Remuneration report
Dear shareholders
This financial year has been a year of challenge and hardship caused by the COVID-19 pandemic. The management and Human Capital team provided excellent support and guidance to all employees, where health and safety took precedence. COVID-19 safety protocols were strictly enforced as well as a focused effort on mental health of #teamblu.
After considering all stakeholder interests, the Remuneration Committee took a decision in the prior financial year to suspend all short-term bonus rewards and salary increases to the management team. Notwithstanding, it was heartwarming to see that productivity levels remained high and the Group performed exceptionally well in the circumstances.
Our Remuneration Policy, amended significantly in 2020 to align with best practice, together with the Implementation Report and Non-executive Directors fees, were put to a shareholder vote at the previous AGM on 26 November 2020 and were endorsed with majority 97.62%, 98.87% votes respectively. We will not stop our efforts to engage with our shareholders to ensure alignment of our policy and their goals.
It is vital that our Remuneration Policy aligns with best practice and achieves our goals of attracting and retaining top talent. To this end, we tasked Deloitte to perform a review of the policy and a benchmarking exercise reviewing metrics and targets across the market as well as elements the Committee should consider when setting appropriate targets and metrics in short and long-term incentive awards that are specific to our firm. We are pleased to report that Deloitte confirmed that our policy meets best practice guidelines and recommended that the firm ensures that targets and metrics for awards are reviewed on an annual basis to ensure that they are relevant for each specific award. This has the added benefit of ensuring that metrics and targets associated with remuneration remain relevant through changing business environments. In line with best practice no metrics or targets, have been or will be retrospectively adjusted but the enhanced policy will ensure that the Remuneration Committee has the flexibility in setting appropriate metrics and targets on an annual basis. The Committee has decided that in the future we will review EBITDA as a financial target with a possible change to NPAT. The reason for this, is that the Group is embarking on an extensive training and skill development programme, which will impact EBITDA, but after deducting the S12H allowance in terms of the Income Tax Act, should leave our bottom line NPAT unchanged.
Section 1 provides an overview of how the Remuneration Committee has championed our alignment to King IV's Code on Corporate Governance, our areas of focus in achievement of our policy objectives, our efforts to build a culture through values, our purpose and alignment with performance and rewards. We also address diversity and inclusion, gender and race remuneration parity and setting new ESG goals.
Section 2 summarises our remuneration philosophy and policy, together with an overview of our total rewards strategy. There is only one small amendment as highlighted above, with regard to allowing the Remuneration Committee some flexibility in addressing annual performance metrics to ensure the Committee can continue to set relevant performance metrics and drive the right outcomes for all stakeholders. No change was however considered for the forthcoming year. The full policy can be accessed here. https://www.bluelabeltelecoms.co.za/sus-governance-framework.php. We also highlight our continued focus areas for FY2022.
Finally, section 3, the Remuneration Implementation Report, provides an overview of FY2021 performance and discloses performance against targets and resulting awards to Executive Directors as well as Non-executive Directors' fees paid.
Looking forward to FY2022, we will continue to review the success of our Remuneration Policy in terms of both our and stakeholders' goals. We have to be mindful of the challenges facing our country and what role we need to play in addressing these, including those resulting from injustices of the past. Together with ESG, these will be our prioritised goals for the forthcoming year.
We invite engagement with our shareholders as part of our efforts to continuously review and improve.
GD Harlow
Chairman
27 September 2021
SECTION 1
Background statement regarding committee considerations and decisions
It remains the responsibility of the Remuneration Committee Chairman to give feedback to the Board after every Remuneration Committee meeting, of any key decisions and relevant discussions. The Remuneration Committee is committed to applying the King IV principles regarding responsible and transparent remuneration practices, assisted by regular benchmarking exercises. The Remuneration Committee, therefore, mandated Deloitte in FY2021, to conduct a benchmark assessment of our Remuneration Policy, in light of changes in the market since our last review.
Achievement of policy objectives
The Remuneration Committee believes that the Blue Label remuneration philosophy and policy remain fit for purpose and achieves the high-level objectives of attraction, retention, and performance motivation of our employees. The only policy change we have considered on the advice of Deloitte and taking into consideration our challenges in the country, is to allow the Committee to have flexibility in the determination of performance metrics and other elements that would typically be addressed yearly, rather than codified into a policy without change.
This has the added benefit of ensuring that metrics and targets associated with remuneration remain relevant through changing business environments. In line with best practice no metrics or targets, have been or will be retrospectively adjusted but the enhanced policy will ensure that the Remuneration Committee has the flexibility in setting appropriate metrics and targets on an annual basis going forward.
The Committee has not considered any amendments to these performance metrics for the forthcoming year nor did it adjust any metrics or outcomes retrospectively. The Committee will consider changes in future if deemed appropriate and in line with best practice and economic conditions in the country.
The Remuneration Committee prioritised and achieved the following objectives during the FY2021 year:
- Assess the executive remuneration market and governance frameworks mandating Deloitte to conduct a benchmarking assessment and peer group review. The review provided market trends and principles as well as a review of listed and non-listed companies fixed pay increases for 2021. We also reviewed the LTIP in comparison to various peer groups with a specific focus on performance metric targets.
- Monitor the implementation of the revised remuneration policy across the organisation and attempted to measure our success in attracting and retaining critical skills and talent.
- Support the transformation agenda and eliminate any unfair bias or practices.
- Ensure alignment of metrics to value-creating behaviour that enhances shareholder returns, and rewards performance accordingly,
- Review and approve Executive Director and Senior Management succession plans.
