NOTES TO THE FINANCIAL STATEMENTS - NOTE 49


 

49. Directors’ remuneration1
  Remuneration philosophy

Eskom links management remuneration to the performance of the organisation and an individual’s contribution. Market factors are also crucial as rewards and remuneration must be kept at levels that will assist Eskom in retaining key leadership skills. Basic salary is augmented by short- and long-term incentives.

International and local benchmarks are considered to ensure executive packages are aligned with those offered by companies of similar stature to Eskom. Eskom aims to remunerate in line with the median of the market to recruit and retain the best management team to lead the business.

The executive remuneration strategy is constantly reviewed to stay aligned with the DPE remuneration guidelines and abreast with best practices.

  People and governance committee

The people and governance committee assists the board to apply policy relating to the remuneration of directors and executives as set by Eskom’s shareholder. The policy also covers the nomination of executives for senior positions and conditions of service.

The committee enhances business performance by:

approving, guiding and influencing key human resources policies and strategies
monitoring compliance with the Employment Equity Act
guiding strategies to achieve equity in Eskom, and
approving the principles governing reward and incentive schemes

Non-executive directors

Remuneration of non-executive directors is benchmarked against the norms for companies of similar size and is in line with guidelines issued by the shareholder. Remuneration proposals from the people and governance committee regarding non-executive directors remuneration are forwarded to the board. The board then makes recommendations to the shareholder.

Non-executive directors receive a fixed monthly fee and are reimbursed for out-of-pocket expenses incurred in fulfilling their duties.

Executive management committee members

The committee makes recommendations to the board concerning the remuneration of the chief executive, and approves the remuneration of the other Exco members (group executives). The remuneration is considered in accordance with a framework approved by the shareholder. The board recommendation on the remuneration of the chief executive has to be approved by the shareholder.

Factors influencing the remuneration of the Exco members include level of skill, experience, contribution to organisational performance and success of the group. Remuneration includes a basic package and short- and long-term incentives.

Every year, the people and governance committee reviews the structure of these packages to ensure an appropriate balance between fixed and variable remuneration and short- and long-term incentives and rewards.

The chief executive, finance director and group executives have permanent employment contracts based on Eskom’s standard conditions of service. Six month’s notice is required.

1. Includes remuneration of the chief executive, finance director and Exco members (group executives who are senior executives but not directors of Eskom).
  Remuneration structure

The remuneration of the Exco members includes the following components:

Guaranteed amount

They receive a guaranteed pay package with remuneration based on cost to company. This comprises a fixed cash portion and compulsory benefits (medical aid, life cover and pension). The guaranteed amount is reviewed annually to keep remuneration in line with the market.

Short-term incentives

These reward the achievement of individual predetermined performance objectives and targets (these are linked to the shareholder compact) as set by the chief executive in performance contracts with each Exco member. The people and governance committee approves the targets set for the chief executive.

The short-term incentive scheme is calculated as a percentage of pensionable earnings.

Long-term incentives

These are designed to attract, retain and reward the Exco members for meeting the organisational objectives set by the shareholder. A market benchmarked long-term incentive scheme has been approved by the shareholder effective from 1 April 2005.

Long-term incentive scheme

A number of performance shares (award performance shares) were awarded to the Exco members on 1 April 2010, 2011, 2012 and 2013.

The value of the performance shares is deemed to be R1 at grant date, and is escalated at a money market rate to determine the value at reporting date.

The board has set performance conditions in line with the Eskom corporate plan and shareholder compact over a three-year performance period. Performance covers financial and non-financial targets in areas such as ensuring business sustainability of Eskom, ensuring reliability of supply to all South Africans, ensuring that future power needs for South Africa are adequately provided for and supporting the developmental objectives of South Africa, with an agreed weighting in each category.

Awards only vest if, and to the extent that, these targets are met. Potential vesting percentages range from 0% to 100%. A threshold and a stretch target are set for each measure, with an expected (on target) vesting of 50%.

Performance parameters aligned with the shareholder compact and corporate plan are complemented by a set of gatekeeper conditions.If gatekeeper requirements are not met, the board at its discretion may adjust the vesting percentages even though targets have been met.

