Remuneration policy and remuneration implementation report

Remuneration philosophy

The key goals of Hospitality’s remuneration philosophy is to remunerate fairly, responsibly and competitively to:

Remuneration policy

Hospitality aligned its grading philosophy and contracts of employment with its majority shareholder, Tsogo Sun Hotels.

The remuneration committee approves the fixed and variable mix of the remuneration structure, which differs based on the employee grade.

Basic salaries and a 13th cheque are guaranteed for employees other than executive directors and management level, and the cost of benefits are shared between the employee and employer on a 50:50 basis. Basic salaries for executive directors and management are guaranteed and are structured on a CTC basis.

Hospitality seeks to remunerate responsibly, fairly and transparently and seeks to achieve a balance of STIs and LTIs 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 above average pay is only received for above average performance and above average sustainable shareholder returns.

Malus and clawback provision

Having considered the need for the increased alignment of objectives between executive management and shareholders, and the growing emphasis on executive accountability, the Board approved the inclusion of a malus and clawback provision on short and long-term incentives in the Company’s remuneration policy. This provision provides for clawbacks to 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 on demand 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.

STIs

Executive directors and management participate in STIs, which are based on financial targets and personal key performance objectives in a range from 75:25 to 60:40, dependent on the employee grade. Executive directors have a larger portion of their potential total remuneration subject to the achievement of financial targets. To allow for financial elements over which executive directors and management could exercise direct control and to keep management motivated towards achieving improved returns for shareholders, the Board increased the number of financial targets from two to four in the prior financial year and included EBITDAR, distributable earnings, operating expenditure and capital expenditure, weighted 30%, 30%, 15%, 25% respectively.

Key performance objectives, over which there is influence to ensure the achievement of short-term financial performance is not at the expense of future opportunities, are agreed upfront annually between the STI participant and his or her immediate manager.

LTIs

Hospitality adopted a share appreciation bonus scheme, based on its existing capital structure:

Prior to adopting the Hospitality share appreciation bonus scheme, executive directors and management of Hospitality, according to their employee grade, participated in the Tsogo Sun Holdings (‘Tsogo Holdings’) Share Appreciation Bonus Plan (‘Tsogo Holdings AB Plan’), which was replaced by the Tsogo Sun Hotels Limited (‘Tsogo Sun Hotels’) Share Appreciation Rights Plan (‘SAR Plan’) at the time of Tsogo Holdings’ unbundling in June 2019. Share Appreciation Rights (‘SARs’) vest within three years after the date of grant and are further subject to the continued employment of the participants for the employment period. SARs can be exercised for a further three years post the vesting date before being exercised, after which it will automatically lapse.

On settlement, the value accruing to participants will be the full appreciation of Tsogo Sun Hotels’ share price over the allocation price plus dividends declared and paid post the allocation date of the notional shares, which value will be settled through the issue of Tsogo Sun Hotels’ shares

Participants in the Tsogo Holdings AB Plan were given the option to: (a) accelerate the vesting of their notional shares and receive settlement in cash or (b) to elect to convert their notional shares held under the Tsogo Holdings AB Plan to SARs administered in terms of the Tsogo Sun Holdings SAR Plan. The conversion calculation was done on the basis to ensure that participants received SARs under the Tsogo Sun Hotels SAR Plan that equate to the same fair value of their notional shares which they previously held under the Tsogo Holdings AB Plan on the conversion date, being 21 June 2019. The conversions were based on the seven‑day volume weighted average price (‘VWAP’) of Tsogo Holdings at close on 11 June 2019 of R20.61 plus dividends paid from award date until 11 June 2019 and the seven‑day VWAP of Tsogo Sun Hotels from 12 June 2019 to 21 June 2019 of R4.34.

Remuneration implementation report

Executive directors’ service contracts at 31 March 2020

Both the CEO and the FD are full-time salaried employees of HPF Properties Proprietary Limited#, a wholly owned subsidiary of Hospitality. 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 were entered into with the Company. Hospitality’s remuneration for non-executive directors consists of either:

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.

