The board of Anglo American Platinum Limited (the Company) and the Remuneration Committee (the Committee) of the Company have pleasure in submitting the Remuneration Report for the financial year ended 31 December 2012. This report sets out the Company’s remuneration policy for executive directors, prescribed officers and non-executive directors. The information provided in this report has been approved by the board on the recommendation of the Committee. As in the past, the Company has worked with its independent advisers to ensure that responsible and appropriate remuneration principles are adopted and implemented.
The Committee has taken cognisance of the performance of the Company and its executive as well as the overall very challenging operating conditions of the past year. Executive directors and prescribed officers have been granted lower increases than other staff. The annual cash bonus for executive directors and prescribed officers has been reduced. We have also frozen the non-executive director fees for the same reasons. However, the need to attract and retain key skills, particularly in the technical mining and processing areas, remains a key focus for the Company, and the Committee is convinced that the ability to do so is of critical importance for the delivery of long-term, sustainable returns to shareholders. As a result thereof, an increased Bonus Share Plan award, vesting in three years’ time, has been made to executive directors and prescribed officers to further enhance alignment with shareholder interests.
The Committee is satisfied that the overall principles laid down by the King Code of Governance for South Africa (King III) and the Companies Act, 2008 (the Act) have been adhered to unless specifically stated.
The report this year has been segmented into two parts, separating the disclosure of policy and its implementation. We have also provided increased disclosure of the short-term incentive mechanism, provided an overview of the remuneration structure and adopted a “single figure” remuneration reporting approach which is in line with international practice.
PART 1: REMUNERATION PHILOSOPHY AND POLICY
PART 1: REMUNERATION PHILOSOPHY AND POLICY
Role of the Committee
The Committee assists the board in setting the Company’s remuneration policy and directors’ and prescribed officers’ remuneration. According to its terms of reference, the Committee’s mandate is to:
- make recommendations to the board on the general policy on remuneration, benefits, conditions of service and staff retention
- conduct an annual review of the balance of the remuneration packages of the executive directors and prescribed officers, including a risk-based monitoring of incentives
- determine the specific remuneration packages of executive directors and prescribed officers
- design and monitor the operation of the Company’s share incentive plans
The full terms of reference of the Committee are aligned with the Act and King III and embrace best practice.
Members of the Committee
The Committee includes the following members:
- Tom Wixley (resigned as Committee chairman on 30 March 2012)
- Wendy Lucas-Bull (appointed as Committee chairman on 30 March 2012)
- Richard Dunne
- Brian Beamish (appointed as Committee member on 25 April 2012)
During the course of the year Tom Wixley resigned as a director of the Company and as a result his term of office as chairman and member of the Committee came to an end on 30 March 2012 after a number of years as a member of the Committee. We thank him for his dedicated and wise counsel and steady leadership during his tenure.
The majority of the current members of the Committee, including the chairman, are independent non-executive directors. The Committee met seven times during 2012. The chief executive, a representative from Anglo American plc, executive head: human resources, head of remuneration and benefits, compliance officer of employee share schemes, and PwC attended the Committee meetings by invitation and assisted the Committee in its deliberations, except when issues relating to their own remuneration were discussed. No director or executive is involved in deciding his or her own remuneration. In 2012, the Committee received advice from Anglo American plc’s Human Resource Department and from PwC UK, as independent advisers.
Summary of remuneration activities/decisions undertaken during the year
The main issues considered and approved by the Committee during 2012 were as follows:
- Amendments to the Committee’s terms of reference.
- Minor amendments to the Company’s remuneration policy.
- Approval of the remuneration report.
- Short-term incentive targets and payments for executive directors and prescribed officers.
- A new short-term incentive plan for management (below the level of executive directors and prescribed officers) in 2012.
- 2012 share incentive plan awards and approval of vesting of awards.
- Annual salary review for executive directors and prescribed officers.
- The exit package for the outgoing chief executive.
- The remuneration package for the incoming chief executive.
- Remuneration package review for executive head: human resource and executive head: process.
- Governance principles surrounding the voluntary separation process.
- The executive shareholding targets.
- The policy on internal and external directorships was discussed, reviewed and will be submitted to the Committee in 2013 for approval.
- Further alignment of conditions of employment across the Anglo American Group. This remains an ongoing process.
- A review of executive service agreements.
The Company’s auditors, Deloitte & Touche, have not provided advice to the Committee. However, at the request of the Committee they have undertaken certain verification procedures on the calculation and disclosure of the remuneration of directors and executives.
The Company’s remuneration philosophy aims to attract and retain high-calibre individuals and to incentivise them to develop and implement the Company’s business strategy in order to optimise long-term shareholder value creation. The policy conforms to King III and is based on the following principles:
- Remuneration practices are aligned with corporate strategy.