- Monitor and assess the impact of COVID-19 on our business and evaluate our remuneration practices in light of this, if required.
- Refine our ESG scorecard and associated metrics for our LTIP scheme.
- Assessing who our prescribed officers should be as an outcome of the new organisational re-design.
- Continue reviewing potential talent with new skills and capabilities that will complement our non-executive Board, with a focus on succession for Non-executive Directors who have served on the Board for more than nine years and specifically attracting black female talent onto our Board of Directors.
The Committee fulfilled its goal of attracting further black talent to the Board with the appointment of Nomavuso Mnxasana and Lazarus Zim. Ms Mnxasana joined the ARC Committee and Mr Zim the Remuneration Committee in June 2021.
Culture, reward, and performance
A values-based mindset is powerful. It drives employee engagement, organisational performance, customer satisfaction and brand loyalty.
At Blue Label we aim to build a culture through values and rituals. We understand that a culture cannot survive if it is not supported by leadership. Our leaders are our role models and therefore a lot of focus has been placed on developing leaders for the future in FY2021. To address the correct skills gaps we created job families for roles that have similar capabilities and designed competency models by job families. Our newly designed and implemented succession planning process, uses these competency models to develop individual development plans. We achieve our retention and succession of key capabilities through these individual development plans while delivering our organisations goals.
Our employee value proposition compliments our rewards policy to attract the newly required skills in an everchanging environment. We are pleased with the implementation of our new standardised succession management process that drives alignment with performance and rewards.
It has been a challenging year for the Committee with the COVID-19 pandemic and the duty of supporting our people through its impacts. The onset of the COVID-19 pandemic has created unprecedented uncertainty, impacting lives and livelihoods globally. In FY2021, our focus has been to safeguard the health and wellbeing of our employees and their families, while managing the economic and operational challenges facing Blue Label. In protecting our employees, multiple regulations at all our offices were implemented, including driving awareness of the pandemic.
Diversity and inclusion
The representation of women and African talent in the broader business, as well as senior leadership, is a key focus of the Committee and the Board. On this front, we have made steady progress at the entry and middle occupational levels over recent years. In FY2021 we recruited new skills and capabilities into the organisation and we are pleased with our achievements and the intentional recruitment efforts to employ women and black candidates. 97% of new appointments were equity, 74% of all promotions were awarded to equity candidates, 39% to women and 45% to African. Of all new appointments, 57% were women and 43% men.
Additional considerations made in FY2021 to be implemented in the future
The Group has embarked on an aggressive learnership programme accommodating approximately 1 500 learners in our call centre. This is consistent with the Group's goals to focus on skills development and enterprise development. It is likely to have a future impact on EBITDA with a neutral impact on the NPAT line across the Group, as tax allowances can be claimed under S12H of the Income Tax Act. A review of EBITDA as a target with consideration of NPAT, will take place next year.
Further details of the full Remuneration Policy can be accessed at https://www.bluelabeltelecoms.co.za/sus-governance-framework.php
2022 pay review
Paying for performance remained at the core of the Group's and the Remuneration Committees' philosophy.
For employees, management and executives up to 6% was approved, based on an individual performance rating. These decisions were not only aligned to our remuneration philosophy, but also cognisant of the fact that no increases were awarded in FY2020. The Committee approved performance-based bonuses for FY2021.
ESG, shared value and our purpose.
Our Rewards policy, value proposition, culture and ESG objective must align with our purpose. Through good ethics and good commercials, it is our social responsibility to generate value for all. In this way we will:
- Attract and retaining key capabilities
- Reward employees for living our values and displaying our leadership behaviours.
- Motivate our people to innovate and bring new ideas to achieve our strategy.
- Deliver our strategy and our purpose
- Deliver our new ESG objectives and service the market we serve.
Voting at the 2021 virtual annual general meeting
In line with the Companies Act and King IV, we will table the following resolutions for shareholders voting at the AGM:
- Advisory vote for the approval of the remuneration policy.
- Advisory vote for FY2021 implementation report.
- A binding vote on Non-executive Directors' fees.
Shareholders are invited to engage on our remuneration policy and this remuneration report by sending a request for engagement to the Chairman of the Remuneration Committee to [email protected]
Remuneration Committee focus areas for FY2022
The Committee is mandated by the Board to continually assess the executive remuneration market and governance framework. The Committee will consider current market conditions, Blue Label's strategy and operational performance. We anticipate focusing on the following in FY2022:
- Continue to evaluate our policy in terms of market and peer reviews and our success in attracting and retaining key talent to deliver our strategic goals and shareholder returns.
- Review performance metric goals as appropriate in the context of prevailing economic conditions in South Africa.
- Attract and appoint a further black Non-executive Director to the Board, preferably with Telco and/or audit experience. This is in terms of our plans to ensure an orderly rotation and or replacement of Non-executive Directors who have served on the Board for longer than 10 years, as well as achievement of our race and gender diversity goals on the Board.
- ESG goals are aligned with best practices, ensuring they are not only measurable but also verifiable.
- Benchmark NED fees and review accordingly.
- Continue to engage with our institutional shareholders for their input on our remuneration policy and report and consider any recommendations for improvement.
- Continue to focus on equality through reviewing employment equity strategy and targets as well as diversity and inclusion initiatives.
- Review growth opportunity strategy, which includes conditions of employment, management, leadership development programs and long-term employee development through succession planning.
- Drive and monitor our policy of equal pay for equal work across gender and race.
