2020 Integrated Annual Report

and Consolidated & Separate
Financial Statements

Remuneration report


Stewart Shaw-Taylor
Chairman Remuneration committee


Introduction and appreciation

At the outset I would like to thank my colleagues on the Remuneration committee (Remco) and the board for their support in delivering on our mandate.

On behalf of the Remuneration and Nomination committee I extend our thanks to Karin Eichhorn (outgoing human resources executive who worked for Hyprop for twenty years) and her team for their hard work over the year, as well as to those shareholders who continue to provide constructive feedback on our remuneration activities. We also extend our thanks and appreciation to all of the Group's employees for their hard work and dedication, particularly during the Covid-19 lockdown periods. You have once again demonstrated why you are called "Hyperformers".

Igsaan Hendricks was appointed as the new head of human resources on 1 September 2020. We welcome Igsaan and look forward to the contribution he will make to the Group.

This report is presented in three sections:

A

REPORT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE

The background and focus areas of the Remco that influenced the remuneration policy and remuneration outcomes in respect of the financial year.

B

REMUNERATION
PHILOSOPHY AND POLICY

Our primary governance tool for the management of remuneration across the Group.

C

IMPLEMENTATION
REPORT

The implementation and outcomes of the remuneration policy over the course of the fi nancial year.

The report should be read in its entirety to gain a full understanding of the activities of Remco, the Group’s remuneration philosophy and how this is implemented.


Report from the chairman of the Remuneration committee

The board, through Remco, is committed to ensuring total remuneration is aligned with Hyprop's sustainable value-creating strategic objectives and the reasonable expectations of all stakeholders.

In line with our commitment to fair and responsible remuneration, we continuously review our remuneration policies and practices to ensure they remain competitive, relevant and aligned with Hyprop's strategy. Our total remuneration offerings are designed to reward employees who embody our values and drive value creation in the short, medium and long-term.

Focus areas for the current year

The remuneration challenges which the Group would face in the 2020 financial year became apparent at an early stage when the guidance provided by the board in September 2019 for the 2020 financial year indicated that the Group's distributable income for the year would decrease by 10% to 13% from 2019. These challenges were compounded by the impact of the Covid-19 national lockdown restrictions in the last quarter of the financial year.

By 30 June 2020 the Company's share price had declined from R69.87 at 30 June 2019 to R22.39, and distributable income for the year ended 30 June 2020 was 34% down from 2019. These metrics are the major drivers of the Group's short- (STI) and long-term incentive (LTI) plans and had an adverse impact on the remuneration of executive directors and senior management, particularly annual cash incentives and the expected value of conditional unit plan shares.

In addition to the ongoing Remco responsibilities in terms of its charter, the following items received attention during the year:

  • Implementation of malus and clawback provisions – Malus and clawback provisions are to be applied to STI and LTI awards granted to executives and prescribed officers with effect from 1 July 2019.
  • Changes to timing of STIs – the STI year has been amended from the calendar year to the Group's financial year to align incentives with the financial year to which they relate.
  • Increased disclosure and refinement of remuneration reporting – members of Remco and management engaged with stakeholders to obtain feedback on our remuneration policies and disclosure thereof. We have also benchmarked the disclosure in this report against our peers and best practice.

RESPONSIBILITIES OF THE REMUNERATION AND NOMINATION COMMITTEE

In addition to the focus areas outlined above, the committee, in executing its mandate relating to remuneration for non-executive directors, executive directors, executive management and other staff, will:

  • Review the remuneration structures on an annual basis to ensure they are:
    • appropriately performance-based, and linked to realistic performance objectives
    • support the Group's strategic objectives
    • representative of best practice in the industry
  • Ensure that stakeholders can make an informed assessment of reward practices and governance processes, and
  • Ensure that the remuneration practices are compliant with all applicable laws and regulatory codes.

We are committed to maintaining a strong relationship with our shareholders, built on trust and a clear understanding of our remuneration policy, and the practices that have been implemented. The committee endeavours to ensure remuneration reporting is comprehensive and transparent.

COMPOSITiON OF THE REMUNERATION AND NOMINATION COMMITTEE

The Remuneration and Nomination committee comprises three independent non-executive directors. The CEO, CFO and head of human resources attend meetings by invitation but are excluded from any deliberations pertaining to their own remuneration. For details of members attendance at Remuneration and Nomination committee meetings refer to BOARD DIVERSITY of the Integrated Annual Report.

Voting at the December 2020 annual general meeting (AGM)

One of the objectives of this report is to provide shareholders with sufficient information for them to understand and assess the Group's remuneration policies and how these are implemented, in order to make an informed decision when voting on the remuneration related resolutions which will be proposed at the AGM in terms of section 66(9) of the Companies Act, 2008.

As required by the Companies Act and King IV, the following resolutions will be tabled for shareholder approval at the AGM in November 2020, details of which can be found in the AGM notice which is available online at www.hyprop.co.za :

The remuneration resolutions were approved by shareholders at the most recent AGMs by the following majorities:

  2019   2018    
Remuneration policy (Section B)   83.8%   72.1%#  
Implementation report (Section C)   88.7%   72.2%#  
Non-executive directors' fees*   97.4%   99.9%    
* Average vote % reported for all individual fee votes
# Below the requisite 75% majority recommended in terms of King IV

 

focus areas for 2021

The current Long-term incentive (LTI) plan was approved by shareholders and implemented in 2013, and currently applies until 2023. However, the Group has recently revised its strategy and changed its primary internal measure of performance from growth in distribution per share to total return based on balanced growth in distributable income and net asset value per share. This is in line with the changing investment environment and the sustainability of the historic REIT model of distributing 100% of distributable income each year to shareholders. As a result, the performance criteria under the current LTI plan are under review by Remco to ensure alignment with the Group's strategic objectives going forward. Recommended changes to the LTI plan will be put to shareholders for approval during the course of the 2021 financial year.

