Remuneration review
Philosophy
As an internally managed REIT, the guiding principle of our remuneration policy is to promote delivery of Hyprop's strategic objectives, encourage individual performance and reward sustainable value creation. Our philosophy emphasises the role of our 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 and mission. We use both short and long-term incentives to support this goal.
Remuneration policy key principles
- Ensure remuneration policies and practices are aligned with company strategy
- Attract and retain talented, experienced and motivated individuals who can execute business goals
- Salary structures and policies are linked to performance objectives that support sustainable long-term growth
- Long-term incentives are aligned to the strategic objectives of the board and investment interests of shareholders, over a sustained period.
The remuneration committee
A formal charter codifies the tasks and responsibilities of the remuneration committee. Updates to the remuneration charter to effect application of the recommendations of the King IV report, or other identified good practice, are approved as required.
Hyprop's remuneration structure includes:
| Element | Policy | Structure | Participation |
| Base salary | Provide a market-related level of base pay with due
regard to the responsibilities of the job. Benchmarked against industry norms and adjustments based on an employee’s experience, qualifications and nature of work. |
Review annually with increases effective from 1 January. | Junior, middle and senior management, executives and executive directors. |
| Short-term incentive | Short-term incentives align with the group’s annual performance strategy to support employee retention. Performance reviews are weighted against key performance deliverables (KPDs). | KPDs measured against set benchmarks on property and company level for the year. Bonus paid in December. |
Junior, middle and senior management, executives and executive directors. |
| Long-term incentive scheme | Attract, motivate and retain executives, senior managers and employees with specific core, critical and/or strategic skills. | Conditional Unit Plan. Two components: 70% performance based, 30% retention based. | Senior management, executives and executive directors. |
Basic salary
All basic salaries are market related, benchmarked against median industry norms and adjusted based on an employee's experience, qualifications, responsibilities and nature of work. Basic salaries are reviewed annually.
Total compensation paid to employees(1)
| 2017
R000 |
2016
R000 |
|||
|---|---|---|---|---|
| Total compensation paid | 93 910 | 84 835 | ||
| Average annual payment per employee | 340 | 306 |
(1) Excludes executive directors
Employees earning above the Basic Conditions of Employment Act (BCEA) threshold received an average 6% annual salary increase from 1 January 2017. Employees earning below this BCEA threshold received an average 7% salary increase from 1 January 2017. The minimum cost to company paid to the lowest paid employees increased from R77 400 to R99 500 per annum.
Employee benefits
To define Hyprop as a preferred employer, we offer a range of employee benefits that exceed legislated minimum standards, they 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)
- Annual leave rises to 20 days after five years' consecutive service with the group
- Employees qualify for six days' paid study leave for approved qualifications.
| 2017 | 2016 | |||
|---|---|---|---|---|
| Ratio of average compensation paid to executive directors relative to average compensation paid to employees, excluding LTI and STI | 9,53 | 10,28 |
Short-term incentive (STI)
Total short-term incentives paid to employees
| 2017 R000 |
2016 R000 |
|||
|---|---|---|---|---|
| Total bonuses paid to employees | 25 980 | 23 884 | ||
| Average bonus per employee | 94 | 86 |
Two components are considered when determining the employee's STI, namely key performance deliverables and targets (KPDs), measured biannually and individual performance reviews, conducted annually. The employee's level of responsibility and job grade determines the weightings allocated to each area of assessment.
Performance management
Key performance deliverables and targets (KPDs)
KPD targets are set annually at group and company level and are formally measured. These KPD targets are approved by the remuneration committee every year to ensure employee performance is aligned with the company's strategy and deliver on shareholders' expectations. Progress on defined, measurable KPDs is communicated to management teams at mid-year with final evaluations at the end of the financial year.
Performance against company targets carries a 90% weighting, while individual reviews carry a 10% weighting at executive and senior management level. Executive directors are measured against key performance deliverable targets.
