Remuneration report

REMUNERATION REPORT

The report outlines our remuneration policy, provides context for the remuneration considerations and presents an implementation report on the remuneration outcomes based on our policy. The Group’s total remuneration consists of fixed (guaranteed pay) and variable (short-term and long-term incentives) components.

The remuneration committee contracted the services of Bowmans Reward Advisory Services for independent external advice and PwC verified the extent to which the performance conditions of incentive schemes were met.During the year, the remuneration committee considered the following key matters:

  • Approval of increases to guaranteed pay;
  • Approval of executive director and prescribed officer guaranteed pay increases for FY2022;
  • Performance testing and approval of short-term incentive (STI) payments in respect of FY2021;
  • Performance testing and approval of vesting of the 2018 long-term incentive (LTI) awards;
  • Approval of the 2021 LTI awards and underlying performance conditions;
  • Review and recommendation of non-executive director fees for FY2022, excluding recommendation on their own fees; and
  • Review and approval of the Group’s remuneration report for inclusion in the FY2021 integrated report.

The STI incentivises performance against financial (70%) and non-financial (30%) targets set for each financial year. The financial targets set at the beginning of FY2021 were derived from the budget for the year on conclusion of a comprehensive bottom-up budgeting process, which took into account the Group’s order book and prevailing market conditions. The financial KPIs for FY2021 were similar to those of the previous year. The earnings before interest and tax (EBIT) target decreased to R619 million in FY2021, from R906 million in FY2020 and the diluted HEPS for continuing operations target decreased to 37 cents, from 97 cents. The actual financial results were lower than the targets for FY2021 due to the impact of the global COVID-19 pandemic and stringent measures implemented by governments to curtail the spread of the virus. Performance measured against the EBIT, headline earnings per share (HEPS), cash and return targets translated into the financial component for STI performance outcomes, as detailed in this report. The non-financial targets are equally weighted and measured on leadership, relationship, operational performance and risk management. Refer to the FY2021 STI Performance Outcomes for more detail on financial and non-financial performance relative to the targets set.

The financial targets for the year were stretching considering the trading environment. The impact of COVID-19 was more extensive than assumed at the time of setting the financial targets for the year, and thus made it very difficult for the scheme participants to achieve the financial targets for the year. The impact also extended to the LTI scheme measures.

Executive directors and prescribed officers’ remuneration:

Average guaranteed pay

Increases of 3,88% were implemented with effect from 1 July 2021, similar to the increases awarded to salaried staff across the Group, which were largely in line with South African inflation.

THE FINANCIAL TARGETS FOR THE YEAR WERE STRETCHING CONSIDERING THE TRADING ENVIRONMENT.

THE IMPACT OF COVID-19 WAS MORE EXTENSIVE THAN ASSUMED AT THE TIME OF SETTING THE FINANCIAL TARGETS FOR THE YEAR, AND THUS MADE IT VERY DIFFICULT FOR THE SCHEME PARTICIPANTS TO ACHIEVE THE FINANCIAL TARGETS FOR THE YEAR.


STI award

An award equating to 36,7% of the maximum value possible in terms of this scheme has been awarded for FY2021. Operating profit was R540 million, measured as EBIT for continuing operations and was above threshold but below target. Return on invested capital employed (ROICE) at 4% was below threshold. Positive free cash flow (FCF) of R2 392 million was also above threshold but below target. The net positive cash position of R685 million (post IFRS 16) was commendable considering COVID-19, and the cash position did meet the stretch performance target to attract STI for this performance measure. This STI outcome is reflective of the Group’s financial performance relative to the financial targets and the performance against individual non-financial targets that were set at the beginning of the year.

Murrob lady in stairs

LTI vesting

The performance period for the 2018 Forfeitable Share Plan (FSP) LTI award ended on 30 June 2021. Based on performance over the three-year performance period, 50% of the 2018 FSP award vested in 2021. 50% of the award was based on EBIT margin performance and 50% on the cash conversion ratio of EBITDA into cash. The EBIT margin performance over the performance period was below threshold, hence no shares vested for this performance measure. The cash conversion ratio of EBITDA into cash was above target, at 110%. Consequently, 100% of the shares vested for this performance measure. As from September 2015, in terms of the revised remuneration policy adopted in that year for each performance measure, only 30% of the award will vest at threshold performance and 100% at target performance.

Given the changes introduced to the remuneration policy in 2015 and subsequent shareholder support for this policy, as well as the policy’s general alignment with King IV, no policy changes were introduced during the year. The Group’s remuneration policy and implementation report respectively received the support of 99,59% and 99,96% of shareholders who voted at the AGM in November 2020. We believe our remuneration policy is aligned to best practice and that its application is not only fair to participants but also encourages a performance culture in the Group that will lead to sustained shareholder value creation.

As required by the Companies Act and King IV, the following resolutions will be tabled for shareholder voting at the AGM on 2 December 2021, details of which can be found in the AGM notice:

  • Binding vote on non-executive directors’ fees;
  • Advisory vote on the remuneration policy; and
  • Advisory vote on the implementation report.

I would like to thank my fellow remuneration committee members for their contribution and support. I am satisfied that the remuneration committee discharged its obligations in a responsible and professional manner.

RALPH HAVENSTEIN

Chairman

REMUNERATION POLICY OVERVIEW

Introduction

The remuneration report has been prepared by the remuneration committee in line with the principles outlined in King IV and has been approved by the Board. The report covers executive director, prescribed officer and non-executive director remuneration. The remuneration report outlines the remuneration policy that guides the remuneration committee’s decisions, and the remuneration outcome from the application of the remuneration policy during FY2021.

