Remuneration commitee report and outcomes

REMUNERATION COMMITTEE

LETTER FROM THE CHAIRPERSON OF THE REMUNERATION COMMITTEE

AZIZA AMOD

Dear Shareholders

This remuneration report sets out the Group’s remuneration philosophy and policy, emphasising non-executive and executive directors. It also describes how the remuneration policy has been implemented and discloses payments made to non-executive and executive directors during the year as required by the provisions of King IV™. This report will be considered and voted upon at the forthcoming AGM of shareholders on behalf of the remuneration committee.

The remuneration committee consists of one independent non-executive director and two non-executive directors who have the prerequisite skills. In addition, the CEO and consultant attend the committee meetings by invitation.

In the face of the deteriorating economic environment and slower growth due to the COVID-19 pandemic, the Group’s remuneration objectives for motivating and retaining employees pre-COVID-19 continued to be severely compromised. As a result, we shifted our objectives to financial and short-term operational resilience while championing the King IV™ Code on Corporate Governance and in line with our commitment to fair and responsible remuneration.

In this regard, we continuously reviewed our remuneration practices during the year to ensure that they remain relevant and aligned to our revised strategy. We also ensured that any resultant changes did not have a material effect on our human capital. Remuneration and reward systems continue to remain sensitive matters, especially in the socio-political environment. The committee will continue to review and adapt to changes in market conditions to ensure that our policy and principles remain appropriately aligned with our overall business strategy.

We are committed to maintaining strong relationships with our shareholders, built on trust and a clear understanding of the quantum, rationale and drivers of executive remuneration and that our remuneration policy and practices have been
implemented.

AZIZA AMOD

Chairperson of the remuneration committee

REMUNERATION COMMITTEE REPORT AND OUTCOMES

BACKGROUND

This report describes the material matters and summarises the Group’s approach to transparent, fair and responsible remuneration. It sets out how the committee discharged its duties regarding the statutory requirements and other duties assigned by the Board. It also provides an overview of the Group’s remuneration philosophy and remuneration framework.

RESPONSIBILITIES AND REPORT

This remuneration report highlights our policy’s key components and how these align with our performance and strategic objectives for the 2021 financial year.

Our executives’ remuneration is aligned to the long-term strategic goals of the Group to deliver sustainable value to shareholders, and build the business, remained a key focus. Critical decisions and their related impact in setting targets in terms of performance-related remuneration were made for the executives and senior management of the Group. Weightings of performance, as well as specific financial targets, were reviewed and amended accordingly. The committee was satisfied and will continue to monitor remuneration against the appropriate strategic objectives, performance and market benchmarks.

AEEI’s ethos is an appreciation for an employee’s commitment, diligence, care and attention to detail. We respect and recognise our employees for their contributions during the year and inspire them to realise their full potential and believe in rewarding them accordingly. Accordingly, we consistently applied the principle that our remuneration should be fair and competitive and reflect the Group’s performance as well as the business units.

The committee remains mindful to ensure overall remuneration was appropriate for the performance of the Group against its operational peers. In doing so, the committee considered the impact of the COVID-19 pandemic, the overall risk environment, its risk appetite and risk profile and the need to attract, retain and motivate key talent to deliver the Group’s strategic objectives.

COMMITTEES ROLES AND RESPONSIBILITIES

Ismet Amod resigned on 31 March 2021

To assist the committee with the implementation of its mandate, the CEO attended the meetings by invitation. Committee members do not decide on their own remuneration. In line with its Charter, the committee held two meetings during the year.

DETERMINATION OF PERFORMANCE INCENTIVES

The committee reviewed the targets set in terms of performance-related remuneration for the CEO, the executive management team and senior management in the Group; these targets include individual performance factors and a combination of portfolio-specific targets. In addition, the Group has formal and informal frameworks for performance that are directly linked to either an increase in total cost to company or annual short-term incentive bonuses.

Remuneration components

The CEO and executive management team’s performances are assessed against predetermined objectives that include, among other things, strategic leadership, execution of the strategy through business results and stakeholder relations.