The following gatekeeper conditions trigger a review of vesting percentages:

if the lost-time incidence rate is greater than 0.45
if the sustainability committee gives an unfavourable safety report
if Eskom’s audited financial statements show a financial loss
if the auditors qualify Eskom’s financial statements
if a significant PFMA contravention occurs
if enhancement of Eskom’s reputation is not achieved

The vesting period for award performance shares is three years from the date of grant. At the end of that period, the people and governance committee decides the amounts to be paid in line with:

the percentage of award performance shares that vest, based on the performance conditions achieved
the value of the award performance shares based on the grant value, escalated at a money market rate

In addition to the performance conditions, vesting of award performance shares is dependent on the scheme participant remaining in Eskom’s employment throughout the vesting period. The award lapses if employment ceases during the vesting period (other than for permitted reasons).

  Share awards – vested

Award performance shares awarded on 1 April 2011 vested on 31 March 2014 with an expected vesting rate over the three-year period of 53.48% due to the achievement of non-financial performance conditions. The cash value of the vested shares is payable in June 2014 at R1.19 per share based on the money market rate. Shares awarded on 1 April 2010 were redeemed during the year.

  Shares vested on 31 March 2014 (with comparative status at 31 March 2013) are:
Name Award
performance
shares vested on
31 March 2014
Number
Award
performance
shares vested on
31 March 2014
at a rate of 53.48%
Number
Award
performance
shares payable
at R1.19 per share
R’000
  Award
performance
shares vested on
31 March 2013
Number
Award
performance
shares vested on
31 March 2013 at
a rate of 48.23%
Number
Award
performance
shares payable at
R1.20 per share
R’000
 
BA Dames 8 972 308 4 486 154 5 201   3 330 786 1 606 405 1 928  
TBL Molefe 1 734 385 927 549 1 104   877 739 423 334 508  
PS O’Flaherty   2 772 000 1 260 833 1 513  
BE Bulunga 1 871 100 1 000 664 1 191   1 247 400 601 609 722  
T Govender 2 072 022 1 108 117 1 319   1 801 367 868 781 1 043  
EL Johnson 2 662 934 1 424 137 1 695   2 064 290 995 586 1 195  
SJ Lennon 1 999 876 1 069 534 1 273   1 333 251 643 014 772  
DL Marokane 2 519 731 1 347 552 1 604   2 150 400 1 037 116 1 245  
A Noah 2 057 980 1 100 608 1 310   1 595 333 769 413 923  
MM Ntsokolo 2 358 838 1 261 507 1 501   1 572 559 758 429 910  

The current estimated vesting values of the award performance shares are R1.20 per share for the 1 April 2012 awards (vesting 31 March 2015) and R1.21 for the April 2013 awards (vesting 31 March 2016). The value of the performance shares allocated does not take into account the impact of performance conditions over the applicable three-year performance periods. The vesting percentage of 50% for the 1 April 2012 and 50% for the 1 April 2013 awards, are estimates.

  Shares awarded on 1 April 2013: Shares awarded on 1 April 2012:  
Name Outstanding
award
performance
shares vesting
on 31 March 2016
Number
Award
performance
shares vesting
on 31 March 2016
at a rate of 50%
Number
Award
performance
shares payable
in June 2016 at
R1.21 per share
R’000
Outstanding
award
performance
shares vesting
on 31 March 2015
Number
Award
performance
shares vesting
on 31 March 2015
at a rate of 50%
Number
Award
performance
shares payable
in June 2015 at
R1.20 per share
R’000
 
TBL Molefe 1 829 776 914 888 1 107 1 829 776 914 888 1 098  
T Govender 2 185 983 1 092 992 1 323 2 185 983 1 092 992 1 312  
EL Johnson 2 809 394 1 404 697 1 700 2 809 394 1 404 697 1 686  
SJ Lennon 2 109 869 1 054 935 1 276 2 109 869 1 054 935 1 266  
DL Marokane 2 658 316 1 329 158 1 608 2 658 316 1 329 158 1 595  
A Noah 2 171 168 1 085 584 1 314 2 171 168 1 085 584 1 303  
MM Ntsokolo 2 488 574 1 244 287 1 506 2 488 574 1 244 287 1 493  

The details of the schemes are:

  Long-term incentive plan   Long-term incentive plan  
Date of grant 1 April 2013   1 April 2012  
Number of shares awarded 16 253 080   26 428 075  
Contractual life 3 years   3 years  
Vesting conditions Variable vesting depending on the achievement of performance conditions   Variable vesting depending on the achievement of performance conditions  
Method of settlement Cash   Cash  
Expected attrition of employee (%)    
Expected outcome of performance conditions (%) 50%   50%  

