PART 1 – BACKGROUND STATEMENT
I am pleased to present the remuneration and nominations committee (Remcom) report for the ﬁnancial year ended 30 June 2021, highlighting the key issues considered during this period.
This remuneration report conforms to the reporting structure recommended in King IV™ and is presented in three parts, namely:
- Part 1: background statement.
- Part 2: an overview of the remuneration policy.
- Part 3: the implementation of the policy for the year ended 30 June 2021.
Our performance and changes to our remuneration policy
Like many other companies, we continue to weather the effects of the Covid-19 pandemic on our business. The Group's ability to recover was significantly affected by the return to more restrictive lockdown levels during the second and third waves and hesitancy to return to travel, coupled with the delay in the roll-out of the Covid-19 vaccination locally and which has been well covered throughout this IR. This in turn continues to have an impact on the way we remunerate our staff and has resulted in the ongoing implementation of salary reductions across all levels, which remain in place as at the date of this report.
Furthermore, participation in the FY20 short-term incentive (STI) for the executive directors (EDs) was cancelled and the FY21 STI was suspended for all participants. In addition, no long-term incentives (LTIs) were awarded in respect of FY21. Against this backdrop and the importance of effectively implementing the company's turnaround strategy, the Remcom, which had already, in the prior year, commenced a review of the group's existing incentive schemes to determine whether they were fit for purpose and are beneficial both in motivating and retaining the people who are instrumental in executing our business strategy, took the opportunity to also review our current remuneration offering with a view to establishing whether it remains fair and reasonable.
In considering the possible alternatives for implementation, ensuring variable pay, in particular, is aligned with our medium-term strategy and makes sense in the context in which we operate, while at the same time incentivising and retaining our top talent who have suffered ongoing and extreme financial hardship as a result of the pandemic, remained top of mind.
We are pleased to present, after careful consideration, a new variable pay programme for the forthcoming financial year in this report. The incentives we have put in place for FY22 are specifically aligned with milestone-based performance measures which we believe are critical to the success and turnaround of the business, while being mindful that any form of incentive remuneration should be linked to long-term shareholder value creation and the preservation of our cash flows. The main changes can be summarised as follows:
- No adjustments were effected to employees' guaranteed pay during FY21 other than the implementation of salary reductions with effect from April 2020. On the basis that hotels were initially under Risk Adjusted Strategy Level 5, not permitted to operate, save where they were serving as quarantine hotels, providing accommodation to guests who were not able to leave the country and accommodating essential service workers, group hotels were placed under temporary suspension of services ("TSOS") and salaries were reduced to 50% (Exco: 80% on the basis that Exco continued to operate on a full time basis throughout) in an effort to preserve jobs. As government relaxed lockdown measures and hotels were permitted to start operating and firstly inter-provincial and later international travel was permitted, the group followed a measured approach in the reopening of its hotels, taking fixed costs, cash flow and demand into consideration.
With the return to operations, albeit limited, salaries were increased to 60% (Exco: 90%) on 1 September 2020 and to 70% (Exco: 95%) on 1 November 2020, where they remain as at publication of this report. In an effort to ensure alignment, the number of shifts worked by each employee was reduced by the same percentage as the applicable salary reduction and where employees have been required to work more than their resultant reduced percentage of shifts they have been remunerated. Salaries have remained at these reduced levels due to the ongoing impact of the Covid-19 pandemic on the group's ability to recover, particularly with the return to more restrictive lockdown measures during the second and third waves, as well as hesitancy around travel due to increased infection rates and the delayed vaccination roll-out. The remaining staff complement, who are not on a cost-to-company package, received 70% of their monthly salary as a 13th cheque.
- In an attempt to preserve cash, participation in the STI for the EDs for FY20 was cancelled, and was suspended for all eligible participants during FY21 extending through FY22.
- A new share plan, namely a conditional share plan (CSP) has been introduced for FY22. As a result of no STI being offered in FY22, the only variable pay will be via the CSP. To cater for the fact that no STI will be offered in FY22, award levels have been calibrated to represent a normal LTI allocation and 50% of a normal STI allocation. The CSP has been developed as a flexible plan which affords us the ability to impose appropriate performance measures, performance periods, vesting periods and post-vesting holding periods depending on the business' needs at the time of making an award. The first award will measure performance over a one-year period.
A one-year period was chosen due to the fact that the calibration of three-year forward-looking performance measures was not possible at this point in time, given the current economic climate and urgency required for the implementation of the company's turnaround strategy, coupled with the fact that doing so would not result in fair or meaningful outcomes in terms of variable pay and would not successfully drive the desired behaviour and outcomes needed to sustainably recover and grow value for shareholders. We have however implemented a number of additional measures as a compromise for using a shorter performance period, as discussed in detail below. As we move to a 'business as usual' phase, we will again review the incentive measures and performance period in respect of future years' awards.