Remuneration policy principles

Murray & Roberts believes that employees should be paid fair, competitive and appropriately structured remuneration in the best interests of shareholders. It also recognises that its remuneration philosophy has a direct effect on the behaviour of employees and that it must support delivery of the Group’s business strategy. The remuneration policy continues to be driven by the principles of developing a performance culture and motivating and retaining key and critical talent.

The Murray & Roberts remuneration policy is aligned to the Group strategy, which aims to deliver shareholder value through growth in profitability and cash flows. This strategy focuses the Group on the resources, industrial, energy, water and specialised infrastructure market sectors, the diversification of the Group’s business model, the delivery of project, commercial management and safety excellence, enhanced performance and diversity of the Group’s employees.

Murray & Roberts’ remuneration policy applies to all businesses in the Group to ensure consistency and fairness in remuneration. Some flexibility, however, is allowed to acknowledge differences across businesses with varying market conditions, and external benchmarking per business platform.

Remuneration policy for executive directors and prescribed officers

To give effect to the general remuneration philosophy that executive directors, prescribed officers and salaried employees should be paid fair, competitive and appropriately structured remuneration in the best interests of the Group and shareholders, the following broad principles are applied:

  • Total remuneration consists of fixed and variable components, with emphasis on variable pay at senior levels to encourage performance and shareholder value creation;
  • Remuneration structures support the development of a performance culture and achievement of the Group’s business strategy;
  • Remuneration components are set at a competitive level to motivate key talent and to attract and retain the services of high-calibre employees;
  • The STI plan aligns the interests of executives with those of shareholders in the short term, as performance incentives are subject to Company key financial performance and individual non-financial key performance indicators; and
  • The LTI plan rewards achievement of financial performance measures supporting long-term shareholder value creation.

Components of remuneration

The remuneration committee ensures that the mix of remuneration components supports the Group’s strategic objectives. Murray & Roberts has the following remuneration components:

  • Guaranteed pay (consisting of salary, benefits and retirement fund contributions);
  • Short-term incentives; and
  • Long-term incentives.

The Group seeks to position guaranteed pay at the median against appropriate benchmarks; however, for total remuneration the policy is to position at the 75th percentile for executives, senior management and key talent and critical skills, where the 75th percentile is achieved at between “on-target” and “stretch” performance. This policy supports the underlying principle of paying for performance and the focus on variable pay.

The table on the following pages summarises the key components of executive directors’ and prescribed officers’ remuneration, the link to strategy, how each component operates and the maximum opportunity for each element.

Summary of remuneration components and link to strategy

GUARANTEED PAY

is a fixed component, which reflects individual contribution and market value for respective roles, with internal and external equity being cornerstones for setting guaranteed pay.

OPERATION
  • Positioned at market median (per job grade taking into consideration the size and complexity of the role). The remuneration committee considers the impact of any guaranteed pay increase on the total remuneration package.
  • Paid monthly in cash net of allocations to retirement fund, insured benefits and medical aid.
  • Guaranteed pay (and other elements of the remuneration package) is paid in different currencies as appropriate to reflect the geographic location of the executive.
  • Reviewed annually, taking account of Group performance, individual performance, changes in responsibility, levels of increase in the market and levels of increase for the broader employee base.
  • Benchmarking is performed relative to peer companies listed on the JSE for executive directors and for prescribed officers. The Energy, Resources & Infrastructure platform CEO is benchmarked against an appropriate peer group of Australian companies.
MAXIMUM OPPORTUNITY
  • There is no prescribed maximum annual increase. However, increases will normally be in line with the general level of increase in the market against which the executive’s salary is benchmarked.
  • On occasions a larger increase may be awarded to recognise, for example, development in role or change in responsibility.

BENEFITS

are provided at competitive levels to attract and retain suitably qualified and experienced executives.

OPERATION
  • Benefits such as travel allowances, insurance policies relating to death-in-service and disability benefits and medical aid are included in guaranteed pay.
MAXIMUM OPPORTUNITY
  • There are no prescribed maximum values. However, reference is made to market practice and benchmarks.
  • Company contributions for disability and death benefits in South Africa are based on pensionable salary. The contribution rates are reviewed annually.

RETIREMENT FUND

contributions are made to provide competitive post-employment income to attract and retain suitably qualified and experienced executives.

OPERATION
  • Executives in South Africa contribute to the Sanlam Umbrella Pension Fund, which is a defined contribution pension fund.
  • In Australia, contributions are made, as part of guaranteed pay, to a superannuation fund structured as a defined contribution fund.
MAXIMUM OPPORTUNITY
  • Maximum company contributions are set according to local retirement fund rules.

SHORT-TERM INCENTIVES

drive Group and team financial performance, as well as individual performance for non-financial measures, to deliver sustained shareholder value. It also provides alignment with shareholders through a deferred component.

OPERATION
  • The STI scheme is designed to be self-funding. Bonus projections for on-target performance are used to ensure affordability. Financial measures such as EBIT are used to calculate the bonus provision and actual profit reported is net of a bonus provisions accrual.
  • Awards are based on annual performance against a balanced scorecard of metrics as determined by the remuneration committee from time to time.
  • The Group chief executive, Group financial director and business platform CEOs have a 70% weighting in favour of financial targets, while other prescribed officers have a 60% weighting. For the 70% financial target weighting for business platform CEOs, 50% is linked to their platform financial targets and 20% to Group financial targets.
  • Individual performance is also assessed against suitable non-financial targets related to leadership, relationship, operational and risk (including safety) targets.
  • 70% of the award is delivered in cash and 30% in deferred forfeitable shares or cash under the LTI schemes, which vests equally over three years, subject only to continued employment.
  • Financial performance targets are measured against audited annual financial performance, net of bonus accruals. Individual non-financial performance targets are based on a formal performance and development evaluation conducted by the executive’s direct manager and by the committee and Board chairman for the Group chief executive.
MAXIMUM OPPORTUNITY
  • The STI disbursement is based on incentive qualification levels as a percentage of guaranteed pay, which is a function of job grade and performance against agreed financial and/or individual targets as per the individual’s performance contract, and applied on a sliding scale between threshold, target and stretch performance.
  • Performance below threshold attracts no STI payment for the specific component, where the threshold for financial targets is 80% of target.
  • The STI disbursement is capped at stretch performance or 120% of target.
  • The maximum STI disbursement as a percentage of guaranteed pay is 200% for the Group chief executive, 150% for the Group financial director and between 100% and 150% for prescribed officers depending on their job grade.
  • Clawback provisions, as described below, apply to STI awards made from August 2015.

