
| JG Ngcobo | 361 | 318 | 679 | |
| CC September | 206 | 170 | 376 | |
| 2 429 | 1 835 | 4 264 |
Fees are exclusive of VAT.
All non-executive directors were appointed to the board of Tsogo Sun Hotels in preparation for the listing and with effect from 10 May 2019 and accordingly earned no fees in the 2019 comparative year.
VOTING RESULTS AT THE 2019 AGM
At the AGM held on 17 October 2019, the non-binding advisory endorsement of the company’s remuneration policy and remuneration implementation report received less than 75% support from shareholders with 68.3% of votes. The company requested shareholders to engage with the chairmen of the board and remuneration and nomination committee at meetings in Cape Town and Johannesburg. However, no shareholders were in attendance at either meeting. In the absence of feedback, the remuneration and nomination committee has attempted to simplify the disclosure of the group’s remuneration policy and implementation in this report and we welcome any shareholder feedback which can be addressed to our Company Secretary at companysecretaryTGO@tsogosun.com.
In the event that the remuneration policy or remuneration implementation report, or both, are voted against by more than 25% of the votes cast at any AGM of the company, the remuneration and nomination committee will continue to engage with shareholders within 30 days of the AGM to ascertain the reasons for dissenting votes and appropriately address legitimate and reasonable objections raised by shareholders.
NON-EXECUTIVE DIRECTORS’ FEES FOR APPROVAL BY SHAREHOLDERS
The non-executive directors’ fees for the 2020 financial year were approved by shareholders at the 2019 AGM and remained unchanged from those proposed in the pre-listing statement and are in line with dynamics and the increasingly heavy demands being made on board members.
The remuneration and nomination committee has not proposed an increase in non-executive directors’ fees from those approved by shareholders at the AGM held on 17 October 2019. Furthermore, non-executive directors’ fees were reduced by 40% for the month of April 2020 and by 60% for the months thereafter and may be adjusted upwards or downwards, based on an assessment of what the company is likely to be able to afford during the time that the business is impacted by the COVID-19 pandemic.
The board has approved both recommendations made by the remuneration and nomination committee and shareholders are referred to the Notice of AGM for the proposed non-executive directors’ fees for the 2021 financial year.