The Board recognises that the successful delivery of the Group’s objectives should constitute both financial and non-financial performance measures.

Remuneration comprises the following key elements:

CONDITIONS FOR DETERMINING PERFORMANCE BONUSES:

The Group aims to ensure that the performance-based remuneration of executive directors and senior management should form a significant portion of their expected total compensation. Accordingly, the committee ensures an appropriate balance between fixed and performance-related elements of executive remuneration and the aspects of the package linked to short-term performance and those linked to long-term shareholder value creation.

EXECUTIVE DIRECTORS' SERVICE CONTRACTS

Executive directors do not have fixed-term contracts but have permanent employment agreements with the Company. The remuneration of executives is determined on a cost-to-company basis and is subject to an annual review by the remuneration committee. Provident or pension fund and healthcare provision form part of the overall cost-to-company packages. Executive directors are members of the Group’s provident fund and are required to retire as a director of the Board at the age of 65 unless requested by the Board to extend their term. There are no other special benefits for executive directors.

The contracts of executive directors do not contain termination packages or excessive notice periods. An executive director may, subject to the provisions of the Companies Act, No. 71 of 2008 and the JSE Listings requirements, be appointed by contract for such period as the Board may determine. Executive directors are not subject to retirement by rotation at the annual general meeting of the Company.

PRESCRIBED OFFICER

Mrs Valentine Dzvova is not remunerated separately for her role as the prescribed officer of the Company.

PERFORMANCE APPRAISALS

The committee reviewed performance appraisals for the Group executive management and management at subsidiaries. In addition, the committee was part of the appraisal process for the performance of the CEO and CFO. The performance appraisals are based on specific elements, including KPIs and any assessments through shareholder objectives when considering salary increases.

NON-EXECUTIVE DIRECTOR'S REMUNERATION

The non-executive directors receive fees for serving on the Board and its committees. The fees for non-executive directors are reviewed annually by the nominations committee. Thereafter, it is referred to the remuneration committee, which seeks to ensure that the fees are market-related and presented to the shareholders for approval.

The Board recommends the fees to shareholders for approval at the AGM of the Company. In addition, the contribution of each non-executive director, their participation in the activities of the Board and its committees is considered. Changes to the fee structure are effective 1 September, subject to the approval by shareholders at AEEI’s AGM held between February and April of each year. The annual fees payable to non-executive directors are, as in the past, fixed and not subject to the attendance of meetings. However, in the event of non-attendance regularly, this will be reviewed and amended accordingly.

IMPLEMENTATION OF REMUNERATION

The committee ensured that total remuneration is aligned with sustainable value-creating strategic objectives and the legitimate expectations of all stakeholders while being mindful of the income gap in South Africa. As a result, the committee is satisfied that the variable remuneration outcomes for the 2021 financial year align with the Group’s financial performance.

Guaranteed remuneration

The committee agreed to recommend to the Board the approval of a general salary increase based on the current price index of 5% for all employees in the Group, in line with inflation.

The 2021 guaranteed remuneration of the executive directors is set out below:

	2021 R'000	2020 R'000
V Dzvova	2 064	734
J van Wyk	1 748	120

The 2020 figures only reflect their time on the Board.

Short-term incentive

Performance bonuses are paid to executive directors based on financial and non-financial performance targets.

The table below sets out the targets for actual targets achieved:

Performance	Weighting	Threshold	Target
Profit before tax	70%	70%	70%
Non-financial targets	30%	30%	30%

The achievement of targets for executive directors in respect of the 2021 financial year:

	Achievement of financial targets	Achievement of non-financial targets	Total as a percentage of maximum	Maximum bonus of guaranteed remuneration
V Dzvova	100%	100%	100%	-
J van Wyk	100%	100%	100%	-

There are no long-term incentives for executive directors.