LONG-TERM INCENTIVES

provide general alignment between the executives and shareholders of the Group. They also motivate and reward executives who have contributed to the Group’s value creation over the long term and support the retention and attraction of executives.

OPERATION
  • Murray & Roberts operated the following LTI schemes in FY2021: the FSP introduced in October 2012, the Letsema Vulindlela Black Executives Trust (Vulindlela), which was established in December 2005 as part of the Group’s BBBEE shareholding structure and the Long-Term Cash Settled Incentive Plan (LTCSIP) which was introduced in 2017 as a LTI scheme for executives operating outside South Africa.
FORFEITABLE SHARE PLAN (FSP)
  • Forfeitable Murray & Roberts shares are awarded subject to continued employment and achievement of challenging performance conditions measured over a three-year performance period, which are set by the remuneration committee before each grant.
  • Cliff vesting occurs at the end of the three-year period.
  • Settlement of the forfeitable shares can be by way of an acquisition of the required number of shares on the market or the use of shares held in treasury account or an issue of shares. The remuneration committee has the ability to cash-settle awards, if necessary, in exceptional circumstances.
  • In very specific circumstances, and on an ad-hoc basis, where it is necessary to retain critical talent, the remuneration committee may make awards only subject to continued employment with no performance conditions. These awards are aimed at retention and do not form part of the annual awards.
LONG-TERM CASH-SETTLED INCENTIVE PLAN (LTCSIP)
  • A cash-settled LTI is awarded to senior executives operating outside South Africa, subject to continued employment and achievement of challenging performance conditions measured over a three-year performance period, which are set by the remuneration committee before each grant. The performance conditions mirror those used under the FSP.
  • Cliff vesting occurs at the end of the three-year period.
  • In very specific circumstances, and on an ad-hoc basis, where it is necessary to retain critical talent, the remuneration committee may make awards only subject to continued employment with no performance conditions. These awards are aimed at retention and do not form part of the annual awards.
LETSEMA VULINDLELA BLACK EXECUTIVES TRUST
  • The beneficiaries of Vulindlela are black (African, Coloured and Indian) South African citizens who are employed on a permanent basis within the Group as top, senior and middle managers. Black prescribed officers have several outstanding allocations under Vulindlela and have been allocated forfeitable shares under the FSP since November 2012.
  • In terms of the Trust deed, this Trust is to be terminated on 31 December 2022. As the awards are subject to a five-year lock-in period, a final allocation was made in November 2016. High-potential middle management employees qualify for an award under the FSP.

EXECUTIVE SHARE OWNERSHIP

aims to better align the interests of executives with those of shareholders by encouraging executives to build a meaningful shareholding in the Group.

OPERATION
  • Executive share ownership is encouraged through the part deferral of STIs into forfeitable shares, where 30% of the STIs are deferred into forfeitable shares under the FSP.
  • In a bid to encourage executives to hold more shares, the Group chief executive is encouraged to build a shareholding, in “unfettered” shares, equivalent to at least 100% of guaranteed pay, other executive directors equivalent to 75% of guaranteed pay, and prescribed officers equivalent to 50% of guaranteed pay over a period of not more than five years.
  • Executives are encouraged to retain at least 50% of any vested shares after meeting necessary tax obligations under the LTI schemes.
MAXIMUM OPPORTUNITY
  • Not applicable.

Choice of performance measures

The table below and alongside shows the performance measures set for FY2021, which will also be applied in FY2022.

The weightings presented below are for the executive directors. Targets are set every year following a bottom-up business planning process, taking account of strategic goals and the prevailing market conditions.

STI performance measures

METRIC   WEIGHTING FOR GROUP
CHIEF EXECUTIVE
AND FINANCIAL DIRECTOR
  RATIONALE
FINANCIAL PERFORMANCE MEASURES
       
Continuing EBIT  
20%
  A key indicator of the underlying profit performance of the
Group, encouraging performance in terms of both revenues
and cost control.
Continuing diluted
HEPS
 
20%
  A key indicator of the value add for shareholders.
Net cash  
10%
  A key indicator of the Group’s liquidity and ability to meet its
debt requirements.
Free cash flow  
10%
  A key indicator of the Group’s ability to generate cash after
providing for maintaining or expanding its asset base.
FCF is an indication of the ability of the Group to pursue
opportunities that enhance shareholder value.
ROICE  
10%
  A key indicator of the effective use of shareholder capital.
         
         

 

METRIC   WEIGHTING FOR GROUP
CHIEF EXECUTIVE
AND FINANCIAL DIRECTOR
  RATIONALE
INDIVIDUAL PERFORMANCE MEASURES
 
Leadership  
7,5%
  A key indicator of the extent to which strategy implementation, transformation & diversity and leadership succession & development objectives are achieved.
Relationship  
7,5%
  A key indicator of the extent to which stakeholder engagement and employee relations objectives are achieved.
Operational  
7,5%
  A key indicator of the extent to which governance, commercial management and project performance
objectives are achieved.
Risk  
7,5%
  A key indicator of the extent to which health, wellness and safety, risk management and environmental objectives are
achieved.