- Total rewards are set at levels that are competitive, within the relevant market.
- Incentive-based rewards are earned through the achievement of demanding performance conditions consistent with shareholder interests over the short, medium and long term.
- Incentive plans, performance measures and targets are structured to operate effectively throughout the business cycle.
- The design of long-term incentives is prudent and does not expose shareholders to unreasonable financial risk.
Elements of remuneration
The table below summarises the elements of the total remuneration package paid to executive directors and prescribed officers during the 2012 financial year:
The fixed element of remuneration is referred to as base salary.
Benefits include membership of a retirement fund and a medical aid scheme, to which contributions are made by the individual and the Company.
An annual variable pay plan paid in cash provides executive directors and prescribed officers with an incentive to achieve the Company’s short- and medium-term goals, with payment levels based on both corporate and individual performance.
The long-term incentive plans have been designed to align the interests of executives with those of shareholders. The Company operates two plans, namely a Bonus Share Plan (BSP) and a Long-term Incentive Plan (LTIP). In addition, some executive directors and prescribed officers continue to participate in various legacy schemes through prior-year awards until the final expiry dates.
The base salary is set to be competitive, with reference to market practice in companies comparable in terms of size, market sector, business complexity and international scope. Base salary is subject to annual review, with Company performance, affordability, individual performance, changes in responsibilities and average increases granted to general staff, taken into consideration when determining the size of any increases.
Pension contributions are made to a defined contribution retirement fund which includes:
- disability benefits (75% of monthly pensionable emoluments)
- death benefits (4 x annual pensionable emoluments)
The contribution rates are 7.3% of basic employment cost by executive directors and prescribed officers and 14.6% by the employer.
The annual incentive is paid in cash and capped at 80% of base salary for the chief executive and financial director and 75% for the prescribed officers. The plan is discretionary and is not pensionable. The Committee retains the discretion to make upward or downward adjustments to incentives earned on an exceptional basis, taking into account both Company performance and the overall and specific contribution of individuals to meeting the Company’s objectives. Details of the performance conditions for the 2012 financial year are disclosed in Part 2 of this report.
Bonus Share Plan (BSP)
The BSP is extended to the executive directors, prescribed officers and other members of management. Under the BSP, forfeitable shares are allocated based on the individuals’ annual cash bonus awarded in respect of performance in the previous year, multiplied by a factor dependent on seniority. By basing BSP awards on the previous year’s bonus, performance against that year’s targets is automatically taken into account, but no further performance conditions are imposed on the vesting of the shares. BSP shares are deferred for three years, subject to continuing employment, and are therefore forfeitable if the award holder leaves employment (except in a number of limited, “good leaver” circumstances).
In this way the BSP awards contribute to the retention of key management.
Long-term incentive plan (LTIP)
In addition to the BSP, executive directors and prescribed officers also receive annual awards of conditional shares under the LTIP. The maximum annual face value of the LTIP award is 150% of base salary for the chief executive and 125% for the financial director and the prescribed officers.
The vesting parameters for LTIPs for the 2011 and 2012 awards are based on the satisfaction of two stretching performance conditions, measured over a three-year period:
- A total shareholder return (TSR) index benchmarked against the returns
of a group of seven comparable companies.1 Vesting is on a sliding scale and commences when the Company’s TSR performance is 10% below the index. Maximum vesting is reached at 25% above the index.
- An Asset Optimisation and Supply Chain (AOSC) efficiency measure. The Company’s AOSC programmes strive to unlock value from the Company’s assets in a sustainable way through structured programmes aimed at reducing costs, increasing volumes and improving overall operational efficiencies. This audited measure assesses AOSC benefits on a similar basis to that used by Anglo American plc for some years. Vesting is on a sliding scale and commences when the company achieves 90% of the three-year LTIP target of R20.78 billion for the 2011 grant and R11.5 billion for the 2012 grant. Maximum vesting is reached at 10% above the three-year value target.
These performance conditions have been selected because they clearly incentivise the creation of shareholder value. The LTIP closely aligns the interests of shareholders and executives by rewarding superior shareholder and financial performance, and by encouraging senior executives to build up a shareholding in the Company.
Cash bonus awards to managers and executives aged between 58 and 60
The Company’s long-term incentive plan rules do not permit allocations to managers and executives within two years of retirement. However, in order to continue to recognise individual performance and the contribution of managers who have reached the age of 58, a cash payment (in lieu of these long-term incentive awards) was implemented with effect from 1 March 2008. Cash payments under the LTIP are awarded annually based on the fair value of the grant that the executive would have been entitled to under the LTIP. In the case of the BSP, cash payments are awarded annually based on the actual bonus earned by the individual. To qualify, participants are required to remain in the employ of the Company until the normal retirement age of 60.