In designing the incentives for FY22, a number of safeguards have been put in place, namely:
- All variable pay will be delivered in shares to ensure long-term shareholder alignment
- To ensure further alignment, certain of the tranches of the vested shares are subject to post-vesting holding requirements
- The delivery of shares will not cause any shareholder dilution as the only method of sourcing the shares will be via an on-market purchase
- Settlement of the shares is subject to an affordability measure, which means that no shares will be settled if the affordability measure is not met
- None of the existing and outstanding share appreciation rights (SARs) were adjusted despite the significant negative impact of the deeply discounted rights offer. This coupled with our already depressed share price meant that all the SARs are deeply underwater with no reasonable prospect of delivering any value. This notwithstanding, participants have agreed to have all their existing vested and unvested SARs cancelled as a qualifying criterion to be considered for participation in the CSP
- The introduction of the CSP also afforded us the opportunity to introduce a malus and clawback policy.
Shareholder engagement and voting
At the annual general meeting (AGM) held on 11 December 2020, 89.83% and 82.54% of shareholders voted in favour of the remuneration policy and implementation report, respectively. The outcomes of the non-binding advisory votes in 2019 and 2020 were as follows.
|Advisory vote||Required percentage||December 2020||November 2019|
We analysed the shareholder feedback received and list the main concerns raised, together with the Remcom's response thereto:
|Shareholder concerns raised||Our response|
|Disclosure does not provide sufficient understanding of the company's remuneration policies and the link between performance-based pay and company performance||As mentioned above, we have reviewed our polices during the year to ensure their continued relevance. This resulted in the development of a new variable pay programme. We also took the opportunity to enhance the disclosure of our pay for performance link|
|Poor use of remuneration committee discretion regarding the grant of a one-off award to the chief financial officer (CFO) upon joining the company||Noted for future reference|
|A preference was expressed for the use of full value instruments as opposed to SARs||SARs have been discontinued and the new CSP comprises full value shares|
|A need was expressed to introduce minimum shareholding requirements and malus and clawback provisions||A malus and clawback policy was formulated and introduced. Although we do not have a formal minimum shareholding requirement policy in place, the new CSP includes a post-vesting holding period which will encourage executive share ownership.|
Shareholders are hereby invited to approach and engage with the company regarding any comments and/or concerns which they may have, prior to the AGM.
In compliance with King IV™ and the JSE Listings Requirements, the remuneration policy and the implementation report respectively are set out in parts 2 and 3 and will be tabled at the forthcoming AGM, scheduled for 25 November 2021, for separate non-binding advisory votes. Should a dissenting vote of 25% or more be received for either the remuneration policy or the implementation report, or both, we will, via SENS, outline the process and timing of our proposed engagement to determine the reasons behind the dissenting votes and address reasonable and legitimate objections and concerns raised.
Key activities of the Remcom during the year
Key areas of focus and decisions taken during the reporting period included:
- Review of the current variable pay policy, which included obtaining expert external advice, and approval of, the introduction of a new long-term incentive, namely the CSP
- Researched and obtained expert external advice on the formulation of a malus and clawback policy
- Review of the remuneration policy to cater for revised variable pay policy
- Commenced a review of the Remcom terms of reference to ensure alignment with King IV™
- Ongoing review, and where appropriate adjustment, of reduced salary levels, with reference to the impact of Covid-19 and adjusted lockdown levels on operations, liquidity constraints, staff morale and in the interests of job preservation
- Resolved that STI and LTI awards for the FY21 remain suspended
- Approved a 5% percent increase in respect of all employees for the FY22, having considered the impact of the ongoing salary reductions implemented in April 2020 on staff morale and 0% increase for FY21
- Tested the achievement of the 2018 SARs performance conditions, which were not met and accordingly lapsed, it being noted that this was the fourth consecutive year that the SAR had not vested
- Approved the vesting of the 2018 Restricted Share Plan (RSP)
- Recommendations for non-executive director (NED) fees and the fees for board sub-committees, taking cognisance of the impact of Covid-19 on the group's business and the labour and other cost containment measures put in place, into consideration
- Reviewed board and committee composition
- Reviewed independence of directors
- Reviewed the succession plans in place for the board, including EDs and Exco, as well as executive structure and reporting lines
- Reviewed and approved the remuneration report for inclusion in the IR.
Future areas of focus
The following focus areas have been identified for the forthcoming year:
- Ongoing review of remuneration practices with a view to ensuring that employees are fairly, equitably and responsibly remunerated and that the critical skills required to deliver on the group's strategic objectives and promote positive outcomes over the short, medium and long term are retained
- Engaging with shareholders on remuneration
- Benchmarking the remuneration policy against best practice
- Reviewing and consideration of the reintroduction of STI schemes and timing thereof, with reference to the company's financial position.
In alignment with a value creation and pay for performance culture, the company places a greater emphasis on variable pay for EDs and Exco, which the Remcom monitors on a continuous basis.
Our approach to fairness in pay
The Remcom remains committed to remunerating its employees fairly and responsibly, however given the current environment a number of measures, including ongoing salary reductions and 0% increase for FY21, have been put in place to preserve jobs and contain costs in the interests of the sustainability of the company. Reduced salary levels have been reviewed regularly and adjustments affected, where appropriate, taking the liquidity position into consideration. Human resources successfully facilitated UIF-TERS payments by submitting claims on behalf of employees affected by the salary reduction as a result of lockdown regulations, limiting the impact somewhat.
