The Group Remuneration Committee (the committee) operates according to a charter approved by the board. The board delegates responsibility to the committee for the investigation and benchmarking of remuneration practices and for hearing and deciding on proposals made on remuneration practices for the group.
The committee consists of non-executive directors and is chaired by an independent non-executive director. The committee comprises JB Magwaza (Chairman), Chris Ball, Prof Brian de L Figaji, Cedric Savage, Reuel Khoza and Jim Sutcliffe. The Chief Executive is a permanent invitee to the meetings and recuses himself when his own remuneration is discussed. The committee met four times during 2005.
The committee considers remuneration in its totality in an integrated and holistic manner, thereby assisting the board in discharging its corporate governance duties related to remuneration strategy, structure and costs. The committees responsibilities include:
The committee applies the guiding principles of the remuneration policy as far as is practicable, but both the board and the committee retain the right to use their discretion to deviate from this policy in exceptional circumstances.
During the year under review the committee received advice from external independent advisers on an ad hoc basis. Mr B Olivier, director of Vasdex Associates, advised the committee on the design of a new short-term incentive scheme and KPMG Services (Pty) Limited was appointed to assist with the design of a new long-term incentive scheme, which was approved at the groups annual general meeting in May 2005. Market-related information on non-executive directors remuneration was obtained from 21st Century Pay & Business Solutions.
Remuneration plays a critical role in attracting, motivating and retaining high-performing and talented individuals to achieve Nedbank Groups objectives. Nedbank Groups philosophy is to encourage sustainable long-term performance and at all times to align such performance with the strategic direction and specific value-drivers of the business within which Nedbank Group operates, as well as with the interests of shareholders. Remuneration management in Nedbank Group is fully integrated into other management processes, such as performance management and talent management, within the ambit of the overall Group Human Resources Policy.
The groups market position is median remuneration for performance against targets, relative to business plans and objectives, and upper-quartile remuneration for superior performance.
Changes to the remuneration policy planned for 2006 include a departure from grade-based remuneration to job-based remuneration, and shifting the focus of guaranteed remuneration to reflect more closely the dynamics of the external market. Variable remuneration will encourage and reward superior performance and the long-term incentive schemes are intended to retain key employees.
Annual increases in guaranteed remuneration are market-related, considering the rate of inflation, increases awarded by other major banks, as well as the groups remuneration position in the banking industry. To maintain appropriate remuneration competitiveness relative to the labour market remuneration is reviewed annually, and increases take effect on 1 April. Non-managerial employees form part of a bargaining unit, and annual increases granted depend on negotiations with the recognised trade unions. In April 2005 the non-managerial remuneration bill was increased by 6%, the managerial remuneration bill by 6% and the remuneration bill of executives by 5%.
Chief Executive Tom Boardmans remuneration was reviewed in February 2005 and adjusted by 7,5% to R3 225 000 with effect from 1 April 2005, commensurate with his performance and comparative remuneration information. This increase covered a period of 18 months, as no increases had been granted to him since his appointment to the position of Chief Executive in October 2003.
Chief Financial Officer Mike Browns remuneration was adjusted by 11,43% to R1 950 000 with effect from 1 April 2005 to bring his remuneration in line with the external market. The total cost of increases and adjustments to the members of the Nedbank Group Executive Committee (Group Exco) was 5,5%, including the adjustment granted to the Chief Executive.
All employees in Nedbank Group are remunerated on a 'total cost to company' basis, which includes a basic salary, 13th cheque, allowances and contributions to benefit funds. From their guaranteed remuneration package, contributions are made to a medical aid scheme, a retirement fund, a disability fund and a group life insurance fund. A car allowance/company car contribution may be structured into the package. The amount stipulated under basic salary in the table opposite excludes the contributions to the retirement and disability funds, but includes the car allowance/company car and medical aid contributions.
The executive directors are members of the Nedbank Group Defined Contribution Retirement Fund and there are no defined benefit scheme liabilities. Contributions are made from the guaranteed remuneration package.
Short-term incentives (STIs) are intended to incentivise particular behaviours and obtain desired results. In Nedbank Group incentive schemes are structured to support group thinking by breaking down the silo mentality and offering individual line-of-sight to employees. The committee has agreed a set of principles and all cluster incentive schemes are designed according to those principles.
The primary driver for the incentive pool is the achievement of the groups return on equity (ROE) target.
In 2005 the incentive pool for all support clusters, except Group Technology and Support Services (GTSS), was created from the achievement of Nedbank Groups ROE target, as the support clusters ultimately support the groups efforts. GTSS, as well as the three income-generating clusters (Retail, Corporate and Capital), was measured on a combination of group results and the clusters' ROE targets (headline earnings for GTSS).
The group, cluster and divisional pools are calculated independently of one another. Distribution of these pools is based on an individuals performance relative to the agreed deliverables in the performance management process.
Executive remuneration is benchmarked to the banking industry and bonuses are based on actual performance measured against agreed financial targets in clusters and non-financial targets that are aligned with the learning and development, client services and internal process objectives of a cluster. Distribution of the bonus pools is based on individual performance, external market benchmarks and total remuneration portfolios.