Kotula Trust Employee Share Ownership Plan
In accordance with its strategic transformation objectives, the Company recognises the importance of giving all its employees an opportunity to participate in the success of its business. Accordingly, during 2008 the Company implemented its employee share participation scheme, the Anglo Platinum Limited Kotula Trust Employee Share Ownership Plan (ESOP or the Scheme), in order to incentivise all its employees and to align their interests with those of the shareholders in achieving growth in the Company’s value.
The Scheme empowers employees of the Company, including those not otherwise participating in the Company’s long-term incentive plans, to acquire shares in the Company, subject to the provisions of the Scheme. No directors of the Company are included. The Kotula Trust (the Trust) subscribed on 16 May 2008 for 1,008,519 ordinary shares and 1,512,780 ‘A’ ordinary shares, representing approximately 1% of the share capital of the Company. The ‘A’ ordinary shares were created specifically to ease the Scheme’s implementation. The Trust allocates 10 million Kotula shares to participants annually, conditional on the participant being in the employment of the Group on 31 March of that year. Vesting occurs on the fifth, sixth and seventh anniversaries of the subscription date. On each vesting date, the beneficiaries become entitled to receive distribution shares and correspondingly realise that portion of their Kotula shares that corresponds to the distribution shares distributed by the Trust. In November of each year, the Trust may make a distribution to beneficiaries (after making provision for Trust expenses and liabilities) in proportion to the number of Kotula shares that have accumulated in the Trust by each beneficiary as at the dividend date, provided dividends are declared by the Company.
Executive Share Option Scheme (ESOS)
Prior to 2009, share options were allocated annually to managers and executives. Such options are conditional on performance and are subject to a three-year vesting period. The option prices were set at the market prices on the dates immediately prior to allocation. Shares equal to the growth in the value of the options from the allocation date to the exercise date are transferred to the participants upon exercise, provided that the performance condition has been met. The performance condition for each annual award was an increase in headline earnings per share measured in US dollars of at least 6% over the three-year period. If the condition is not met after three years, it is tested again in line with market practice in the fourth year and if required in the fifth year whereafter the options lapse. Options are normally exercisable, subject to satisfaction of the performance condition, between three and 10 years from the date of grant. In terms of the ESOS, the last retesting of the last grant awarded will take place in 2013.
Former share option scheme
Certain managers still hold share options granted under the previous Anglo American Platinum Limited share option scheme. No allocations have been made under this scheme since 2004. These options were allocated at the middle-market price ruling on the trading day prior to the date of allocation, and they vest after stipulated periods, and are exercisable up to a maximum of 10 years from the date of allocation.
Shareholding targets for executive directors and prescribed officers
Within three years of their appointment, executive directors and prescribed officers are expected to accumulate a holding of shares and conditional awards in the Company with a value of 250% of annual base salary for the chief executive and 200% of annual base salary for the financial director and the prescribed officers. In accumulating such holdings, executive directors and senior executives are not required to use their own funds to purchase shares in the market as it is anticipated that the retention of all or a portion of the share incentive awards will satisfy this goal. In measuring the extent to which the guidelines have been satisfied, holdings are valued at closing prices at the end of each financial year and base salary is taken as the amount earned in respect of the financial year just ended. At 31 December 2012, the shareholdings/awards held by those executives who have been in their roles for three years or more are expected to exceed the requirements of this policy as shown in the table in Part 2 of this report.
Executive director and prescribed officer service contracts
In order to reflect their responsibilities appropriately, all the executive directors have contracts with Amplats or its subsidiaries. The contracts are indefinite in duration and include notice periods of six months by both parties (12 months for the chief executive). Executive directors and prescribed officers also have a restraint of trade period of six months following their date of termination of employment.
Non-executive directors do not participate in the Company’s annual bonus plan, or in any of its long-term incentive plans.
None of the non-executive directors has a contract of employment with the Company. Their appointments are made in terms of the Company’s articles of association and are confirmed initially at the first annual general meeting of shareholders following their appointment, and thereafter at three-yearly intervals. Their fees are reviewed by the Company on an annual basis and submitted to shareholders for annual approval. The fees constitute a retainer recognising the directors’ role and, membership of the board and its subcommittees, as tabulated in Part 2 of this report. A per-meeting fee for additional special meetings is proposed for the 2013 financial year.
Executive directors are not permitted to hold external directorships or offices without the approval of the board. If such approval is granted, directors may retain the fees payable from one such appointment.
