of the necessary calibre
Part 2: Application of the Remuneration Policy
Base salary
During the Reporting Period, the Human Resources and Remuneration Committee compared the Management Board’s performance to their targets, based on the audited 2016 Annual Financial Statements.
The outcome of the review was an approval by the Supervisory Board of an increase of the base of 13.6% for both the CEO and the COO, and an increase of 17.6% for the CFO.
Annual bonus General
During the Reporting Period, the Supervisory Board, on the recommendation of the Human Resources and Remuneration Committee, after determining that the performance criteria were met, approved the annual bonus for the Managing Directors and other Senior Managers. In addition, strategic project bonuses were awarded to the Managing Directors and other Senior Managers for their work on specific strategic projects such as the listing of Pepkor on the JSE. The payment of these bonuses was deferred over three equal payments, over a three year period, and was conditional on the individual being in active employment at the time of the payment date.
In awarding the annual bonuses, the Supervisory Board ensured that the relationship between the chosen performance criteria and the strategic objectives applied, as well as the relationship between remuneration and performance, were properly reviewed and accounted for both retrospectively at the end of a financial period and prospectively for future financial periods.
The Supervisory Board evaluated earning scenarios per individual Managing Director, in compliance with best practice provision II.2.1 of the DCGC.
Both the current Management Board and Supervisory Board confirm their respective commitment to make use of their clawback rights where appropriate.
Bonus payments made to Markus Jooste During the Reporting Period, a bonus payment of €2 071 008 in aggregate was made to Markus Jooste, as follows:
(i) Payment on 1 March 2017 – €500 000 (ii) Payment on 31 May 2017 – €1 571 008 The payment of the €500 000 was neither proposed by the Human Resources and Remuneration Committee nor approved by the Supervisory Board.
The awarding of the €1 571 008 was approved by the Supervisory Board in line with the strategic bonuses awarded in the financial years ending 30 September 2015 and 30 September 2016 respectively. In accordance with the Remuneration Policy, payment of the amount was deferred by the Supervisory Board and was scheduled to take place in in three payment tranches of
€561 074 (ZAR8 333 333) in October 2017,
€448 859 (ZAR6 666 666) in November 2017 and €561 074 (ZAR8 333 333) in October 2018. However, the accelerated payment of this amount on 31 May 2017 before it was due was not approved.
LTI’s
The allocation of LTI’s was based on the following key eligibility criteria:
(i) Involving individuals who are key to driving the Group’s business strategy (ii) Aimed at the retention of key talent/
scarce skills
(iii) Aimed at talent management strategy and succession plans
Participants in the ESRS are employees, in managerial and leadership roles, recommended annually by the relevant employer companies and approved by, the Supervisory Board upon recommendation by the Human Resources and Remuneration Committee (in respect of Senior Managers), or the Management Board (in respect of senior employees). Share rights are granted to qualifying participants on an annual basis. Such share rights vest on the third anniversary of the allocation date, provided the performance criteria, set for the specific annual allocation, are achieved.
The performance criteria set by the Management Board for share rights granted to senior employees took into account targets relating to growth, cash generation, returns and sustainability of the relevant employer companies and the Group. The Supervisory Board set performance criteria for the Managing Directors and other Senior Managers with reference to industry and market benchmark performance.
The benchmark was determined by measuring the operational performance against those of peer group companies in comparable industries and markets. The peer group consisted of: Metro AG, Inditex SA, Kingfisher Plc, Carrefour SA, Adidas AG, Volkswagen Group AG, GrandVision N.V., Royal Bam N.V., Bidvest Group Ltd, Shoprite Holdings Ltd and Woolworths Ltd.
The performance criteria for the Managing Directors and other Senior Managers were aligned with the following long-term strategic objectives of the Group:
(i) Integrated retail: to create a solid European and African footprint of household and apparel goods businesses; to develop those brands that outperform local competitors;
sustainably raise the operating margins;
leverage of the Group’s global scale and knowledge; exert sufficient influence over the entire supply chain; having due regard for long term sustainability of the business of the Group, its environment and social impact and governance matters.
(ii) Other Investments: to exert influence on the Group’s associate and other investments to manage appropriate returns on investments and long term sustainability.
Vesting of 2013 financial year grant Under the ESRS, 14 837 420 share rights were granted to a total of 77 participants during the Reporting Period. These share rights were subject to certain vesting conditions being met. Following the recommendations made by the Human Resources and Remuneration Committee the Supervisory Board determined that these vesting conditions had been met.
This resulted in the vesting of 14 366 887 share rights.