SECTION 2
Our remuneration philosophy, policy, and framework
Blue Label recognises that our people are one of our biggest assets and believe that it is important to allow each individual to thrive as an individual and grow their career, while excelling and succeeding together as an organisation. Our remuneration policy and practices, together with our WeLead programme aims to create awareness of how important it is to be resilient, be achievement-driven and have a winning mindset.
We aim with our Employment Value Proposition of #HappinessisBlu and employee engagement #teamblu programmes, to differentiate us from our peers. Our all-in culture creates a safe environment that leads to increase productivity and innovation.
This together with our remuneration policy, enable us to:
- deliver shareholder value by aligning our remuneration practices to our strategic goals;
- achieve our employment equity aspirations;
- align our employees' performance with shareholder interests;
- support our talent strategy through enabling Blue Label to attract, motivate and retain the very best calibre of Directors and employees who have above-average industry ability and expertise;
- create an entrepreneurial, competitive, innovative, and high-performance Company through rewarding demanding performance goals that are consistent with our strategy and shareholder growth expectations;
- reinforce our desired culture through encouraging and rewarding ethical behaviour, that is consistent with our values and leadership behaviours, thereby stimulating employee engagement and corporate citizenship simultaneously.
- driving our WeLead initiative that cultivates a growth mindset and innovative spirit that will dare to win.
This applies to all subsidiaries, associates and joint venture companies in which the Group holds a shareholding in excess of 40%, excluding Cell C who have their own remuneration policy and committee. The Remuneration Committee may approve by exception, for the policy to apply to seconded Blue Label employees.
Employer of choice
Our objective is to be an employer of choice and our employee brand and reward programme should be designed to help us achieve this.
Competitive pay levels
Our localised benchmark on guaranteed pay practices helps us to stay committed to remuneration packages that are competitive and relevant for the role and experience.
Pay for performance
We strive to pay for performance and therefore structure remuneration around this. This allows us to reward strong individual performance as well as organisation performance. We apply malus and clawback provisions to vested and unvested LTIP awards for management.
Internal equity
As far as possible, remuneration differentiation between employees is based on fair and objective criteria.
Our approach
At Blue Label we adopt a holistic approach to rewards, which includes guaranteed pay, variable pay, recognition and employee development and benefits.
We understand that the philosophy and each component of the policy, are dynamic and should be reviewed from time to time, to ensure we keep abreast of our objectives and market trends. We ensure that our practices comply with legislative and regulatory requirements.
We provide transparent and understandable information about our reward programme, policy and processes to all employees, to ensure that employees understand what they receive, why and when they receive it.
Our reward framework
Blue Labels framework comprises financial and non-financial components and applies to all employees. The framework is explained below:
- fixed annual remuneration (FAR);
- short-term incentives (STI);
- long-term incentives (LTI);
- commissions for sales staff;
- ad hoc rewards for performance and behaviours linked to our values, leadership programs and competitions; and
- non-financial benefits aligned to our EVP #HappinessisBlu.
At Blue Label the pay mix differs when specific business circumstances require it, including costs and allowances related to relocation and international assignments. We reimburse all necessary and reasonable business expenses.
Blue Label remuneration and talent retention strategy
Guaranteed |
Variable |
|
|
| Non-financial |
||||||
| Fixed annual remuneration | Sales commissions | Short-term incentive plan | Short-term variable remuneration | Long-term incentive plan | #HappinessisBlu | ||||||
Objectives |
Enables us to attract and retain talent, taking into consideration, skills, experience, high potential and value contribution. |
Aligned to drive continuous improvement, improved customer service and increased revenue in sales and operations. |
Reward the achievement of challenging strategic, financial and operational objectives, aligning individuals to divisional, Group performance and the interests of our shareholders. The scheme is structured to reward collaborative work across the Group to ensure we leverage our capabilities, increase innovation, improve customer and consumer service, reduce inefficiencies and increase revenue and profits. |
Special-purpose variable remuneration arrangements to help attract and retain high-potential talent who are the holders of scarce skills. Arrangements are subject to individual performance and time-based conditions to ensure an appropriate return on the remuneration investment. |
Aligning employees to shareholder interests through incentivising performance in line with strategic goals and long-term shareholder value. |
Create a differentiated EVP and work experience to increase the engagement and retention of existing employees and position Blue Label as an employer of choice within an increasingly competitive landscape. |
|||||
Eligibility |
All. |
Specific roles within sales and operations. |
All. |
|
Executives and management. |
All. |
Blue Label talent strategy
Guaranteed |
Variable |
Non-financial |
|||||||||
| Fixed annual remuneration | Sales commissions | Short-term incentive plan | Short-term variable remuneration | Long-term incentive plan | #HappinessisBlu | ||||||
FY2022 approach |
Due to COVID-19 and its likely aftermath, the Remuneration Committee recommended up to 6% increases for FY2022. Increases awarded on exception to retain critical skills and high performing talent. |
As defined by the operational plan and budget. |
Schemes with varying components linked to:
Gatekeeper conditions are in place. Individual metrics are limited to five key performance indicators (KPI) and must be verifiable and challenging.
