Transnet Online Integrated Report 2017
Market Demand Strategy (MDS) themes
  • Financial sustainability
  • Capacity creation and maintenance
  • Market segment competitiveness
  • Operational excellence
  • Human capital
  • Organisational readiness
  • Sound governance and ethics
  • Constructive stakeholder relations
  • Sustainable developmental outcomes
Sustainable Developmental Outcomes (SDOs)
  • Employment
  • Skills development
  • Industrial capability building
  • Investment leveraged
  • Regional integration
  • Transformation
  • Health and safety
  • Community development
  • Environmental stewardship
The Capitals
  • Financial Capital
  • Manufactured Capital
  • Intellectual Capital
  • Human Capital
  • Social and Relationship Capital

Annexure b:
Remuneration Report

Remuneration

The Remuneration Report provides an overview of the Transnet remuneration philosophy and strategic intent, as well as detail
of specific reward interventions that occurred during the 2017 financial year.

Terminology

For the purposes of this report:

  • Executives refers to members of the Transnet Group Leadership Team and the Operating Divisional Executive Committees (grade levels A and B);
  • Management refers to the rest of the management employees (grade levels C to F);
  • Bargaining unit employees refers to all employees whose conditions of employment are negotiated. This term includes first-line managers, specialists and technicians (grade level G refers to first-line managers, specialists and technicians, and grade levels H to L to the rest of the bargaining unit employees); and
  • Junior employees refer specifically to bargaining unit employees on the grade levels below the first-line managers, specialists and technicians.
Remuneration philosophy and strategy

Transnet is poised to become one of the world’s largest freight logistics groups and is currently the largest and most crucial part of the freight logistics chain that delivers goods to each and every South African. Transnet’s vision and mission is to be a focused freight transport company, delivering integrated, efficient, safe, reliable and cost-effective services to promote economic growth in South Africa.

The human resources strategy, inclusive of the reward strategy, is designed to facilitate and support the achievement of the strategic objectives of the Market Demand Strategy (MDS). The Transnet remuneration philosophy and framework form an integrated part of the key deliverables of the human resources strategy and therefore the reward strategies remain focused on entrenching a performance-driven culture.

The objective of the Transnet reward philosophy is to provide a framework for a fair and transparent reward dispensation that:

  • Supports the objectives of the business strategy;
  • Ensures the long-term sustainability of the business;
  • Ensures that all employees are paid a fair and competitive salary;
  • Aims to attract and retain valued employees; and
  • Ensures that employees are rewarded and recognised for high performance.

The remuneration philosophy for Transnet takes into account the different hierarchical levels informed by complexity, decision-making and judgement.

Transnet has clustered these hierarchical levels into three respective categories of employees, summarised as follows:

  • Executive and management levels;
  • First-line managers, specialists and technicians (grade level G) form part of the bargaining unit; and
  • Junior employees (grade levels H to L) form part of the bargaining unit.

The objective of the Transnet Remuneration Strategy is to:

  • Provide an integrated approach for remuneration management across Transnet that effectively attracts, motivates, engages and retains the talent required to achieve Transnet’s business objectives;
  • Align remuneration practices with Transnet’s business strategy, thereby ensuring that the remuneration practices support the business objectives;
  • Inform remuneration decisions that will be made across Transnet to ensure:
    • Remuneration-related cost is contained;
    • Performance is recognised and rewarded;
    • Performance improvement is incentivised;
    • Changing business requirements can be accommodated;
    • Optimal return on expenditure is achieved;
    • Legal, ethical and best practice standards are adhered to;
    • The business remains sustainable over the long term;
    • Compliance with corporate governance and citizenship; and
    • Compliance with employment and tax legislation.

The different reward elements are discussed in detail in the paragraphs below.

Guaranteed pay

Transnet remains committed to fair remuneration practices that support the business objectives and create a culture and environment for superior performance, and facilitate employee development and retention of critical and key skills.

In general, Transnet strives to align guaranteed remuneration with the market median. The determination of individual remuneration levels is, however, strictly controlled across the business and subject to directives in this regard, and also informed by the various collective agreements.

Annual salary increases are informed by an approved mandate obtained from the Remuneration, Social and Ethics Committee of the Board of Directors. Annual increases for management levels are informed by individual performance ratings. Increases occur once annually or in the event of a promotion. Transnet does not support interim/ad hoc salary increases.