PART 2: DISCLOSURE OF THE IMPLEMENTATION OF THE POLICIES FOR THE FINANCIAL YEAR
PART 2: DISCLOSURE OF THE IMPLEMENTATION OF THE POLICIES FOR THE FINANCIAL YEAR
The average rate of increase of base salary for managers for 2012 was 7.5% and for 2013 is 5.5%. The average rate of increase for executive directors and prescribed officers was 6.5% in 2012 and for 2013 is 4%. This compares with an average base salary increase for employees in bargaining units of 8.66% in July 2012 (final increase of the two-year agreement in 2011) on the base salary, as well as an increase of R400 per month on the base salary in November 2012.
In determining the base salary increases for executive directors and prescribed officers, the Committee considered the average increases to the general staff population and also used relevant market data. Market data is provided by PwC and Global Remuneration Solutions and the comparator companies for specific benchmarks are: AngloGold Ashanti Limited, ArcelorMittal Limited, BHP Billiton (SA) Limited, De Beers, Eskom, Exxaro Resources Limited, Gold Fields Mining Services Limited, Impala Platinum Limited, Kumba Iron Ore Limited, Lonmin Platinum Limited, Remgro Limited, Sasol Limited and Xstrata Plc. Benchmarks were selected based on membership of the mining industry as well as company size by market capitalisation, turnover, profits and number of employees.
The short-term incentive for the executive directors and prescribed officers is determined on the basis of Company performance as well as individual performance assessment (IPA), on an additive basis. The weighting of the Company component was 60% in 2012 (and 80% in 2011). The IPA weighting was 40% in 2012 (and 20% in 2011). The reason for the change in weighting (which was agreed, in advance, at the commencement of the financial year) was to permit greater differentiation of reward for individual contributions within the executive team.
The Company performance measures for 2012 include measures of safety (15%), production, productivity and asset optimisation (25% together), operating profit and unit cost (20% together) against stretching targets. The Company only achieved “above threshold” performance in respect of safety and asset optimisation, and underachieved on the other measures, which resulted in a low Company performance score. The IPA measures included project execution, strategic initiatives, organisational structure, sustainability and community engagement, and the scores for the executive directors and prescribed officers reflected good performances in their respective portfolios in the context of a very challenging business environment.
None of the ESOS awards granted in 2008 whose performance condition was retested for the last time in 2012, have met their performance condition, and this grant will therefore lapse.
Based on performance in the three-year period ended on 31 December 2012, an amount equal to 5.7% of the LTIP awards granted in 2010 will vest in April 2013.
Disclosure of the value of long-term incentives earned
In line with international best practice, the methodology for disclosure of long-term incentives earned in the year has changed. The value of share awards with a performance period that ends during the financial year is now disclosed. This means that the value of LTIPs granted in April 2010, with a performance period that runs from 31 December 2009 and ended on 31 December 2012, will be deemed to be earned in that financial year. Therefore, this value has been included in the table below.
In respect of the BSP awards, those granted in respect of 2012 performance are disclosed as remuneration in this remuneration report (subject to the grant date being finalised in the second quarter of 2013), because it is performance over the year under review that determines the award value, with future vesting subject only to continued employment. The previous methodology reflected the fair value of awards made during the year (which corresponded to performance over the previous year), in the remuneration table for that year.
Mutual separation agreement for outgoing CEO
The termination payment to the exiting chief executive comprised:
1. Payment in lieu of notice (12 months of guaranteed package)
2. Severance payment (2 weeks of base salary per year of service)
3. Long-service gratuity (0.5% of base salary per year of service)
4. Encashment of accrued leave
5. A payment of just over 3½ months of base salary in lieu of a prorated annual bonus.
The bonus shares relating to the outgoing chief executive’s annual bonus earned in previous years in terms of the BSP were released on termination.
With respect to unvested LTIP awards, the Committee determined that these awards will vest on the normal vesting dates, to the extent that the performance conditions have been satisfied, and will be prorated for the proportion of each performance period served.
The table below provides an analysis of the remuneration of executive directors and prescribed officers:
The table below provides an analysis of the remuneration of executive directors and prescribed officers:
Increase in non-executive director fees
At the annual general meeting on 26 April 2013 members will be asked to pass special resolutions to take effect from that date, approving that the fees remain unchanged for the year, but that a fee of R15,000 per meeting attended is paid for special board and committee meetings. The freeze in non-executive directors’ fees is proposed to reflect the current challenging business context. Directors’ fees were last increased in 2012.
This remuneration report was approved by the board of directors of the Company on 1 February 2013.
Signed on behalf of the board of directors
Remuneration Committee chairman
1 February 2013