The following financial measure will be applied in determining the STIP at divisional level:
CEO's thresholds are calculated at 80% of FAR, target at 100% of FAR and a maximum pay-out at 150% of FAR. FD threshold is calculated at 50% of FAR, target at 70% of FAR and a maximum pay-out at 100% of FAR. Further details on targets can be found in the remuneration policy. Further details on targets can be found in the remuneration policy. |
Cash-based sign-on awards and retention bonuses are assessed on a case-by-case instance in line with policy. |
Eligibility based on:
Gatekeeper conditions are in place. Awards are subject to malus and clawback provisions. Minimum holding requirements are in place for Executive Directors. The following metrics apply:
Allocation awards for Executive Directors are:
|
Individualised employee engagement, development and growth. |
Fixed annual remuneration
FAR is a critical enabler in the attraction and retention of human capital, taking into regard skills, experience, high potential and value contribution. The components of guaranteed fixed remuneration are:
- cash salary;
- medical aid benefits;
- allowances; and
- disability and death benefits.
To ensure we apply the right competitive remuneration, we collected industry and country-relevant benchmarks from Deloitte and KornFerry. Fair and competitive compensation is critical to being an employer of choice.
Annual salary review process
Blue Label's annual salary review process provides an opportunity for management to reward for performance and adjust salaries in line with market increases and organisational affordability. Blue Label's annual performance-based increases are affected in June each year. We aim to differentiate between non-performance, average performance and exceptional performance. The Committee mandated up to 6% increases for FY2022. The Remuneration Committee further mandated that where appropriate, by exception, higher increases may be awarded to retain critical skills and high-performing talent, or where there were enhanced responsibilities.
Short-term incentive plan
Our STIs reward the achievement of short-term and long-term objectives both financial and non-financial in nature. Our STIs also reward self-development and focus on developing others and the economic development of the communities we serve. In line with our entrepreneurial spirit, targets and metrics are challenging and align individuals to divisional and Group performance and the interests of our shareholders.
We have introduced further incentives for managers to use within exceptional instances. The special-purpose short-term variable remuneration arrangements have been designed to help attract and retain high potential human capital who are the holders of scarce skills.
The emphasis remains on performance beyond target for Executive Directors for FY2022:
- Individual goals will account for 20% of the STI. In FY2022, for Executive Directors, these relate to:
- the turnaround strategy and performance of Cell C;
- the Group's overall performance;
- facility targets with the banks; and
- succession planning.
- Group performance will account for 80% of the STI.
CEOs thresholds are calculated at 80% of FAR, target at 100% of FAR and a maximum pay-out at 150% of FAR.
The FD threshold is calculated at 50% of FAR, target at 70% of FAR and a maximum pay out at 100% of FAR.
| Executive Directors STI metrics# | ||||
| Metrics | Threshold | Target | Stretch | |
| KPIs (20%) | Individual | CPI + 5% | CPI + 10% | CPI + 15%* |
| Payout % of FAR | 16% - CEOs 10% - FD |
20% - CEOs 14% - FD |
30% - CEOs 20% - FD |
|
| EBITDA (40%) | Group | CPI + 5% | CPI + 10% | CPI + 15%* |
| Payout % of FAR | 32% - CEOs 20% - FD |
40% - CEOs 28% - FD |
60% - CEOs 40% - FD |
|
| Core HEPS (40%) | Group | CPI + 5% | CPI + 10% | CPI + 15%* |
| Payout % of FAR | 32% - CEOs 20% - FD |
40% - CEOs 28% - FD |
60% - CEOs 40% - FD |
|
| * | Remco discretion to be applied for performance above target. |
| # | The bonus is calculated per objective. Values awarded will be a weighted average of scores attained versus target and pro-rated as the case may be. |
Remco will be guided by economic conditions and an annual review of the performance target percentage above CPI, with the most relevant metrics selected each year.
Executive Directors' service contracts
The service contracts of the following Executive Directors which expire on 4 November 2021, were renegotiated and renewed for a further 24 months. No further restraint of trade payments will apply to BM Levy and MS Levy. Should the Joint CEO's employment be terminated for whatever reason, the original three-year restraint clause will apply. There are no contractual termination benefits, including restraint of trade payments, in place for the Executive Directors:
- BM Levy
- MS Levy
- DA Suntup
Executive Directors' composition of FY2022 total remuneration
* Forfeitable share scheme vesting in August 2024.
Long-term incentive plan
Blue Label's LTIP aligns employees to shareholder interests through incentivising performance in line with strategic goals and long-term shareholder value. In addition, they aim to retain human capital with scarce or critical skills. The Remco, through engagement with shareholders, has determined applicable criteria for LTIs, ensuring that the interests of all stakeholders are appropriately considered. These may be reviewed and adjusted in future, upon further engagement with shareholders. Awards are made once a year post our annual performance and pay reviews. All awards are subject to the necessary governance and approval processes. Awards are subject to vesting over a period of three years from the date of the grant.
Minimum levels of financial performance must be met. Employees who do not meet minimum performance requirements or are on a performance improvement plan, are not eligible.
Awards from 2019 onwards are subject to malus and clawback provisions as set out in our policy (further detail can be accessed in the remuneration policy).
To further align management's interests directly with those of shareholders and to encourage long-term commitment to the organisation, Executive Directors will be expected to accumulate a minimum holding of shares from September 2019.
