Integrated Annual Report
2020

Remuneration committee letter

REMUNERATION COMMITTEE LETTER

KUBEN PILLAY Remuneration committee chair

In a year of extraordinary challenges due to the implications of the COVID-19 pandemic, the group’s executives and employees stayed focused on stabilising our core business while still delivering on our strategy. This deepened the group’s resilience and relevance, enhanced our ability to withstand unprecedented market turbulence and allowed us to advance our strategic growth initiatives in an operating context that is being redefined by COVID-19.

The operating conditions and associated imperatives demanded considerably greater commitment of time and effort from our people, including having to adapt to new protocols and operating models (as well as work-from-home arrangements), while dealing with the impact of the pandemic and national lockdowns in their personal lives.

The group’s approach to remuneration supports the entrepreneurial spirit that keeps us competitive and flexible, and enables us to create sustainable shared value. We continue to leverage reward to drive positive outcomes for our stakeholders, at group and divisional levels, underpinned by our ethical
high-performance culture and good corporate citizenship. This underpins the group’s ability to attract and retain entrepreneurial executive and management teams, and the industry specialists we need to maintain our strong track record for financial outperformance and meaningful social impact in our sectors.

Guided by our remuneration philosophy, we believe that providing long-term equity upside to the executive team aligns with shareholder requirements for long-term value creation. Due to the unprecedented nature of the pandemic, the remuneration committee interrogated the remuneration philosophy and concluded that it remains appropriate in balancing shareholder and executive interests with a focus on long-term value creation for all our stakeholders.

The leadership team was on track to deliver on expected quantitative and qualitative outcomes for the first six months of the 2020 financial year. However, COVID-19 had a material impact in the second half of the financial year, resulting in a 65% decline in core headline earnings from continuing operations attributable to the group. The crisis also impacted other key performance metrics that the remuneration committee uses to assess and reward our executives. This required the committee to apply its discretion in key remuneration decisions made in relation to the 2020 financial year.

The group’s executives responded with speed and agility to the crisis. This protected shareholder value and placed the group in a strong position to continue pursuing opportunities for value creation. The remuneration committee therefore resolved to defer executives’ long-term incentives (LTIs), which would have vested in 2020, until November 2021. The committee will assess the compound annual growth rates (CAGR) attained by the group up to November 2021, excluding any impact from the 2020 financial year, when determining the vesting of LTIs, in line with Transaction Capital’s conditional share plan (CSP) rules.

For short-term incentives (STIs), as quantitative targets for the year were not achieved, the committee resolved that no quantitative or qualitative STIs would be awarded for the 2020 financial year. Furthermore, we resolved that there would be no annual increases awarded to executive directors, prescribed officers or nonexecutive directors for the 2021 financial year. Given the benchmarking exercise undertaken during the year with reference to market norms, the remuneration committee still considers that the cost to company of executives remains fair.

We commend all executive and non-executive directors of Transaction Capital, who waived up to 30% of their salaries, benefits and fees for a three-month period – this equated to R1.8 million which was donated to the Solidarity Fund to assist South Africa in combating the pandemic.

The committee continues to engage with shareholders, with a view to enhancing the remuneration policy and its implementation. Key policy enhancements include the addition of ESE targets in the discretionary component of STIs for key executives. Embedding the newly adopted ESE framework in the 2021 financial year will support the committee in assessing the performance of executives against these measures.

Performance vesting criteria for the CSP awards have also been extended to include both an income statement (earnings) and balance sheet return measure.

To enhance disclosure, the remuneration report now includes weightings for the qualitative, quantitative and discretionary components of executives’ STI awards. We also disclose performance targets set for evaluating executive performance in relation to STI awards.

For the year ahead, the remuneration committee will focus on:

  • Further engagement with shareholders to ensure the group’s remuneration policy supports business performance and remains aligned to the interests of its stakeholders.
  • Monitoring the impact of the pandemic on executive and employee remuneration to ensure that we balance the long-term sustainability of the business with the retention, fair reward and attractive incentivisation of talented and specialised executives and employees.