Remuneration

Remuneration philosophy

The Alexander Forbes remuneration philosophy seeks to enable the business to attract, motivate and retain talented high-performing people. The group aims to create a reward structure that is aligned with the organisation’s values, incentivises the right behaviours and outputs, and is structured in such a way that the policy will not result in any unfair outcomes for customers.

Our approach is articulated and guided by our remuneration policy, which applies to Alexander Forbes Group Holdings Limited and all subsidiary operating entities. The policy is based on best practice and good governance principles, and is overseen by the group board of directors who delegates oversight to the remuneration committee. Operational implementation is the responsibility of the group executive committee and the human resources function.

Alexander Forbes seeks to comply with the remuneration guidelines of King III to the fullest extent possible and is cognisant of the remuneration-related guidance provided by legislative and regulatory regimes in all jurisdictions in which it operates.

During the year, the remuneration committee reviewed the policy twice. A revamp was conducted in March in line with our annual processes. The second review was conducted in June and resulted in amendments to bring the policy into closer alignment with the group’s strategic intent. It was also adjusted to reflect the group’s transition to a ‘levels of work’ grading system.

Remuneration principles




Alexander Forbes is committed to the concept of total reward, which recognises that reward is multifaceted and comprised of financial and non-financial components.

Our policy is informed by nine principles:

• Long-term interest: Overall remuneration policy and practice must be in line with the group’s business and risk strategy, profile, objectives, values, risk management practices, client interests, and long-term entity-wide interest and performance.
• Risk management: The remuneration policy applies to the group as a whole in a proportionate and risk-based way, and contains specific arrangements that take into account the roles of the different levels of employees that involve significant risk.
• Transparency: There is a clear, transparent and effective governance structure for remuneration, including the definition of the remuneration policy and its oversight.
• Appropriate mix of fixed and variable pay: There is a balance between fixed and variable pay, with the fixed pay representing a sufficiently high portion of the total remuneration to prevent employees from becoming overly dependent on variable pay, unless in situations where the market dictates otherwise.
• Treating Customers Fairly: Performance scorecards and incentives are structured to reward employees at all levels without any unfair outcomes for customers. Customers’ interests and company interests are treated with equal importance.
• Defining performance: Performance is based on both financial and non-financial measures and includes measures for current and future risks.
• Internal and external disclosure: The remuneration policy is transparent internally and adequately disclosed externally where required.
• Legislative compliance: The policy will be guided by legislative and regulatory regimes in all jurisdictions in which it operates.
• Approvals and decision-making: The remuneration committee has a mandate to approve all changes to the remuneration policy, including the long-term incentive scheme (LTI) and its rules, yearly bonus pot determination for the group and divisions, as well as the group exco members’ individual awards (short-term incentives). The group chief executive has a mandate to approve remuneration and rewards for all executives reporting to the group exco members.

Remuneration is regularly measured against peer companies to ensure that it is both fair and effective.

Remuneration structure

Our remuneration policy provides for a mix of fixed (or guaranteed) and variable pay. This mix is aligned with market best practice where a large proportion of executives’ remuneration is variable but is managed within defined levels.

The components of the remuneration mix are, broadly:

• Guaranteed pay – aligned with market levels and provides the individual with appropriate security and reward in terms of salary and benefits;
• Short-term incentives (STIs) – aligned to operational, financial and other non-financial annual targets that seek to drive operational wins in the short to medium term; and
• Long-term incentives (LTIs) – primarily a performance- driven LTI plan whereby awards are subject to appropriately stretching performance conditions and may be settled in company shares or in cash.

All remuneration practices must directly and simultaneously achieve both short-term results and long-term sustainability, without achieving one at the cost of the other. Alexander Forbes doesn’t support highly leveraged incentive schemes as they may result in excessive cost or risk to the company.

Guaranteed pay

Guaranteed pay reflects employees’ role and position and is payable for undertaking expected day-to-day responsibilities. Alexander Forbes also provides standard market-related benefits. These include (but are not limited to) retirement funding, medical aid and other benefits including death, disability and funeral cover. The remuneration committee periodically scrutinises all benefits, including retirement funds, benefits in kind and other financial arrangements, to make sure they are justified, correctly valued and suitably disclosed.

Guaranteed pay is structured as a total cost-to-company (TCTC) package and is typically benchmarked against the 50th percentile of the financial services market to create the opportunity for exceptional performers to earn up to the 75th percentile in total through STIs. This is subject to the individual’s performance, the group’s performance and the available funds in the bonus pool. In 2016, the group changed its job evaluation system from the Alexander Forbes grading system to the ‘levels of work’ framework, in order to have a clearly-defined and commonly understood framework that promotes career progression and appropriate industry remuneration benchmarks.

