GOVERNANCE AND SUSTAINABILITY
- Overview and board information
- Governance structure
- Board committees
- Other group board committees
- Stakeholder engagement
- Remuneration Report
- Social, ethics and transformation
- HIV/AIDS management
- Environmental sustainability
- Application of king III principles
- Code of ethical conduct
- Section 45 letters
The ﬁrst part of the report sets out the remuneration policy as well as the details of the two new share schemes approved by shareholders in June 2015. The implementation of the policy and disclosure of executive remuneration is contained in part two of this report.
Lewis Group strives to create a performance-oriented culture which fairly rewards staff for their contribution in achieving the group’s strategic, ﬁnancial and operational objectives. Key to the group’s remuneration philosophy is recognising employees’ contribution to the success of the business and their commitment to the company’s values. The growth and sustainability of the business is dependent on the group’s ability to attract, retain and motivate competent people.
Remuneration practices are structured to encourage sustainable, long-term wealth creation through the following:
- Aligning remuneration practices with the group’s strategy.
- Aligning executive reward systems with the interests of stakeholders.
- Promoting a performance-based culture across the business.
- Offering appropriate short-term and long-term performance-related rewards that are fair and achievable.
- Attracting and retaining talented individuals in the furniture retail and ﬁnancial services industries.
- Rewarding, retaining and motivating talented people while still managing employment costs effectively.
The Board is accountable for the remuneration philosophy, policy and practices. Responsibility for oversight of the group’s remuneration policies and practices has been delegated to the Remuneration Committee.
The responsibilities of the Committee are as follows:
- Ensuring the remuneration policy is aligned with the group’s strategic objectives and encourages superior individual performance.
- Reviewing and approving compensation of executive and non-executive directors.
- Ensuring executive directors are equitably rewarded based on market trends, surveys, individual performance and contribution.
- Reviewing incentive schemes to ensure continued alignment to the enhancement of shareholder value.
- Approving the award of share incentives.
- Ensuring employee beneﬁts are suitably disclosed.
- Recommending non-executive directors’ fees for shareholder approval based on market information.
- Ensuring practices are compliant with relevant legislation and regulation.
The Committee is chaired by an independent non-executive director. The chief executive oﬃcer attends meetings at the invitation of the Committee. The Committee may at its discretion invite other executives or external advisers to attend meetings but no individual may be present during any discussion on their own performance or remuneration.
The group’s remuneration policy is subject to a non-binding advisory vote by shareholders at the annual general meeting each year. This enables shareholders to express their views on the remuneration policy and for the board to take these views into account.
Remuneration is market-based and competitive owing to the portability of skills in the retail and ﬁnancial services sectors. External remuneration surveys are used to benchmark executive and non-executive remuneration in comparable positions. Market surveys assist in ensuring executives are competitively rewarded in line with their performance and contribution. Remuneration packages are determined by considering market trends, the importance of a position relative to the group’s business, the required skills set, job-speciﬁc expertise, performance and contribution of individuals.
- A. Executive directors
- B. Senior management
- C. Staff
- D. Non-executive directors
The remuneration structure of executive directors is closely linked to the achievement of the group’s ﬁnancial and operating targets, and is therefore closely aligned to the interests of shareholders.
Executive director remuneration packages comprise the following elements, with a signiﬁcant portion of remuneration being performance-related:
- Annual guaranteed pay.
- Annual cash-based performance bonus.
- Medium- and long-term share-based incentives.
Annual guaranteed payAnnual guaranteed pay includes a cash salary and company contributions to retirement and healthcare funding. Cash salaries are set at the market median and are benchmarked against peers in comparable positions in similar companies. Salaries are reviewed annually by the Remuneration Committee and the level of increase is merit-based in relation to individual and group performance, and also considers market pay movements. Increases are effective from 1 April at the start of the ﬁnancial year.
Annual cash-based performance bonusExecutive directors and other members of senior management (executive management) participate in a performance bonus scheme which is linked to their base salary. No portion of any executive management’s bonus is guaranteed. Bonus payments are based on group performance relative to the board-approved budgeted net proﬁt before taxation target. The performance of the executive management is evaluated against the group performance; and, on their individual performance. The performance against the targeted net proﬁt before tax is disclosed for the past three years on page 54. The sustainability of the group’s business is critical in determining remuneration and performance targets are designed to discourage increased risk-taking by the executives. Achievement of between 90% and 100% of target results in the payment of a bonus increasing on a pro rata basis from 50% to 100% of cash salary. Where actual performance exceeds 100% up to a maximum of 110% of target, bonuses are increased on a pro rata basis and capped at a maximum of 150% of cash salary. The achievement of targets is reviewed by the Remuneration Committee before any incentive payments are made to executive directors. Bonuses are paid at the end of the ﬁrst quarter of the following ﬁnancial year.