LTI performance measures

FSP performance measures over a three-year vesting period
FOR AWARDS MADE FROM SEPTEMBER 2018
METRIC AND WEIGHTING   RATIONALE   VESTING
EBIT margin (earnings before interest and tax for continuing operations divided by revenue from continuing operations)
50%
  A key indicator of the underlying profit performance of the Group, encouraging performance in terms of both revenues and cost control.
  30% vests for threshold performance and 100% vests for target performance, where threshold performance is 3% EBIT margin and target performance is 5% EBIT margin. Linear vesting will be applied between these points.
Conversion ratio of EBITDA into cash (operating cash flow plus dividends received divided by earnings before interest, tax, depreciation and amortisation)
50%
  A key indicator of the ability of the Group to convert profits into cash, which requires good working capital management.   30% vests for threshold performance and 100% vests for target performance, where threshold performance is 60% conversion ratio and target performance is 80% conversion ratio. Linear vesting will be applied between these points.
         
         

Clawback of incentives

For STI and LTI awards made from August 2015, the remuneration committee introduced clawback provisions, where the committee may reduce or clawback STI and LTI awards in the following circumstances:

  • The participant acting fraudulently, dishonestly or with malice, or being in material breach of their obligations to the Group; or
  • Where Murray & Roberts becomes aware of a material misstatement or omission in the financial statements of a Group company or the Group.

These clawback provisions apply whether or not awards are made in the form of cash or equity, and whether or not the equity has vested.

Differences in remuneration policy for executives compared to other employees

There are differences in the structure of the remuneration policy for the executive directors, prescribed officers and other salaried employees, which are necessary to reflect the different levels of responsibility and market practices. The key difference is the increased emphasis on incentives or variable performance-related pay in senior roles. Lower maximum variable incentive pay limits, as a percentage of guaranteed pay, apply for roles below executive level, driven by market benchmarks and the relative impact of the role. Only the most senior executives in the Group participate in the FSP and LTCSIP schemes, where these plans are targeted at those individuals who have the greatest responsibility for Group performance. As Murray & Roberts believes that all employees should be aligned with key business drivers, participation in the STI also includes middle management, junior management and general employees, subject to the meeting of individual performance targets.

Executive directors’ and prescribed officers’ employment contracts and policy on termination of employment

Executive directors and prescribed officers do not have fixed-term contracts, but are subject to notice periods of three months. The employment contracts include pay in lieu of notice provisions, which may be invoked at the discretion of the Group. Normal retirement of executive directors and senior management is at age 63, however, this is subject to specific legislation in the countries in which Murray & Roberts operates. The Group chief executive’s performance contract has been extended to 31 August 2024, when he will retire at age 65.

At 30 June 2021, there was no material liability to the Group with respect to the termination of employment of any executive director or prescribed officer. The contracts of employment do not include provisions entitling the individual to a specified payment on termination of employment or on a change of control of Murray & Roberts, other than as stipulated in the LTI schemes. The only provision in the contract of employment for executive directors and prescribed officers (other than the Energy, Resources & Infrastructure platform CEO) relating to a payment on termination of employment is that, where termination occurs during the first year of employment, any payment to which the individual is entitled by law will be limited to a maximum of 25% of annual total fixed cost of employment (TFCE).

Any LTI entitlements awarded to an executive director or prescribed officer under the Group’s LTI schemes will be determined based on the relevant plan rules. Employees terminating employment due to resignation or dismissal on grounds of misconduct, poor performance or dishonest or fraudulent conduct or due to absconding, will forfeit all unvested LTI awards and deferred STI into LTI awards. Employees terminating employment due to death, retirement, retrenchment, ill health, disability, injury or the sale of the employer company will be classified as good leavers and a portion of the LTI awards and deferred STI into LTI awards will vest on the date of termination of employment.

This portion will reflect the number of months served since the award date, to the date of termination of employment over the total number of months in the vesting period and the extent to which the performance conditions imposed have been met. The remainder of the awards will lapse.

No agreements have been entered into with the executive directors or prescribed officers regarding restraint of trade, other than the Energy, Resources & Infrastructure platform CEO, who has a non-competition clause in his contract of employment.

Retention schemes

There are currently no retention schemes in place for executive directors or prescribed officers.

TOTAL REMUNERATION SCENARIOS AT DIFFERENT PERFORMANCE LEVELS

The charts below illustrate the total potential remuneration for the executive directors.

Assumptions:

Minimum = guaranteed pay only (salary, benefits and retirement fund contributions).

Expected = on-target STI allocation and expected value (50%) of LTI award.

Maximum = stretch STI allocation and face value of LTI award. Guaranteed pay levels (on which other elements of the package are calculated) are based on those applying on 1 July 2021.

Remuneration policy for non-executive directors

Components of remuneration

Non-executive directors receive a fee for their contribution to the Board and its committees of which they are members. This fee structure reflects the skill and experience brought to the Group by each non-executive director, responsibilities undertaken, the time commitment involved and the importance of attendance and contribution to Board and committee meetings. The fee structure is reviewed annually.

Fees are benchmarked against companies listed on the JSE which are of a similar size and nature, in terms of market capitalisation and sector. This includes companies in the construction, mining and industrial sectors. It is the Group’s policy to align fees to the upper quartile of the benchmark, in alignment with the total remuneration policy for executives and in order to ensure that suitably qualified and experienced non-executive directors are attracted to the Group.