Key performance deliverables for STIs for the 2021 financial year have been revised in the context of the forward looking strategy and to take into account short-term priorities brought about by the impact of the Covid-19 lockdown restrictions and the underperforming economy.

The committee will continue to ensure that the group takes cognisance of evolving legislation and remuneration practices through continuous research and monitoring.

The committee is satisfied that the current remuneration policy is appropriate and that it complies with the recommended practices of King IV.
A copy of the full remuneration policy is available on the website at www.hyprop.co.za

Remuneration philosophy and policy

Philosophy

As an internally managed REIT, the objective of the remuneration policy is to promote the delivery of Hyprop's strategic objectives, encourage individual performance and reward sustainable value creation. Our philosophy emphasises the role of employees in building long-term sustainable value through fair and balanced remuneration.

Hyprop's success depends on attracting and retaining talented, experienced, and motivated individuals who can execute our business strategy to achieve our vision. The Company uses both short and long-term incentives in support of its remuneration of executives, management and key staff.

Key principles

The principles of the Group's remuneration philosophy serve as the foundation to the Company's employment ethos and support the Group's strategy. The objectives of the reward strategy are to:

  • Ensure remuneration policies and practices are aligned with the Group's strategy and values
  • Attract and retain talented, experienced, and motivated individuals who can execute the business strategy
  • Link salary structures and policies to performance objectives that support sustainable value creation over the short, medium, and long-term and,
  • Align with the strategic objectives of the Group and the creation of long-term shareholder value.

Fair and reasonable remuneration

To give effect to the principles of the Group's remuneration strategy, Remco seeks to:

  • Ensure non-executive directors' fees are fair, transparent, and responsible
  • Ensure the executive directors' and executive management's remuneration is fair and responsible in the context of overall company remuneration
  • Consider the pay ratios between executives and other staff when determining annual salary increments
  • Reward employees fairly, reasonably, and responsibly for their contribution to the operating and financial performance of the Company
  • Identify, investigate, and address any remuneration disparities related to, inter alia, race and gender
  • Ensure guaranteed pay is based on equal pay for work of equal value
  • Ensure guaranteed pay for all employees is based on clear role descriptions, which are mapped and aligned with similar jobs. The Patterson job grading system is applied, with the six grades defining the employee's remuneration scale; and
  • Implement a training plan. Various training courses are provided to create an empowered work environment.

Benchmarking

Fair and competitive remuneration is vital to being an employer of choice. Remco sets the remuneration and the guaranteed packages of executives by reviewing peer group data from the JSE listed property sector and other REITs of similar market capitalisation and revenue.

Remuneration benchmarking is performed bi-annually. Basic salaries are benchmarked against median industry and national salary norms, and adjusted based on an employee's experience, qualifications, responsibilities, and performance.

Independent remuneration consultancies (PwC and 21 Century Proprietary Limited) provide the committee with market data to assist in remuneration decisions, where required and appropriate. Where surveys indicate that a job grouping is significantly out of line with the comparative benchmark, a remuneration adjustment may be considered.

Remuneration may exceed benchmarked median levels where required to attract and retain specialised skills or for employment equity purposes.

LTI peer group

The Company uses the JSE SA REIT index as the most representative list of companies, for comparison purposes.

Retaining and attracting talent

Low employee turnover ensures continuity and aligns Group performance with our long-term strategic objectives. However, we recognise that new employees will often challenge the status quo and introduce fresh ideas, thinking and bring broader experience to the Group. We aim for an appropriate balance between internal and external appointments.

Our human resources strategy is designed to contribute to the required changes in recruitment, selection and hiring, training and development, succession planning, remuneration and benefits, performance management, employee relations and company culture, that will be needed to ensure the Group achieves its strategic goals.

Elements of remuneration

We recognise and value our people as our most important asset. The Company's remuneration structure comprises fixed and variable elements aimed at enabling Hyprop to remain competitive while attracting and retaining the talent needed to deliver sustainable value.

The Group is committed to being an employer of choice with a culture, policies and procedures that set high expectations, while providing a stimulating and inclusive working environment, sustaining its reputation as a leading South African based REIT and delivering on key business priorities. Our remuneration structure is performance driven with key short and long-term targets set annually.

The Company's policy is to pay employees a base salary that is close to the median of comparable companies. In addition, the variable compensation elements are set to enable the overall compensation to move towards the upper quartile for outstanding performance.

The key elements of our remuneration framework, which guide payments to all employees, comprise total guaranteed remuneration, cash based short-term incentives and equity based long-term incentives.

   

TOTAL GUARANTEED REMUNERATION

   
       
 
Nature

Fixed cost of employment calculated on a total annual cost to company basis

Eligibility

All employees

Delivery method

Monthly cash payments

 
Approval

Approved annually by Remco based on recommendations from the CEO and human resources department, following a moderated process with the respective senior managers.

 
Strategic objectives

Remunerate for individual skills at the prevailing market rate for the role.

Ensure our pay is competitive in the industry.

Attract people with the necessary competencies to add value to our business.

 
Standard benefits

Standard benefits (subject to local labour laws) which are part of total guaranteed remuneration include:

  • Membership of a defined contribution pension fund with death, disability and funeral benefits;
  • Four months partially paid maternity leave (paid at 50% of cost to company);
  • Ten days partially paid paternity leave (paid at 50% of cost to company);
  • Annual leave rising to 20 days after five years and 25 days after 10 years consecutive service with the group;
  • 6 days paid study leave for approved qualifications;
  • 3 days family responsibility leave per annum; and
  • 30 days sick leave over a 3 year period.
 