Key performance deliverable score against targets and outcomes
| 2016/2017 | KPD score | Performance achieved | 2017/2018 | |||||
| Key performance indicator |
Weighting | Target | Stretch target | Total out of 100 |
Target
met/ exceeded |
Weighting | Target | |
| Financial: net distributable income growth (year on year) | 33% | 8% net income growth year on year | 10% and above | 43% | 130% | 12,1% distributable earnings growth | 33% | 7% net income growth year on year |
| Financial: budget management (% within budget) | 27% | On budget | Exceed budget by 3% | 31% | 115% | Exceeded budget by 1,05% | 27% | On budget |
| Leasing: vacancy movement (year on year), rentals achieved, escalations and administration | 17% | Vacancy movement – 0% increase year on year. Rentals achieved – on budget. Rental escalation on new leases – 8%. Lease administration – 2% outstanding documentation |
Vacancy movement – reduced by 5% or more. Rentals achieved – 7,5% above budget. Rental escalation on new leases – 10% or more. Rental escalation on renewed leases – 7,5% or more. Administration – 0% outstanding documentation |
14% | 86% | Vacancy movement increased 114% year on year. Rentals achieved on budget. 7,9% rental escalations on new leases. Lease administration – 5% of documentation to be finalised |
17% | Vacancy movement – 0% increase year on year. Rentals achieved – on budget. Rental escalation on new leases – 7,5%. Lease administration – 2% outstanding documentation |
| Tenant arrears: deposits and total outstanding (as % of rent roll raised) | 7% | Total arrears outstanding – 2% outstanding as % of charges raised on rent roll. Deposits – 2% outstanding as % of deposits raised | Total arrears outstanding – 0% outstanding as % of charges raised on rent roll. Deposits – 0% outstanding as % of deposits raised | 7% | 102% | 0,4% total arrears outstanding 4,5% deposits outstanding |
7% | Total arrears outstanding – 2% outstanding as % of charges raised on rent roll. Deposits – 1,5% outstanding as % of deposits raised |
| Operations: masterfile | 4% | Masterfile – 95% complete | Masterfile – 100% complete | 5% | 115% | Masterfile 97% complete | 4% | Masterfile – 96% complete |
| Sustainability: waste recycling energy saving | 2% | Waste recycling – 70% waste recycled. Energy saving – 3% kWh saving year on year | Waste recycling – 80% or more waste recycled. Energy saving – 5% or more kWh saving year on year | 2,45% | 123% | 79% waste recycling achieved and 3,6% energy saving achieved | 2% | Waste recycling – 75% waste recycled. Energy saving – 3% kWh saving year on year |
| Employment equity: % of all new appointments being black – African, Coloured and Indian | 5% | 50% | 80% | 6% | 115% | 73% | 5% | 70% |
| BBBEE: % of procurement from companies with BEE level 1 to 4 | 3% | 60% | 80% | 4% | 130% | 89% | 3% | 72% |
| Trading performance: turnover and trading density | 3% | 5% trading density increase year on year. Footcount consistent with prior year | 8% trading density increase year on year. 3% footcount increase year on year | 2% | 80% | Trading density increased 1,4%. Footcount decreased 2,9% | 3% | 4% trading density increase year on year. Footcount consistent with prior year |
| Total | 100% | 114% | 100% | |||||
Individual performance reviews
Individual performance reviews are completed annually on the company's employee self-service system after performance discussions with the relevant line manager. These reviews assist the manager and employee to build on individual strengths and identify areas for improvement, to be more effective and efficient.
All employees are subjected to the same appraisal process and rating criteria. This encourages equality and imposes standard measures of performance in the company.
- Professional conduct
- Business processes
- Customer service
- Business operations
- Employee management
- Implementation of company strategy.