Remuneration governance

The remuneration committee assists the Board to fulfil its corporate governance supervision responsibilities and to align the remuneration policy with the Group’s business strategy. The key focus in this regard is to attract, retain, motivate and reward directors, senior executives and employees through the payment of fair, competitive and appropriately structured remuneration, in the best interests of the Group and shareholders. The committee operates under terms of reference reviewed and approved annually by the Board.

Membership

Ralph Havenstein chairs the remuneration & human resources committee. Ntombi Langa-Royds, Suresh Kana and Alex Maditsi serve as members of the committee. The Group chief executive and Group financial director attend meetings in an ex officio capacity. The executives who attend meetings in an ex officio capacity do not participate in any discussions or decisions pertaining to their own remuneration. Expert advice is sought from time-to-time.

Terms of reference

The chairman of the committee reports to the Board on the committee’s deliberations and decisions. The committee assists the Board by submitting reports and recommendations on the Group’s employment framework and policies, and remuneration philosophy.

The committee is responsible for considering and approving proposals regarding guaranteed pay, benefits, short-term incentives, long-term incentives and related matters pertaining to executive directors of the Group, prescribed officers, all managing directors of the Group’s businesses and other senior Group executives. It also considers and approves the remuneration and benefits paid to general employees. It oversees Group pension, provident and other benefit plans.

IMPLEMENTATION REPORT

The implementation report details the outcomes of the approved remuneration policy detailed in the previous section.

Single total figure of remuneration

The table below includes the total remuneration for the reported financial year and the previous financial year. The table includes guaranteed pay, the short-term incentive (excluding the 30% deferred STI) paid and the long-term incentives that will vest due to performance in the financial year (including the 30% deferred STI award).

Single total figure of remuneration for period to 30 June 2021
PAYMENT IN RAND (R’000)
EMPLOYEE Guaranteed pay STI LTI Other Total remuneration
NAME 2021   2020   2021   2020   2021   2020   2021   2020   2021   2020  
Da Costa, M 4 711   4 530   1 560   571   2 086   245       8 357   5 346  
Grobler, Daniël 4 940   4 750   2 003   1 341   2 727   1 081       9 670   7 172  
Harrison, Steve 3 796   3 589   330     1 295   316       5 421   3 905  
Henstock, Ian 4 493   4 320   2 180   1 638       73   73   6 746   6 031  
Laas, Henry 7 675   7 380   4 150   2 970   5 766   2 353   118   392   17 709   13 095  
Mdluli, Thokozani 3 536   3 400   939   633   1 267   478       5 742   4 511  
PAYMENT IN AU$ (AU$’000)
EMPLOYEE Guaranteed pay STI LTI Other Total remuneration
NAME 2021   2020   2021   2020   2021   2020   2021   2020   2021   2020  
Bennett, Peter 907   955   575     696   242       2 178   1 197  
The single total figure of remuneration is calculated as set out below.

Guaranteed pay earned for the period including benefits and retirement fund contributions. The average remuneration adjustment for executive directors and prescribed officers for FY2021 (effective 1 July 2021) was 3,88% (FY2020: 4,0%). The total adjustment was aligned to the average Murray & Roberts increase awarded in March 2021 for other salaried employees of 3,30%.

Guaranteed pay earned for the period including benefits and retirement fund contributions. The average remuneration adjustment for executive directors and prescribed officers for FY2020 (effective 1 July 2020) was 4,0% (FY2019: 5,58%). The total adjustment was aligned to the average Murray & Roberts increase awarded in March 2020 for other salaried employees of 4,09%.

STI awarded for FY2021 performance. 70% of the award is payable in cash in September 2021, and 30% deferred as an LTI award, which will vest one third each year from FY2022 to FY2024.

STI awarded for FY2020 performance. 70% of the award is payable in cash in September 2020, and 30% deferred as an LTI award, which will vest one third each year from FY2021 to FY2023.

The value of LTI awards under the 2018 FSP that vest in 2021, based on performance during the three-year period to 30 June 2021. The value of that award is based on a share price on 30 June 2021 of R10,35.

50% of the 2018 FSP awards lapsed due to the EBIT margin performance measure not being met. The cash conversion ratio of EBITDA into cash was above target, at 110%. Consequently 100% of the shares vested for this performance measure.

The value of LTI awards under the 2017 FSP that vest in 2020, based on performance during the three-year period to 30 June 2020. The value of that award is based on a share price on 30 June 2020 of R5,00.

75% of the 2017 FSP awards lapsed due to actual ROICE and TSR being below threshold. The FCF targets were met for which 25% of the 2017 FSP awards vested. The same performance conditions and vesting percentage apply to the Cash Settled Conditional Rights awarded to the Group chief executive in 2017 as well as the LTCSI award made to the ERI platform CEO in 2017.

The benefit to Henry Laas consists of a fringe benefit on the use of a company vehicle.

The benefit to Ian Henstock represents payment to him to secure private life cover.

The benefit to Henry Laas consists of a fringe benefit on the use of a company vehicle, as well as proceeds from a deferred compensation policy.

The benefit to Ian Henstock represents payment to him to secure private life cover.

FY2021 STI performance outcomes

Financial performance is measured against KPIs, based on audited annual financial results, net of STI accruals. Non-financial individual performance KPIs are based on a formal performance assessment conducted by the Group chief executive for the executives, and by the remuneration committee and Board chairman for the Group chief executive.

Performance below threshold attracts no STI payment for the specific component of the STI below threshold, where threshold for financial targets is 80% of target.

Non-financial individual performance is assessed against suitable KPIs and is rated on a sliding scale from 1 to 5, where a score of 2 represents threshold performance, 3 on-target performance, 4 excellent performance and a score of 5 stretch performance.

Performance against the FY2021 Group targets are summarised below. The outcome represents the overall Group performance expressed as a percentage achievement against target for the specific financial KPI. Performance against non-financial KPIs is the average for executives out of a score of 5.

