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