The table below sets out the remuneration received by executive directors for the 2021 financial year:

2021	Base remuneration R'000	Performance Bonus R'000	Provident Fund & Medical Aid R'000	Expense Allowance R'000	Total R'000
V Dzvova *	1 717	-	324	23	2 064
J van Wyk	1 440	300	288	20	2 048

*V Dzvova waived her performance bonus

The 2021 annual remuneration of the non-executive directors is set out below:

Non-executive	2021 R'000	2020 R'000
A Amod	682	207
W Raubenheimer*	350	33
B Qama*	231	32
I Amod	172	207
J van Wyk*	-	176
N Ramatlhodi*	-	252
Ambassador M Mdladlana	-	-
S Nthite	-	-
Total	1 435	907

*The 2020 figure for J van Wyk reflects his remuneration for his time served on the Board as an independent non-executive director.

*The 2020 figures for W Raubenheimer and B Qama only reflects their time served on the Board.

G Colbie waived his non-executive directors’ remuneration for the 2021 financial year.

Ambassador M Mdladlana and S Nthite were not remunerated for their attendance at the last board meeting.

AEEI covers all reasonable travelling and accommodation expenses incurred to attend Board and committee meetings.

Non-executive directors do not have any employment contracts or receive any benefits associated with permanent employment.

The Board has approved the information provided in this report on the recommendation of the remuneration committee. For the year under review, the committee is satisfied that it has fulfilled and complied with its obligations and statutory duties as reflected in its charter in terms of the policy and duties assigned by the Board.

AEEI'S REMUNERATION POLICY

INTRODUCTION

AEEI’s remuneration committee is primarily responsible for overseeing the remuneration and incentives of the Group’s executive directors and key management and providing strategic guidance.

To assist in achieving AEEI’s long-term strategic goals, the remuneration committee has a formal remuneration policy in place. In addition, each major subsidiary has its own remuneration committee and a policy specific to its business unit, including the industry in which it operates, taking into account AEEI’s long-term strategic goals.

The committee’s main aim is to assist the Board in fulfilling its responsibilities in establishing formal and transparent policies and guiding principles of a standardised approach in applying remuneration practices within all its business units and functions.

OVERVIEW OF THE MAIN PROVISIONS OF THE REMUNERATION POLICY

The remuneration policy is aimed at aligning remuneration practices that will enable the committee to support the Group in achieving its strategic objectives, translating these into market-related, yet affordable performance-linked rewards, and ensuring balanced and transparent outcomes that align with shareholders’ interests over the short and long-term, and ultimately enable the attraction and retention of valuable talent. Our remuneration approach aligns with our ethical approach, corporate governance philosophy, shared values, and best practices.

The remuneration policy is designed to achieve the following strategic objectives:

Support the attainment of AEEI’s strategic business objectives and strategies.
Attract, retain and motivate key and talented individuals.
Compete in the marketplace to be an employer of choice.
Reward individual, team and business performance and encourage superior performance.
Support AEEI’s shared values.
Promote the achievement of the Group’s strategic objectives within its risk appetite.
Promote positive outcomes.
Promote an ethical culture and responsible corporate citizenship.

The remuneration policy addresses the Group’s remuneration and includes provision for:

arrangements towards ensuring that the remuneration of executive management is fair and responsible in the context of overall employee remuneration in the organisation;
the use of performance measures that support positive outcomes across the economic, social and environmental context in which the Group operates and all the capitals that the Group uses or affects; and
the Company to attract, engage and retain talent to drive performance and to meet the Group’s strategic objectives.

EXECUTIVES AND EMPLOYEES

The remuneration of the executives is reviewed annually by the remuneration committee, which seeks to ensure that balance is maintained between the fixed (base salary) and variable (discretionary bonus) elements of remuneration, as well as between the short-term (base salary and discretionary bonus) and the long-term financial performance objectives of the Group.

Cost-to-company remuneration incorporates the following elements:

Base salary

Base salary is guaranteed annual pay on a cost-to-company basis. It is subject to annual review, and adjustments are effective 1 September of each year, coinciding with the commencement of the Group’s financial year. Benchmarking is performed with reference to companies comparable in size, industry, business complexity and the level of responsibility that the individual assumes.

Benefits

Benefits form part of the total cost-to-company and include:

membership of the pension/provident fund (providing death, disability and dread disease benefits);
medical aid;
unemployment insurance fund; and
funeral cover.