KPA   KPI   OUTCOME   COMMENTS
             
FINANCIAL
           
             
WEIGHTING   Profitability – EBIT
(Weighting 20%)
 
87%
  EBIT profit of R540 million achieved relative to target of R619 million for continuing operations.
70%
  Profitability – diluted HEPS
(Weighting 20%)
 
0%
  Diluted HEPS from continuing operations of 16 cents achieved relative to target of 37 cents.
    Cash flow – net cash
(Weighting 10%)
 
699%
(capped at 120%)
  Net positive cash of R685 million achieved relative to target of R98 million.
    Cash flow – free cash flow
(Weighting 10%)
 
85%
  Positive free cash flow of R2 392 million relative to target of R2 830 million.
    Returns
(Weighting 10%)
 
0%
  ROICE of 4% achieved relative to the weighted average cost of capital (WACC) plus 1,5% (on target) or 13,7%.
Performance of less than WACC compared to target attracts no STI payment for the element.
             
             
             
LEADERSHIP
           
             
WEIGHTING   Strategy
implementation
 
3.57
out of 5
  New target markets resulted in strong order book growth. International expansion gained further momentum.

Digital strategy defined for Energy, Resources & Infrastructure and Mining platforms. Exit from Middle East progressed well.
7,5%
  Transformation
& diversity
BBBEE rating improved to level 1. Diversity and inclusion high on agenda of international businesses and good progress made.
    Leadership
succession
& development
      Performance management, talent review and succession planning effectively undertaken. Successors in place for all key roles. Leadership development and training impacted by COVID-19 but remains an area of focus.
             
             
             

 

KPA   KPI   OUTCOME   COMMENTS
             
RELATIONSHIPS
           
             
WEIGHTING   Stakeholder
engagement
 
3.71
out of 5
  Maintained good relationships with all key internal and external stakeholders. Members of the Analysts Investment Society voted Murray & Roberts as the leader in the communications and financial sector: Industrials.
7,5%
  Employee
relations
      Effective Group communication maintained, especially on COVID-19 developments and Group impact.
            Generally, employees are well motivated, and relations are good.
             
             
OPERATIONAL
           
             
WEIGHTING
  Good governance  
3.0
out of 5
  Group-wide compliance with good governance practices. King IV compliant.

No pending legal action due to breach of legislation.

All business management systems are functional, and ISO accredited.

Group Sustainability Framework reviewed and realigned to emerging ESG imperatives.
7,5%
  Commercial
management
    Project
performance
      Initiatives supporting the resolution of claims on several projects are thorough, proactive, and ongoing. No material adverse outcomes on any claims.
            Working capital management resulted in strong inflow of cash.
            Project performance much improved, although losses incurred on some projects.
             
             
             
             
RISK
             
             
WEIGHTING
  Health, wellness & safety  
2.86
out of 5
  Regrettably, a fatal incident occurred on the first day of financial year.

LTIFR and TRCR targets not achieved, although performance still very good compared to industry peers.
7,5%
  Risk management       Risk management practices and internal audit are well-established disciplines and no material findings were reported. The Opportunity Management System, based on the Group’s risk tolerance framework is working effectively and applied across all businesses.
    Environment       Environmental management in accordance with standards.
            No environmental incidents were reported.
             
             

 

THE STI BREAKDOWN FOR THE GROUP CHIEF EXECUTIVE FOR FY2021 IS SET OUT BELOW
  2021   2020  
Financial 3 050 775   1 476 000  
■ Diluted HEPS 0   0  
■ EBIT 1 036 125   0  
■ Net cash 1 535 000   1 476 000  
■ Free cash flow 479 650   0  
■ ROICE 0   0  
Non-financial 2 878 125   2 767 500  
■ Leadership 863 437   830 250  
■ Relationships 863 438   830 250  
■ Operational 575 625   553 500  
■ Risk 575 625   553 500  
Total* 5 928 900   4 243 500  
         
FY2021 LTI performance outcomes

Vesting of the 2018 FSP award

The three-year performance period for the 2018 FSP award ended on 30 June 2021. The 2018 FSP award comprised 3 865 763, with a total of 1 795 500 shares awarded to the executive directors and prescribed officers. 50% of the award was subject to an EBIT margin performance condition and 50% on the cash conversion ratio of EBITDA into cash. The EBIT margin performance over the performance period was below threshold, hence no shares vested for this performance measure. The cash conversion ratio of EBITDA into cash was 110%. Consequently, 100% of the shares vested for this performance measure.

The below-threshold performance in EBIT margin, and above target on the cash conversation ratio of EBITDA into cash, resulted in 50% of the 2018 FSP award being forfeited and these shares lapsed on 30 August 2021. The remaining 50% of the 2018 FSP award vested. The calculation of the vesting percentage of these awards were audited by the external auditors.

LTI award 2021

In terms of the FSP scheme rules, the aggregate number of shares at any one time which may be allocated under the Share Option Scheme and the FSP may not exceed 5,0% of the number of shares in issue. This represents 22 236 806 shares. As at 30 June 2021, there were no shares allocated under the Share Option Scheme and 21 048 299 shares under the FSP, which is less than the aggregate cap. This includes FSP awards under the STI deferral. It should be noted that these shares were not allocated by way of an issue of new shares and as such are not dilutive to shareholders.

This limit was set in 2012, when the share price was trading at higher levels and the subsequent reduction in the share price has led to an increase in the number of shares awarded to achieve the award value as per the remuneration policy.