The following metrics apply for each award
| Group LTI metrics* | ||||
| Threshold | Target | Stretch | ||
| Core HEPS (30%) (compounded cumulatively over three years) | Group Vesting % |
CPI + 5% 21.6% |
CPI + 10% |
CPI + 15% 42% |
| TSR (30%) performance against JSE Capped All Share Index Vesting % | Group | Greater than or equal to JSE capped All share Index 21.6% | JSE Capped All Share Index Return + CPI +5% (average not compounded over three years) 30% | JSE Capped All Share Index Return + CPI +15% (average not compounded over three years) 42% |
| ROCE** (20%) compared to WACC over the three-year period (not compounded) | Group Vesting % |
ROCE greater than or equal to WACC over three years 14.4% |
ROCE greater than or equal to WACC +2.5% over three years 20% |
ROCE greater than or equal to WACC +5% over three years 28% |
| ESG (20%) specific ESG metrics | Group Vesting % |
Specific ESGs selected 14.4% |
Specific ESGs selected 20% |
Specific ESGs selected 28% |
| * | Remco may review metrics and targets post-FY2022 for new awards to ensure that they are relevant. The LTI is calculated per objective. Values awarded will be a weighted average of scores attained versus target and pro-rated as the case may be. |
| ** | ROCE is calculated using the following formula: ROCE = Net operating profit (EBIT)/Capital employed. Capital employed = total assets - current liabilities (excluding interest-bearing borrowings). The Remuneration Committee will review any prior year impairments to assess if adverse outcomes have occurred, and if so, make the necessary adjustments to the capital employed number such that the average performance is a more accurate indication to shareholders over the measurement period. |
Malus and clawback provision
This ensures that excessive risk-taking is not rewarded. This malus and clawback clause applies to both vested and unvested 'at risk' remuneration. It is designed to be preventative rather than a purely remedial or punitive measure as it removes the incentive for executives to consider deliberately misstating company earnings to inflate variable pay. The clause applies to both the STIP and LTIP from June 2019 and September 2019 respectively. The provision may be implemented up to 10 years after a trigger event and is applicable to financial year ended 31 May 2020 and each financial year-end thereafter.
The Board may act on the recommendation of the Remuneration Committee to adjust (malus) or recover (clawback) unvested and vested 'at risk' remuneration where there is reasonable evidence that a Blue Label employee has materially contributed to, or been materially responsible for, the need for the restatement of financial results. The malus and clawback clause does not apply in the case of a restatement of financial results caused by a change in applicable accounting standards or interpretations thereof, provided originally approved by the Company's auditor.
The CEOs or Company Secretary are required to notify the Chairman of the Remco and the Chairman of the Board respectively, of any circumstances that could constitute a 'trigger' under this policy as soon as practical. If either the CEOs or Company Secretary is involved in the trigger event, the Head of Group Risk and Compliance is required to notify the Chairman of the Remco and the Chairman of the Board respectively.
Before the Remco makes a recommendation to the Board to implement malus or clawback provisions under the policy, they shall:
- review the situation to understand the impact of the misstatement;
- assess the involvement of the employee and their level of responsibility regarding the trigger; and
- provide the relevant employee with written notice of the intended actions and the right to respond in writing within 15 working days to raise salient matters.
Having completed an investigation and following due process, the Board, on advice from the Remco, may decide to clawback, cancel or adjust any vested or unvested STI or LTI awards, where they are not satisfied that an award is appropriate or warranted due to exceptional circumstances.
Minimum shareholding requirements for Executive Directors
To further align the Executive Directors' interests directly with those of shareholders and to encourage long-term commitment to the organisation, Executive Directors will be required to accumulate a prescribed minimum holding of share allocations within five years from September 2019. Joint CEOs will be required to accumulate two times their Fixed Annual Remuneration over a period of five years. Our joint CEOs own a significant shareholding in Blue Label, and we will continue to review this. The FD will be required to accumulate one times his Fixed Annual Remuneration over a period of five years.
Termination arrangements
Conditions of employment are comparable to those companies in our sector. In ordinary practice, no special or extraordinary conditions are applicable to senior executives. Exceptions may exist because of acquisitions and these must be reviewed and signed off by the Board and Remco.
In the event that services are terminated due to a no-fault basis, Executive Directors, prescribed officers and senior managers are entitled to severance pay equal to two weeks' FAR per completed year of service. Contractual notice and accrued leave will also be paid out in the normal course. Treatment of any unpaid bonus or unvested LTIP awards, will be dealt with in accordance with this policy and will in all instances be subject to Group Remco and Board oversight and approval.
In line with King IV, Blue Label has not concluded any termination agreements with its Executive Directors, a new agreement without restraint of trade agreement 24 months for the joint CEOs. No Fixed sums of money or "balloon payments" in recognition of service to the Company, without any performance conditions attached, will be paid on termination of employment.
Non-executive Director remuneration
The fees of the Group Chairman and the Non-executive Directors reflect their specific responsibilities relating to their membership of the Board and, where applicable, Board committees. Blue Label's Non-executive Directors do not receive any performance-related remuneration or any employee benefits. Together with Executive Directors and Senior Management, no annual increases were awarded in FY2021. For FY2022, Non-executive Director fee increases have been proposed at 6% to be approved by shareholders at the AGM.
SECTION 3
Implementation report
Short-term incentive bonus
| Performance metric | Threshold | Target | Stretch | Actual performance |
Weighting | Amount due to Executive Directors R'000* |
Amount paid to Executive Directors R'000 |
|
| EBITDA (40%) | CPI + 5% | CPI + 10% | CPI + 15% | 1% | 40% | – | 9 230 | |
|---|---|---|---|---|---|---|---|---|
| Core HEPS (40%) | CPI + 5% | CPI + 10% | CPI + 15% | 16% | 40% | 9 230 | 9 230 | |
| Individual goals (20%) | Varies per individual | Varies per individual | Varies per individual | 20% | 4 614 | 4 614 | ||
| Total | 13 845 | 23 074 |
The performance metrics for Executive Directors relating to STIs for the year ended 31 May 2021 were 20% for Individual goals and 80% for financial achievement, of which 40% related to growth in Core HEPS and 40% to growth in EBITDA.