COMPLIANCE

The remuneration policy is reviewed each year to ensure that the remuneration framework remains effective in supporting the achievement of the Company’s business objectives and remains in line with best practices. AEEI complied with the
remuneration policy and relevant remuneration governance codes and statutes. The recommended practice, as stated in Principle 14 of King IV™, has been applied and is explained throughout this report through the outcomes achieved.

During the year, the committee engaged the services of an independent external advisor to support our endeavors to act independently and provide specialist input.

NON-BINDING ADVISORY VOTES ON THE REMUNERATION POLICY AND IMPLEMENTATION REPORT

In the event that more than 25% of the votes are cast on the resolutions at the AGM, the Board will invite dissenting shareholders to send reasons for such votes in writing. Thereafter, further engagements may be scheduled to address legitimate and reasonable objections and concerns raised appropriately.

IMPLEMENTATION REPORT

This part of the report focuses on the performance outcomes against the targets set for 2021.

SALARY INCREMENT

The committee reviewed the targets set in terms of performance-related remuneration for the CEO, executive management team and senior management in the Group, including individual performance factors and a combination of portfolio-specific targets. As a result, for the year ended 31 August 2021, a general salary increase was approved based on the annual average current price index of 5% for all employees in the Group.

DISCRETIONARY BONUS

A discretionary bonus may be awarded and calculated as a percentage of the qualifying executive/senior management/employee’s base salary according to seniority and the level of responsibility assumed. Qualifying executives and senior management may receive a discretionary cash bonus, dependent on meeting both financial and qualitative strategic performance objectives. Employees may receive a discretionary cash bonus, dependent on meeting their personal and the Company’s strategic objectives. Financial, qualitative, personal, and Company strategic performance are aimed at ensuring sustainable long-term value creation to the benefit of all stakeholders. The total base salary and bonus paid will be deemed to be fair to the Company and the executive/senior manager/employee.

The committee will assess the CEO and executive management team’s performance against a set of predetermined objectives that include, inter alia, strategic leadership, execution of the strategy through business results and stakeholder relations. The successful delivery of the Group’s objectives constitutes financial and non-financial performance measures, with the key financial measures, including profits, cash flow, and asset growth weighted to 70% and the remaining 30% weighted to non-financial measures for most executives in the Group. The committee remains mindful of ensuring that overall remuneration is appropriate for the performance of the Group and in relation to its operational peers. In doing so, the committee will consider the overall risk environment, its risk appetite and risk profile and the need to attract, retain and motivate key talent to deliver the Group’s strategic objectives. (Principle 14)

SHAREHOLDER VOTING/FEEDBACK

As required by King IV™ and the JSE Listings Requirements, the Company will put a non-binding advisory vote to shareholders regarding the approval of the remuneration policy and the implementation report. The Company seeks the support from its shareholders at the upcoming AGM. If any shareholders are inclined not to support the resolutions, we would ask that the reasons for such decision be communicated to the Company so that consideration can be given to those reasons. Please forward any comments to the company secretary at [email protected].

Should either vote receive 25% or more votes against, the Company will:

issue a SENS announcement regarding the outcome of the voting results;
invite shareholders to engage with the Company regarding their dissatisfaction with either of the votes;
schedule engagements with concerned shareholders to record their concerns and objections;
assimilate all responses and schedule a remuneration committee meeting to analyse concerns and issues raised to formulate changes to the policy and implementation required; and
develop a formal response to shareholders that articulates the concerns raised, the details of where the changes will be made to address concerns raised and provide responses for areas where the Company, despite the shareholder feedback, believes its current policy and/or implementation is adequate.

Results of the shareholders’ votes at the most recent AGM held on 25 February 2021, as a percentage of the total number of shares voted at the AGM, is indicated below and therefore, no shareholder engagement was required:

	2021 %	2020 %	2019 %
Approval of the remuneration policy	97.30	99.85	100
Implementation of the remuneration policy	97.30	99.85	100
Non-executive directors' fees	100.00	99.85	100