In terms of the Supervisory Board’s discretion on vesting conditions under the Scheme with respect to Managing Directors and other Senior Managers, the following conditions were taken into account in determining the vesting of the grant:
(i) Growth: the Supervisory Board concluded that growth in headline earnings per Share would be an appropriate measure of growth. The calculation of the headline earnings per Share was determined in terms of JSE listing requirements and was subject to external assurance by way of the annual external audit of the Group’s financial statements. It was determined that Steinhoff’s growth in headline earnings per Share should outperform, cumulatively over the relevant three-year measurement criteria, those of peer group of companies in comparable industries and markets. .
(ii) Cash generation: in accordance with the Remuneration Policy, at least 80%
of operating profit cumulatively over the relevant three-year measurement criteria should be generated in cash, as measured by cash generated from operations as a percentage of operating profit.
(iii) Returns: an appropriate returns-based criterion remained challenging for the Group as a result of the geographic diversity of operations and the inherent currency and other volatilities. In response to this, a blended and weighted targeted return on equity was recommended by the Human Resources and Remuneration Committee and
approved by the Supervisory Board. A minimum return of 7% needed to be achieved by operations in developed markets and 15% by emerging market operations over the vesting period.
The return on equity was calculated as headline earnings based on average shareholders’ equity and is adjusted for currency fluctuations.
(v) Qualification for annual bonus: in addition to the above-mentioned group performance criteria, share scheme participants must have qualified for participation in their respective divisions’ annual incentive bonus schemes, which include meeting their respective key performance indicators.
This requirement is evaluated and applied by the Human Resources and Remuneration Committee on an individual basis. As a result of the Group satisfying vesting conditions, as outlined in (i) through (iii) above, the 2013 financial year share allocation vested subject to the fourth vesting condition which was evaluated on an individual basis.
Based on the rules of the ESRS, vesting can only occur at 0% or 100%, subject to the participant maintaining a minimum shareholding in the Company.
LTI’s: 2017 financial year grant Under the ESRS, in March 2017
330 participants were granted 15 622 745 share rights in aggregate. There were no changes in the performance criteria and the performance period ran from October 2016 through September 2019 with potential vesting to take place in March 2020.
2017 Managing Directors’ remuneration Base Salary, Pension and Bonuses
The table below summarises the Managing Directors’ remuneration that became unconditional per the Reporting Date.
REMUNERATION OF THE MANAGEMENT BOARD
Base salary1
€’000
Pension contributions
€’000
Annual bonus
€’000
Strategic bonus2
€’000
Deferred bonus2
€’000
Total remuneration and fees
€’000
IFRS 2 share-based payment expense
€’000 Twelve months ended 30 September 2017
Markus Jooste* 2 469 24 2 700 563 2 479 8 235 237
Ben la Grange* 976 24 850 563 901 3 314 69
Danie van der Merwe 1 226 24 1 100 563 338 3 251 122
Fifteen months ended 30 September 2016
Markus Jooste 2 691 62 1 980 476 416 5 625 1 897
Ben la Grange 1 074 26 484 416 416 2 416 564
Danie van der Merwe 1 295 60 1 000 312 156 2 823 975
1 Directors’ fees were paid with base salary.
* Neither Ben La Grange nor Markus Jooste received severance payments upon their exit from the Company.
Performance share rights scheme1
In relation to the below overview, it is noted that, during the Reporting Period a total number of 1 116 367 Ordinary Shares were bought back for the benefit of the ESRS, and a total number of 13 175 893 Ordinary Shares were issued in relation to the ESRS.
SHARE RIGHTS MANAGEMENT BOARD
Offer
date Conditional vesting date
Number of rights as at 30 Sept 2016
Number of rights exercised during the year
Number of rights awarded during the year
Number of rights as at 30 Sept 2017
Value of rights exercised during the year 1
Value of rights awarded during the year2
€m €m
Markus Jooste December 2013 March 2017 1 669 183 (1 669 183) - - 8 429 374 -
December 2014 March 2018 869 301 - - 869 301 - -
March 2016 March 2019 671 017 - - 671 017 - -
March 2017 March 2020 - - 980 968 980 968 - 4 610 550
3 209 501 (1 669 183) 980 968 2 521 286 8 429 374 4 610 550
Ben la Grange December 2013 March 2017 487 490 (487 490) - - 2 461 825 -
December 2014 March 2018 233 499 - - 233 499 - -
March 2016 March 2019 259 257 - - 259 257 - -
March 2017 March 2020 - - 392 387 392 387 - 1 844 219
980 246 (487 490) 392 387 885 143 2 461 825 1 844 219
Danie van der Merwe December 2013 March 2017 858 437 (858 437) - - 4 335 107 -
December 2014 March 2018 439 041 - - 439 041 - -
March 2016 March 2019 335 509 - - 335 509 - -
March 2017 March 2020 - - 490 484 490 484 - 2 305 275
1 632 987 (858 437) 490 484 1 265 034 4 335 107 2 305 275
No share rights were forfeited during the Reporting Period.