The individual goals set related to the recapitalisation of Cell C and the implementation of a turnaround strategy and the reduction of interest-bearing debt within the BLT Group.
The recapitalisation of Cell C continues to proceed in a positive direction with the Group having recently concluded a term sheet for an Airtime Purchase transaction, the proceeds of which will be utilised for this recapitalisation. The turnaround strategy has been implemented, simplifying our portfolio and reverting to "back to basics" within our core businesses. Debt levels declined by R612 million in the current financial year.
Strong growth in core headline earnings per share, excluding non-recurring income in the current year and extraneous costs in the prior year, resulted in the Group surpassing the target outcomes set for the year.
As part of the Group's strategy to further increase channel visibility and bolster its product and services mix in order to defend and expand its positions across all platforms, a significant investment in IT overhead expenditure was necessary. The impact of Covid-19 and the continuous change in consumer buying patterns contributed to a rapid acceleration in the adoption of digital services.
It is a necessity to enhance IT infrastructure relating to the Group's online and data analytic platforms, to escalate the quantum of distribution channels, to enhance capacity in the Customer Interaction Centre and to implement value added services and financial service strategies. In addition, the implementation of the CEC income sharing arrangement resulted in a significant expected credit loss (ECL) in line with IFRS 9 accounting principles. Although EBITDA increased by 65%, on exclusion of non-recurring income in the current year and extraneous costs in the prior year the required growth in targeted EBITDA was not achieved.
Remco's commitment is not to retrospectively amend financial targets, but in certain circumstances it will consider once-off adjustments to ensure that a like for like comparison can be made for normalised financial performance. This principle was applied in the current year when considering an appropriate adjustment to EBITDA attributable to the extraneous IT investment as well as the expense relating to the IFRS 9 charge. On exclusion of these extraneous costs, the target growth in EBITDA would have been achieved. Remco was also cognisant of the fact that no STI bonuses were paid in the prior year even though in terms of the scheme rules, the individual KPI bonus was due and payable. In addition, Remco recognised the exceptional performance of the executives in contributing to the Group turnaround strategy, reducing debt and implementing Project Boston, all within in a year in which the economy was decimated by the COVID-19 pandemic.
Long-term incentive plan
The long-term incentive plan related to the allocation of shares in 2017, which vested on 31 August 2020. The financial measurement was for the period 1 June 2017 to 31 May 2020.
The retention criteria of 33.33% was met.
Growth in core headline earnings per share over the three-year period equated to (188%). Growth in CPI over the three-year period accumulated to 11%, which after inclusion of the maximum growth target of 25%, equated to 36%. As the actual growth amounted to (188%), the resultant allocation of 33.34% was not met.
In respect of growth in shareholder returns, the weighted average price per share at commencement of the allocation in September 2017 was R18.49. The required compounded growth of 10% per annum over the vesting period as at 31 August 2020 equated to a targeted share price of R24.61. The market price at vesting date was R3.20, therefore the minimum target requirement was not met. Therefore the 33.33% allocation relating to growth in shareholder returns did not vest.
On 31 August 2020, 33.33% of the 2017 share scheme allocations fell due.
| Performance metric | Target | Actual performance |
Weighting | Amount paid to Executive Directors R'000 |
|
| Long-term incentive plan (2017 forfeitable share scheme vested in August 2020) | |||||
| Retention | Three years | 33.33% | 443 | ||
| Growth in core HEPS | 25% + (cumulative CPI over three years) = 36% | (188%*) | 33.34% | – | |
| Shareholder returns | R24.61 market price per share | R3.20 market price per share | 33.33% | – | |
| Total vesting related to performance conditions (excluding retention portion) included in 2021 total single figure of remuneration | 443 |
* Inclusive of negative contributions by Cell C, Oxigen Services India group, fair value downward adjustments, impairments and extraneous costs.
Tables of single total figure of remuneration for FY2021
The single total figure of remuneration disclosure is based on the IoDSA and SARA application guidance issued in November 2017 on remuneration disclosure in accordance with King IV and presents the remuneration for Executive Management consisting of the Executive Directors of Blue Label Telecoms. The comparative information has been presented in a manner consistent with the current year presentation.