The group acknowledges the principle of fair and responsible executive remuneration and is sensitive to the wage differential between executive and lower-income employees, acknowledging that the gap between the remuneration of executives and lower-level employees requires attention. In recognition of the differential, the Remcom has embarked on a programme where over the past several years, the percentage increase awarded to the lower-paid employees was higher than that awarded to the highest paid, save for certain exceptions where packages were found to be lagging the market or following a change in responsibilities. The group's minimum wage is approximately 2.2 times more than the statutory minimum for the industry. The top 10% of the organisation, there being no differentiation based on race or gender, earns approximately 15 times more than the bottom 10% (compared to national figures reported in 2015, where the top 10% of full-time South African employees took home, on average, 82 times more than the bottom 10%, with the average earnings for white workers more than three times higher than for African workers (Isaacs, 2016)).
In an effort to ﬁnd a balance between the interests of executives and shareholders, a signiﬁcant portion of their pay is at risk and subject to stretching performance conditions. However, during FY21 and FY22 none of our executives were offered any variable pay.
That said, and taking into account the challenges the industry faces, the Remcom recognises that in order to ensure a focused drive to meeting shareholder expectations, the group's top talent must be presented with a competitive value proposition in terms of total remuneration.
We are conscious of the importance of employee wellbeing in the workplace and consistently and continuously assess and review the remuneration policies, including beneﬁts, in place to ensure the company is offering the best beneﬁts, bearing affordability in mind.
The Remcom is of the view that:
- it has discharged its obligations as detailed in its terms of reference responsibly and that the principles advocated by King IV™, the Companies Act and the JSE Listings Requirements, as well as the remuneration policy have been applied
- the remuneration policy and its implementation are appropriately aligned with the group's strategic objectives and stakeholder interests
- the principles adopted are appropriate for guiding its decisions to remunerate fairly and responsibly.
Assessed against King IV™ and the JSE Listings Requirements, the Remcom is satisfied with remuneration compliance and that it has duly executed its responsibilities during the financial year under review.
A special note of thanks to our frontline employees who returned to work as lockdown restrictions permitted our hotels to operate, and demand warranted their reopening, for their commitment and dedication, notwithstanding the continuing effects of the Covid-19 pandemic.
Finally, following a challenging year with less-than-favourable performance, largely attributable to factors outside the control of the executive, it is of paramount importance that key executive talent is retained and rewarded for their hard work in steering the company through the challenges it has faced and continues to face during this critical turnaround period for the business and to ensure a focused and driven approach to meeting shareholder expectations.
Chairman of the remuneration committee
28 October 2021
PART 2 – OVERVIEW OF THE REMUNERATION PHILOSOPHY AND POLICY
This report details the activities of the Remcom and provides an overview of the group's philosophy, principles and approach with regard to remuneration, speciﬁcally highlighting remuneration applicable to EDs, Exco and NEDs. The remuneration policy will be put forward to shareholders in order to obtain endorsement thereof by way of a non-binding vote at the AGM.
Governance and the role of the Remcom
The Remcom is responsible for overseeing the governance of remuneration matters. It is speciﬁcally responsible for ensuring that the company remunerates its EDs and senior executives fairly and responsibly, and that the remuneration policies in place serve the group's long-term interests.
In discharging its responsibility, the Remcom reviews the remuneration policy and its implementation on an annual basis.
The Remcom also takes management's recommendations under advisement when making recommendations to the board on the fees payable to the NEDs, which recommendations are subject to shareholder approval.
Speciﬁcs with regard to the composition, role and responsibilities of the Remcom, activities undertaken during the year and the remuneration policy are disclosed on corporate governance report.
Reward philosophy and strategy statement
The group's policy is to pay its staff at a market rate comparable to similar roles within the market. On the basis that the ED and Exco's guaranteed package is benchmarked across industries, with reference to size and turnover, and in order to attract scarce and critical skills to implement the group's strategy and retain high-calibre individuals at this level, the company aims to set its guaranteed pay at the upper quartile. In respect of the remaining employees, the company aims to pay between the mean and upper quartile within a normal distribution range of the relevant industry (hotels and hospitality).
CLHG is committed to developing, implementing and upholding total reward strategies and practices which:
- are fair and responsible and consistent with, and aligned to, the vision, mission, values and business objectives of the company and to promote the achievement thereof
- pursue the best interests of the company, its shareholders and its internal and external stakeholder base;
- offer an appropriate mix of ﬁxed remuneration and variable remuneration, which includes STIs and LTIs
- are market-related
- are driven by, and show a commitment to, rewarding performance, integrity and quality innovation
- offer competitive beneﬁts
- articulate a distinctive value proposition for current and prospective employees.
Total reward strategy
The total reward strategy is aimed at:
- providing an integrated approach for reward management that effectively attracts, motivates, engages and retains the talent required to achieve the desired business results;
- adhering to legal, ethical and best practice standards, and reﬂecting good corporate governance and citizenship by complying with and exceeding industry and statutory minimum standards; and
- aligning reward practices with business strategy through a process of analysis, thereby ensuring that they serve the business practices.
