14.3.1 RETIREMENT FUNDS
Independent funds provide retirement and other benefits for all permanent employees, retired employees and their dependants.
At the end of the financial year, the main defined contribution retirement funds to which Exxaro was a participating employer were:
Bargaining unit employees pay a contribution of 8% with the employer’s contribution of 15% to the above funds being expensed as incurred.
Other members generally pay a contribution of 7% with the employer’s contribution of 10% to the above funds being expensed as incurred.
All funds are registered in South Africa and are governed by the South African Pension Funds Act of 1956.
Defined contribution funds
Employer contributions to each fund were as follows:
|Exxaro Pension and Provident Fund||131||111|
|Iscor Employees’ Umbrella Provident Fund||66||57|
|Mine Workers Provident Fund||17||20|
|Sentinel Retirement Fund||63||63|
|Exxaro Pension and Provident Fund||34||31|
|Iscor Employees’ Umbrella Provident Fund||1|
|Sentinel Retirement Fund||3||3|
14.3.2 MEDICAL AID
Contributions to defined contribution medical aid schemes for the benefit of permanent employees and their dependants who choose to belong to one of a number of employer accredited schemes. The contributions charged to profit or loss amount to R142 million (2018: R132 million).
14.3.3 SHORT-TERM INCENTIVES
The following schemes based on individuals, business unit, commodity and group-level performance are in place:
Individual performance reward
A short-term incentive scheme focused on the individual is used to augment the performance management process and retention strategy across junior to senior management levels of employment.
The two-tier performance incentive
The first tier is a line-of-sight incentive based on achieving 100% of a combination of the business unit’s net operating profit and production targets and is currently equal to 8.33% of annual gross remuneration for all full-time employees of every business unit, commodity, services and corporate office department.
The second tier is based on exceeding a combination of budgeted consolidated net operating profit and production targets by an improvement percentage at commodity business unit and group level. The second tier is profit-based and 30% of gains above budget are shared with employees.
Equity compensation benefits are provided to selected employees through the following share-based payment schemes:
An LTIP is a conditional award of Exxaro shares offered to qualifying senior employees of the group. The shares vest after three years subject to certain performance conditions being met. The extent to which the performance conditions are met governs the number of shares that vest. The LTIP is an equity-settled share-based payment scheme.
Participants to the 2019 and 2018 LTIP grant obtained the right (provided performance conditions were met) to receive a number of Exxaro shares. The vesting of the award is based on:
Performance between these targets will result in proportional vesting which will be calculated using a linear sliding scale between the minimum and maximum performance conditions. Grants have a vesting period of three years over which the performance conditions are calculated.
The aim of the DBP is to encourage executive directors and senior management to sacrifice a part of their bonuses for the purpose of acquiring shares in the company in exchange for an upliftment in the number of shares received. Participants may sacrifice a percentage of their (post-tax) bonus in exchange for Exxaro shares at the ruling market price. The pledged shares are then held in trust for a three-year period, thus until the vesting date of the matching award. At vesting date, the company will make an additional award of shares by matching the shareholding on a one-for-one basis (matching award). Participants will consequently become unconditionally entitled to both the original pledged shares as well as the matching award of shares.
A participant may at its election dispose of and withdraw the pledged shares from the scheme at any stage. However, if the pledged shares are withdrawn before the expiry of the pledge period, the participant forfeits the matching award. The DBP is an equity-settled share-based payment scheme.
Details of the schemes:
|Number of instruments|
|LTIP and DBP||2019
|Outstanding at beginning of the year||10 263||10 637|
|Issued during the year1||2 774||4 143|
|Exercised during the year||(4 065)||(4 124)|
|Lapsed/cancelled during the year||(457)||(393)|
|Outstanding at end of the year||8 515||10 263|
|Terms of outstanding instruments at end of the year||Expiry date|
|2020||2 921||2 800|
|2021||3 208||3 081|
|8 515||10 263|
|Total value of shares outstanding (Rm)||1 118||1 415|
|1||Included in 2019 is a 6% (2018: 8.9%) grant of top-up instruments relating to the 2017, 2018 and 2019 (2018: 2015, 2016 and 2017) schemes. The top-up grants were issued with the same terms and performance conditions as the respective original grants.|
Fair value of equity compensation instruments
In determining the fair value of services received as consideration for equity instruments, measurement is referenced to the fair value of the equity instrument granted.
During the current year, three new DBPs and one new LTIP have been granted.
The conditional matching awards granted in terms of the DBP are the economic equivalent of granting an Exxaro share at no consideration, but without dividend rights for the period from the grant date to vesting date. Therefore, the value of the DBP is equal to the grant date share price less the present value of the future dividends expected to be granted over the term of the scheme, multiplied by the pledged shares in trust.
The value of the LTIP is the economic equivalent of granting an Exxaro share at no consideration, but without dividend rights for the period from the grant date to vesting date. Therefore, the value of the LTIP is equal to the grant date share price, less the present value of the future dividends expected to be granted over the term of the scheme. In determining the fair value, a Monte Carlo simulation model has been used to take into account the market vesting condition (TSR target). The non-market vesting conditions (HEPS and ESG targets) are taken into account when determining the number of options expected to vest.
|Weighted average fair value for grants during the year (R):|
|Inputs to the valuation models for:|
|– Share price at valuation date (R)||167.40||105.90|
|– Weighted average option life (years)||3||3|
|– Dividend yield (%)||6.76||5.81|
|– Risk-free interest rate (%)||6.76||6.87|
|– Share price at valuation date (R)||159.84 to 164.35||107.00 to 148.85|
|– Weighted average option life (years)||3||3|
|– Dividend yield (%)||6.64 to 7.28||5.45 to 6.34|
|– Risk-free interest rate (%)||7.17 to 7.19||6.87 to 7.71|