| Executive Directors' remuneration for the year ended 31 May 2021 | Explanatory notes |
BM Levy R000 |
MS Levy R000 |
DA Suntup R000 |
Total R000 |
|
| Fixed remuneration (including salary, allowances and retirement benefits) | 9 509 | 9 526 | 4 931 | 23 966 | ||
|---|---|---|---|---|---|---|
| Other benefits | 224 | 207 | 224 | 655 | ||
| Short-term incentive bonus | 1 | 9 733 | 9 733 | 3 608 | 23 074 | |
| 2017 forfeitable share scheme - Growth performance component on vesting date (31 August 2020) at fair value | 2 | – | – | – | – | |
| One-year restraint of trade award settled in equal monthly instalments over 12 months with effect from 1 November 2020 | 3 | 3 338 | 3 338 | – | 6 676 | |
| Single total figure of remuneration | 22 804 | 22 804 | 8 763 | 54 371 | ||
| 2017 forfeitable share scheme - vesting of retention component in the current year at fair value | 4 | 175 | 175 | 93 | 443 | |
| Dividends on vested shares | 5 | 17 | 17 | 9 | 43 | |
| Short-term incentive bonus to be settled post-year end | 1 | (9 733) | (9 733) | (3 608) | (23 074) | |
| Restraint of trade award paid in five equal monthly instalments | 6 | 1 390 | 1 390 | – | 2 780 | |
| Restraint of trade award still to be settled in five equal monthly instalments | 7 | (1 390) | (1 390) | – | (2 780) | |
| Total cash equivalent value remuneration received for the year ended 31 May 2021 | 8 | 13 263 | 13 263 | 5 257 | 31 783 | |
| Reconciliation to note 5.3 of the Group annual financial statements | ||||||
| Remuneration as disclosed in terms of IFRS | 22 804 | 22 804 | 8 763 | 54 371 | ||
| Total cash equivalent value remuneration received for the year ended 31 May 2021 | 13 263 | 13 263 | 5 257 | 31 783 | ||
| Difference to remuneration as disclosed in note 5.3 | (9 541) | (9 541) | (3 506) | (22 588) | ||
| Reconciling items: | ||||||
| Short-term incentive bonus accrued in May 2021, to be settled in September 2021 | 1 | (9 733) | (9 733) | (3 608) | (23 074) | |
| Dividends on shares vested in the current year | 17 | 17 | 9 | 43 | ||
| 2017 forfeitable share scheme that vested in the current year at fair value | 175 | 175 | 93 | 443 | ||
| 2017 forfeitable share scheme - Growth performance component on vesting date (31 August 2020) at fair value | – | – | – | – | ||
| 2017 forfeitable share scheme - vesting of retention component in the current year at fair value | 175 | 175 | 93 | 443 | ||
| (9 541) | (9 541) | (3 506) | (22 588) |
| 1 | STI for the year ended 31 May 2021 will be paid in September 2021. |
| 2 | The 33.34% LTI growth in core HEPS of the 2017 forfeitable share scheme that vested 31 August 2020 was not met. |
| 3 | The restraint of trade payments of the joint CEOs, although payable in 12 equal instalments, have been included in total in "the single total figure of remuneration" in that there are no conditions pertaining thereto other than retention of employment. This took effect from the 1 November 2020. |
| 4 | The 33.33% LTI retention portion of the 2017 forfeitable share scheme is added to "the total cash equivalent value remuneration received", as vesting took place on 31 August 2020. |
| 5 | Dividends are the total of cash receipts during the financial year applicable to the 2017 forfeitable share scheme, as vesting took place on 31 August 2020. |
| 6 | These amounts represent the five monthly instalments received during the year relating to the restraint of trade payments payable in 36 equal instalments which commenced on 1 November 2017. |
| 7 | These amounts represent five equal monthly instalments, being the balance payable post 31 May 2021, on the restraint of trade agreements which commenced on 1 November 2020. |
| 8 | Cash equivalent value remuneration represents the total proceeds paid to the Executive Directors for the period 1 June 2020 to the 31 May 2021, inclusive of the cash element of basic remuneration, STIs, LTIs and dividends. |
| Executive Directors' remuneration for the year ended 31 May 2020 | Explanatory notes |
BM Levy R000 |
MS Levy R000 |
DA Suntup R000 |
Total R000 |
||
| Fixed remuneration (including salary, allowances and retirement benefits) | 9 522 | 9 538 | 4 948 | 24 008 | |||
| Other benefits | 211 | 195 | 207 | 613 | |||
| STI bonus | 1 | – | – | – | – | ||
| 2016 forfeitable share scheme - growth performance component on vesting date (18 November 2019) at fair value | 2 | – | – | – | – | ||
| Single total figure of remuneration | 9 733 | 9 733 | 5 155 | 24 621 | |||
| 2016 forfeitable share scheme - vesting of retention component in the current year at fair value | 3 | 117 | 117 | 62 | 296 | ||
| Dividends on vested shares | 4 | 15 | 15 | 8 | 37 | ||
| STI bonus of prior year paid in August 2019 | 5 | – | – | – | – | ||
| Restraint of trade award paid in 12 equal monthly instalments | 6 | 3 338 | 3 338 | – | 6 676 | ||
| Total cash equivalent value remuneration received for the year ended 31 May 2020 | 7 | 13 203 | 13 203 | 5 225 | 31 630 | ||
| Reconciliation to note 5.3 of the Group annual financial statements | |||||||
| Remuneration as disclosed in terms of IFRS | 13 071 | 13 071 | 5 155 | 31 297 | |||
| Total cash equivalent value remuneration received for the year ended 31 May 2020 | 13 203 | 13 203 | 5 225 | 31 630 | |||
| Difference to remuneration as disclosed in note 5.3 | 132 | 132 | 70 | 333 | |||
| Reconciling items | |||||||
| STI bonus accrued in May 2019 and settled in August 2020 | 5 | – | – | – | – | ||
| Dividends on shares vested in the current year | 15 | 15 | 8 | 37 | |||
| 2016 forfeitable share scheme that vested in the current year at fair value | 117 | 117 | 62 | 296 | |||
| 2016 forfeitable share scheme - growth performance component on vesting date (18 November 2019) at fair value | 2 | – | – | – | – | ||
| 2016 forfeitable share scheme - vesting of retention component in the current year at fair value | 117 | 117 | 62 | 296 | |||
| 132 | 132 | 70 | 333 |
| 1 | No STI or outperformance bonuses, for the year ended 31 May 2020, were payable. |
| 2 | The 33.34% LTI growth in core HEPS of the 2016 forfeitable share scheme that vested 18 November 2019 was not met. |
| 3 | The 33.33% LTI retention portion of the 2016 forfeitable share scheme is added to "the total cash equivalent value remuneration received", as vesting took place on 18 November 2019. |
| 4 | Dividends are the total of cash receipts during the financial year applicable to the 2016 forfeitable share scheme, as vesting took place on 18 November 2019. |
| 5 | No STI bonuses paid in August 2019. |
| 6 | These amounts represent the 12 monthly instalments received during the year. |
| 7 | Cash equivalent value remuneration represents the total proceeds paid to the Executive Directors for the period 1 June 2019 to the 31 May 2020, inclusive of the cash element of basic remuneration, STIs, LTIs and dividends. |
Compliance with policy
The Remuneration and Nomination Committee is satisfied that the remuneration and reward policy has been complied with for the year under review in so far as Executive Management is concerned.