Transnet concluded a historical three-year wage agreement with the recognised labour unions, which expires in 2018. The three-year wage agreement continues to provide labour stability during the period and allows the opportunity for employees to focus on the achievement of the Transnet strategic objectives.

The graph below depicts the increases differentiated between executive management and the bargaining unit, compared to CPI for the past three years:

Annual increase VS CPI

Benefits

It is compulsory for all permanent employees to join the Transnet Retirement Fund, which provides for retirement funding, risk cover and a death benefit. The total contribution to the Transnet Retirement Fund is 19,5% consisting of an employer contribution of 12%, which covers the risk and death benefit portion, and an employee contribution of 7,5%.

Bargaining unit employees, who opt to become a principal members of one of the Transnet recognised medical schemes, are eligible to receive a medical subsidy. Bargaining unit employees also receive a guaranteed amount as housing allowance.

Both the housing allowance and the medical subsidy increase on an annual basis per the wage agreement.

Variable pay

Transnet has implemented a short- and a long-term incentive scheme. The Short-term Incentive Scheme is applicable to all employees and is governed by detailed ground rules, annually approved by the Remuneration, Social and Ethics Committee of the Board of Directors. The Long-term Incentive Scheme is applicable to executive and selected senior managers.

Individual strategic objectives of management employees are derived from and aligned with key performance indicators (KPIs) as stated in the Shareholder’s Compact.

Short-term Incentive (STI) Scheme

The STI Scheme is designed to drive the annual achievement of stretch business targets and to reward employees for this effort.

The bonus pool funding the payment of the annual STI is generated by the achievement of the Transnet earnings before interest, tax, depreciation and amortisation (EBITDA) target. The pool is modified by a productivity measure relating to the KPIs as per the Shareholder’s Compact, as well as the safety achievement. The non-achievement of productivity and safety measures can reduce the bonus pool by up to 50%.

Employees on all grade levels are eligible for payment in terms of the annual STI Scheme, subject to the achievement of the business targets. Eligibility percentages are differentiated based on grade level.

The management category has a higher component of at-risk pay (variable pay), specifically linked to the achievement of business targets. For managers, the individual bonus percentages are modified with individual performance ratings.

In addition to the annual component of the STI Scheme, a gain-share incentive scheme is implemented for bargaining unit employees. The objective of the gain-share is to enhance line of sight between targets and actual performance, as well as to ensure internal parity. This provided that the majority of bargaining unit employees could potentially earn:

  • An annual on-target bonus component, aimed at achieving performance targets with an on-target eligibility of 10% for junior employees and 12% for first-line managers, specialists and technicians; plus
  • A quarterly gain-share bonus component, which becomes accessible by exceeding the quarterly EBITDA and relevant secondary measure targets. Employees have the opportunity
    to gain up to a maximum of 16% per annum when super stretch business targets are exceeded.

The combined annual and gain-share components of the STI Scheme allow bargaining unit employees to earn up to a maximum of 26% of annual pensionable salary for junior employees and 28% of the annual cost-to-company package for first-line managers, specialists and technicians.

Transnet has revised its STI Scheme during the period with the objective to:

  • Standardise and align all STI schemes across Transnet. The current gain-share scheme for bargaining unit employees is not standardised across the business, resulting in disparity of gain-share payments across Transnet;
  • Strengthen integration across Transnet and focus on the full value chain; and
  • Increase customer centrism by focusing on increased orders,
    as well as a flawless and safe execution of operational activities across the business.

The revised scheme has been approved by the Remuneration, Social and Ethics Committee of the Board of Directors and consulted with relevant stakeholders. It will be implemented during the 2018 financial period.

Long-term incentive (LTI) Scheme

Transnet has implemented LTI Scheme to sustain the achievement of the Transnet strategy, retain key talent to ensure the success of the strategy, and to continuously encourage stretch performance and reward performance above target.

The LTI is designed on a three-year rolling basis to ensure sustained business performance and retention over the three-year banking period. Participation in the scheme is informed by our level of seniority in the organisation, individual performance, as well as results from the talent management forum. Following the completion of the three-year banking period, the vesting payment is also subject to individual performance and talent rating criteria.

The LTI Scheme has specific clauses dealing with Company performance over the banking period, and to this effect a group modifier – the return on total average assets (ROTA) – is applied.