Performance is reviewed on a five point scale. This method offers a high degree of structure for appraisals.
| Performance review outcome | 2017 | 2016 | ||
|---|---|---|---|---|
| Performance requires improvement | 5% | 8% | ||
| Performance consistently meets expectations | 52% | 56% | ||
| Performance exceeds expectations | 35% | 32% | ||
| Exceptional performance delivery | 8% | 3% |
- Employees are rewarded on the outcome of KPDs and performance reviews
- STIs payable in December and salary increases are implemented from January each year
- STIs and salary increases are approved by the remuneration and nomination committee
- Exceptional performance is rewarded with a higher incentive, after considering recommendations from general managers, regional executives and executive directors
- The maximum potential STI for senior management is six months' salary and is subject to the remuneration committee's discretion and approval
- A significant portion of senior management's reward is variable, based on achieving group performance targets, as well as individual contributions to the growth and development of their business, applicable division and wider company
- STIs for executive directors are aligned with strategic objectives and are at the remuneration and nomination committee's discretion.
Long-term incentives (LTI)
Long-term incentives (LTIs) reward long-term decisions that support dividend and capital growth.
Conditional unit plan (CUP)
The CUP was approved by shareholders in 2013. The purpose of the CUP is to align employee performance with stakeholder interests and to retain skilled and talented employees. Annual allocations are made through the award of performance condition and retention shares (70:30).
Vesting of the performance condition shares are subject to performance conditions stipulated in the rules of the plan.
Conditions for the performance component of the CUP:
| Vesting percentage(1) | |
| Threshold | 50% of awarded performance shares vest at threshold. No performance shares will vest for performance below threshold |
| On target | 100% of awarded performance shares vest for performance on target |
| Stretch | 150% of awarded performance shares vest for performance at stretch levels |
| (1) | 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, ie 75%. |
Performance conditions:
| Performance condition | Detail | Weighting | Threshold | On target | Stretch |
| Growth in distribution per share relative to peer(2) group | Calculated as simple growth in distribution per share at the end of performance period, over distribution per share of prior financial year | 40% | 95% | 102,5% | 110% |
| Share price performance relative to peer(2) group | Measured as growth in share price over performance period (difference between share price at the end and start of performance period) | 40% | 95% | 105% | 120% |
| Strategic component | Determined by the remuneration committee | 20% | Determined by the remuneration committee | ||
| (2) | The peer group comprises the five largest South African REIT companies by market capitalisation listed on the JSE |
Shares are offered to executives, senior managers, operational and financial managers and employees with specific core, critical or strategic skills. Allocations are approved by the nomination and remuneration committee. Performance shares vest three years after initial allocation, provided that relevant performance conditions have been met.
| Date of issue | Number of employees participating | % of employee complement | |
| First reward issue | 1 January 2014 | 27 | 13 |
| Second reward issue | 1 July 2014 | 26 | 13 |
| Third reward issue | 1 July 2015 | 26 | 13 |
| Fourth reward issue | 1 July 2016 | 26 | 11 |
| Fifth reward issue | 1 January 2017 | 1 | 0,01 |
| Performance conditions met for shares awarded 1 January 2014 and vested April 2017 | |||||
| Performance condition | Weighting | Calculated score | Linear vesting between threshold/on target/stretch target performance | % of award that will vest | Weighted total awarded |
| Growth in distribution per unit relative to peer group | 50% | 102,8% | 3% | 102% | 51% |
| Unit price performance relative to peer group | 50% | 104,5% | 95% | 98% | 49% |
| Total % of allocated shares vested | 100% | ||||
Retention scheme terms
Retention shares vest five years after initial allocation, subject to continuous employment over the vesting period. Participants are only able to receive dividends after the shares have vested.
Executive directors' remuneration
Hyprop has two executive directors (CEO, Pieter Prinsloo and FD, Laurence Cohen), who are classified as Hyprop's only prescribed officers.
Our executive directors are permanent employees and their employment agreements include a notice period, but no restraints of trade. They are offered competitive remuneration packages, reviewed by the remuneration committee annually.
Executive directors' 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 remuneration and nomination committee oversees any settlement, assisted by labour law advisers.
