As an internally managed REIT, the guiding principle for our remuneration philosophy is to promote the achievement of the company’s strategic objectives, encourage individual performance and reward sustainable value creation. Given that employee skills are vital to long-term value creation, our approach emphasises the contribution of our employees to building long-term value through fair and balanced remuneration.
Hyprop’s success depends on attracting talented, experienced and motivated individuals who can execute our business strategy to achieve our vision and mission. We use both short and long-term incentives to support this goal.
Target-based short-term incentives (STIs) are strong drivers of performance. A signiﬁcant portion of senior management reward is therefore variable, based on realistic performance targets, and individual contributions to the growth of their division and the wider company. We also reward employees who deliver superior performance in line with our strategic goals. Special bonuses may be considered as additional awards in exceptional circumstances.
Long-term incentives (LTIs) are aligned to Hyprop’s strategic objectives and the investment interests of shareholders.
The remuneration committee meets at least twice a year and comprises non-executive directors with a majority of independent non-executives. The chief executive officer and other directors or executives may attend meetings by invitation, but are excluded from deliberations on their individual remuneration.
The committee is responsible for implementing the remuneration policy to ensure:
- Salary structures and policies motivate superior performance, and are linked to realistic performance objectives that support sustainable long-term growth
- Stakeholders are able to make informed assessments of reward practices and governance processes
- Compliance with all applicable laws and regulatory codes.
A formal charter codifies the tasks and responsibilities of the committee. Updates to the charter to effect application of the recommendations of the King III report, or other identified good practice, are approved during the year. The committee is aware of the pending implementation of King IV and will make changes or amendments to the group remuneration report, where practical and applicable, in light of the requirements of King IV. The committee chairman attends the annual general meeting of the company to liaise with shareholders on matters under the ambit of the committee.
The remuneration committee is responsible for:
- Reviewing and recommending to the board Hyprop’s remuneration philosophy and policies for directors and staff
- Ensuring the remuneration strategy reflects the interests of stakeholders, is comparable to the sectoral remuneration environment, and complies with relevant principles of good corporate governance
- Considering whether the objectives of the remuneration policy have been achieved
- Ensuring the ratio of fixed and variable pay – in cash, benefits and shares – is aligned with the company’s strategic objectives
- Reviewing the effectiveness of recorded performance measures that govern the vesting of incentives
- Ensuring all benefits, including retirement benefits and other financial arrangements, are justified and correctly valued
- Considering the performance of the chief executive officer and financial director, as directors and as executives, when determining their remuneration
- Selecting an appropriate peer group when comparing remuneration levels
- Regularly reviewing incentive schemes to ensure alignment with shareholder interests and that they are administered in terms of their rules
- Advising on the remuneration of non-executive directors.
The committee uses the services of independent advisers as required. During the year, these advisers supplied market data and advice on market practice and governance, and provided analyses on certain performance measures.
Our policy is to remunerate non-executive directors competitively for their service while understanding the required time commitment. Fees are benchmarked against a peer group of JSE-listed companies, and there are no contractual arrangements to compensate for loss of office.
The remuneration and nomination committee reviews these fees annually and makes recommendations to the board which, in turn, proposes fees for approval by shareholders at the annual general meeting.
Remuneration for non-executive directors comprises a base fee, predetermined annually and approved by shareholders at the annual general meeting.
Non-executive directors do not receive STIs nor do they participate in any LTI schemes except if they previously held executive office and are entitled to unvested beneﬁts from this period. Hyprop pays no pension contributions for non-executive directors.
Executive directors and senior executive remuneration
Our executive directors are permanent employees and their employment agreements include a notice period, but no restraints of trade. Hyprop aims to be an employer of choice: to attract and retain individuals of high calibre. We offer competitive remuneration packages and review these annually.
Our remuneration structure includes:Basic salary
All basic salaries are market related, benchmarked against the median industry norms and adjusted for an employee’s experience, qualifications, responsibilities and nature of work. These are reviewed annually.Long-term incentives (LTI)
Current plan: Conditional Unit Plan (CUP)
These reward long-term decisions supporting dividend and capital growth. They are also designed to align employee behaviour with shareholders’ interests and retain staff. The LTI comprises a performance and retention component. The split between performance shares and retention shares is 70%:30% for all participants.