Tom Boardmans employment is governed by a service contract with the group, the terms of which are considered by the committee to provide a proper balance of duties and securities between the respective parties. Tom Boardmans service contract runs with effect from 10 December 2003. His service contract stipulates a maximum notice period of six months under most circumstances. A service contract was agreed with the appointment of Mike Brown on 17 June 2004, and a notice period of six months is required under most circumstances. Lot Ndlovus executive responsibilities ceased with effect from 30 April 2005. His consulting services were procured on a contractual basis, for a period of three years, with effect from 1 May 2005.An executive director is required to retire from the board at age 60.
Remuneration for the years ended 31 December 2005 and 31 December 2004 was as follows:
|MWT Brown||1 667||233||1 900||3 500||5 400||3|
|TA Boardman||2 947||222||3 169||5 500||8 669||(7)|
|ML Ndlovu*||513||91||604||1 296||1 900||(47)|
|Total||5 127||546||5 673||9 000||1 296||15 969||(40)||***|
|MWT Brown||751||108||859||2 500||1 250||605||5 214|
|TA Boardman||2 762||238||3 000||4 650||1 632||9 282||285|
|SG Morris*||674||128||802||1 327||2 129||14|
|IJ Botha*||760||92||852||1 254||2 106||6|
|ML Ndlovu||1 517||289||1 806||1 800||3 606||105|
|MM Katz***||2 403||458||2 861||2 861||15|
|Total||10 068||1 542||11 610||8 950||1 250||2 237||2 581||26 628||22°|
The Chief Executive and Chief Financial Officers performance bonuses are dependent on the achievement of the groups ROE target. Tom Boardman and Mike Browns performances are measured in terms of financial and non-financial objectives.The financial objectives included in their performance scorecards for 2005 specified improvements on ROE (post-IFRS), efficiency ratio and capital adequacy.
The non-financial targets included improvements in client services, internal processes and organisational learning. Objectives for client services included the improvement of Nedbanks image in the external market, fixing Nedbank Retail (in terms of stemming market share losses and increasing the amount of transactional accounts) and the successful unlocking of bancassurance opportunities. The focus under internal processes was creating an acceptable risk environment, the successful implementation of Basel II capital requirements and credible business plans for 2006 that are signed off by the board prior to the commencement of the new financial year. The organisational learning section included two equally weighted sections on staff morale and living the groups values, as well as the achievement of the Financial Sector Charter (FSC) targets agreed for 2005.
The following formula will apply to calculating a severance package for executive directors and other executives in the event of their services being terminated: two weeks guaranteed remuneration per completed year of defined operational service, with no maximum. In addition, the executive is entitled to a maximum notice period of six months, during which he or she may or may not be required to work.
The Nedbank Group has implemented a new retirement gratuity policy as part of the alignment of conditions of employment, and the previous policy will be phased out over a period of five years. Only employees aged 55 and over, or with more than 20 years service at 1 April 2003, will continue to be eligible for this gratuity.
The Executive Succession Process was approved in July 2005. Each executive was assessed according to specific performance criteria. The process followed was in line with Old Mutuals succession-planning framework and discussions are ongoing. There is a specific focus on black management and accelerated development for black management.
The terms of engagement of the non-executive directors (excluding the Chairman) cover a period of three years, as determined by the rotation requirements of the Nedbank Group Articles of Association. A non-executive director is required to retire at age 70.This retirement date may, with the consent of the board of directors, be extended for a limited period of time where this may be more practical.
Nedbank Group undertakes a full assessment of the effectiveness of the board and board committees, as well as an evaluation of the Chairman of the board. This takes place on an annual basis to elicit feedback from board members, ensuring constant refinement of the governance structure and responsibilities. The feedback from these evaluation processes contributes to the compilation of the Regulation 38(5) Report in terms of the Banks Act and addressing the state of corporate governance in the organisation.
Remuneration for the years ended 31 December 2005 and 31 December 2004 was as follows:
|WAM Clewlow||2 000||1 505|
|B de L Figaji||110||145||255||231|
|CF Liebenberg**||1 413|
|ML Ndlovu||73||210||##||1 750 #|
|Total||1 565||2 623||7 655||6 189|
Remuneration received from subsidiaries for the year ended 31 December 2005 was as follows:
|CJW Ball||Imperial Bank||143|
|RG Cottrell||Imperial Bank||191|
|Nedcor Collective Investments||18|
Remuneration for non-executive members for committee membership is as follows:
|Nedbank Group||R70 000|
|Nedbank Limited||R40 000|
|Group Audit Committee||R80 000|
|Group Finance Oversight Committee||R30 000|
|Group Remuneration Committee||R50 000|
|Group Risk Committee||R50 000|
|Group Credit Committee||R65 000|
|Directors' Affairs Committee||R40 000|
|Strategic Innovation Management Committee||R30 000|
|Group Transformation and Sustainability Committee||R30 000|
Chairmen of committees (other than the Chairman of the DirectorsAffairs Committee who receives a set annual remuneration package) receive double the member fees. The board approved increases in fees for two committees with effect from 1 January 2005, namely the Group Audit Committee and the Group Risk Committee, and also approved a fee payable with effect from 1 January 2005 to members of the newly formed Group Transformation and Sustainability Committee, the members having been appointed on 11 November 2004. No other increases were granted during 2005.
With effect from 1 January 2006, subject to approval at the annual general meeting to be held on 4 May 2006, the Nedbank Group Board fees increase to R75 000 and the Nedbank Limited Board fees increase to R60 000 per annum.
Board meeting attendance is indicated in the enterprise governance and compliance report.