The various components of remuneration applicable to South African employees, together with how the policy will be applied in FY22 and beyond is detailed below:
|Element of pay type||Purpose||Performance period||Performance measures||Settlement||Eligibility for FY22||Past and planned future eligibility|
|Total guaranteed package (TGP) (monthly salary, retirement funding based on pensionable salary, medical aid, death and disability cover).||The basis of the group's ability to attract and retain the required skills.
Reflects the individual's role and position.
|Annually - 1 August to 31 July||Reviewed annually, having regard to the approved increase mandate, benchmark data received from independent remuneration consultants, where applicable, macro-economic factors, inflation, affordability, scarcity of skills, complexity of role, experience and performance.||Payment takes place monthly and comprises a mix of cash, salary as well as compulsory and discretionary benefits.||
|Short-term incentive Performance appraisal linked (PAL) bonus.||Drive a 'pay for performance' culture and reward the achievement of business objectives.||Bi-annually - 1 July to 31 December and 1 January to 30 June||As this plan will not be used in FY22, there are no prospective performance measures to disclose. Appropriate measures will be selected when the plan is reintroduced in FY23.||Cash settlement capped at a percentage of TGP depending on individual's role.
The standard payout level is generally expressed as a percentage of salary and then moderated by the performance score.
In an effort to preserve cash in the short term, no participation will be offered in FY22. Instead some of the STI opportunity of general managers and senior and head office managers will be offered as an LTI under the new Conditional Share Plan (CSP).
The merit of putting a qualifying employee forward for participation is debated between the chief operating officer (COO) or head of division and the chief executive officer (CEO), and once reviewed by the external auditor, qualifying candidates are recommended to Remcom for approval.
|Element of pay type||Purpose||Performance period||Performance measures||Settlement||Eligibility for FY22||Past and planned future eligibility|
|Drive a 'pay for performance' culture and reward the achievement of business objectives and in so doing aligns employee focus with shareholder expectations while simultaneously promoting retention through share ownership.||Financial measure:Bi-annually - 1 July to 31 December and 1 January to 30 June Non-financial measure: Annually - 1 July to 30 June||As this plan will not be used in FY22, there are no prospective performance measures to disclose.
Appropriate measures will be selected when the plan is reintroduced in FY23.
|Financial measure: February and August
Non-financial measure: August
In an effort to preserve cash in the short term, no participation will be offered in FY22. Instead some of the STI opportunity will be offered as an LTI under the new CSP.
|Short-term incentive Executive director incentive scheme (EDIS)||Drive a 'pay for performance' culture and reward the achievement of business objectives and in so doing aligns employee focus with shareholder expectations while simultaneously promoting retention through share ownership.||Annually - 1 July to 30 June||As this plan will not be used in FY22, there are no prospective performance measures to disclose.
Appropriate measures will be selected when the plan is reintroduced in FY23
In an effort to preserve cash in the short term, no STI participation will be offered in FY22. Instead some of the STI opportunity is offered as an LTI under the new CSP.
| Long-term incentive
|Aligns employee interests with shareholders' interests.||Annual awards with three-year vesting periods and subject to vesting conditions being met.||RSP: earning of a bonus in the preceding financial year.||Settled on award but the shares are subject to disposal restrictions until the expiry of a three-year vesting period||None||
| Long-term incentive
New Conditional Share Plan (CSP)
|Execution of our medium-term strategy while ensuring long-term shareholder alignment||Annual awards subject to performance conditions||Achievement of threshold, target or stretch performance conditions, measured over a performance period and vesting only to the extent performance conditions are met. The measures for FY22 are disclosed below||Shares are settled subsequent to vesting, but subject to affordability measures. Settled shares can be made subject to a post vesting holding period||
|| No past participation.
It is anticipated that future eligibility (FY23 onward) will be restricted to:
Repricing, regranting and backdating of awards are prohibited. No awards are allocated or vested during closed periods.
Long-term incentive (LTI)
Structural overview of LTIs
With effect from 1 July 2022, the company will use a new LTI, namely a CSP. During FY22, the CSP will be the only LTI instrument offered and from FY23 onwards, when the normal STI schemes will be re-used, it is envisaged that the EDs, Exco and senior management will continue to participate in the CSP while participation in the RSP will be subject to Remcom discretion.
|Description||Participants receive a conditional right to receive shares in the company, vesting is subject to the achievement of forward looking performance conditions||Participants will receive a full share and become a shareholder on the award date, but subject to forfeiture in the event that the employee leaves the employment of the company within a specified period. These shares entitle participants to share in dividends and to exercise voting rights.
The participant can, however, not sell or encumber the shares prior to vesting.
Two types of awards can be made:
|Purpose||To attract, retain and incentivise employees.||To attract, retain and incentivise employees.
To provide selected employees with the opportunity of receiving shares in the company.
The RSP was initially used as a retention mechanism or as a tool to attract prospective employees, but is now being used as a tool to incentivise and retain employees.
