REMUNERATION REPORT

CORPORATE GOVERNANCE

Philosophy

Hyprop is an internally managed REIT, making employee skills essential to our sustainability. Our remuneration philosophy therefore supports our strategic objectives and encourages individual performance. It emphasises the contribution of our employees to building long-term value through fair and balanced remuneration.

The policy is based on several key principles:

Hyprop’s success depends on attracting talented, experienced and motivated individuals who can execute our business strategy to achieve our vision and mission. We use both short and long-term incentives to support this goal
Target-based short-term incentives (STIs) are strong drivers of performance. A significant portion of senior management reward is therefore variable, based on realistic performance targets, and individual contributions to the growth of their division and the wider company. We also reward employees who deliver superior performance in line with our strategic goals. Special bonuses may be considered as additional awards in exceptional circumstances
Long-term incentives (LTIs) are aligned to Hyprop’s strategic objectives and the investment interests of shareholders.

Policy

The remuneration and nomination committee is responsible for implementing the remuneration policy to ensure:

Salary structures and policies motivate superior performance, and are linked to realistic performance objectives that support sustainable growth
Stakeholders are able to make informed assessments of reward practices and governance processes
Compliance with all applicable laws and regulatory codes.

Non-executive directors

Our policy is to remunerate non-executive directors competitively for their service while understanding the required time commitment. Fees are benchmarked against a peer group of JSE-listed companies, and there are no contractual arrangements to compensate for loss of office.

The remuneration and nomination committee reviews these fees annually and makes its recommendations to the board which, in turn, proposes fees for approval by shareholders at the annual general meeting.

Non-executive directors do not receive STIs nor do they participate in any LTI schemes except if they previously held executive office and are entitled to unvested benefits from this period. Hyprop pays no pension contributions for non-executive directors.

Executive directors and senior executive remuneration

Our executive directors are permanent employees and their employment agreements include a notice period, but no restraints of trade. Hyprop aims to be an employer of choice: to attract and retain individuals of high calibre, we offer competitive remuneration packages and review these annually.

Our remuneration structure includes:

Base salary

All basic salaries are market-related, benchmarked against industry norms and adjusted for an employee’s experience, qualifications, responsibilities and nature of work. These are reviewed annually.

STIs

An annual performance bonus aligns short-term rewards with annual performance and supports retention. Performance reviews are weighted significantly to output. The executive committee sets key performance deliverables (KPDs) annually at property and company levels. These are formally measured and include:

Net income growth
Performance against budget
Increase in trading densities
New/renewed leasing rental values achieved relative to budget
New/renewed leasing escalations achieved
Tenant arrear collections and management
Tenant deposit and bank guarantee management
Documentation administration.

Exceptional performance is rewarded with higher incentives, after considering recommendations from general managers, regional executives and executive directors.

The maximum bonus for senior management is six months’ salary, at the committee’s discretion. Bonuses for executive directors are aligned with strategic objectives and are at the committee’s discretion.

LTIs

These reward long-term decisions supporting dividend and capital growth. They are also designed to align employee behaviour with shareholders’ interests and to ensure long-term retention of staff. The LTI comprises a performance and a retention component. The split between performance shares and retention shares is 70% : 30% for all participants.

Performance conditions relating to the performance component of the LTI is shown below:

Performance condition Detail Weighting Threshold On target Stretch
Growth in distribution/ dividend per share relative to peer group* Simple growth in distribution per share at the end of the performance period compared to the prior financial year. 40% 95% 95% 110%
Share price performance relative to peer group* Growth in the share price from the start to the end of the performance period. 40% 95% 105% 120%
Strategic component Determined by the remuneration committee in line with circumstances and projects at the time of the award. It is measured over the performance period of three years, and may include project-related or general business activity. Where considered appropriate, the committee has the discretion not to apply the strategic component, in which case this 20% weighting will be split equally between the other two performance conditions. Achieving each of the performance conditions and consequent vesting of performance units occurs severally. 20%      
           

The first awards were offered to executives, senior managers, operational and financial managers and staff with specific core, critical or strategic skills in 2014. Some 13% (27 employees) of the total staff complement will participate in the scheme, which is limited to 2% of the current shares in issue with an initial vesting period of three years from January 2014.

Participants do not pay for the shares. They are also not eligible for dividends until the end of the initial vesting period.

Retention scheme terms

Retention shares vest five years after initial allocation, subject to continued employment for the duration of the vesting period.

Terms of service

Minimum terms and conditions for employing executive directors are governed by South African legislation. If an executive director’s services are terminated, the committee oversees the settlement of terms, assisted by labour law advisers.

Remuneration of non-executive and executive directors

For breakdown of remuneration of non-executive and executive directors please see note 24.

 
REGISTERED OFFICE AND BUSINESS ADDRESS

Registration number: 1987/005284/06
2nd Floor, Cradock Heights, 21 Cradock
Avenue, Rosebank, 2196
PO Box 52509, Saxonwold, 2132
Tel: +27 11 447 0090
Fax: +27 11 447 0092
Website: www.hyprop.co.za

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