Integrated Annual Report
2020

PART 2:
Implementation report

This implementation report details the remuneration committee’s application of the group’s remuneration policy and principles in the year under review.

Executive compensation

The founders and executive team were on track to deliver on both quantitative and qualitative outcomes for the first six months of the 2020 financial year, with COVID-19 materially impacting the second half of the financial year.

The executive team, led by David Hurwitz, showed strong leadership in guiding the business through the COVID-19 crisis, quickly implementing measures necessary to protect the group’s balance sheet and facilitate agile responses to first stabilise the group and then take advantage of opportunities as they arose.

COST TO COMPANY

The remuneration committee believes that the CTC is fair in light of the outcomes of the benchmarking undertaken as well as relative market norms. Despite the strong leadership displayed by the executive team in guiding the business through the COVID-19 pandemic, in light of the 65% decline in core headline earnings from continuing operations attributable to the group for the 2020 financial year, the board, through the remuneration committee, has resolved that there will be no annual increases awarded to executive directors and prescribed officers for the 2021 financial year.

SHORT-TERM INCENTIVES

In light of the 65% decline in core headline earnings from continuing operations attributable to the group for the 2020 financial year, the quantitative targets set for the year were not achieved. As a result, the remuneration committee resolved that no quantitative or qualitative STIs be awarded for the 2020 financial year.

LONG-TERM INCENTIVES

The COVID-19 pandemic and the resulting domestic and worldwide shutdowns increased volatility and severely impacted economies globally. Despite the agility with which the group and its divisions responded to the crisis, the resultant conditions impacted Transaction Capital’s earnings for the 2020 financial year and have resulted in the 2020 LTIs not vesting.

The remuneration committee believes that due to the unprecedented nature of the COVID-19 pandemic, the principle of aligning shareholder value with employee awards needs to be balanced with the long-term sustainability of the business and the critical need to retain key talent. The group’s executives performed well to protect shareholder value and position the business for future value creation.

The remuneration committee has therefore resolved that the LTIs that were to have vested in 2020 be deferred until November 2021, at which point performance conditions will be reassessed in accordance with clause 7.2.3 of Transaction Capital’s CSP rules.

SOLIDARITY FUND CONTRIBUTIONS

In response to the COVID-19 pandemic, all executive and non-executive directors of Transaction Capital waived up to 30% of their salaries, benefits and fees over a three-month period. The amounts foregone were donated to the Solidarity Fund to assist the collective efforts of South Africa in combating the pandemic. The 2020 executive compensation and non-executive directors’ fees in this implementation report are presented net of these salary waivers.

Executive directors’ and prescribed officers’ remuneration and specific considerations by the remuneration committee during the year are detailed below:

EXECUTIVE DIRECTORS

David Hurwitz (CEO)

     
       

In addition to leading the business through the crisis, David:

  • I ncreased stakeholder engagement, particularly with employees, shareholders and debt investors, to ensure constant and transparent communication through the crisis.
  • Protected the balance sheet through concluding the accelerated bookbuild in June 2020, restructuring debt arrangements, raising liquidity facilities at group level, and introducing Royal Bafokeng Holdings into the capital structure.
  • Guided credit management and provisioning policies.
  • Provided support and guidance on the WeBuyCars transaction.
  • Augmented the independence and skills of the board through the appointment of three independent non-executive directors.
  • Led the implementation of the revised ethics and internal audit structures.
  David’s total reward comprised:
  2020   2019  
Salary R3 862 323   R3 687 729  
Short-term employee benefits R599 835   R584 627  
STI   R3 501 816  
LTI (face value of award) R4 635 135   R3 632 316  
TOTAL R9 097 293   R11 406 488  
 

Sean Doherty (CFO)

     
       

Sean Doherty was appointed as CFO with effect from 1 June 2019, replacing Ronen Goldstein who resigned as an executive director with effect from 31 May 2019.

In addition to providing leadership through the crisis, Sean:

  • Protected the balance sheet by providing support on the accelerated bookbuild and group debt facilities.
  • Guided credit management and provisioning policies.
  • Provided support on the WeBuyCars transaction.
  • Implemented a new ethics and internal audit structure as well as developing and implementing the ESE framework.
  Sean’s total reward comprised:
  2020   2019  
Salary R2 371 092   R944 338  
Short-term employee benefits R454 409   R153 119  
STI   R833 333  
LTI (face value of award)* R2 267 200   R7 202 726  
TOTAL R5 092 701   R9 133 516  
* Sean was awarded a once-off LTI to the value of R5.6 million on appointment in 2019.
 