As a result of the limit referred to above it was resolved to award cash-settled conditional rights on 1 September 2021, which will vest in 2024. A total number of 8 637 500 conditional rights were allocated, of which 3 323 500 conditional rights to the value of R33,9 million were allocated to the executive directors and prescribed officers. The allocation took job grade, individual performance and retention risk into consideration. The vesting of the 2021 cash-settled award is subject to meeting performance conditions for the three-year performance period from 1 July 2021 to 30 June 2024, as shown in the table below.

30% of the performance related award will vest at threshold and 100% at target, with no vesting for below-threshold performance. Linear vesting will apply between these points. The remuneration committee considers the performance targets to be stretching in the context of the Group’s business strategy and the market conditions.

This cash-settled award is subject to the same vesting and performance conditions as previous awards issued under the FSP. It therefore does not result in a more favourable financial outcome compared to the FSP.

Once the outstanding awards under the September 2019 FSP award vest in September 2022, there will be sufficient headroom to make an allocation in 2022 under the FSP again.

Long-term cash-settled awards were made to executives operating outside South Africa in October 2021 under the LTCSIP. The October 2021 LTCSIP award is the annual allocation of awards to senior executives outside South Africa, including the Energy, Resources & Infrastructure platform CEO, and will vest in 2024. The allocation took job grade, individual performance and retention risk into consideration.

The vesting of these awards is subject to meeting the same performance conditions as set out below, over the three-year performance period from 1 July 2021 to 30 June 2024.

Thirty percent of the award will vest at threshold and 100% at target, with no vesting for below-threshold performance. Linear vesting will apply between these points.

The Energy, Resources & Infrastructure Platform CEO was awarded a cash-settled long-term incentive to the value of AU$957 000 on 1 October 2021 (October 2020: AU$910 800).

SEPTEMBER 2021 LTI AWARD PERFORMANCE CONDITIONS
CRITERIA PERFORMANCE CONDITION WEIGHTING THRESHOLD TARGET FOR MAXIMUM VESTING
EBIT margin Earnings before interest and tax for continuing operations divided by revenue from continuing operations 50% 3% 5%
Conversion ratio of EBITDA into cash Operating cash flow plus dividends received divided by earnings before interest, tax, depreciation and amortisation 50% 60% 80%
Outstanding long-term incentives
FSP AWARDS AND STI DEFERRED INTO FSP AWARDS
NAME    Date 
awarded 
Opening 
balance 
Number of 
shares 
allocated 
Value at 
grant 
date 
(R’000)
Number 
settled 
in the 
year 
Number 
forfeited 
in the 
year 
Closing 
balance 
Settlement 
date 
Settlement 
value 
(R’000)
Estimated 
value 
(R’000)
Grobler, D    Sep 2017  405 000  –  –  (101 250) (303 750) –  Oct 2020  477  – 
     Sep 2018  361 000  –  –  –  –  361 000  –  –  1 868 
     Sep 2019  580 000  –  –  –  –  580 000  –  –  3 002 
     Oct 2020  –  997 500  5 536  –  –  997 500  –  –  5 162 
     STI 2017  18 318  –  –  (18 318) –  –  –  86  – 
     STI 2018  59 930  –  –  (29 965) –  29 965  –  141  310 
     STI 2019  100 098  –  –  (33 366) –  66 732  –  157  691 
     STI 2020  –  106 868  574  –  –  106 868  –  –  1 106 
Harrison, S    Sep 2017  253 000  –  –  (63 250) (189 750) –  Oct 2020  298  – 
     Sep 2018  223 000  –  –  –  –  223 000  –  –  1 154 
     Sep 2019  350 000  –  –  –  –  350 000  –  –  1 811 
     Oct 2020  –  493 000  2 736  –  –  493 000  –  –  2 551 
     STI 2017  11 775  –  –  (11 775) –  –  –  55  – 
     STI 2018  34 089  –  –  (17 044) –  17 045  –  80  176 
     STI 2019  22 178  –  –  (7 392) –  14 786  –  35  153 
Laas, H    Sep 2018  770 500  –  –  –  –  770 500  –  –  3 987 
     Sep 2019  1 072 500  –  –  –  –  1 072 500  –  –  5 550 
     STI 2017  39 296  –  –  (39 296) –  –  –  185  – 
     STI 2018  115 356  –  –  (57 677) –  57 679  –  310  597 
     STI 2019  209 735  –  –  (69 911) –  139 824  –  329  1 447 
     STI 2020  –  236 837  1 273  –  –  236 837  –  –  2 451 
Mdluli, T    Sep 2017  165 500  –  –  (41 375) (124 125) –  Oct 2020  195  – 
     Sep 2018  167 000  –  –  –  –  167 000  –  –  864 
     Sep 2019  267 000  –  –  –  –  267 000  –  –  1 382 
     Oct 2020  –  459 000  2 547  –  –  459 000  –  –  2 375 
     STI 2017  8 581  –  –  (8 581) –  –  –  40  – 
     STI 2018  21 022  –  –  (10 510) –  10 512  –  50  109 
     STI 2019  45 675  –  –  (15 225) –  30 450  –  72  315 
     STI 2020  –  50 476  271  –  –  50 476  –  –  522 
Da Costa, M    Sep 2018  274 000  –  –  –  –  274 000  –  –  1 418 
     Sep 2019  434 500  –  –  –  –  434 500  –  –  2 249 
     Oct 2020  –  747 500  4 149  –  –  747 500  –  –  3 868 
     STI 2019  87 993  –  –  (29 331) –  58 662  –  138  607 
     STI 2020  –  45 509  245  –  –  45 509  –  –  471 
                8 061 845      
CASH-SETTLED CONDITIONAL RIGHTS
NAME   Date
awarded
Opening
balance
Number of
rights
allocated
Value at 
grant 
date 
(R’000)
Number 
settled 
in the 
year 
Number
forfeited
in the
year
Closing
balance
Settlement
date
Settlement 
value 
(R’000)
Estimated 
value 
(R’000)
Laas, H   Sep 2017 864 000 –  (216 000) (648 000) Oct 2020 1 017  – 
    Sep 2019 150 000 –  –  150 000 –  776 
    Oct 2020 2 103 500 11 674  –  2 103 500 –  10 886 
LONG-TERM CASH-SETTLED INCENTIVE PLAN (LTCSIP)
NAME   Date
awarded
Opening
balance
Value at 
grant 
date 
(AU$’000)
Settled 
in the 
year 
(AU$’000)
Forfeited 
in the 
year 
(AU$’000)
Closing
balance
Settlement
date
Settlement 
value 
(AU$’000)
Estimated 
value 
(AU$’000)
Bennett, P   Oct 2017 880 –  (220) (660) Oct 2020 220  – 
    Oct 2018 898 –  –  –  898 –  449 
    Oct 2019 911 –  –  –  911 –  456 
    Oct 2020 911  –  –  911 –  456 