Individual performance management

The balanced scorecard performance management methodology for the management category, as well as for first line managers, specialists and technicians, is well entrenched.

The annual Company objectives as per the Shareholder’s Compact are translated into a corporate scorecard and then cascaded to all managers across Transnet. Performance, in terms of the corporate as well as individual scorecards, forms the basis for the determination of STI payments and annual increases.

On an annual basis, the individual performance ratings of managers are ratified to ensure alignment of individual performance with the overall Transnet and Operating Division-specific performance.

During the 2016 reporting period, Transnet and its recognised unions, UNTU and Satawu, concluded the Progression Agreement for bargaining unit employees in the Transnet Bargaining Council. The agreement introduces a groundbreaking performance management approach for bargaining unit employees, which will align performance with reward, in line with Transnet’s drive to create a high-performance culture.

The performance management principles will drive individual, team and business-specific objectives, measures and targets.
This approach will allow all employees to have clear visibility of their contribution to business drivers within the value chain.

The individual performance management for bargaining unit employees will, from the 2018 financial period, also impact the STI payment for this category of employees.

Performance management for Group Leadership Team (GLT)

The individual performance targets for the members of the GLT are cascaded from the corporate plan and the Shareholder’s Compact. Quarterly performance assessments ensure that progress against targets is monitored and managed.

The graph below depicts the performance ratings of the members of the GLT over the past three financial periods compared to the overall performance rating of the Company:
Performance ratings for Group Leadership Team

Remuneration for Group Leadership Team (GLT)

Transnet designed and implemented a new operating model during the reporting period with significant changes to the top leadership. The previous Executive Committee was restructured and reduced from 20 members to the newly constituted GLT consisting of nine members.

Transnet strives to remunerate the members of its executive teams at the market median. Annual guaranteed pay increases for the members of the Transnet executive teams are largely informed by market benchmarks.

Transnet annually conducts an executive remuneration benchmark exercise to compare the remuneration of the executive teams with the external market. Transnet utilises the Deloitte “SA Guide to Executive Remuneration and Reward”, a national remuneration survey published annually by Deloitte Consulting.

In addition to the annual increases for the Group Executive members, a remuneration adjustment was effected for specific members of the GLT whose remuneration was substantially below the comparable market.

The graph below depicts the actual guaranteed remuneration of the GLT against the market median:

The graph above indicates that the remuneration of the GLT is lagging the market median. Transnet is following a phased approach to ensure that the guaranteed remuneration over a period of time is aligned with the market median.

The table below depicts the guaranteed pay of the Transnet Group Leadership Team for the 2017 financial year:

Salary R ‘000 Postretirement benefit fund contributions R ‘000 Other payments R ‘000 Total 2017 R ‘000 Total 2016 R ‘000
B Molefe,4 1 461
SI Gama1 6 792 654 2 7 448 7 249
M Gregg-Macdonald2 411 40 451 3 389
T Morwe4 2 804
KC Phihlela2, 5 459 33 492 3 723
A Singh4 2 254
KXT Socikwa2, 5 512 47 559 4 253
R Vallihu2, 5 530 42 572 4 330
EAN Sishi 3 651 352 2 4 005 3 308
DC Moephuli 3 530 345 2 3 877 3 193
S Chetty2, 5 339 29 368 2 662
RE Lepule2, 5 411 40 451 3 353
MA Sukati2, 5 390 33 423 3 120
MA Matooane4 1 897
ZE Lebelo2, 5 341 26 367 2 720
LMH Msagala2, 5 346 34 380 2 889
N Silinga2, 5 362 30 392 2 846
GJ Pita1 4 593 421 1 5 015 3 070
T Jiyane 4 030 392 2 4 424 3 783
R Nair2, 5 539 38 577 3 950
GJE de Beer3 2 952 314 1 3 267
KV Reddy3 3 094 323 2 3 419
MMA Mosidi3 2 476 176 1 2 653
MM Buthelezi3 4 031 336 2 4 369
39 789 3 705 15 43 509 66 254
1 GLT members who are members of the Board of Directors.
2 Previous members of the Executive Committee, but no longer members of the GLT (previously Executive Committee).
3 Appointed during the year.
4 Resigned during the previous year.
5 Exited from the GLT during the prior year.
Executive remuneration – variable

The members of the GLT are eligible for payments in respect of the STI Scheme provided that the strategic objectives, as agreed with the Shareholder Representative, have been achieved. Individual bonus percentages are further modified with individual performance assessment ratings.

