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 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.
Employer contributions to each fund were as follows:
|Exxaro Pension and Provident Fund||192||187|
|Mine Workers Provident Fund||60||56|
|Sentinel Retirement Fund||76||57|
|Total employer contributions||328||307|
|Exxaro Pension and Provident Fund||39||80|
|Sentinel Retirement Fund||3||1|
|Total employer contributions||42||41|
Contributions are made to defined contribution medical aid schemes for the benefit of permanent employees and their dependents who choose to belong to one of a number of employer accredited schemes. The contributions expensed in profit or loss amount to R181 million (2021: R161 million).
The following short-term incentive (STI) schemes are in place:
Participants to the GIS include all executive to middle management level employees (FU to DM Patersen) in the group functions and coal business, as well as employees in group functions (DL Patersen and below).
The scheme rewards the achievement of annual goals, which in turn are aligned to the medium and longer-term business strategy. All participants will receive payments that reflect annual achievements when performance targets and funding requirements are met.
In the case of Paterson D band and below participants, an interim payment reflective of the business performance portion only, may be made at the half-year mark. This will be offset against the resultant annual payment due
Following the benchmarking of the targeted STI percentages (as a percentage of NCOE) for participant roles and grades, relative to the market, the following STI percentages have been adopted.
|Paterson grade||STI %
|E middle||50||75||E lower||35||52.5|
These new STI percentages consolidate the previous fragmented allocation of tier 1, tier 2 and the special performance reward (SPR) into a single applicable STI percentage per Paterson grade for the scheme. The targeted STI quantum (by grade) is apportioned in the ratio 80% to business performance, and 20% to individual performance. The performance range for either element varies from 0% to 150% of the targeted STI quantum.
The further apportionment of the 80% business performance for the participants is disclosed below
Apportionment of STI quantum at target:
|Grouping||Exxaro Group||Group function||Division||Operations||Individual
|CEO and direct reports||30% to 80%||0% to 30%||0% to 50%||20%|
|Divisional||0% to 30%||30% to 80%||0% to 50%||20%|
|Coal business||0% to 30%||50% to 80%||20%|
The business scorecards embed the business priorities appropriately at Exxaro group, group functional and operational levels. The table below provides an overview of the goals and relative impact it has in the potential outcome of each business scorecard. The resultant outcome is re-weighted to 80%.
Business performance scorecard goals and weight:
|Overall structure||Weight||Generic drivers||Exxaro Group||Group function||Operations|
|Financial, operational and||75%||EBITDA||50%||50%||0% to 50%|
|strategic||Other financial||15%||10%||15% to 45%|
|Operational and strategic||10%||15%||10% to 30%|
|Safety and climate change||25%||Safety||10%||10%||10%|
|Overall scorecard total||100%||100%||100%|
The revised individual performance contract is assessed on a standardised one to five rating scale. The year-to-date rating will translate to a portion allocated to individual performance.
LOS schemes are applicable to the operating business units only. The participants in these schemes include permanent employees, in roles graded at and below DL Paterson, based at the operations.
The measurement and payment cycles align with monthly and quarterly reporting periods. Participants are incentivised to deliver consistent, safe and quality production volumes.
The following schemes based on individuals, business unit, commodity and group-level performance are in place:
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 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. 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 in the 2022 and 2021 LTIP grant obtained the right (provided performance conditions are 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 at 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 elect to 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||2022
|Outstanding at beginning of the year||8 376||9 112||191||215|
|Issued during the year1||2 002||2 688||41||63|
|Exercised during the year||(1 868)||(2 080)||(75)||(87)|
|Lapsed/cancelled during the year||(1 156)||(1 344)||(24)|
|Outstanding at end of the year||7 354||8 376||133||191|
|Terms of outstanding instruments at end of the year||Expiry date|
|2023||3 426||3 791||60||76|
|2024||2 104||2 320||45||57|
|7 354||8 376||133||191|
|Total value of shares outstanding (Rm)||1 596||1 280||29||29|
|1||Included in 2021 is a 3.24% grant top-up instruments relating to the 2018, 2019 and 2020 schemes. The top-up grants were issued with the same terms and performance conditions as the respective original grants.|
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, two 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 (ROCE and ESG targets) are taken into account when determining the number of options expected to vest.
The volatility input into the LTIP valuation model is determined by using a historical approach, which uses the historical price data of the underlying shares. The historical period used to determine the volatility is equal in length to the period from the valuation date up to and including the maturity date.
The key assumptions are summarised as follows:
|Average fair value for grants during the year (R):|
|Inputs to the valuation models for:|
|– Share price at valuation date (R)||230.23||175.47|
|– Weighted average option life (years)||3||3|
|– Semi-annual dividend yield (%)||5.08 to 6.75||6.77 to 9.45|
|– Risk-free interest rate (%)||6.39||4.98|
|– Exxaro equity equally weighted volatility (%)||40.53||40.86|
|– TSR peer companies equally weighted volatility (%)||50.24||56.66|
|– Share price at valuation date (R||212.28 and 221.53||173.50 to 184.51|
|– Weighted average option life (years||3||3|
|– Semi-annual dividend yield (%)||5.19 to 7.03||6.13 to 15.16|
|– Risk-free interest rate (%)||6.24 to 6.39||4.96 to 5.19|