Executives receive dividend payments on the FSP and Conditional Rights allocations held from the award date.

For the FSP, Conditional Rights and the LTCSIP performance conditions, a vesting percentage of 50% is applied to calculate the estimated value.

LETSEMA VULINDLELA BLACK EXECUTIVES TRUST
NAME   Date
awarded
Number of
shares
allocated
Strike
price
Condition Number
forfeited
in the year
Closing
balance
Vesting
date
Mdluli, T   24 Aug 2010 11 500 41,02 Standard 11 500 31 Dec 2021
    20 Apr 2011 10 000 25,16 Hurdle 10 000 31 Dec 2021
    30 Aug 2011 25 500 27,70 Standard 25 500 31 Dec 2021
Remuneration outcomes for non-executive directors

The remuneration policy for the non-executive directors set out in the remuneration policy report was applied in FY2021. The remuneration of non-executive directors for the year ended 30 June 2021 was:

NON-EXECUTIVE DIRECTORS’ REMUNERATION
NAME   Directors’
fees
R’000
Non- 
attendance 
R’000 
Special
Board
R’000
Committee
fees
R’000
Lead
independent
fee
R’000
Chairman’s
fees
R’000
Total
2021
R’000
Total
2020
R’000
JA Boggenpoell   351 –  230 293 874 324
R Havenstein   –  230 1 216 1 446 1 638
SP Kana   –  1 727 1 727 1 741
NB Langa-Royds   351 (12) 172 551 1 062 1 279
AK Maditsi   351 –  230 360 941 1 055
TE Mashilwane1   –  578
B Mawasha   351 –  230 240 821 255
XH Mkhwanazi2   –  336
DC Radley   351 –  172 443 966 1 146
CD Raphiri   351 –  230 408 989 352
Total   2 106 (12) 1 494 2 295 1 216 1 727 8 826 8 704
NAME   Directors’
fees
AU$’000
Non-
attendance
AU$’000
Special
Board
AU$’000
Committee
fees
AU$’000
Lead
independent
fee
AU$’000
Chairman’s
fees
AU$’000
Total
2021
AU$’000
Total
2020
AU$’000
KW Spence3   164
1. Resigned on 5 March 2020.
2. Deceased on 4 January 2020.
3. Resigned on 5 March 2020.

The remuneration of non-executive directors is submitted to shareholders at the AGM for approval in advance of such payment being made.

The chairman’s fee includes attendance at committee meetings, excluding the Independent Board.

    Committee
fees
2021
R’000
Committee
fees
2020
R’000
R Havenstein   159
SP Kana   159
A Maditsi   78
DC Radley   78
Total   474

The Independent Board was disbanded on the lapsing of ATON's offer on 30 September 2019.

Fee proposal for 2022

In accordance with King IV, the remuneration committee reviews and recommends fee structures to the Board for approval (excluding recommendation on their own fees) before submitting recommendations for approval by shareholders at the AGM.

An inflation-linked increase to the non-executive director’s fee is proposed for 2022.

The proposed fees (excluding VAT) are tabled below.

    Previous per
annum
Proposed %
increase
Proposed per
annum
DIRECTORS FEES        
Chairman Including director and committee fees1 R1 744 000 3,21% R1 800 000
Lead independent director Including director and relevant committee fees R1 228 000 3,42% R1 270 000
Director
Per annum2,3,4 R354 000 3,67% R367 000
COMMITTEE FEES        
Audit & sustainability Chairman R326 500 3,22% R337 000
  Member R175 000 3,43% R181 000
Health, safety & environment Chairman R237 000 3,38% R245 000
  Member R121 000 3,31% R125 000
Nomination & governance Member R77 500 3,23% R80 000
Remuneration & human resources Chairman R237 000 3,38% R245 000
  Member R121 000 3,31% R125 000
Risk management Chairman R237 000 3,38% R245 000
  Member R121 000 3,31% R125 000
Social & ethics Chairman R237 000 3,38% R245 000
  Member R121 000 3,31% R125 000
 AD HOC MEETINGS        
Board Member R58 000 3,45% R60 000
Committee Member R29 500 3,39% R30 500
2
FEE DEDUCTIONS
1. Includes fees for chairing the nomination committee and attending all Board committees.
2. Calculated on the basis of four meetings per annum.
3. It is proposed that an adjustment deduction of R31 000 (2020: R30 000) per meeting be applied for non-attendance at a scheduled Board meeting.
4. It is also proposed that an adjustment deduction of R12 400 (2020: R12 000) per meeting be applied for non-attendance at a scheduled committee meeting.

In terms of Section 66(8) of the Companies Act, shareholders are referred to special resolution 1 included in the loose insert of the printed report, regarding approval of the proposed non-executive director fee structure for FY2022.