1 The fair value at date of vesting was €5.05 per Share.
2 The fair value at date of grant was €4.70 per Share.
1 Based on the rules of the ESRS, vesting can only occur at 0% or 100%, subject to the participant maintaining a minimum shareholding in the Company.
For more details on the ESRS reference is made to note 31of the 2017 Consolidated Financial Statements.
The CEO, CFO and COO, as well as certain Senior Managers had service or employment contracts with Subsidiaries.
Clawbacks
During the Reporting Period, no clawbacks were made. Both the current Management Board and Supervisory Board confirm their respective commitment to make use of their clawback rights where appropriate.
2017 Supervisory Directors’ remuneration Supervisory Board Remuneration
During the Reporting Period, the Management Board had the Supervisory Board
remuneration reviewed by an independent consultant, with reference to market and industry norms as well as retention and attraction of high-caliber individuals as supervisory directors.
REMUNERATION OF THE SUPERVISORY DIRECTORS
Remuneration during the Reporting Period
€’000
Steve Booysen 170
Claas Daun 110
Thierry Guibert 100
Len Konar 200
Theunie Lategan 155
Jayendra Naidoo1 54
Heather Sonn 100
Angela Krüger-Steinhoff 100
Bruno Steinhoff 100
Johan van Zyl 100
Christo Wiese 300
Jacob Wiese 100
1 Appointed on 14 March 2017
Loans, advance payments or guarantees to Managing Directors and Supervisory Directors With the exception of the Hachmer-Mayfair Loan for which reference is made to the DCGC Compliance section in the Corporate Governance Report, no loans, advance payments or guarantees were made to Managing Directors or Supervisory Directors (or entities controlled by any of them) during the Reporting Period.
Contracts with entities under the control of Supervisory Directors
During the Reporting Period, Steinhoff Europe Group Services GmbH had a contract with Bruno Steinhoff Beratungsgeselschaft mbH
the provision of services of Christo Wiese as chairman of the Supervisory Board. During the Reporting period, a total of €300 000 was paid under the contract, which is equal to the amount of Christo Wiese’s Supervisory Director fee for the Reporting Period. The contract terminated on 14 December 2017, the date of Christo Wiese’s resignation from the Supervisory Board.
During the Reporting Period, Steinhoff at Work (Proprietary) Limited concluded a contract with Titan, an entity under the control of Christo Wiese, for the provision of secretarial, administrative and office management services to the Company as well as the use of a portion of Titan’s premises and infrastructure, all in connection with the performance of Christo Wiese’s duties as chairman of the Supervisory Board. A total of
€150 000 was paid during the contract during the Reporting Period. The contract terminated per 14 December 2017, the date of Christo Wiese’s resignation from the Supervisory Board. In addition, an amount of €497 237 was paid to Chaircorp Proprietary Limited in respect of management services provided by Christo Wiese.
During the Reporting Period, Steinhoff at Work (Proprietary) Limited concluded a contract with Toerama Proprietary Limited, an entity under the control of Mr. C.H. Wiese, pursuant to which Toerama made an aircraft available to Managing Directors and other Senior Managers for business travel with the intention that all amount charged to Steinhoff at Work were to cover costs for usage of the aircraft and not for Toerama to profit from the contract. A total of €800 000 was paid under the contract during the Reporting Period. The contract terminated per 14 December 2017, the date of Mr. C.H. Wiese’s resignation from the Supervisory Board.
The total amount paid to Christo Wiese and entities controlled by him during the Reporting Period was €1 764 259.
The total amount paid to Bruno Steinhoff and Bruno Steinhoff Beratungsgeselschaft mbH &
Ko KG during the Reporting Period was
€450 000.
& Ko KG, an entity under the control of Bruno Steinhoff, for the provision of business management consultancy services with a monthly fee of €37 500. During the Reporting Period, a consultancy fee of €350 000 was paid under the contract. This was in addition to Bruno Steinhoff’s Supervisory Director fee of €100 000 for the Reporting Period.
Steinhoff Europe Group Services GmbH terminated the contract on 1 June 2018.
During the Reporting Period, the Company had a contract with Grene Properties (Proprietary) Limited, an entity under the control of Christo Wiese, for the provision of directors services to the Company, including