Quantum

Base salaries are benchmarked against median industry and national salary norms and adjusted based on an employee's experience, qualifications, responsibilities, and performance.

Remuneration may exceed benchmarked levels where required to attract and retain specialised skills or for employment equity purposes.

 
Salary increases and reviews

Salary increases and reviews are based on the performance of the Company, projected inflation, affordability and the performance of the individual employee.

   

SHORT-TERM INCENTIVES

   
       
 
Nature

Annual performance bonus paid in cash, based on company and individual performance

Eligibility

All employees

Delivery method

Annual cash payment

 
Quantum

Calculated with reference to total guaranteed remuneration of individual employees.

KPDs and individual performance reviews form the basis of the STIs.

 
Approval

STIs are awarded annually at Remco's discretion.

KPDs are set in conjunction with executive directors and approved by Remco.

The results of actual performance against the KPDs are reported to Remco which approves final STI payments.

 
Strategic objectives

Create a high-performance culture by awarding a cash bonus based on achieving predetermined company and individual performance criteria.

Allocation

STIs are awarded based on achievement of group key performance deliverables, as well as individual employees' performance review scores, which reflect their individual contributions to the growth and development of their business, division and the Group, as follows:

Exceptional performance by executive directors and senior management may be rewarded at Remco's discretion.

Other employees:

KPD and performance review weightings are dependent on job grade. Maximum STI potential is determined by job grade.

Exceptional performance may be rewarded with higher incentives, after considering recommendations from general managers, portfolio executives and executive directors.

 
Individual performance
review scores

Individual performance reviews are completed annually after performance discussions between employees and their manager. These reviews assist the manager and employee to build on strengths and identify areas for improvement.

All employees participate in the same appraisals process and rating criteria. This encourages equality and imposes standard measures of performance across the Company.

Review criteria

Professional conduct; business processes; business operations; employee management; customer service and implementation of company strategy.

 
Key performance deliverables (KPD)

KPDs comprise financial, operational, environmental, social and corporate governance measures.

Targets are set annually at group, company, portfolio and business unit level.

Performance is measured against these targets, weighted by responsibility and job grade.

KPD targets are approved by Remco to ensure that employee performance is aligned with the
company's strategy.

Progress in achieving KPD targets is communicated to management teams at mid-year, with final evaluations at the end of the financial year.

Individual performance is measured on a five-point scale that offers a high degree of structure
Individual performance review scale Performance review score
Performance is unsatisfactory 1
Performance requires improvement 2
Performance consistently meets expectations 3
Performance exceeds expectations 4
Exceptional performance delivery 5
   

LONG-TERM INCENTIVES

   
       
Nature

Conditional unit plan (CUP) shares. The CUP was approved by shareholders in 2013 and applies until 2023.

Eligibility

Executive directors, executives, senior managers and employees with specific core, critical and/or strategic skills.

 
Quantum

Annual awards are calculated with reference to:

  • Total guaranteed remuneration of individual employees; and
  • the 30 day volume weighted average share price of Hyprop shares on the award date.
 
Approval

All CUP awards and vesting of shares are subject to Remco's discretion and approval.

 
Strategic objectives
  • Attract, motivate and retain executive directors, executives, senior managers and employees with specific core, critical and/or strategic skills and
  • align employee performance with stakeholder interests.
Delivery method

CUP shares are allocated annually in two components:

  • Performance award (70%) vesting after 3 years, and
  • Retention award (30%) vesting after 5 years.
 
Retention shares

Retention shares vest five years after initial allocation, subject to continuous employment over the vesting period.

 
Dividends

Participants only receive dividends after the CUP shares have vested.

 
Malus and clawback provisions

Malus and clawback provisions are to be applied to STI and LTI awards granted to executives and prescribed officers with effect from 1 July 2019.

Performance shares

Performance shares vest three years after initial allocation, provided the relevant performance conditions have been met.

The peer group comprises the five largest South African REIT companies by market capitalization, listed on the JSE.

(1) DPS growth is measured as simple growth in distribution per share over the performance period.

(2) Share price growth is measured as growth in share price over the performance period (difference between share price at the end and start of the performance period).

(3) The strategic component is determined by Remco when awards are issued.

Performance thresholds for vesting of performance shares
Performance condition Threshold     On target   Stretch  
DPS growth vs. peer group 95%     102.5%   110%  
Share price growth vs. peer group 95%     105%   120%  
Strategic component Determined by the Remuneration and Nomination committee at time of award.

Percentage of awards which vest*
Minimum Threshold   50%, none vest below threshold.  
On Target   100%  
Stretch Target   150%  
* Linear vesting will apply for performance between "Threshold" and "On target" or between "On target" and "Stretch" performance. For example, where performance is exactly halfway between threshold and on target, the portion of performance shares that will vest will reflect a similar ratio, i.e. 75%

 

Executive directors' remuneration policy

Executive directors are permanent employees. Each executive director has an employment contract which is governed by South African labour legislation and includes a minimum 3 month notice period and standard confidentiality provisions. There are no restraints of trade.

Executive directors' remuneration comprises fixed and variable components, including total guaranteed remuneration, short-term incentives and long-term incentives. The remuneration packages are designed to ensure an appropriate portion of the total remuneration package is linked to the achievement of the Company's strategic objectives, thereby aligning incentives to the creation of sustainable long-term shareholder value. Remuneration packages are reviewed by Remco annually.

If an executive director's services are terminated, Remco oversees any settlement, assisted by labour law advisers where appropriate.