Executive directors' remuneration
| June 2017 R000 |
June 2016 R000 |
|||
|---|---|---|---|---|
| Pieter Prinsloo (CEO) | ||||
| Basic salary | 3 906 | 3 672 | ||
| Performance bonus (paid in December) | 3 933 | 3 710 | ||
| Phantom share scheme | 3 454 | |||
| Conditional share plan (CUP) | 2 488 | |||
| Pension fund contributions | 184 | 173 | ||
| Company contribution UIF, SDL and other benefits | 119 | 122 | ||
| Total cost to company | 10 630 | 11 131 | ||
| Laurence Cohen (FD) | ||||
| Basic salary | 2 221 | 2 089 | ||
| Performance bonus (paid in December) | 2 060 | 2 332 | ||
| Conditional share/unit plan (CUP) | 1 371 | |||
| Pension fund contributions | 386 | 362 | ||
| Company contribution UIF, SDL and other benefits | 84 | 69 | ||
| Total cost to company | 6 122 | 4 852 |
Disclosure of the CUP for executive directors
| Shares issued | Date issued | Vesting date | Shares vested | Performance
condition met |
Vesting price (R) | |
| Pieter Prinsloo | ||||||
| Performance shares | 20 153 | 1/1/2014 | 1/1/2017 | 20 153 | 100% | 123,46 |
| Retention shares | 8 637 | 1/1/2014 | 1/1/2019 | |||
| Performance shares | 21 845 | 7/1/2014 | 7/1/2017 | |||
| Retention shares | 9 362 | 7/1/2014 | 7/1/2019 | |||
| Performance shares | 15 794 | 7/1/2015 | 7/1/2018 | |||
| Retention shares | 6 769 | 7/1/2015 | 7/1/2020 | |||
| Performance shares | 16 147 | 7/1/2016 | 7/1/2019 | |||
| Retention shares | 6 920 | 7/1/2016 | 7/1/2021 | |||
| Total | 105 627 | 20 153 | ||||
| Laurence Cohen | ||||||
| Performance shares | 11 105 | 1/1/2014 | 1/1/2017 | 11 105 | 100% | 123,46 |
| Retention shares | 4 759 | 1/1/2014 | 1/1/2019 | |||
| Performance shares | 11 769 | 7/1/2014 | 7/1/2017 | |||
| Retention shares | 5 044 | 7/1/2014 | 7/1/2019 | |||
| Performance shares | 8 509 | 7/1/2015 | 7/1/2018 | |||
| Retention shares | 3 647 | 7/1/2015 | 7/1/2020 | |||
| Performance shares | 8 699 | 7/1/2016 | 7/1/2019 | |||
| Retention shares | 3 729 | 7/1/2016 | 7/1/2021 | |||
| Total | 57 261 | 11 105 |
Non-executive directors
Our policy is to remunerate non-executive directors competitively for their service. Fees are benchmarked against a peer group of JSE-listed companies. There are no contractual arrangements to compensate for loss of office.
The remuneration committee reviews non-executive directors' fees every second year. Recommendations are made to the board, which in turn proposes fees for approval by shareholders at the AGM. The committee is responsible for providing the necessary information to shareholders to consider the relevant resolution.
Remuneration for non-executive directors comprises a base fee. 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.
Non-executive directors' remuneration
| June 2017 R000 |
June 2016 R000 |
|||
|---|---|---|---|---|
| Independent non-executive | 2 652 | 2 399 | ||
| Ethan Dube(1) (paid to Vunani Capital Proprietary Limited) | 143 | 334 | ||
| Lindie Engelbrecht | 541 | 535 | ||
| Gavin Tipper | 636 | 562 | ||
| Louis van der Watt (paid to Atterbury Property Holdings Limited)(2) | 233 | |||
| Mike Lewin | 364 | 334 | ||
| Thabo Mokgatlha | 432 | 401 | ||
| Stewart Shaw-Taylor(3) | 489 | 420 | ||
| Nonyameko Mandindi(4) | 47 | |||
| Non-executive | 658 | 1 040 | ||
| Kevin Ellerine | 329 | 314 | ||
| Louis Norval | 329 | 306 | ||
(1) Resigned from the board on 1 December 2016
(2) Resigned from the board on 4 May 2016
(4) During the year Stewart Shaw-Taylor was reclassified from a non-executive director to an independent non-executive director
(4) Joined the board on 8 May 2017