Medium- and long-term share-based incentivesShare incentive schemes are aimed at motivating the executive directors to contribute to the long-term growth and sustainability of the group, attracting and retaining talented people and aligning rewards with shareholder interests. The group’s share schemes are equity-settled. The total number of shares and options under the schemes may not exceed 10% in the aggregate of the group’s issued share capital. Awards will only be paid if the participant is in the employ of the group at the time of vesting, other than in the event of death, ill-health, retirement or retrenchment. Participation in the schemes is at the discretion of the Remuneration Committee and limited to the executive directors of Lewis Group and the directors, general managers and selected senior staff (executives) of Lewis Stores, the group’s main operating subsidiary. Awards are made annually in June. Special awards can be made when the Remuneration Committee deems it appropriate.
Legacy long-term Retention SchemeIn 2013, the Remuneration Committee approved a new ﬁve-year long-term Retention Scheme for senior executives. The criteria for this scheme is that Lewis Group must achieve compound growth of 6% in attributable proﬁt to ordinary shareholders for the preceding ﬁve years at the point of vesting in years three, four and ﬁve. One-third of the awards vest each year from the third anniversary date of the award to the ﬁfth anniversary date. The executive must be employed with the group at vesting date.
Legacy three-year bonus schemeIn November 2014, the Remuneration Committee approved a one-off cash bonus scheme for senior executives. The Committee approved two targets to qualify for the bonus:
- Average return on shareholders’ equity must equal or exceed 12.5% for the period 1 April 2014 to 31 March 2017.
- R 1 billion net proﬁt attributable to ordinary shareholders for the year ended 31 March 2017. The Committee approved tiered levels of target achievement for each category of executive.
Lewis Executive Retention Scheme (LERS) (previously the co-investment scheme)The LERS is aimed at retaining executives who play a key role in the operation of Lewis Group and can inﬂuence the performance of the business. The Lewis Group operates a cash-based performance bonus scheme in terms of which bonuses are determined and paid annually based on Lewis Group performance relative to Board-approved targets. Executives will be offered the opportunity to invest all or part of their net after-tax annual performance bonus in the company’s shares. Executives elect the percentage of their net bonus to be invested in shares, subject to a minimum of 10% of their respective net bonuses. Shares are then purchased on the market on behalf of the executive. These invested shares are held on the executive’s behalf in a nominee capacity for a period of three years, whereafter the registered ownership of the shares is transferred to the executive. Where invested shares are acquired, the company issues matching share options to the executive at no consideration in a pre-determined ratio such that the value of the matching share option at the date of grant is equivalent to the percentage of the gross bonus which the executive elected to invest. There are no additional performance criteria which are required to be complied with for exercise of the matching share options as executives have already met the performance targets and/or standards determined by the Committee. The matching share options vest on the third anniversary of the date of grant of the matching share options, provided that the executive remains in the employ of the Lewis Group. The trust will purchase shares for the purpose of the LERS on the open market to avoid dilution of ordinary shareholders. It remains company policy not to allow the trust to purchase shares on the open market during prohibited periods. The company will utilise a maximum of one million shares (approximately 1% of the company’s issued share capital at 31 March 2015) for purposes of the LERS, irrespective of the source of those shares. The maximum number of shares that can be awarded to an individual executive is 0.4 million shares over the lifetime of the LERS.
Lewis Long-Term and Short-Term Executive Performance Share Scheme (LSPS) (previously the Executive Performance Scheme)The purpose of the LSPS is to:
- motivate executives to continue to contribute to the growth and sustainability of the Lewis Group and to maintain a performance-orientated culture;
- align executive rewards with the interests of stakeholders;
- attract and retain talented individuals in the furniture retail and ﬁnancial services industries; and
- offer appropriate short- and long-term performance-related rewards that are fair and achievable.
- Three-year awards which vest three years after the grant date.
- Four-year awards which vests as follows:
- 50% on the third anniversary of the grant date.
- The remaining 50% on the fourth anniversary of the grant date.