Head office management
No participation is offered
Subject to the Remcom approving participation in the RSP.
|Company limit||The CSP is non-dilutive, and the company is not capable of using any new shares or use existing treasury shares in settlement thereof.||The RSP was approved by shareholders during 2011 and operates in accordance with the company limit as approved by shareholders at the time.|
|Individual limit||Affordability is considered each time before an award is settled.||The RSP was approved by shareholders during 2011 and operates in accordance with the individual limit as approved by shareholders at the time.|
|Settlement method||The CSP is not dilutive and only provides for a market purchase of shares.||The rules of the LTI plans cater for the following:
The rules of the RSP have been drafted more broadly to also include the use of treasury shares as a settlement method.
|Termination of employment||
Participants terminating employment prior to the vesting date of a particular award will be classified as a good or bad leaver.
Bad leavers will forfeit all awards on the date of termination of employment.
In the case of good leavers, a pro rata portion of all unvested awards will vest on the date of termination of employment. The pro rata portion will reflect the number of months served since the date of grant and the extent to which the performance conditions (if any) have been met. The balance of the awards will lapse.
|Change of control||
In the case of a change of control, a pro rata portion of all unvested awards will vest on the date of change of control.
The pro rata portion will reflect the number of months served since the date of grant and the extent to which the performance conditions (if any) have been met and are to be exercised within a period determined by Remcom.
|Variation in share capital||
In the event of a variation in share capital, the participants will continue to participate in the various long-term incentive (LTI) plans. Remcom may, however, where the group's value has been materially affected, make an adjustment to the number of awards to give a participant an equivalent fair value of the equity capital as to which he/she would have been entitled prior to the event.
Policy detail pertaining to FY22
The CSP will be implemented in the following manner during FY22:
Additional implementation detail:
|Instrument||Participants receive conditional rights to shares on the award date. They however have no shareholders rights before the awards are settled.|
Due to the fact that no STI is being offered in FY22, 50% of the normal STI participation will be offered under the CSP (the remaining 50% of the STI will fall away and not be compensated for), plus the normal LTI allocation, resulting in the following allocation levels:
|Performance period||Given the difficulty, specifically in the current unpredictable environment in setting forward-looking performance conditions over a three-year forward-looking basis, performance for the current year's award will be measured over a one-year period, aligned with the company's financial year end.|
The performance conditions comprise a combination of the measures which the Remcom believes address all the critical measures management needs to achieve over the ensuing financial year. Due to the commercially sensitive nature associated with the measures, the actual targets cannot be disclosed, but will be disclosed on a retrospective basis in part 3 of the FY22 remuneration report:
|Performance condition vesting levels||Each performance condition is assigned a threshold, target and stretch condition resulting in the following vesting outcomes with linear vesting applying between the levels:
Below threshold - 0% vesting
Threshold - 30% vesting
Target - 65% vesting
Stretch - 100% vesting
|Vesting and holding periods||The conditional rights will vest in equal annual tranches of one-third each, subject to the achievement of the performance conditions and settlement is subject to an affordability measure relative to free cash flow.
The first third will vest one year after award - the rationale for using a one-year vesting period for the first third is threefold: i) all STIs were suspended for the EDs for FY20 and for all participants during FY21, ii) only half of FY22's STI is offered (via the CSP), iii) a staggered vesting period will assist the company in managing its cash flow over the short term. It was therefore felt that a shorter vesting period was warranted for the first third of the award.
The second and final third will vest two and three years after the award but will upon vesting automatically be subjected to a holding period of two and one year respectively, meaning that the shares will be released four years after the award date subject to the affordability criteria being met. The rationale for the staggered vesting period is to manage free cash flow when the shares are purchased following vesting. The holding period means that the lock-in period is extended to four years, compared to the previous LTI where a three-year period was used.
|Settlement condition|| Vested awards will not automatically be settled. Settlement is subject to the satisfaction of an affordability measure. In the event that the value of the vested shares to be settled exceeds the affordability measure, only that pro rata portion up to the affordability measure will be settled.
Any portion of the vested shares which have not been settled within 24 (twenty-four) months of the respective vesting dates shall lapse - this means the settlement condition can be satisfied over a period of 24 (twenty-four) months from the respective vesting dates by testing every 6 (six) months.
The settlement condition is an affordability measure that will be considered by the Remcom in its discretion before the awards are settled.
|Malus||Unvested awards may be reduced or cancelled resulting in forfeiture should a trigger event occur between the award and settlement date|
|Clawback||Depending on the timing of clawback, the participant may either i) forfeit, in full or in part, the vested shares if a trigger event is discovered during the holding period, orii) be required to pay-back, in full or in part, the pre-tax market value of the shares as determined on the release date, if a trigger event is discovered subsequent to the end of the holding period.|
Pay for performance link and package design for executive directors and the group's prescribed officers
In the graphs below we illustrate the potential remuneration outcomes of the FY22 remuneration policy under four different performance scenarios:
Additional offerings for employees
Employee share ownership - City Lodge 10th Anniversary Employees' Share Trust (10th Anniversary Trust) and Injabulo Staff Share Scheme (Injabulo Trust) 10th Anniversary Trust
All employees not participating in the group's LTI plans and who, at the relevant date, being the first day of the month following that during which the company pays its final dividend, have been in the full-time employ of the company for at least 12 months, are eligible to participate in the 10th Anniversary Trust. The 10th Anniversary Trust holds approximately 0.46% of the group's issued share capital, which was acquired through an interest-free loan from the company, the details of which can be found in the directors' report.