Mark Herskovits (chief investment officer)

     
       
In addition to providing leadership through the crisis, Mark:
  • Protected the balance sheet through leading the debt restructure, which included arranging the liquidity facility at group level, the restructuring of debt
    arrangements at SA Taxi, arranging group facilities following the WeBuyCars transaction, and providing support on the accelerated bookbuild.
  • Was involved in the negotiation and led the execution of the WeBuyCars
    transaction,under tight deadlines and in a difficult environment.
  Mark’s total reward comprised:
  2020   2019  
Salary R2 409 396   R2 478 398  
Short-term employee benefits R488 010   R424 734  
STI   R3 194 745  
LTI (face value of award) R3 013 986   R1 688 093  
TOTAL R5 911 392   R7 785 970  
 


PRESCRIBED OFFICERS

Terry Kier

     
       
In addition to leading SA Taxi through the crisis, Terry:
  • Provided support and leadership to the taxi industry, including payment relief
    to SA Taxi operators to support the longer-term survival of the industry.
  • Oversaw the recovery in collections after the payment relief provided to taxi operators, and guided credit and collection policy.
  • Led the reopening of operations in a safe and effective manner once regulations
    permitted.
  • Was instrumental in sourcing the WeBuyCars opportunity.
  Terry’s total reward comprised:
  2020   2019  
Salary R3 429 954   R3 229 775  
Short-term employee benefits R1 781 232   R2 209 440  
STI   R3 152 470  
TOTAL R5 211 186   R8 591 685  
Terry does not participate in the LTI schemes.
 

David McAlpin

     
       
In addition to leading TCRS through the crisis, David:
  • Fundamentally changed the TCRS operating model to allow call centre agents to
    work from home. The demonstrated feasibility of this approach during
    COVID-19 has resulted in TCRS continuing to pursue
    the work-from-home model as a sustainable means of achieving cost savings in the future.
  • Oversaw the recovery in collections.
  • Led the reopening of operations in a safe and effective manner once regulations permitted.
  • Supported the Australian business in reaching its earnings target in the 2020
    financial year despite the impact of expansive bushfires and COVID-19 in Australia.
  David’s total reward comprised:
  2020   2019  
Salary R3 129 757   R3 319 126  
Short-term employee benefits R303 548   R328 099  
STI   R2 626 190  
LTI (face value of award)* R785 824   R11 460 166  
TOTAL R4 219 129   R17 733 581  
* David was awarded a once-off LTI to the value of R11.5 million in 2019.
 

FOUNDERS

Jonathan Jawno

 

In addition to providing leadership through the crisis, Jonathan:

  • Protected the balance sheet by providing support on the accelerated bookbuild in June 2020, restructuring debt arrangements, raising liquidity facilities at group level, and introducing Royal Bafokeng Holdings into the capital structure.
  • Assisted David, Sean and Mark in managing capital, credit and provisioning related risks.

Jonathan's total reward comprised:

2020   2019  
Salary R3 679 630   R1 311 813  
Short-term employee benefits R233 070   R213 237  
STI   R4 500 000  
TOTAL R3 912 700   R6 025 050  
         
 

Michael Mendelowitz

 

At a time when other businesses were focused on managing risk at the expense of growth, Transaction Capital was able to complete the acquisition of a non-controlling 49.9% interest in WeBuyCars, to establish the group's third adjacent market vertical.

Michael was instrumental in this transaction, identifying, facilitating and negotiating the successful conclusion of this investment. Michael's discretionary incentive bonus of R15000 000 was awarded in this regard.

Michael's total reward comprised:

2020   2019  
Salary R3 667 820   R1 311 813  
Short-term employee benefits R244 880   R213 237  
STI R15 000 000   R4 500 000  
TOTAL R18 912 700   R6 025 050  
The founders do not participate in the LTI schemes.        
 