Directors’ emoluments

  2020 2019
  MR de Lima
R’000
R Erasmus
R’000
JR Nicolella
R’000^
Total
R’000
JR Nicolella
R’000
KG Randall*
R’000
MR de Lima
R’000
Total
R’000
Salaries 2 254 1 399 249 3 902 542 2 548 1 654 4 774
Benefits 403 237 640 463 424 887
Current year STI accrued# 931 687 1 618 1 439 862 2 301
Fair value liability of Tsogo Sun Hotels SAR Plan at year-end 133 125 258
Fair value of cash-based LTI on award date 1 019 497 1 516 698 174 872
Total single figure of remuneration 4 740 2 945 249 7 934 542 5 148 3 114 8 804
Fair value of cash-based LTI on award date^ (1 019) (497) (1 516) (698) (174) (872)
Settlement of cash-based LTI 370 62 432
Financial statement remuneration 3 721 2 448 249 6 148 542 4 820 3 002 8 364
Fair value liability of Tsogo Sun Hotels SAR Plan at year-end (133) (125) (258)
Current year STI not settled# (931) (687) (1 618) (1 439) (862) (2 301)
Prior year STI settled 862 862 449 323 772
Total cash equivalent value of remuneration 3 519 1 636 249 5 404 542 3 830 2 463 6 835
* Upon his resignation as CEO on 1 November, KG Randall was appointed as the Chief Operating Officer of Hospitality and has since joined Tsogo Sun Hotels as Group Development Director. Being a member of Hospitality’s key in management FY2019, benefits were shown for the full financial year.
^ JR Nicolella served as the CEO of Hospitality from 1 November 2018 to 31 May 2019. He was seconded by HCI to Hospitality as set out in the remuneration implementation report. JR Nicolella did not participate in the STIs or LTIs of the Company. Following his resignation as CEO, JR Nicolella remained on the Board as a non-executive director.
# STIs are paid in May each year. However, due to the impact of Covid-19 and the Company’s focus on cash preservation, STIs for FY2020 were calculated and approved by the remuneration committee, but payment thereof was deferred until such time that it would be appropriate and responsible for payment to be made.

 

Achievement of STIs in FY2020 Financial score
%
Strategic score
%
Total score
%
Bonus accrued
R’000
MR de Lima 37 17 54 931
R Erasmus 37 17 54 687

 

LTI allocations in FY2020 Number of
appreciation
shares
Issue
price
Market price
at 31 March
2020
Shares vesting
date
MR de Lima 419 223 R9.78 R3.05 31 March 2022
R Erasmus 204 499 R9.78 R3.05 31 March 2022
HPF Management 204 499 R9.78 R3.05 31 March 2022

 

LTI conversions from Tsogo Holdings AB Plan to Tsogo Sun Hotels SAR Plan in FY2020 Number of
notional
shares
held under
Tsogo
Holdings
AB Plan
Average
award price
Converted to
number of
SARs held
under
Tsogo Sun
Hotels
SAR Plan
in FY2020
Average award
price after
conversion
Conversion
price
MR de Lima 190 527 R26.24 1 080 162 R4.63 R4.34
R Erasmus 77 243 R25.89 411 288 R4.89 R4.34

 

The conversions were based on the seven-day VWAP of Tsogo Holdings at close on 11 June 2019 of R20.61 plus dividends paid from award date until 11 June 2019 and the seven-day VWAP of Tsogo Sun Hotels from 12 June 2019 to 21 June 2019 of R4.34.