- Five-year awards which vests as follows:
- One third on the third anniversary of the grant date.
- One third on the fourth anniversary of the grant date.
- The remaining third on the ﬁfth anniversary of the grant date.
- Alternate awards on such vesting dates as the Committee may determine. It is anticipated that this type of award will only be used in exceptional circumstances.
- Headline earnings per share
- Quality of the debtors book
- satisfactory paid accounts
- debtor costs as a percentage of net debtors
- Gross margin
- Headline earnings per share and at least one of the following performance criteria:
- Return on average shareholders’ equity.
- After tax return on average capital employed.
- Before tax return on average capital employed.
- Before tax return on average assets managed.
- Gearing ratio.
Annual guaranteed pay
The average staﬀ increase, excluding unionised staﬀ, was 5%. Increases to executives were merit-based and varied from 4% to 7%.
Annual cash-based performance bonus
The Remuneration Committee approved the net proﬁt before taxation target of R 1 107 million in March 2014 for
the 2015 ﬁnancial year. The company achieved R 1 168.5 million for the 2015 ﬁnancial year or 105.5% of target. The cash bonus amounts are disclosed for executive directors in the table on page 55.
Legacy Executive Performance Scheme
2012 three-year awards
The Remuneration Committee approved the vesting of these awards based on the achievement of the targets as follows:
|Net profit before taxation target (Rm)||1 107||1 252||1 252|
|Actual result (Rm)||1 168||1 177*||1 263|
* The Remuneration Committee exercised its discretion in respect of the 2014 ﬁnancial year and awarded 100% vesting despite the group not achieving its budget net proﬁt before taxation target.
Lewis Executive Retention Scheme (LERS)
In June 2015, 13 of the 15 executives who earned a cash-based performance bonus elected to invest 100% of their respective net bonuses in the LERS.
The trust purchased the shares on the open market at an average price of R 98.88 per share. The share allocations for executive directors are disclosed in the outstanding share awards table on page 55.
Lewis Long-Term and Short-Term Executive Performance Scheme (LSPS)
Short-term awards – Three year awards
The performance targets are set by the Remuneration Committee at the beginning of the each of the three years and are based on a weighting set for each executive depending on their daily employment responsibilities, of
- Headline earnings per share
- Quality of the debtors book
- Gross margin
The short-term award share allocations for executive directors are disclosed in the outstanding share awards table on page 55.
The Committee will disclose the annual performance targets set for the executive directors each year in arrears.
Long-term awards – Four year awards
The Remuneration Committee selected the measurements and set the performance criteria for long-term awards
(four-year awards) under the LSPS scheme in June 2015. These performance targets have been set at the grant date in respect of the entire performance period. The weightings and performance criteria are as follows:
- Headline earnings per share (HEPS) The target for each of the vesting date will be the 2015 HEPS compounded each year by the greater of 5% or headline CPI.
- Gearing Ratio.
- Gearing for each year cannot exceed 35%.
- Return on average shareholders’ equity (ROE)
ROE has to average 15% over each vesting period.
The four-year awards share allocations for executive directors are disclosed in the outstanding share awards table on page 55.
|Gains on share awards|
|Director (R’000)||Salary||Pension contributions||Medical aid contributions||Total guaranteed pay||Bonuses paid*||Executive Performance Scheme||Co-Investment scheme||Total Remuneration|
|J Enslin||3 348||536||116||4000||2936||–||3 645||2 163||12 744|
|L Davies||2 566||411||88||3 065||2 296||–||2 868||1 734||9 963|
|Total||5 914||947||204||7 065||5 232||0||6 513||3 897||22 707|
|J Enslin||3 125||500||105||3 730||1 568||2 620||2 034||1 818||11 770|
|L Davies||2 443||391||81||2 915||1 213||1 747||1 630||1 489||8 993|
|Total||5 568||891||186||6 645||2 781||4 367||3 664||3 037||20 764|
|J Enslin||3 019||483||98||3 599||1 604||2 608||2 394||1 501||11 707|
|L Davies||2 333||373||92||2 799||1 262||1 739||1 962||1 356||9 117|
|Total||5 352||856||190||6 398||2 866||4 347||4 356||2 857||20 824|
* The bonus paid in the current year relates to the achievement of the performance targets for the 2015 ﬁnancial year.