 

FUTURE FOCUS AREAS FOR DETERMINING EXECUTIVE STIs

Focus areas that will inform STIs for executive directors in the next financial year are as follows:

  • Continued headline earnings and HEPS growth above 2019 levels.
  • Achieving the ROE performance target.
  • Achieving and improving on employment equity performance targets.
  • Improving and maintaining B-BBEE scorecards levels.
  • Enhanced risk management.
  • Implementation of the ESE framework across the group.
  • SA Taxi:
    • Continued exploration of alternative growth vectors.
    • System implementation across multiple areas and technology integration.
    • Achieving specific human capital goals, including:
      • Improving retention rates of key employees.
      • Development of employees in line with succession plans.
  • TCRS:
    • Continued exploration of alternative growth vectors such as consumer-related services.
    • Expansion of Transaction Capital Transactional Services.
    • Exploration of partnerships in Euro-based NPL Portfolios and specialty credit.
    • Continued investment in technology and system optimisation to retain its competitive advantage.
    • New client acquisition.

There were no post-employment, post-termination or other long-term benefits paid to executive directors during the year under review.

LONG-TERM INCENTIVES

CONDITIONAL SHARE PLAN

It is the view of the remuneration committee that LTI awards promote long-term equity value creation for employees and shareholders alike, while STI awards serve to reward superior financial and operational performance for the past financial year. As the value of the CSP on vesting is based on the equity valuation of each division (and Transaction Capital group for group employees), employees are rewarded for the quality and sustainability of earnings over the long term, thus aligning their interests with the group’s shareholders. As a result, the growth hurdle of the CSP is viewed to be appropriate.

The following table shows the CSP position of executive directors and prescribed officers at 30 September 2020:

        Present value
of CSP awards
  CSP
awards
  Vesting
period
  CSP awards
exercised
during the year
  Gains on
CSP awards
exercised
during the year
 
    Component   R   Number   Years   Number   R  
EXECUTIVE DIRECTORS
David Hurwitz
  Group                      
Granted on 22 November 2016       382 007   30 759   2 to 4   70 304   1 527 706  
Granted on 22 November 2017       1 414 535   113 680   2 to 5   18 506   402 135  
Granted on 20 November 2018       2 990 230   183 554   2 to 5      
Granted on 26 November 2019       3 632 316   191 007   3 to 5      
Granted on 24 November 2020       4 635 135   255 192   3 to 5      
Sean Doherty   Group                      
Granted on 19 June 2019       5 568 168   323 668   3 to 5      
Granted on 26 November 2019       1 634 558   85 954   3 to 5      
Granted on 24 November 2020       2 267 200   124 823   3 to 5      
Mark Herskovits                          
Granted on 22 November 2016   SA Taxi   286 679   37 328   2 to 4   85 321   1 367 534  
Granted on 29 May 2017   SA Taxi   768 011   164 824   2 to 4      
Granted on 22 November 2017   SA Taxi   715 003   81 253   2 to 5   13 227   212 020  
Granted on 20 November 2018   SA Taxi   1 286 537   130 059   2 to 5      
Granted on 26 November 2019   SA Taxi   1 688 093   120 492   3 to 5      
Granted on 24 November 2020   Group   3 013 986   165 938   3 to 5      
PRESCRIBED OFFICERS
David McAlpin
                         
Granted on 22 November 2016   TCRS   310 817   72 283   2 to 4   1 159 252   8 787 851  
Granted on 22 November 2017   TCRS   5 476 644   1 140 402   2 to 5   41 072   311 369  
Granted on 25 March 2019   TCRSX   11 460 166   2 196 837   2 to 4      
Granted on 24 November 2020   TCRS   785 824   142 102   3 to 5      

Jonathan Jawno, Michael Mendelowitz and Terry Kier do not participate in the CSP.

SHARE APPRECIATION RIGHTS PLAN

All SAR plan awards were approved by the remuneration committee, with no SARs awarded since 25 November 2015. In previous years, executives were awarded SARs based on executive performance, potential, tenure, job grade, current fixed compensation and STIs relative to market benchmarks; the recommendation of the CEO; and the reasonably expected growth in Transaction Capital’s share price.

The following table shows the SAR position of executive directors and prescribed officers at 30 September 2020:

Present
value
of SARs
  SARs   Vesting
period
  SARs vested
during the
year and not
exercised
  SARs
exercised
during the year
  Gains on
SARs
exercised
during the year
 
  R   Number   Years   Number   Number   R  
EXECUTIVE DIRECTORS
David Hurwitz
Granted on 26 November 2015     4     250 000   2 061 916  
Mark Herskovits
Granted on 26 November 2015     4     150 000   1 719 895  
PRESCRIBED OFFICERS
David McAlpin
Granted on 26 November 2015     4     200 000   1 649 529  

Jonathan Jawno, Michael Mendelowitz and Terry Kier do not participate in the SAR plan.