  Long-term incentive
plan 2014
Number
  Long-term incentive
plan 2013
Number
 
Reconciliation of performance share movements        
Outstanding at beginning of the year 70 478 960   32 875 919  
Granted during the year 16 253 080   51 733 835  
Forfeited during the year (9 231 581)    
Settled during the year (18 745 125)   (14 130 794)  
Outstanding at end of the year 58 755 334   70 478 960  
Carrying amount of liability (R’000) 26 419   24 212  
Intrinsic value of liabilities relating to vested rights (R’000) 26 419   24 212  
  Details of emoluments paid

The following schedule sets out the emoluments due to the directors of Eskom for the current year:

Name Directors
fees

R’000
    Salaries1


R’000
    Short-term
bonus
payment2
R’000
    2014
Long-term
bonus
payment3
R’000
    Other
payments4

R’000
    Termination
payments

R’000
    Total


R’000
    2013
Total


R’000
 
Non-executive directors 6 440                 637         7 077     6 400  
ZA Tsotsi 1 152                 637         1 789     1 374  
BL Fanaroff 487                         487     446  
RMQ Gungubele 437                         437     416  
N Lesela 437                         437     416  
B Luthuli 551                         551     517  
C Mabude 468                         468     459  
Y Masithela 468                         468     446  
MC Matjila5 493                         493     470  
B Mehlomakulu 493                         493     470  
ME Mkwanazi 493                         493     470  
SPQ Sedibe 493                         493     470  
DEL Zondo 468                         468     446  
Executive directors     11 641         3 949     563     8 275     24 428     17 341  
BA Dames6     7 931         1 928     501     5 007     15 367     8 464  
TBL Molefe7     2 622         508     40         3 170     2 904  
PS O’Flaherty8     1 088         1 513     22     3 268     5 891     5 973  
Exco members (group executives)     21 071         6 810     764         28 645     33 743  
BE Bulunga9     2 537         722     35         3 294     3 179  
T Govender     2 809         1 043     300         4 152     4 485  
EL Johnson     3 610         1 195     21         4 826     5 972  
SJ Lennon     2 711         772     191         3 674     5 430  
DL Marokane     3 416         1 245     76         4 737     4 555  
A Noah     2 790         923     63         3 776     4 659  
MM Ntsokolo     3 198         910     78         4 186     5 463  
Total directors and group executives 6 440     32 712         10 759     1 964     8 275     60 150     57 484  
1. Includes medical aid and pension fund contributions.
2. Short-term incentive bonus awarded for the 2014 financial year.
3. Long-term incentive bonus scheme – Grant 6, which vested on 31 March 2013 was paid in June 2013.
4. Fees related to security services and operating vehicle expenditure.
5. Appointed interim chief executive on 1 April 2014.
6 Resigned 31 March 2014. Included in salaries is an amount of R1.9 million relating to back-pay increases from 2010.
7. Appointed finance director on 14 January 2014. Previously group executive: Group Customer Services.
8. Resigned 10 July 2013.
9. Retired 31 January 2014.

Housing loans to Exco members at 31 March 2014
R’000
  2013
R’000
 
T Govender 2 906   4 397  
DL Marokane 4 563   4 646  
  7 469   9 043  
The interest rate on the loan from EFC at 31 March 2014 was 7.25% (2013: 6.75%). The loans are repayable over a maximum period of 30 years1.        
The following board and Exco members were directors of Eskom directly held subsidiary companies. Fees paid for attendance of meetings were all paid to Eskom Holdings.        
Eskom Enterprises SOC Limited2        
DL Marokane    
MM Ntsokolo3    
PS O’Flaherty4    
Escap SOC Limited5        
PS O’Flaherty6   34  
TBL Molefe7 12    
EL Johnson    
Eskom Finance Company SOC Limited5        
BE Bulunga8   30  
PS O’Flaherty8 5   10  
TBL Molefe7 5    
1. On resignation the terms and conditions of the loan are renegotiated.
2. Paid by Eskom.
3. Appointed in August 2013.
4. Resigned in March 2013.
5. Fees paid to Eskom.
6. Resigned in April 2013.
7 Appointed in March 2014.
8. Resigned in January 2014.