Non-executive directors' remuneration policy

Non-executive directors do not have employment contracts with the Company, nor do they participate in any of the Company's incentive plans. There are no contractual arrangements applicable to loss of office. Non-executive directors are subject to retirement by rotation and may be re-elected by shareholders in accordance with the Memorandum of Incorporation of the Company.

Remco recommends the level of fees payable to non-executive directors to the board for final approval by shareholders. Fees are not dependent on meeting attendance but are structured to reflect the complexity, risk and amount of preparation required for each role. The fees are benchmarked against a peer group of JSE listed companies every two years, with CPI adjustments in alternate years. There are no other supplementary fees payable.

Annual fees payable to non-executive directors for the 2020 financial year were approved by shareholders at the AGM on 2 December 2019, as follows:

2020 Financial year fees per annum (Rand) Chairperson   Member  
Board of directors 542 360   362 678  
Audit and Risk committee 203 200   152 646  
Remuneration and Nomination committee 139 529   98 048  
Social and Ethics committee 92 364   74 602  
Investment committee 104 300   83 440  

Notwithstanding shareholder approval for a CPI adjustment to fees, Remco has recommended and the board has approved that the fees payable to the non-executive directors will not be increased for the 2021 financial year.

Implementation report

This implementation report provides details how the Company's remuneration policy has been implemented over the course of the financial year and the success in achieving the Group's human resource and remuneration objectives, broadly summarised as:

  • Ensure remuneration policies and practices are aligned with the Group's strategy and values
  • Attract and retain talented, experienced, and motivated individuals who can execute the business strategy
  • Link salary structures and policies to performance objectives that support sustainable value creation over the short, medium, and long-term and,
  • Align long-term incentives (LTI) with the strategic objectives of the Group and the creation of long-term shareholder value.

Retaining and attracting talent

While low employee turnover ensures continuity and aligns group performance with our long-term strategic objectives, we aim for an appropriate balance between internal and external appointments. Staff retention for the 2020 financial year was 94% (2019: 88%) with an average tenure of service of 10 years (2019: 8 years).

 

   

TOTAL GUARANTEED REMUNERATION

   
       

Total guaranteed remuneration is defined in terms of a total cost of employment (CTC) package. Total guaranteed remuneration includes base salary, travel allowance, retirement savings, death, disability and healthcare contributions.

2020 FINANCIAL YEAR

Salary increases

In determining the increase in base salaries Remco considered:

The increases applied were in line with the industry.

To address the earnings gap, Remco approved higher salary increases for lower earning employees, as was done in the previous three years. Annual base salary increases were effective from 1 January 2020.

Base salary increases applied 2020   2019  
Executive directors 5.5%   6.0%  
Strategic management 5.5%   6.0%  
Executive and senior management 5.5%   6.0%  
Other employees 5.5% – 6%   6% – 6.5%  
CPI* 4.3%   5.0%  
Minimum CTC – lowest level of employee (per annum) 118 418   111 715  

* CPI reflects the indicator measured by Statistics South Africa in the preceding October of each year.

Salary benchmarking

Benchmark reviews were conducted externally and include market analyses by industry specialists. Bespoke benchmarks include an industry peer group and comparable companies in various industries selected according to where we compete for talent. The peer group used for the analysis included property management companies and South African REITs.

Adjustments to base salaries were considered and approved for jobs that were significantly out of line with the survey report.

Base salaries adjusted 2020   2019  
Executive directors 1   1  
Strategic management 1   1  
Executive and senior management 7   3  
Other employees 45   34  
Total 54   39  

The Patterson system is used to grade positions in the Company. All position grades were reviewed during the year. Similar positions are aligned within a salary band taking into consideration an employee's experience, qualifications, the nature of work and the level of responsibility. This practice accords with the Company's commitment to fair remuneration and equal pay for work of equal value.

Base salaries paid  2020    2019   
No. of staff     R'000     Var. %     No. of staff     R'000     Var. %   
Executive directors     10 891     8.3%        10 056     37.4%    
Strategic management     8 041     18.5%        6 788     6.0%    
Executive and senior management  21     29 410     3.0%     23     28 563     (8.1%)   
Other employees  199     71 731     7.3%     190     66 864     4.7%    
Total  227     120 073      6.9%      219     112 271      3.3%    
Employee benefits

Our employee surveys confirmed that our employee benefits contribute to the loyalty and commitment of our employees. Details of employee surveys are given on our people.

Defined contribution pension fund

216 (2019: 208) employees are members of the Company's pension fund and R13,9 million (2019: R12,6 million) was contributed to the pension fund during the year. In addition to retirement savings, membership of the fund provides life, disability and funeral insurance.

Benefit
Life insurance Four times annual pensionable salary. Education protector to third year tertiary education.
Disability insurance 75% of monthly pensionable salary.
Funeral insurance R 25 000.
Parental leave

Hyprop offers four months partially paid maternity leave and 10 days partially paid paternity leave.

A total of R98 882 (2019: R88 000) was paid to seven (2019: two) employees who received a total of 350 days (2019: four months') partially paid maternity and paternity leave during the year.

 

2021 FINANCIAL YEAR

Salary increases for the 2021 financial year

In determining the increase in base salaries Remco considered:

No base salary increases have been granted to executive directors, strategic management and executive and senior management employees for the 2021 financial year. All other employees' base salaries will be increased by CPI with effect from 1 January 2021.

   

SHORT-TERM INCENTIVES

   
       

STIs are based on achieving Key Performance Deliverables (KPDs) and employees' individual performance review scores.