Conditions for the performance component of the LTI are shown below:
|Growth in distribution/dividend per share relative to peer group*||Growth in distribution per share at the end of performance
period compared to prior ﬁnancial year.
|Share price performance relative to peer group*||Growth in share price from start to end of performance period.||40||95||105||120|
|Strategic component||Determined by remuneration committee in line with circumstances and projects at the time of the award. It is measured over the performance period of three years, and may include project-related or general business activity. Where considered appropriate, the committee has the discretion not to apply the strategic component, in which case this 20% weighting will be split equally between the other two performance conditions. Achieving each of the performance conditions and consequent vesting of performance units occurs severally.||20|
* The peer group comprises the five largest South African REITs by market capitalisation listed on the JSE
Awards are offered to executives, senior managers, operational and ﬁnancial managers and staff with speciﬁc core, critical or strategic skills and allocations are approved by the remuneration committee. Performance shares vest three years after initial allocation, provided the relevant performance conditions have been met.
|Date of issue||Offered to||Number of
|% of staff
|First reward issue||1 January 2014||Executives, senior managers, operational and financial managers and staff with specific core, critical skills||27||13|
|Second reward issue||1 July 2014||As above||26||13|
|Third reward issue||1 July 2015||As above||26||13|
Retention scheme terms
Retention shares vest five years after initial allocation, subject to continuous employment over the vesting period.
Participants do not pay for the shares, and will only be eligible to receive dividends after shares have vested.
Terms of service
Minimum terms and conditions for employing executive directors are governed by South African legislation. If an executive director’s services are terminated, the committee oversees the settlement of terms, assisted by labour law advisers.
Short-term incentives (STI)
An annual performance bonus aligns short-term rewards with annual performance and supports retention. Performance reviews are weighted significantly to output. The remuneration committee sets key performance deliverables (KPDs) annually at property and company levels, including deliverables for executive directors. These are formally measured and include:
- Net income growth
- Performance against budget
- Increase in trading densities
- New/renewed leasing rental values achieved relative to budget
- New/renewed leasing escalations achieved
- Tenant arrears collections and management
- Tenant deposit and bank guarantee management
- Documentation administration
- Environmental impact targets
- BBBEE implementation targets.
Exceptional performance is rewarded with higher incentives, after considering recommendations from general managers, regional executives and executive directors.
The maximum potential bonus for senior management is six months’ salary, at the committee’s discretion. Bonuses for executive directors are aligned with strategic objectives and are at the remuneration committee’s discretion.
Short-term incentive outcomes (STI)
Individual performance reviews are conducted annually, with biannual company key performance deliverable reviews measured against targets. Employees are rewarded on the outcome of these reviews. Bonuses and salary increases are approved by the remuneration committee. Bonuses are payable in December and salary increases implemented from January each year.
Individual performance reviews are completed on the company’s employee self-service system after performance discussions with the employee’s line manager.
Individual performance reviews include:
- Professional conduct
- Business processes
- Customer service
- Business operations
- Employee management
- Implementation of company strategy.
Company key deliverable review targets
The executive committee sets key performance deliverables annually at property and company levels. These are approved by the remuneration committee each year.
Performance against the company deliverable targets carries a 90% weighting, while individual reviews carry a 10% weighting at executive and senior management level.