DIRECT INVESTMENT

Terry Kier (CEO of SA Taxi) holds a direct investment in SA Taxi Holdings Proprietary Limited, incentivising him and directly aligning his long-term interests with those of SA Taxi, Transaction Capital and its shareholders.

Terry disposed of 0.5% of his shareholding to Transaction Capital on 1 December 2018 for total proceeds of R28 million. Terry's shareholding was further diluted following SA Taxi's ownership transaction with SANTACO.

At 30 September 2020, Terry held a direct investment of 1.2% (2019: 1.2%) in SA Taxi Holdings Proprietary Limited. This shareholding was valued at R102 million.

Terry owed a wholly owned subsidiary of Transaction Capital an amount of R24 million at 30 September 2020. The loan was granted on an interest-free basis and will be repaid upon certain predetermined events. Appropriate fringe benefits tax has been levied on the interest-free loan, the benefit of which is included in his executive compensation table.

Terry does not participate in the SAR or CSP plans.

SHAREHOLDING

The remuneration committee continually assesses whether those executives charged with setting and implementing group strategy are meaningfully invested in Transaction Capital, by way of direct investment and/or through the CSP. As mentioned previously, the remuneration committee has set an executive investment policy that mandates that key executives should hold a meaningful interest in Transaction Capital, with a minimum target exposure to Transaction Capital's equity value maintained at three times annual CTC (held directly or indirectly). Where the equity value of a key executive of the group is determined to be low, accelerated annual LTI awards or once-off LTI awards may be awarded.

The executive directors and prescribed officers of the group hold the following direct or indirect equity value in Transaction Capital Limited at 30 September 2020, aligning their interests with the broader shareholder base:

Notes     Shares held     Valuation of shares
at closing share price on
30 September 2020 
   CSP  
position at  
30 September  
2020*
   Total equity
value to
the group 
   Cover of
annual CTC 
  
   Number              Times    
EXECUTIVE DIRECTORS 
Sean Doherty     –     –     8 691 319     8 691 319     <3    
Mark Herskovits  1 547 055     33 524 682     5 229 784     38 754 466     >3    
David Hurwitz     4 876 769     105 679 584     11 012 090     116 691 674     >3    
PRESCRIBED OFFICERS 
Terry Kier     –     –     –     –    
David McAlpin  445 249     9 648 546     17 262 208     26 910 753     >3    
FOUNDERS 
Jonathan Jawno     36 333 333     787 343 326     –     787 343 326     >3    
Michael Mendelowitz  36 333 333     787 343 326     –     787 343 326     >3    
TOTAL  79 535 739     1 723 539 464     42 195 401     978 391 539    
* SAR/CSP valuations are determined on current share prices and are prior to any tax payable.
1. Sean Doherty joined Transaction Capital as an executive director in June 2019. The minimum target exposure to Transaction Capital's equity value will be built up over the next three to five years.
2. The Dovie Trust, of which David Hurwitz is a discretionary beneficiary, owns 4 876 769 shares in Transaction Capital Limited.
3. The Empire Trust, of which Terry Kier is a discretionary beneficiary, owns 1.2% of SA Taxi Holdings Proprietary Limited.
4. Pilatucom Holdings Limited owns 36 333 333 shares in Transaction Capital Limited. All the shares of Pilatucom Holdings Limited are held by trusts of which Jonathan Jawno is a discretionary contingent beneficiary.

NON-EXECUTIVE DIRECTORS' FEES

Fees paid to non-executive directors are for directorship and membership of board sub-committees, with no additional meeting attendance fees paid. This is due to board members providing input to the company on an ongoing basis, which is not limited to the attendance of meetings.

The fees paid to non-executive directors have been determined on a market-related basis, as recommended by the remuneration committee and the board, and approved by shareholders at the AGM. The board, through the remuneration committee, has resolved that there will be no increase in non-executive directors' fees for the 2021 financial year.