The Injabulo Trust
The Injabulo Trust was established with the implementation of the group's black economic empowerment (B-BBEE) transaction, which was unwound during the reporting period, whereby the Vuwa SPV and the University of Johannesburg School for Tourism and Hospitality, together with the Staff Trust SPV acquired 15% of the group's issued share capital. The shares previously held by the Injabulo Trust, the sole shareholder of the Staff Trust SPV, amounting to 2.32% of the group's issued share capital were acquired by the company as part of the B-BBEE unwind and now constitute treasury shares. Note 15 provides more information in this regard.
Service contracts and notice periods
There are no contractual arrangements applicable to the appointments and termination of the EDs or Exco.
All employees are issued with a letter of appointment detailing their remuneration, as well as notice period, which is one month for all staff, except for general managers and head office managers where two months' notice applies and senior management, Exco and EDs where three months' notice applies.
Regarding the ED and Exco:
- save for in exceptional circumstances, no sign on, retention or restraint payments are made, save for in exceptional circumstances
- on early termination of employment:
- there is no automatic entitlement to:
- share-based payments
- good leavers will be entitled to:
- leave pay
- pro-rated vesting of LTIs, if applicable.
- there is no automatic entitlement to:
Malus and clawback
All variable pay is subject to malus and clawback and will be applied as follows in the event that a trigger event is discovered:
Malus refers to the partial or total cancellation or lapse of unpaid or unvested incentives while clawback refers to the partial or total recoupment or repayment of paid or vested incentives. The application of the trigger events, detailed below, is within the discretion of the Remcom and the following events have been identified as trigger events:
- a material misstatement of the financial results, resulting in an adjustment in the audited consolidated accounts of the company or the audited accounts of any member of the group; and/or
- the fact that any information used to determine the quantum of variable remuneration was based on error, or inaccurate or misleading information; and/or
- action, events or conduct (including omissions) of a Participant which, in the reasonable opinion of the Board, amounts to grounds for termination of employment for gross misconduct or negligence, dishonesty or fraud. This includes conduct that led to or is likely to lead to significant reputational or financial harm to the group, censure of any company within the group or the group as a whole by a regulatory authority, material failure to oversee or supervise other employees, or breach of any material obligations owed to the group, including the group's code of conduct, ethics, or risk policies;
- the discovery that the assessment of any performance metric or criteria in respect of the determination of variable remuneration or the vesting thereof was based on error, or inaccurate or misleading information;
- the discovery that any information used in the decision to grant variable remuneration or determine the quantum thereof was erroneous, or inaccurate or misleading or any information emerges that was not considered at the time any variable remuneration was made which, in the discretion of the board (acting reasonably), would have resulted in an inappropriate benefit or would have materially affected the decision to allocate, make or grant the variable remuneration, whether at all or at the level at which such variable remuneration was made; and/or
- the Remcom, in its discretion, deems it necessary to apply malus and/or clawback.
Non-executive directors' remuneration
Appointment and term
The appointment of directors is a matter for the board as a whole, assisted where appropriate by Remcom, and subject at all times to the approval of shareholders.
Board appointments are governed by the Companies Act, JSE Listings requirements, policy on the appointment to the board and gender diversity and the group's MoI, which provide for at least one-third of the NEDs to retire by rotation at the group's AGM. The directors so retiring may, if eligible, offer themselves for re-election. Termination of office may occur at retirement age, or alternatively will occur if a director is prohibited by law from being a director, fails to be re-elected, is found to be guilty of misconduct or fails to attend meetings without good reason, or poor performance.
NEDs do not:
- have service contracts, but are issued with letters of appointment detailing, among other things, their responsibilities; or
- participate in the group's STI and LTI schemes.
Fees and basis of remuneration
Fees payable to the NEDs are reviewed annually and are not linked to the group's share price or performance.
In recognition of their ongoing responsibilities and contribution outside of meetings, as well as historically good meeting attendance, NEDs receive an annual fee, not a base fee and fee per meeting attended. The same applies to sub-committees, with a premium being paid to the chairmen. The fee paid to the chairman of the board is inclusive of all board and committee attendances, as well as other responsibilities across the group.
Exceptional circumstances may present themselves which merit the establishment of an ad hoc sub-committee of the board to investigate and advise the full board on a matter and justify payment of fees in addition to those paid to NEDs for their services. In compliance with the Companies Act, the company would, without the prior approval of shareholders, not be able to remunerate the members of such ad hoc committee for the extraordinary services rendered. Accordingly provision is made for payment of such fees.
The fee structure is as far as possible aligned with the market, taking cognisance of the size and market capitalisation of the various companies included in the sample considered when determining fees payable, as well as macro-economic factors, consumer price index (CPI), the financial position of the company and additional responsibilities placed on board members by new legislation and corporate governance principles.