Key performance deliverables for 2016 were:
|Performance on target||Stretch target||KPI
|Financial: net distributable income growth||33||8% net income growth
|10% and above||130||14,2% net distributable income growth year-on-year(1)|
|Financial budget management||28||On budget||Exceed budget by 3%||130||Exceeded budget by 5,2% (1)|
|Leasing: vacancy movement, rentals, escalations and administration||18,5||Vacancy movement: 0% movement year-on-year. Rentals sustained at same rate. Rental escalation on new leases 8,9%. Rental escalations on renewals 5%. Administration: 2% outstanding documentation.||Vacancy movement – reduced by 5% or more. Rentals achieved 7,5% more than previous rate. Rental escalation on new leases 10% or more. Rental escalations on renewals 7,5% or more than previous rate. Administration 0% outstanding documentation.||100||Reduced vacancies by 45%. Retail rentals 7,0% more than previous rental achieved. Office rentals less than previous rental achieved. 8,1% escalations achieved. 15% of lease documentation still in process.(2)|
|Tenant arrears: deposits and total outstanding||6,5||Total outstanding tenant arrears: 2% outstanding as a % raised of rent roll. Deposits: 3% outstanding as a % of deposits raised.||Total outstanding tenant arrears: 0% outstanding as a % of rent roll raised. Deposits: 0% outstanding as a % of deposits raised.||115||0,50% outstanding arrears compared to what was raised on tenant statement.(2)|
|Operations: masterfile, waste recycling and energy saving||7||Masterfile: 90% complete. 70% waste recycled. 3% kwh energy saving.||Masterfile 100% complete. 75% waste recycled. Energy saving 5% or more kwh saving.||120||92,1% masterfiles complete. 78% waste recycled. 3% kwh energy saving.(2)|
|Trading density||2||1% increase year-on-year||Exceeds 3% increase year-onyear||130||5,2% trading density growth(2)|
|Footfall||1||1% increase year-on-year||Exceeds 3% increase year-onyear||85||0,4% decrease year-on-year(2)|
|BBBEE: procurement||3||60% of all procurement are from companies with a BEE level of 1 to 4||70% of all procurement are from companies with a BEE level of 1 to 4||130||84,5% procurement from companies with a BEE level of 1 to 4(2)|
|BBBEE: employment||1||50% of all new appointments are black||61% and more of all new appointments are black||130||88% new appointments were black(2)|
|Underperformed||Achieved 70% of target|
|Below expectations||Achieved 80% of target|
|Solid performance||Achieved 100% of target|
|Above expectations||Achieved 115% of target|
|Stretch||Achieved stretch targets (130% of target)|
Non-executive directors’ remuneration
|Independent non-executive||2 399||2 117|
|Ethan Dube (paid to Vunani Capital Proprietary Limited)||334||284|
|Louis van der Watt* (paid to Atterbury Property Holdings Limited)||233||235|
Executive directors’ remuneration
|Basic salary||3 672||3 464|
|Performance bonus (paid in December)||3 710||2 625|
|Phantom share scheme(1)||3 454||3 436|
|Pension fund contributions||173||141|
|Total||11 131||9 699|
|Basic salary||2 089||1 958|
|Performance bonus (paid in December)||2 332||1 650|
|Pension fund contributions||362||296|
|Total||4 852||3 986|
|Executive directors’ remuneration||15 983||13 685|
Phantom share scheme
The incentive was directly linked to the performance of Hyprop’s shares. Employees were granted “phantom” Hyprop shares at a notional strike price (the initial price (IP)). Employees received an award equivalent to the increase in the market value of the Hyprop share over the initial price. This award was paid in four payments within 30 days after the date on which the relevant payment was calculated.
The payment was calculated as follows:
If the market price of the Hyprop share on the relevant calculation date was not greater than the initial price, no payment was made. The award was only applicable if the employee was in the employ of Hyprop on the payment date. No “phantom” Hyprop shares were in issue at 30 June 2016 (2015: 222 222).
The phantom share scheme has expired, no further payments will be made in terms of the Phantom share scheme.
Disclosure of CUP* – Pieter Prinsloo and Laurence Cohen
|Date issued||Vesting date|
|Performance shares||20 153||1/1/2014||1/1/2017|
|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||11 105||1/1/2014||1/1/2017|
|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|
Employee earnings ratio
Performance per employee by net operating income and distributable income, as a measure of productivity, is benchmarked annually against peers.
|Number of permanent employees||Net operating income per employee||Net distributable income per employee|
|232||199||7 076||7 029||6 561||6 631|
year on year
year on year
Total compensation paid to employees**
|Total salaries paid|
|Total compensation paid to employees||123 295||109 519|
|Average annual payment per employee||455||456|
Employees earning above the Basic Conditions of Employment Act (BCEA) threshold received an average 6% annual salary increase from 1 January 2016.
Employees earning below the BCEA threshold received an average 7% salary increase from 1 January 2016.