# The gain on the share awards in the current ﬁnancial year relate to shares awarded in terms of the three-year Executive Performance Scheme in June 2012, having achieved the performance targets for the ﬁnancial years 2013, 2014 and 2015. (refer to page 54)
§ The gain on share awards in 2015 and 2014 relates to the shares awarded in terms of the ﬁve-year Retention Scheme in September 2009, having achieved the performance targets for the past ﬁve years.
** The gain in the current ﬁnancial year under the Co-investments Scheme relates to the bonus earned for the ﬁnancial year 2012, which was invested in the company’s shares by the executives for the last three years to March 2015.
Outstanding share awards
|2016||Long-term and short-term Executive Performance Scheme2 – Number of shares||Executive Retention Scheme3 – Number of Shares|
|Date of share awards||Johan Enslin||Les Davies||Total||Johan Enslin||Les Davies||Total|
|June 2013||three-year award¹||50 232||38 819||89 051||25 917||20 390||46 307|
|June 2015||three-year award²||33 695||25 817||59 512||29 700||23 220||52 920|
|June 2015||four-year award²||120 000||90 000||210 000||–|
|Total||203 927||154 636||358 563||55 617||43 610||99 227|
(1) Shares issued in terms of the Legacy Executive performance scheme.
(2) Shares issued in terms of the new long-term and short-term Executive Performance Scheme.
(3) The 2013 award was issued under the Legacy Co-investment Scheme and the 2015 award issued under the Executive Retention Scheme.
In terms of the Lewis Executive Retention Scheme, the trust holds 59 005 shares (2015:51 856 shares) on behalf of the above directors by virtue of the investment of their bonuses into the scheme.
The potential dilutionary eﬀect of the outstanding awards amount to 1.6% of the shares in issue.
Shares vested during the 2016 financial year
|Director||Date awarded||Shares awarded||Shares forfeited||Shares vested||Gains on share awards R’000|
|Executive Performance Scheme|
|Johan Enslin||three-year award||June 2012||37 527||–||37 527||3 645|
|Les Davies||three-year award||June 2012||29 520||–||29 520||2 868|
|Total||67 047||–||67 047||6 513|
|Johan Enslin||June 2012||22 270||–||22 270||2 163|
|Les Davies||June 2012||17 850||–||17 850||1 734|
|Total||40 120||–||40 120||3 897|
|2016||Director’s fee||Audit Commitee member||Risk Committee member||Remuneration Committee member||Nomination Committee member||Social, Ethics and Transformation Committee member||Monarch Director’s fees||Monarch Audit and Risk Committee member||Total Non-executive directors remuneration|
|David Nurek||509||107||75||59||79||59||143||60||1 091|
|Ben van der Ross||243||107||75||119||35||578|
|Total||1 481||676||419||356||217||237||489||242||4 116|
|2015||Director’s fee||Audit Commitee member||Risk Committee member||Remuneration Committee member||Nomination Committee member||Social, Ethics and Transformation Committee member||Monarch Director’s fees||Monarch Audit and Risk Committee member||Total Non-executive directors remuneration|
|David Nurek||486||102||71||57||77||57||136||57||1 042|
|Ben van der Ross||232||102||71||113||33||552|
|Total||1 558||710||441||374||228||226||465||230||4 232|
*Resigned 15 August 2014
^Resigned 30 June 2014
Proposed non-executive director fees for 2017
|Board / Committee position (R’000)||% Increase||Proposed fees for 2017||Proposed fees for 2016|
|Audit Committee chairman||4.0%||262||252|
|Audit Committee member/invitee||3.7%||112||108|
|Risk Committee chairman||5.0%||126||120|
|Risk Committee member||3.9%||79||76|
|Remuneration Committee chairman||5.0%||126||120|
|Remuneration Committee member||5.0%||63||60|
|Nomination Committee chairman||6.3%||85||80|
|Nomination Committee member||5.7%||37||35|
|Social, Ethics and Transformation Committee chairman||5.0%||126||120|
|Social, Ethics and Transformation Committee member||5.0%||63||60|
At 31 March 2016, the directors’ beneﬁcial direct and indirect interest in the company’s issued shares was as follows:
|David Nurek||–||20 000||–||20 000|
|Hilton Saven||–||6 440||–||6 440|
|Alan Smart||319 070||–||319 070||–|
|Johan Enslin||131 380||33 072||106 239||28 912|
|Les Davies||281 289||25 933||242 157||22 944|
|Total||731 739||85 445||667 466||78 296|
Click here to read more on Remuneration reporting for 2016.