2020 FINANCIAL YEAR

Key performance deliverables

Performance against KPDs is measured to ensure the Group achieves its strategic priorities and delivers value for stakeholders. KPDs for the 2020 financial year were approved by Remco in May 2019. Actual performance is measured against targets and communicated to management in December 2019 and June 2020.

KPD scores against targets relating to the 2020 financial year will be applied to STIs allocated for the 2020 financial year, to be paid in December 2020. Remco reviewed the targets for the executive directors, senior management and management teams during the year.

KPD outcomes were significantly impacted in the last quarter of the financial year due to the Covid-19 national lockdown.


KPD outcomes – 2020 financial year
  Key performance indicator   Weighting   Target
  Financial targets   55%   Performance against KPD targets for the eight months to February 2020 was on target. However, the outbreak of Covid-19 and the resultant national lockdowns impacted the Group's overall operational and financial performance, and resulted in none of the KPD targets being achieved for the year ended30 June 2020, other than the GRESB score which was 68 (compared to the target of 65).

In light of this, no STIs will be paid to executive directors, strategic management or executive and senior management for the 2020 financial year.
  Distributable income per share   20%   668 cents distributable income per share
  Total return on investment   20%   Total return on investment relative to peer group – 102.5%
  Loan to value ratio (based on a fully consolidated loan to value ratio calculation)   15%   Reduce loan to value ratio by 4.5%
  Operational targets   25%
  Trading density growth (year on year)   10%   South Africa: 1.5% Eastern Europe: 2.5%
  Tenant turnover growth (year on year)   10%   South Africa: 1.5% Eastern Europe: 3%
  Foot count growth – South Africa   5%   South Africa: consistent with previous year
  Environmental targets   20%
  Operations risk and environmental impact   13.5%   Global Real Estate Sustainability Benchmark (GRESB) score of 65
  6.5%   Two solar photovoltaic projects implemented within budget during the year
  Total   100%
  Modifier
  Transformation   0% to –10%   BBBEE verification rating improved by
one level
  Innovation   0% to 5%   Implement an innovation project that contributes to the strategic objectives
  Total   100%
Individual performance reviews

Individual performance reviews were conducted during October 2019. The rating process was done through the Company's employee self-service system (ESS) after meetings between the employees and line managers. Discussions are structured to cover work goals achieved, training needs and job performance, and to set personal job goals for the next 12 months. The performance of any employee that requires improvement is addressed during the year through consultation, and if required, training.


Individual performance reviews for the 2020 financial year will be completed by 31 October 2020.

Performance management score and STI allocations

2019 Financial year paid in 2020

STIs for the year ended 30 June 2019 were paid in December 2019. Remco considered the outcome of the performance reviews conducted in October 2019 and the June 2019 KPD score (84%) when approving the STIs for the financial year ended 30 June 2019. STIs paid for the year aligned with the remuneration policy.

STIs paid during the 2020 and 2019 financial years  2020     2019     Variance    
R000     R000       
Executive directors  1 830    5 894     (68.9%)   
Strategic management  1 952     2 614     (25.3%)   
Executives and senior management  7 093     8 132     (12.8%)   
Other employees  8 953     10 556     (15.2%)   
Total   19 829      27 196     (27.1%)   
 

The amounts shown in 2020 are the amounts paid in December 2019 in relation to the 2019 performance year.

2020 Financial year

As a result of the KPDs for the 2020 financial year not being achieved, no STIs will be paid to eligible participants for the 2020 financial year. Remco will however consider discretionary bonuses for exceptional performance during the Covid-19 lockdown period. These amounts, if any, will be paid to participants in December 2020.

Remco has provisionally approved the payment of a "13th cheque" to all employees who do not participate in the CUP, and whose individual performance review score for the 2020 financial year meets or exceeds expectations. These amounts will be paid to employees in December 2020.

2021 FINANCIAL YEAR

Key performance deliverables for STIs for the 2021 financial year have been revised by Remco in the context of the strategy and the short-term priorities brought about by the impact of the Covid-19 lockdown restrictions and underperforming economy. Remco has also taken into account the fact that the board has resolved not to provide guidance on distributable income or dividends for the financial year ending 30 June 2021.

The overall KPD's for executive directors for the year ending 30 June 2021, as set out below, were approved by Remco in October 2020.

KPD targets – 2021 financial year
  Key performance indicator CEO CFO CIO
  Human Capital
  Review of organisational structure and overheads
  Review of remuneration policy for implementation on 1 July 2021
  Asset Management
  Resolution of Hystead shareholders' agreement
  Disposal of remaining sub-Saharan Africa investments
  Review of South African property portfolio
  Positive progress on IT investment and exposure / Non-tangible asset strategy
  Property Management
  Achieve cost savings greater than R50 million
  Limit overall vacancies
  Arrears management
  Funding
  Mitigation of currency risk pertaining to funding of European investments
  Refinancing of loan facilities, falling due twelve months subsequent to 2021 financial year end, to be completed
  BBBEE
  Rating improvement of at least one level
  Governance
  Internal audit plan for Hystead to be agreed
  Innovation
  Retain distributions to repay debt without losing REIT status
  Business Growth and Development
  Optimise the financial reporting and systems

Similar KPDs will be set for the strategic and senior management teams for the year ending 30 June 2021, taking into account their roles within the Company and relevant-short term priorities. The relative weightings of each KPD will be aligned accordingly.

Performance against targets and payment of STIs will be reviewed and approved by Remco, based on a bonus pool of up to 75% of the guaranteed total remuneration of the participating executives and 50% of the guaranteed total remuneration of senior and strategic management employees, and taking into account market conditions, and the performance of the Company and individual employees.