Based on management's recommendations, Remcom and in turn the board review and propose NED fees to shareholders at the AGM. Fees are:
- paid quarterly, in arrears, in cash; and
- pro-rated in line with the period served in the case of appointments or resignations during a financial year.
The fee structure, as approved by shareholders, remains in place for the financial year.
Travel, hotel and other expenses reasonably and necessarily incurred on company business is covered by the company, subject to production of the appropriate supporting documentation in accordance with the travel policy.
Premiums for directors' and officers' insurance cover are also paid by the company.
PART 3 – IMPLEMENTATION REPORT
Guaranteed pay review and increases
Guaranteed pay is reviewed annually taking the approved increase mandate, macro-economic factors and performance into account. Mandated increases take effect on 1 August.
Exco members are formally graded using the 21st Century Pay Solutions Execumeasure system (Execumeasure), as well as in terms of the Paterson grading model in an effort to ensure effective benchmarking.
The annual review of Exco's fixed remuneration, which takes place between May and July, is benchmarked to the market. In carrying out its mandate to promote fair and responsible remuneration, while taking into account the prolonged impact of the Covid-19 pandemic on the group's operations and as a result liquidity, Remcom for the second consecutive year commissioned a market trends report instead of the usual full benchmark report from 21st Century for purposes of informing decisions on not only executive pay, but across the board.
The board, having considered Remcom's recommendation, taking current circumstances, data received from 21st Century, the 0% increase effective 1 August 2020, ongoing salary reductions and affordability into consideration agreed to a 5% increase for all staff, with effect from 1 August 2021. The increase has to date been applied at the reduced salary levels implemented as a cost containment measure in April 2020.
Achievement of STI outcomes
Participation in the various STI schemes has been suspended and no STIs were paid to any employees during FY21.
LTI outcomes and awards
LTIs awarded during FY21
No LTIs were awarded during the year.
LTIs vesting during FY21
2018 SAR Award
Following the non-achievement of the performance conditions imposed in respect of the 2018 grant, as confirmed by the Remcom, the 2018 SAR award did not vest. As mentioned above, all historic SAR awards have been cancelled (further details are also disclosed in the LTI tables below).
2018 RSP award
The RSP operates in conjunction with the STI and awards, to date, have no performance criteria other than the earning of a cash bonus, as measured against the defined performance criteria of the STI, and continued employment with the company. In total, 19 925 shares vested and were released to the 47 qualifying participants during the financial year.
Employee share ownership - 10th Anniversary Share Trust
In total, 1 010 employees received a cash distribution of R557.00 from the 10th Anniversary Trust during the reporting period (Prior year: 944 employees received a cash distribution amounting to R1 567.80 and growth distribution of three shares).
Total remuneration outcomes
The composition of remuneration outcomes during the 2021 financial year for the EDs (prescribed officers) are disclosed in the single figure of remuneration format below for 2020 and 2021.
|Alastair Dooley (resigned 9 March 2020)||1 778||–||21||181||1 980||–||1 980|
|Lindiwe Siddo||2 497||–||9||215||2 721||–||2 721|
|Dhanisha Nathoo (appointed 9 March 2020)||763||600||17||–||1 380||–||1 380|
|Andrew Widegger||5 054||–||32||641||5 727||–||5 727|
|10 092||600||79||1 037||11 808||–||11 808|
|Lindiwe Siddo||2 593||–||11||58||2 662||–||2 662|
|Dhanisha Nathoo||2 491||–||52||56||2 599||–||2 599|
|Andrew Widegger||5 447||–||45||115||5 607||–||5 607|
|10 531||–||108||229||10 868||–||10 868|
Schedule of unvested awards and cash flow on settlement
1 July 2019
30 June 2020
the year 9
Fair Value at
30 June 2020
30 June 2021
Fair Value at
30 June 2021
|Share appreciation rights5|
|2012/09/01||62 110||–||(62 110)||–||–||–||–||–||–||–||–||–||–|
|2013/09/01||26 136||–||–||–||26 136||–||–||–||(26 136)||–||–||–||–|
|2014/09/016||27 359||–||–||–||27 359||–||–||–||–||–||27 359||–||–|
|2016/09/017||23 633||–||(23 633)||–||–||–||–||–||–||–||–||–||–|
|2017/09/018||30 245||–||–||–||30 245||–||–||–||(30 245)||–||–||–||–|
|2018/09/01||45 360||–||–||–||45 360||–||39 314||–||–||–||45 360||–||–|
|2019/09/01||–||39 324||–||–||39 324||–||153 040||–||–||–||39 324||–||–|
|Restricted share plan ‑ bonus shares5|
|2016/09/05||7 902||–||–||(7 902)||–||658 790||–||–||–||–||–||–||–|
|2017/09/15||4 882||–||–||–||4 882||14 158||129 669||–||–||(4 882)||–||13 084||–|
|2018/09/14||2 509||–||–||–||2 509||7 276||66 640||–||–||–||2 509||–||9 776|
|2019/09/18||–||7 204||–||–||7 204||11 022||191 334||–||–||–||7 204||–||28 070|