Fees paid to non-executive directors for the year ended 30 September 2020:

  C Seabrooke1     P Langeni2     R Rossi3  K Pillay4     P Miller5     D Radley6     B Hanise     S Wapnick7     Total    
BOARD MEMBERS  R      R      R   R      R      R      R      R      R     
Board chairman (including committee attendance) 1 585 417      –      –   –      –      –      –      –      1 585 417     
Lead independent non-executive director  –      –      –   141 667      –      –      –      –      141 667     
Director  –      370 917      370 917   370 917      175 726      370 917      370 917      196 293      2 226 602     
Alternate director  –      –      –   –      146 393      –      –      –      146 393     
Audit, risk and compliance committee (chairperson) –      –      –   –      –      394 875      –      –      394 875     
Audit, risk and compliance committee (member) –      114 792      –   –      –      –      158 542      –      273 333     
Asset and liability committee (member) –      –      –   –      –      127 000      127 000      –      254 000     
Remuneration committee (chairperson) –      –      –   263 667      –      –      –      –      263 667     
Remuneration committee (member) –      –     66 651   –      60 349      –      –      –      127 000     
Nominations committee (member) –      –     127 000   127 000      –      –      –      –      254 000     
Social and ethics committee (chairperson) –      263 667      –   –      –      –      –      –      263 667    
Social and ethics committee (member) –      –      82 333   127 000      –      –      –      –      209 333     
TOTAL ANNUAL FEES  1 585 417      749 375      646 901   1 030 250      382 468      892 792      656 458      196 293      6 139 954     
1. Christopher Seabrooke is also the chairperson of the nominations committee and a member of the remuneration committee, audit, risk and compliance committee, and asset and liability committee.
2. Resigned as a member of the audit, risk and compliance committee effective 30 June 2020.
3. Appointed as a member of the social and ethics committee and the remuneration committee effective 1 February and 12 March 2020 respectively.
In addition to the fees received above, Mr Rossi received R3 353 099 for consulting services rendered to Transaction Capital Limited.
4. Appointed as lead independent non-executive director effective 15 July 2019.
5. Resigned as a non-executive director effective 12 March 2020 and appointed as an alternate director to Roberto Rossi effective the same date.
6. In addition to the fees received above, Diane Radley received directors' fees of R338 283 excluding VAT for acting as an independent non-executive director of SA Taxi Holdings (Pty) Ltd and Transaction Capital Risk Services Holdings (Pty) Ltd.
7. Appointed as an independent non-executive director effective 12 March 2020.

Fees paid to non-executive directors for the year ended 30 September 2019:

   C Seabrooke1     P Langeni     R Rossi2  K Pillay     O Ighodaro3     P Miller     D Radley4     B Hanise5     Total    
BOARD MEMBERS  R         R      R         R      R      R    
Board chairman (including committee attendance) 1 636 667      –     –   –     –      –     –      –      1 636 667    
Director  –      382 083     382 083   382 083     61 833      382 083     382 083      289 333      2 261 581    
Audit, risk and compliance committee (chairperson) –      –     –   –     66 250      –     342 625      –      408 875    
Audit, risk and compliance committee (member) –      163 667     –   –     –      –     26 500      123 917      314 084    
Asset and liability committee (member) –      –     –   –     21 200      –     131 167      99 367      251 734    
Remuneration committee (chairperson) –      –     –   273 167     –      –     –      –      273 167    
Remuneration committee (member) –      –     –   –     –      131 167     –      –      131 167    
Nominations committee (member) –      –     131 167   131 167     –      –     –      –      262 334    
Social and ethics committee (chairperson) –      273 167     –   –     –      –     –      –      273 167    
Social and ethics committee (member) –      –     –   131 167     –      –     –      –      131 167    
TOTAL ANNUAL FEES  1 636 667      818 917     513 250   917 584     149 283      513 250     882 375      512 617      5 943 943    
1. Christopher Seabrooke is also the chairperson of the nominations committee and a member of the remuneration committee, audit, risk and compliance committee, and asset and liability committee.
2. In addition to the fees reported above, Roberto Rossi received R1 096 667 for consulting services and R7 000 000 for corporate finance and legal services rendered to the group.
3. Resigned as a non-executive director effective 30 November 2018.
4. Appointed as chairperson of the audit, risk and compliance committee effective 1 December 2018. In addition to the fees reported above, Diane Radley received directors' fees of R323 000 excluding VAT for acting as an independent non-executive director of SA Taxi Holdings (Pty) Ltd and Transaction Capital Risk Services Holdings (Pty) Ltd.
5. Appointed as a non-executive director effective 1 January 2019.