Termination of office
No payments were made on termination of employment or office of any members of executive management
Forfeitable share scheme - granted and unvested
Summary of unvested instruments
| Issue date | Issue price R |
Vesting date | Awards outstanding as at the beginning of the year |
Number of shares awarded |
Awards forfeited during the year |
Awards vested during the year |
Balance as at the end of the year |
Fair value at grant date R'000 |
Fair value at 31 May 2021 R'000 |
||
| Forfeitable share scheme per Director | |||||||||||
| For the year ended 31 May 2021 | |||||||||||
| BM Levy | 1 September 2017 | 18.49 | 31 August 2020 | 163 970 | – | (109 319) | (54 651) | – | – | – | |
| BM Levy | 1 September 2018 | 7.16 | 31 August 2021 | 448 843 | – | – | – | 448 843 | 3 214 | 2 065 | |
| BM Levy | 18 November 2019 | 2.55 | 31 August 2022 | 1 908 425 | – | – | – | 1 908 425 | 4 866 | 8 779 | |
| BM Levy | 1 September 2020 | 3,20 | 31 August 2023 | – | 1 520 776 | – | – | 1 520 776 | 4 866 | 6 996 | |
| 2 521 238 | 1 520 776 | (109 319) | (54 651) | 3 878 044 | 12 946 | 17 839 | |||||
| MS Levy | 1 September 2017 | 18.49 | 31 August 2020 | 163 970 | – | (109 319) | (54 651) | – | – | – | |
| MS Levy | 1 September 2018 | 7.16 | 31 August 2021 | 448 843 | – | – | – | 448 843 | 3 214 | 2 065 | |
| MS Levy | 18 November 2019 | 2.55 | 31 August 2022 | 1 908 425 | – | – | – | 1 908 425 | 4 866 | 8 779 | |
| MS Levy | 1 September 2020 | 3,20 | 31 August 2023 | – | 1 520 776 | – | – | 1 520 776 | 4 866 | 6 996 | |
| 2 521 238 | 1 520 776 | (109 319) | (54 651) | 3 878 044 | 12 946 | 17 839 | |||||
| DA Suntup | 1 September 2017 | 18.49 | 31 August 2020 | 86 845 | – | (57 900) | (28 945) | – | – | – | |
| DA Suntup | 1 September 2018 | 7.16 | 31 August 2021 | 237 725 | – | – | – | 237 725 | 1 702 | 1 094 | |
| DA Suntup | 18 November 2019 | 2.55 | 31 August 2022 | 1 010 776 | – | – | – | 1 010 776 | 2 577 | 4 650 | |
| DA Suntup | 1 September 2020 | 3,20 | 31 August 2023 | – | 805 462 | – | – | 805 462 | 2 577 | 3 705 | |
| 1 335 346 | 805 462 | (57 900) | (28 945) | 2 053 963 | 6 856 | 9 448 | |||||
* The fair value is based on the closing price of R4.60 at 31 May 2021 and excludes performance criteria.
Non-executive remuneration
| 2021 R’000 |
2020 R’000 |
||
| Non-executive Directors | |||
| LM Nestadt | 2 067 | 2 067 | |
| K Ellerine | 890 | 640 | |
| G Harlow | 1 890 | 1 961 | |
| J Mthimunye | 1 379 | 1 388 | |
| SJ Vilakazi | 1 042 | 792 | |
| L Zim* | 256 | – | |
| N Mnxasana** | 462 | – | |
| 7 986 | 6 848 |
| * | L Zim appointed on 23 October 2020. |
| ** | N Mnxasana appointed on 18 September 2020. |
The proposed fees payable to Non-executive Directors are set out below:
| Current fee 2021 R |
Proposed fee 2022 R |
||
| Services as Directors | |||
| – Chairman of the Board (per annum) | 1 910 120 | 2 024 727 | |
| – Board members (per annum) | 421 350 | 446 631 | |
| Audit, Risk and Compliance Committee | |||
| – Chairman (per annum) | 382 024 | 404 945 | |
| – Member (per annum) | 235 956 | 250 113 | |
| Remuneration and Nomination Committee | |||
| – Chairman Remuneration (per annum) | 224 720 | 238 203 | |
| – Chairman Nomination (per annum) | 157 304 | 166 742 | |
| – Member (per annum) | 134 832 | 142 922 | |
| Investment Committee | |||
| – Chairman (per annum) | 224 720 | 238 203 | |
| – Member (per annum) | 134 832 | 142 922 | |
| Transformation, Social and Ethics Committee | |||
| – Chairman (per annum) | 134 832 | 142 922 | |
| – Member (per annum) | 84 270 | 89 326 | |
| Ad hoc Committee | |||
| – Chairman (per meeting) | 50 562 | 53 596 | |
| – Member (per meeting) | 30 337 | 32 157 |
GD Harlow
Chairman
27 September 2021