|Total||691 246||579 997||13 084||37 846|
|Share appreciation rights5|
|2016/09/017||8 136||–||(8 136)||–||–||–||–||–||–||–||–||–||–|
|2017/09/018||5 535||–||–||–||5 535||–||–||–||(5 535)||–||–||–||–|
|2018/09/01||18 360||–||–||–||18 360||–||15 913||–||–||–||18 360||–||–|
|2019/09/01||–||19 696||–||–||19 696||–||76 654||–||–||–||19 696||–||–|
|Restricted share plan ‑ bonus shares5|
|2016/09/05||595||–||–||(595)||–||49 605||–||–||–||–||–||2 565||–|
|2017/09/15||957||–||–||–||957||2 775||25 418||–||(957)||–||–||–|
|2018/09/14||693||–||–||–||693||2 010||18 406||–||–||693||–||2 700|
|2019/09/18||–||2 693||–||–||2 693||4 120||71 529||–||–||2 693||2 565||10 494|
|Total||58 510||207 920||13 194|
|5||Vesting will be assessed three years from the grant of the awards.|
|6||The SARs granted on 1 September 2014 vested during the 2018 financial year.|
|7||The SARs granted on 1 September 2016 lapsed during the 2020 financial year due to the performance conditions not being met.|
|8||The SARs granted on 1 September 2017 lapsed during the 2021 financial year due to the performance conditions not being met.|
|9||The cash value received includes the value participants receive on the vesting/exercise of awards as well as dividends received on outstanding awards.|
|10||The SARs granted on 1 September 2013 to 2014 are included at an intrinsic value of Rnil per instrument which includes an estimate of 0% of performance conditions being met.|
|11||The SARs granted on 1 September 2016 are included at an intrinsic value of Rnil per instrument based on 0% of performance conditions being met.|
|12||The SARs granted on 1 September 2017 are included at an intrinsic value of Rnil per instrument which includes an estimate of 0% of performance conditions being met|
|13||The SARs granted on 1 September 2018 are included at an estimated fair value based on an indictive valuation at R0.87 per instrument which includes an estimate of 50% of performance conditions being met.|
|14||The SARs granted on 1 September 2019 are included at an estimated fair value based on an indictive valuation at R3.89 per instrument which includes an estimate of 100% of performance conditions being met.|
|15||The restricted bonus shares granted in 2016, 2017 and 2018 are included at the 20-day VWAP of R26.56 at year end and an estimated 100% vesting.|
|16||The SARs granted on 1 September 2014 are included at an intrinsic value of Rnil per instrument which includes an estimate of 0% of performance conditions being met.|
|17||The SARs granted on 1 September 2017 are included at an intrinsic value of Rnil per instrument based on 0% of performance conditions being met.|
|18||The SARs granted on 1 September 2018 - 2019 are included at an intrinsic value of Rnil per instrument which includes an estimate of 0% of performance conditions.|
|19||The restricted bonus shares granted in 2018 and 2019 are included at the 20-day VWAP of R3.90 at year end and an estimated 100% vesting.|
Dhanisha Nathoo, CFO, was appointed on 9 March 2020 and with the suspension of the STI and LTI for the financial year 2021 has not been awarded any SARs or restricted bonus shares.
(Refer to special resolution number 1 in the notice of AGM, detailing NED fees.)
The fees currently paid, as approved by shareholders at the AGM held on 11 December 2020, together with the proposed fees for FY22, are detailed hereunder.
|1 July 2020
|1 July 2021
|Chairman||1 060 000||1 113 000||5.0|
|Deputy chairman||343 000||360 150||5.0|
|Services as a director||262 000||275 100||5.0|
|Chairman of audit committee||184 000||193 200||5.0|
|Other audit committee members||84 500||88 725||5.0|
|Chairman of remuneration and nominations committee||162 000||170 100||5.0|
|Other remuneration and nominations committee members||73 000||76 650||5.0|
|Chairman of risk committee||126 000||132 300||5.0|
|Other risk committee members||57 500||60 375||5.0|
|Chairman of social and ethics committee||83 000||87 150||5.0|
|Other members of the social and ethics committee||–||40 000||new|
|Ad hoc committee||2 100 per hour capped at 40 000||2 205 per hour capped at 60 000||5.0|
|2 435 000||2 556 750||5.0|
Statement of compliance
Remcom, having considered the principles and guidelines detailed in the remuneration policy, is satisfied that:
- there has been no material deviation in the application of the policy during the year under review; and
- any adjustments that have had to be effected as a result of Covid-19 have been in line with the policy framework, and having reviewed the report, including details relating to ED emoluments, confirms its inclusion in the IR.
Voting on implementation report
This report is subject to an advisory non-binding vote by shareholders at the 2021 AGM scheduled for 25 November 2021. Shareholders are requested to cast an advisory vote on the remuneration implementation report as contained in Part 3 of this report.
Approval of remuneration report by the board of directors
This remuneration report was approved by the board of directors of City Lodge Hotels Limited on 28 October 2021.