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.
Defined contribution funds
Employer contributions to each fund were as follows:
| Group | Company | ||||
| 2023 Rm |
2022 Rm |
2023 Rm |
2022 Rm |
||
| Exxaro Provident Fund | 204 | 192 | 38 | 39 | |
|---|---|---|---|---|---|
| Mine Workers Provident Fund | 63 | 60 | |||
| Sentinel Retirement Fund | 81 | 76 | 4 | 3 | |
| Total employer contributions | 348 | 328 | 42 | 42 | |
Contributions are made 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 expensed in profit or loss amount to R198 million (2022: R181 million).
14.3.3.1 Short-term incentives
The following short-term incentive (STI) schemes are in place:
GIS salient features
Participants to the GIS include all executive to middle management level employees (FU to DM Paterson) in the group functions and coal business as well as employees in group functions (DL Paterson 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. Annual goals are apportioned in the ratio of 80% to business performance (based on financial, operational and strategic, as well as safety and climate change KPIs) and 20% to individual performance.
Participants are paid annually.
LOS salient features
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.
Energy business annual incentive scheme
Participants include the employees of the energy business. The scheme rewards the achievement of strategic objectives of the business by measuring certain strategic and financial targets. All participants will receive payments that reflect annual achievements when performance targets and funding requirements are met.
Participants are paid annually.
14.3.3.2 Long-term incentives
The following long-term incentive scheme is in place:
Energy business VARP
The scheme aims to incentivise the executive to middle management level employees of the energy business to drive particular financial measures linked to value creation, encourage long-term focus on sustainable growth and to attract the right talent.
The scheme vests in tranches of a third, annually in years three, four and five. The vesting of each tranche is subject to meeting conditions of employment and a performance milestone relevant for each portion thereof.
Equity compensation benefits are provided to selected employees through the following share-based payment schemes:
LTIP
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 2023 and 2022 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.
DBP
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:
| LTIP | DBP | |||||
| Number of instruments | 2023 '000 |
2022 '000 |
2023 '000 |
2022 '000 |
||
| Outstanding at beginning of the year | 7 354 | 8 376 | 133 | 191 | ||
|---|---|---|---|---|---|---|
| Issued during the year | 2 367 | 2 002 | 53 | 41 | ||
| Exercised during the year | (3 334) | (1 868) | (59) | (75) | ||
| Lapsed/cancelled during the year | (667) | (1 156) | (16) | (24) | ||
| Outstanding at end of the year | 5 720 | 7 354 | 111 | 133 | ||
| Terms of outstanding instruments at end of the year | Expiry date | |||||
| 2023 | 3 426 | 60 | ||||
| 2024 | 1 878 | 2 104 | 41 | 45 | ||
| 2025 | 1 646 | 1 824 | 23 | 28 | ||
| 2026 | 2 196 | 47 | ||||
| 5 720 | 7 354 | 111 | 133 | |||
| Total value of shares outstanding (Rm) | 1 170 | 1 596 | 23 | 29 | ||
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, one new DBP 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:
| 2023 | 2022 | |
| Average fair value for grants during the year (Rand per grant): | ||
| LTIP | 112.11 | 136.46 |
| DBP | 130.14 | 148.67 |
| Inputs to the valuation models for: | ||
| LTIP | ||
| – Share price at valuation date (Rand per share) | 186.55 | 230.23 |
| – Weighted average option life (years) | 3 | 3 |
| – Semi-annual dividend yield (%) | 4.23 to 6.96 | 5.08 to 6.75 |
| – Risk-free interest rate (%) | 7.76 | 6.39 |
| – Exxaro equity equally weighted volatility (%) | 39.67 | 40.53 |
| – TSR peer companies equally weighted volatility (%) | 42.49 | 50.24 |
| DBP | ||
| – Share price at valuation date (Rand per share) | 186.55 | 212.28 and 221.53 |
| – Weighted average option life (years) | 3 | 3 |
| – Semi-annual dividend yield (%) | 4.23 to 6.96 | 5.19 to 7.03 |
| – Risk-free interest rate (%) | 7.76 | 6.24 to 6.39 |
IR