The eligibility percentages linked to specific business performance achievement is indicated in the table below:

Qualifying percentage
Employment category Grade level Threshold On-target Maximum
Group Leadership Team A 25% 50% 100%
Extended Leadership Team B 20% 40% 80%

Short-term and long-term incentive payments

The short-term payment for the 2017 financial year was based on the actual achievement of the annual EBITDA, as well as the productivity and safety modifiers at Group and Operating Division levels.

The 2014 conditional award in respect of the Transnet long-term incentive scheme vested at the end of the 2017 financial period. The value of the long-term incentive payment is impacted by the level of achievement of specific Company and individual performance objectives.

The members of the Transnet GLT were eligible for payment in respect of the long-term incentive scheme based on the ground rules of the scheme. The payment of the vested amounts took place at the end of April 2017:

LTI 2017
R 000
LTI 2016
R 000
STI 2017
R 000
STI 2016
R 000
B Molefe4 6 285
SI Gama1 3 185 884 1 571 402
M Gregg-Macdonald2 258 577 90 261
K Phihlela2 293 650 94 283
A Singh4 4 235
KXT Socikwa2 333 704 107 312
R Vallihu2 816 684 124 329
DC Moephuli 1 855 431 820 230
S Chetty2 184 355 205
RE Lepule2 233 309 86 246
EAN Sishi 1 911 540 861 246
MA Sukati2 164 96 251
ZE Lebelo2 126 128 76 210
LMH Msagala2 312 212
N Silinga2 123 285 87 227
GJ Pita1 1 304 369 1 120 221
T Jiyane 986 273 898 298
R Nair2 137 121 147
GJE de Beer3 670
KV Reddy3 1 116 801
MMA Mosidi3 538
MM Buthelezi3 1 607 1 015
Total 14 131 17 021 9 175 4 080
1 GLT member who is a member of the Board of Directors.
2 Previous members of the Executive Committee, but no longer members of the GLT (previously Executive Committee).
3 Appointed during the year.
4 Resigned during the previous year.
Remuneration structure for non-executive directors

Non-executive directors are appointed by the Shareholder Representative for a three-year term. The Memorandum of Incorporation of the Company, however, requires that the non-executive directors be submitted for re-election for each of the three years at the Company’s AGM.

Among the issues considered by the Shareholder Representative prior to re-election is the individual non-executive director’s performance.

The Shareholder Representative approves, in advance, the fees payable to non-executive directors. The non-executive directors are paid an annual retainer, as well as an additional retainer fee for committee membership.

Fees paid to non-executive directors are differentiated based on their appointments to the various committees of the Board of Directors.

The table below depicts the actual remuneration for the Transnet non-executive directors for the financial year:

Name of Board member
(Current Board of Directors)
Fees
R ‘000
Other payments
R ‘000
Total 2017
R ‘000
Total 2016
R ‘000
LC Mabaso (Chairperson)4 1 151 129 1 280 1 103
Y Forbes4 518 106 624 496
N Moola1 207
PEB Mathekga 518 518 496
GJ Mahlalela 518 518 496
ZA Nagdee 518 518 496
VM Nkonyne 605 605 579
MR Seleke1, 5 421
S Shane2, 4 605 127 732 660
BG Stagman 605 605 579
PG Williams3 605 605 516
Total 5 643 362 6 005 6 049
1 Resigned during the previous year.
2 Director’s fees paid to Integrated Capital Management (Pty) Ltd.
3 Passed away during the year.
4 Pension fund trustees’ fees included.
5 Director’s fees paid to Kapela Investments.

Remuneration, Social and Ethics Committee of the Transnet Board of Directors

The Transnet Board of Directors has established the Remuneration, Social and Ethics Committee to assist in discharging its responsibilities. The mandate outlining the authority delegated to it by the Board of Directors includes the purpose of the Remuneration Committee, composition, reporting responsibilities, terms of reference and the right of any member to seek and be provided with independent advice at the Company’s expense if such member considers that necessary for the effective execution of his/her fiduciary duties to the Company.

The committee has an independent role, operating as an overseer and a maker of recommendations to the Board of Directors for its consideration and final approval. The committee does not assume the functions of management, which remain the responsibility of the executive directors, officers and other members of senior management.