   

LONG-TERM INCENTIVES

   
       

Awards issued in 2020 financial year

Awards over 267 570 CUP shares (Tranche 9) were approved by Remco and made to 28 participants in July 2019.

Shares vested in 2020 financial year

The 1 July 2016 Performance CUP award (Tranche 4) and the 1 July 2014 Retention CUP award (Tranche 2), vested in October and September 2019 respectively. The 1 January 2017 Performance CUP award (Tranche 5) vested in March 2020.

Performance conditions applied for the Tranche 4 Performance CUP award

The performance shares awarded are subject to performance conditions relating to distributions and share price growth from 1 July 2016 to 30 June 2019 (the performance period) measured against the five largest South African REITs. The comparative companies were Growthpoint, Redefine, Fortress, Investec Property Fund and Vukile.


Performance condition  Threshold     Target     Stretch     Growth 
over
performance
period 
   Weighted 
peer group 
growth over
performance 
period 
  Hyprop’s 
growth 
relative 
to peer 
group
   Weighting     % of 
the 
award 
vested 
   Weighted 
total 
vested 
  
Growth in distribution per unit relative to the peer group  95%     105%     110%     20.2%     17.9%    112.5%     50%     150%     75%    
Unit price performance relative to the peer group  95%     102.5%     120%     (46.2%)   (13.07%)   –     50%     0%     0%    
Strategic element  Not applicable 
% of shares awarded which vested  75%

Remco approved the 75% performance condition met, pursuant to which 26 762 retention shares vested and 35 962 performance shares were forfeited.

Performance conditions applied for the Tranche 5 Performance CUP award made on 1 January 2017

The performance shares awarded are subject to performance conditions relating to distributions and share price growth from 1 July 2016 to 30 June 2019 (the performance period) measured against the five largest South African REITs. The comparative companies were Growthpoint, Redefine, Fortress, Investec Property Fund and Vukile.

Performance condition Threshold   Target   Stretch   Growth
over
performance
period
  Weighted
peer group
growth over
performance
period
  Hyprop's
growth
relative
to peer
group
  Weighting   % of
the
award
vested
  Weighted
total
vested
 
Growth in distribution per unit relative to the peer group 95%   105%   110%   (52.2%)   (20.1%)   Did not trigger minimum threshold   50%   0%   0%  
Unit price performance relative to the peer group 95%   102.5%   120%   (0.2%)   (15.2%)   Did not trigger minimum threshold   50%   0%   0%  
Strategic element Not applicable
% of shares awarded which vested 0%

None of the performance conditions were met for the Tranche 5 performance shares, pursuant to which no performance shares vested and 5 982 performance shares were forfeited.

Total LTIs awarded SINCE INCEPTION

The total number of shares awarded under the CUP since inception:
RETENTION SHARES Number of shares   
Award
date 
   FV at
grant date 
   Number of participants     Issued     Forfeited     Vested     Unvested    
Tranche 1  1-Jan-14     R 57.98     27     46 100     (8 148)    (37 952)    –    
Tranche 2  1-Jul-14     R 59.08     26     47 324     (18 010)    (29 314)    –    
Tranche 3  1-Jul-15     R 96.68     26     33 549     (13 465)    (729)    19 355    
Tranche 4  1-Jul-16     R 102.32     26     33 499     (12 837)    (102)    20 560    
Tranche 5*  1-Jan-17     R 90.07        2 564     –     –     2 564    
Tranche 6  1-Jul-17     R 86.70     25     35 114     (12 043)    –     23 071    
Tranche 7  1-Jul-18     R 70.72     25     41 281     (8 915)    –     32 366    
Tranche 8  1-Jan-19     R 51.24        16 835     –     –     16 835    
Tranche 9  1-Jul-19     R 39.50     28     80 330     –     –     80 330    
Total retention shares     336 596      (73 418)    (68 097)    195 081     


Number of shares   
PERFORMANCE SHARES  Performance
conditions
met 
   Award
date 
   FV at
grant date 
   Number of participants     Issued     Forfeited     Vested     Unvested    
Tranche 1  100.0%     1-Jan-14     R 57.98     27     107 563     (6 302)    (101 261)    –    
Tranche 2  89.4%     1-Jul-14     R 59.08     26     110 422     (14 133)    (96 289)    –    
Tranche 3  75.0%**     1-Jul-15     R 96.68     26     78 282     (28 723)    (49 559)    –    
Tranche 4  75.0%**     1-Jul-16     R 102.32     26     80 979     (43 253)    (37 726)    –    
Tranche 5*  0.0%**     1-Jan-17     R 90.07        5 982     (5 982)    –     –    
Tranche 6  1-Jul-17     R 86.70     25     84 840     (30 230)    (790)    53 820    
Tranche 7  1-Jul-18     R 70.72     25     96 302     (20 800)    –     75 502    
Tranche 8  1-Jan-19     R 51.24        39 281     –     –     39 281    
Tranche 9  1-Jul-19     R 39.50     28     187 420     –     –     187 420    
Total performance shares                        791 071    (149 422)   (285 625)   356 024   
Total  performance  and retention  shares                       1 127 667    (222 840)   (353 722)   551 104   

* Special allocation
** Resignations and performance conditions not met
Reconciliation of movement in total number and value of CUP shares from 1 July 2019 to 30 June 2020
Unit reconciliation for the year ended 30 June 2020 Balance
at the
beginning of
the year
  Issued   Forfeited    Vested    Balance
at the
end of
the year
  
Retention shares 141 513   80 330       (26 762)   195 081   
Performance shares 210 547   187 420   (5 982)   (35 962)   356 024   
Total number of shares 352 060   267 570   (5 982)   (62 724)   551 105   