Executive directors have permanent employment contracts with the group. Although these contracts do not provide for a restraint of trade, they do carry three-month termination periods, with the group retaining the right to terminate a contract in the event of poor performance or misconduct.

Executive committee members and some senior managers are subject to performance assessments by the group chief executive. Reviews are based on their contribution to achieving the group’s strategy as well as other key stakeholder objectives such as the sustainability of operations. The remuneration committee reviews and approves salary reviews for executive committee members to ensure that total compensation is both fair and appropriately benchmarked. The committee also reviews and sets the group chief executive’s annual compensation.

The guaranteed pay and bonuses for the 2016 and 2015 financial years for the executive directors of the group board are detailed below. The bonus for the 2016 year reflects the amount accrued and approved by the remuneration committee for the year ended 31 March 2016 and paid in June 2016.

R’000	Salary	Bonus	Benefit and allowances	Retirement fund contributions	Total
Executive directors
2016
E Chr Kieswetter** (retiring group chief executive)	5 153	–	166	540	5 859
DM Viljoen* (interim group chief executive and group chief financial officer)	3 608	5 200	121	583	9 512
Total for the year	15 626	12 000	474	2 207	30 307
2015
MS Moloko*** (chairman)	567	–	130	80	777
E Chr Kieswetter (group chief executive)	4 900	7 000	254	513	12 667
DM Viljoen (group chief financial officer)	3 318	5 276	174	535	9 303
Total for the year	15 639	20 936	789	2 163	39 527
With effect from 8 February (i.e. two months of the financial year), Mr Viljoen took on a dual role as interim CEO. Mr Kieswetter stepped down from the board of directors on 8 February 2016 and will formally retire 31 March 2017. Mr Moloko became non-executive chairman from 24 July 2014. Effective 8 February 2016, Mr Moloko was temporarily reinstated as executive chairman.

Short-term incentive

To support our pay-for-performance approach, STIs are linked to the performance management system outputs, which in turn align individual performance to our strategic intent.

Alexander Forbes’s STI scheme aims to reward performance for meeting short-term organisational targets. This means that a direct link is established between performance management and rewards. Objectives and measures are therefore derived from the overall annual strategic objectives and cascaded through group, divisional and individual scorecards to ensure that everyone is working toward the same overarching objectives in their own relevant way. Individual and corporate performance targets, both financial and sustainability related, are tailored to the needs of the business and reviewed regularly to ensure they remain appropriate.

The primary risk from a short-term incentive perspective lies in the measurement of performance and the resulting quantum of the incentive. This is determined subject to the following considerations:

• Determination and size of the incentive pool – The incentive pool is funded through a share of the net operating profit. The size of the incentive pool is dependent on a year-on-year increase of the required profitability.
• Incentive capping – Level 1 to 3 employees are generally offered a 13th cheque equal to one month’s pensionable salary while some employees from Level 3 to 5 are eligible to receive up to 200% of their on-target bonus as their incentive. This is moderated subject to availability of the overall pool.
• Performance measurement – Incentives are dependent on performance measured over a 12-month period. Performance is measured according to personal and divisional measures. The divisional scorecard is evenly split between financial and non-financial measures but scorecards for individuals may have a different weighting. Performance measures are based on audited financial results of the company and the measures are independently verified by the group programme and project office and reviewed annually. Internal audit may also be required to independently verify reported results against scorecard measures when required.
• Bonus deferral – Bonus deferrals are applicable for divisional managing directors and any other identified roles. Deferral percentages will vary from time to time and will be determined depending on the needs of the organisation. Such deferral and/or claw-back provisions as may be deemed appropriate may be approved by the remuneration committee from time to time.

The STI allocations of all executive committee members are based on achievement of their personal performance objectives for the year. Reaching certain predetermined performance scores will indicate their potential awards. These are approved or moderated up or down by the remuneration committee as deemed necessary.

The Solvency Assessment and Management (SAM) system requires a substantial portion of variable pay (40% – 60%) to be subject to deferral. The long-term incentive plans incentivise management to consider the longer-term future of the company aligned to shareholder interest.

Long-term incentive plan

The LTIP is governed by rules as approved by the remuneration committee. The chairman and other non-executive directors are not eligible to receive long-term incentives geared to share price or corporate performance, as such incentives align their interests too closely with executives and may be seen to impair their objectivity.