  Appreciation shares
granted and still
outstanding
Strike 
price 
Appreciation shares
vested and still
outstanding
Fair value 
of award 
on grant 
date1
  Liability
Grant date 2020    2019 2020    2019 Expiry date 2020 2019
MR de Lima                  
1 April 2014 –     29 160 4.22(2) 177 840(2) 29 160 98 316  31 March 2020 105 851
1 April 2015 166 553(2) 28 260 4.50(2) 166 553(2) 28 260 98 830  31 March 2021 238 821 54 259
1 April 2016 249 071(2) 43 821 4.01(2) 249 071(2) 43 821 159 685  31 March 2022 138 938 207 273
1 April 2017 486 698(2) 89 286 5.14(2) 486 698(2) 59 524 381 518  31 March 2023 163 152
1 April 2018 105 485    105 485 11.85  70 323    35 162 174 442  31 March 2024
1 April 2019 419 223    9.78  139 741    1 018 986  31 March 2025
                540 911 367 383
R Erasmus                  
1 April 2017 194 683(2) 35 715 5.14(2) 194 683(2) 23 810 152 610  31 March 2023 72 553
1 April 2018 216 605(2) 41 528 4.57(2) 144 403(2) 13 843 68 675  31 March 2024 53 362 19 933
1 April 2019 204 499    9.78  68 166    497 066  31 March 2025
                125 915 19 933
1 Calculated using a Black Scholes model at grant date.
2 Converted from Tsogo Holdings AB Plan to THL SAR Plan at a conversion price of R4.34.

LTIs granted in Hospitality’s share appreciation bonus scheme are cash-settled, resulting in no dilutionary impact to shareholders. The notional appreciation shares issued to executive directors and management on 1 April 2019 are based on the Hospitality share price and the Hospitality share scheme. The notional appreciation shares are based on a three-year vesting period equivalent to a factor of their respective CTC and the price is determined on the volume weighted average trading price of Hospitality’s share prior to the date of issue.

Refer to the consolidated annual financial statements for further information.

Non-executive directors 2020

  Directors’ fees
R’000
Total
R’000
JA Copelyn^ 77 77
SA Halliday^ 71 71
GA Nelson^ 76 76
MN von Aulock 402 402
L McDonald 278 278
ZJ Kganyago^ 45 45
JR Nicolella 226 226
MH Ahmed 492 492
MSI Gani^ 74 74
LM Molefi* 318 318
JG Ngcobo* 318 318
SC Gina* 234 234
CC September# 170 170
  2 781 2 781
^ Resigned 31 May 2019.
* Appointed 1 June 2019.
# Appointed 15 August 2019.

Fees are exclusive of VAT.

Non-executive directors 2019

  Directors’ fees
R’000
Total
R’000
JA Copelyn 407 407
DG Bowden1 359 359
ZN Malinga1 210 210
SA Halliday 366 366
GA Nelson 278 278
ZN Kubukeli1 291 291
MN von Aulock3 64 64
J Booysen1 213 213
L McDonald 256 256
ZJ Kganyago 256 256
JR Nicolella 150 150
RB Huddy2 22 22
MH Ahmed 166 166
MSI Gani 399 399
  3 437 3 437
1 Resigned prior to 31 March 2019.
2 Not part of directorate.
3 Appointed 1 November 2018.

Fees are exclusive of VAT.

Voting results at the 2019 AGM

The results of the non-binding advisory endorsement of the Company’s remuneration policy and remuneration implementation report at the AGM on 17 October 2019 were 98.49% (2018: 95.07%) and 98.53% (2018: 98.10%) in favour, respectively. 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 Group will engage with dissenting shareholders within 30 days of the AGM, to address all legitimate and reasonable objections and concerns.

Non-executive directors’ fees for approval by shareholders

The increase in non-executive directors’ fees for FY2020 was approved by shareholders at the 2019 AGM by up to a maximum of 8%, subject to Board approval. However, in response to the impact of Covid-19 on the business and Hospitality’s focus on conserving its cash resources, the Board, on recommendation by the remuneration committee, agreed no inflationary increase to directors’ fees for the period 1 April 2020 to 31 March 2021.

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 until the AGM (subject to the maximum amount approved at the previous AGM), based on an assessment of what the Company is likely to afford during the time the business is impacted by Covid-19.

Approval will be sought for the Board to increase non-executive directors’ fees for the period 1 April 2021 to 31 March 2022 by up to a maximum of 8%. A resolution to this effect was included in the notice of AGM for the AGM of shareholders to be held on 20 October 2020.

Shareholders approved an hourly ad hoc fee of R1 995 for non-executive directors for special assignments or additional work requested by the Board. This fee is only payable if time in excess of 20 hours per non-executive director, per annum, is spent on any special assignment or additional work.