Value reconciliation for the year ended 30 June 2020  Value at the
beginning of
the year (1) 
   Awarded (2)     Forfeited (1)     Vested (3)     Change in market value     Value at the end of the year (4)    
R'000     R'000     R'000     R'000     R'000     R'000    
Retention shares  9 888     3 173     –     (1 574)    (7 119)    4 368    
Performance shares  1 411     9 246     (418)    (2 114)    (13 453)    7 971    
Total value of shares  24 598      12 419      (418)    (3 688)    (20 572)    12 339     
1) Shares outstanding at the beginning of the year and shares forfeited are valued at the closing share price of R69.87 on 30 June 2019
2) Shares awarded during the year are valued at the 30 day VWAP on grant date of R 68.71
3) Shares vested during the year are valued at the share price on vesting date of R58.80
4) Shares outstanding at the end of the year are valued at the closing share price of R22.39

Value of LTIs which vested during the year
LTIs which vested during the 2020 financial year 30 June 2020   30 June 2019  
R000   R000  
Executive directors   1 751  
Strategic management 1 393   1 471  
Executives and senior management 2 295   4 202  
Total value of shares vested 3 688   7 424  
   

EXECUTIVE DIRECTORS' REMUNERATION

   
       

TOTAL REMUNERATION

Total guaranteed remuneration and STIs
Basic salary   Pension fund contributions   Performance bonus   Vested
shares
  Other
benefits
  Total  
June 2020 R000   R000   R000   R000   R000   R000  
Morné Wilken (CEO) 4 507   303   590     36   5 436  
Brett Till (CFO) 2 685   247   541     60   3 533  
Wilhelm Nauta (CIO) 2 639   178   700     60   3 577  
Total 9 831   728   1 831   -   156   12 546  
June 2019
Morné Wilken (CEO) (1) 2 087   162       492   2 741  
Wilhelm Nauta (CIO) 2 432   280   2 186     77   4 975  
Brett Till (CFO) (2) 1 719   295       33   2 047  
Pieter Prinsloo (former CEO) (3) 2 493   118   3 708   1 751   447   8 517  
Laurence Cohen (former CFO) (4) 202   35       66   303  
Total 8 933   890   5 894   1 751   1 115   18 583  
(1) Appointed with effect from 27 December 2018
(2) Appointed with effect from 1 October 2018
(3)Resigned with effect from 31 January 2019
(4) Resigned with effect from 31 July 2018

LONG-TERM INCENTIVES

Number of shares outstanding under the CUP

June 2020 Outstanding
at the
beginning of the year
# of shares
  Awarded
# of shares
  Forfeited
# of shares
  Vested
# of shares
  Outstanding
at the end of the year
# of shares
  Market
value of
shares
outstanding
at the end
of the year
R'000
 
Morné Wilken (CEO) 37 190   48 043       85 233   1 908  
Wilhelm Nauta (CIO) 26 754   24 450   (5 982)     45 222   1 013  
Brett Till (CFO) 18 927   25 183       44 110   988  
Total 82 871   97 676   (5 982)     174 565   3 909  

June 2019
Morné Wilken (CEO)   37 190       37 190   2 598  
Wilhelm Nauta (CIO) (1) 16 742   10 012       26 754   1 869  
Brett Till (CFO)   18 927       18 927   1 322  
Pieter Prinsloo (former CEO) 88 045   29 715   (109 123)   (8 637)      
Laurence Cohen (former CFO) 47 541     (47 541)        
Total 152 328   95 844   (156 664)   (8 637)   82 871   5 789  

(1) The unvested shares shown for Mr Nauta include all share allocations granted during his tenure, including prior to becoming an executive director on 5 July 2018

Value of shares outstanding under the CUP
June 2020  Outstanding at the beginning of the year (2)R'000     Awarded (3)
R'000
 
   Forfeited
(2)R'000 
   Vested
R'000 
   Change in market value
R'000 
   Outstanding
at the end
of the year
at market
value (4)
R'000 
  
Morné Wilken (CEO) 2 598     3 301     –     –     (3 991)    1 908    
Wilhelm Nauta (CIO) 1 869     1 680     (418)    –     (2 118)    1 013    
Brett Till (CFO) 1 322     1 730     –     –     (2 064)    988    
Total  5 789      6 711      (418)         (8 173)    3 909     

(2) Shares outstanding at the beginning of the year and shares forfeited are valued at the closing share price of R69.87 on 30 June 2019

(3) Shares awarded during the year are valued at the 30 day VWAP on grant date of R 68.71

(4) Shares outstanding at the end of the year are valued at the closing share price of R22.39

June 2019  Outstanding
at the
beginning of
the year (5)
R'000
 
   Awarded (6)
R'000
 
   Forfeited (5)
R'000
 
   Vested
R'000
 
   Change in  market value 
R'000
 
   Outstanding
at the end
of the year
at market
value (7)
R'000
 
  
Morné Wilken (CEO) –     3 301     –     –     (703)    2 598    
Wilhelm Nauta (CIO) 1 713     889     –     –     (733)    1 869    
Brett Till (CFO) –     1 680     –     –     (358)    1 322    
Pieter Prinsloo (former CEO) 9 011     2 638     (9 898)    (1 751)    –     –    
Laurence Cohen (former CFO) 4 865     –     (4 865)    –     –     –    
Total  15 589      8 508      (14 763)    (1 751)    (1 794)    5 789     
(5) Shares outstanding at the beginning of the year and shares forfeited are valued at the closing share price of R102.34 on 30 June 2018
(6) Shares awarded during the year are valued at the 30 day VWAP on grant date of R 88.77
(7) Shares outstanding at the end of the year are valued at the closing share price of R69.87

 

Total guaranteed remuneration

Approved increases

In determining the salary increases for executive directors, the Remuneration committee considered inflation, market conditions, industry benchmarks and changes in roles and responsibilities.