The Alexander Forbes conditional share plan applies to executive directors, senior managers and other key executives and managers of the company. The incentives are offered over a period of three or more years and are designed to align performance with achieving the group’s long-term objectives, act as a retention mechanism for senior executives, and drive a culture of continuous and sustained growth and improvement within Alexander Forbes.

To align shareholders’ and executives’ interests, the vesting of conditional shares will be conditional on achieving performance conditions measured over a period appropriate to the strategic objectives of the company. Such performance measures are linked to factors enhancing shareholder value and require strong levels of overall corporate performance, measured against an appropriately defined peer group or other relevant benchmarks.

Conditional shares are awarded on a sliding scale at a level that is appropriate relative to guaranteed pay. Awards with high potential value may only be linked to commensurately high levels of performance. Full awards require significant value creation.

The number of conditional shares awarded under the LTIP during the financial year was as follows:

’000 shares	Total 2016	Total 2015
E Chr Kieswetter (group chief executive until 8 February)	844	1 315
DM Viljoen (group chief financial officer and interim group chief executive effective 9 February)	562	881
Total for the year	1 406	2 196

The LTIP awards are determined following market benchmarks, as a function of the executive’s cost to company (CTC). This is also moderated by the remuneration committee to reach a final award.

Employee share ownership includes the forfeitable share plan (FSP) and the employee share ownership plan (ESOP), and is designed to enhance the ownership of the company and support its employees’ financial well-being.

Following the group’s successful listing during the 2015 financial year, Alexander Forbes awarded 1 000 forfeitable shares to each employee through the FSP. These vest in three years and are conditional on the individuals’ employment with the group at that time. In 2016, the group awarded a further 200 shares to each employee. The FSP holds approximately 0.2% of the group’s issued share capital.

The ESOP means that South African employees hold approximately 2.9% of the group’s issued share capital. Seventy per cent of distributions by the newly created ESOP will accrue to black women employees (82% to black employees).

Historical long-term incentive plans

During the period under private equity ownership, certain long-term incentives and share ownership plans were enacted for key individuals and senior employees of the group. All these historical schemes matured at exit of the private equity shareholders in 2014, with some deferral in certain instances.

The 2011 Executive Long-Term Incentive Plan, which was amended in June 2014, was constructed and designed as a restricted bonus incentive scheme that was cash settled. The plan did not involve the purchase, transfer or issue of shares or share options, nor was it linked in any way to shares. The participation by executive directors in the plan was required to be approved and confirmed by the remuneration committee. Various senior managers and directors of the company were designated as eligible employees under the plan. Fifty per cent of the awards made to eligible employees in terms of the plan vested upon listing on 24 July 2014 while the remaining 50% vested in January 2016, 18 months from the date of listing. The awards were conditional upon acceptable performance by participants over the period and upon participants being employed by a member business of the group at the date of payment. The liability was recognised in line with its retention period.

Details of payment and incentive allocations relating to the historical incentive schemes may be found in the audited annual financial statements of Alexander Forbes Group Holdings Limited. These historical schemes are now fully settled and terminated.

Remuneration of non-executive directors

Independent directors receive letters of appointment that include a notice period of three months. Executive directors do not receive such letters as they are shareholder representatives.

Our aim is to compensate our independent non-executive directors fairly and at a level that is appropriate to attract the desired talent and expertise. The remuneration of non-executive directors consists of directors’ fees based on board and board committee participation. To compensate for additional responsibility the chairmen of the board and committees are compensated at levels higher than other members. Different levels of remuneration are also paid in respect of the different board committees, based on the complexity and amount of preparation and level of responsibility required.

We periodically undertake benchmarking to ensure that the remuneration of non-executive directors is appropriately aligned to the market. Each year the remuneration committee receives recommendations from the group chief executive and the chairman concerning the remuneration of non-executive directors, who are paid fixed fees. All directors’ fees are approved annually in advance by shareholders in general meeting.

The independent directors’ fees paid in the year reviewed are shown in the table below, with comparative figures for the previous financial year. The next non-executive directors’ increase in fees will be subject to approval at the annual general meeting of shareholders as detailed in the notice of that meeting.

Rands	Group board	Subsidiary boards	Group audit committee	Subsidiary audit committee	Remuneration and nominations committees	Social, ethics and transformation committee
2016
Chairperson	1 773 450	274 110	479 686	274 110	205 576	102 797
Member	479 686	137 054	205 576	137 054	102 797	54 827
2015
Chairperson	1 689 000	261 057	456 844	261 057	195 787	97 902
Member	456 844	130 528	195 787	130 528	97 902	52 216