  30 June
2020
  30 June
2019
  Variance  
Approved increases (applied in January 2020) Rands   Rands   %
MC Wilken – CEO 4 975 000   4 716 000   5.5%  
BC Till – CFO 3 100 000   2 884 000   7.5%  
AW Nauta – CIO 2 954 000   2 800 000   5.5%  
Total 11 029 000   10 400 000   6.0%  


   

SHORT-TERM INCENTIVES

   
       

Short-term performance incentives relating to the 2019 financial year were paid in December 2019 based on the KPD performance below.

Key performance indicator Weighted score
Target Performance achieved Weighting   CEO
MC Wilken
  CFO
BC Till
  CIO
AW Nauta
 
Financial targets 58%   40.6%   40.6%   40.6%  
Distributable income growth 5% to 7% (per division) 1.5% negative growth year on year 70%   23.1%   23.1%   23.1%  
Budgeted income and expense management On budget 8% below budget 70%   17.5%   17.5%   17.5%  
Operational targets 26%   23.8%   23.8%   23.8%  
Trading performance 4% trading density increase year on year 0.61% increase in trading density year on year 85%   2.6%   2.6%   2.6%  
Foot count consistent with previous year 1.36% decline in foot count year on year
Leasing Vacancy movement – 0% increase year on year Reduced vacancies year on year by 27% 92%   15.6%   15.6%   15.6%  
Rentals achieved – on budget.Rental escalation on new and renewed leases – 7% Rentals achieved lower than budget due to rent reversions.Rental escalations achieved – 7.2%
2% of lease documentation in the process of being finalised 11% of lease documentation in the process of being finalised
Tenant arrears and deposits 2% arrears outstanding as a % of total rent roll raised Outstanding arrears of 0.98% of annual rent roll raised 93%   5.6%   5.6%   5.6%  
1.5% deposits outstanding as a % of deposits raised 15.2% deposits outstanding as a % of deposits raised
Environmental, social and corporate governance 16%   19.6%   19.6%   19.6%  
Operations risk and environmental impact Building compliance files 90% complete 94% complete 110%   6.6%   6.6%   6.6%  
80% waste recycling rate 81% of waste recycled during the year
3% kWh saving year on year 5.57% kWh saving achieved year on year
Transformation 75% of all new and internal appointments to be black as defined in the BBBEE Act 88% of all new appointments were black employees as defined in the
BBBEE Act
130%   6.5%   6.5%   6.5%  
75% of all procurement from suppliers rated between BEE levels 1 – 4 80% of all procurement from suppliers rated between BEE levels 1 – 4 130%   6.5%   6.5%   6.5%  
Total 100%   84%   84%   84%  
STI allocated     589 500   540 800   700 000  
STI as a % of base salary     12%   18%   24%  

STIs for MC Wilken and BC Till were allocated pro-rata, based on the number of months from the date they joined the Company to 30 June 2019.

   

LONG-TERM INCENTIVES

   
       

The total number of shares awarded to executive directors in terms of the CUP are as follows:

Award date   Issued   Forfeited   Vested   Unvested  
MC Wilken – CEO
Retention shares
Tranche 8 1 January 2019 11 157 11 157  
Tranche 9 1 July 2019   14 413       14 413  
25 570 25 570  
Performance shares
Tranche 8 1 January 2019 26 033 26 033  
Tranche 9 1 July 2019 33 630 33 630  
59 663 59 663  
Total shares 85 233 85 233  
BC Till – CFO
Retention shares
Tranche 8 1 January 2019   5 678       5 678  
Tranche 9 1 July 2019   7 555       7 555  
13 233 13 233  
Performance shares
Tranche 8 1 January 2019 13 249 13 249  
Tranche 9 1 July 2019 17 628 17 628  
30 877 30 877  
Total shares 44 110 44 110  
AW Nauta – CIO
Retention shares
Tranche 5 1 January 2017 2 564 2 564  
Tranche 6 1 July 2017 2 459 2 459  
Tranche 7 1 July 2018   3.004       3 004  
Tranche 9 1 July 2019   7 335       7 335  
15 362 15 362  
Performance shares
Tranche 5 1 January 2017 5 982 (5 982)  
Tranche 6 1 July 2017 5 737 5 737  
Tranche 7 1 July 2018   7 008       7 008  
Tranche 9 1 July 2019   17 115       17 115  
35 842 (5 982) 29 860  
Total shares 51 204 (5 982) 45 222  

Total compensation ratio

The graphs below reflect the actual remuneration paid to the executive directors in the 2020 financial year compared to their potential total remuneration, including total guaranteed remuneration, STIs and LTIs for the 2020 financial year.

Actual amounts comprise total guaranteed remuneration for the 2020 financial year, STIs for the 2019 financial year which were paid in the 2020 financial year, STIs for the 2020 financial year (which were Nil) and the value of LTIs (CUP shares) awarded during the 2020 financial year.

Different scenarios are shown for the potential STI and LTI amounts, as follows:

30 June
2020
  30 June
2019
 
Independent non-executive directors
Gavin Tipper (chairman) 902   807  
Lindie Engelbrecht   230  
Zuleka Jasper 506   479  
Mike Lewin 221   421  
Nonyameko Mandindi 440   383  
Thabo Mokgatlha 652   567  
Stewart Shaw-Taylor 705   637  
Annabel Dallamore 444    
Non-executive directors        
Kevin Ellerine 438   397  
Louis Norval 438   397  
Total 4 747   4 318