Briefing to Portfolio Committee on Public Enterprises

On Performance Management ofSOE Senior Management

10 November 2009

Relationship between the shareholder, Board and Executive Management of SOE

• A company has two governing organs:• Shareholders (in general meeting); and

• Its Board of Directors

• The distribution of powers between these organs is regulated by the Companies Act (61 of 1973) and the SOE’s Articles of Association.

• Such powers generally include ability to hold general meetings, appoint board members, remuneration of directors (executive and non-executive), management and control of a company.• The shareholder is responsible for the appointment and

removal of directors from the Board, which includes the appointment of executive directors (CEO and CFO) who are appointed ex officio.

• The Board as the custodian of the company is expected to act in the best interests of the SOE and the shareholder.

Relationship between Shareholder, Board and Executive Management.

• The Board has an oversight role to review and monitor management’s conduct of the company affairs and operations, its delivery and achievement of strategic, business, operations and financial goals and other objectives.

• Management and control of a company often falls under the Board of Directors in terms of both the Companies Act and the Articles.

• The Executive Management (represented by the CEO and CFO) is accountable to the Board and the Board is accountable to the shareholder. Thus the Board would manage the performance of these executives.

• Executive management is appointed and managed as part of an employment relationship governed by employment law and Human Resource principles.

Performance Management Cycle

Performance Planning (Setting Goals)(Prior to performance period)•Annual business plan•Organisation performance goals•Tech/funct knowledge areas defined•Behavioural competencies determined

Implementation(during performance period)•Ongoing feedback and coaching to improve performance•Interim performance resultsrelative to expectations communicated

Assessment(after performance period)•Results measured•Performance relative to expectation assessed•Rewards decisions determined•Performance improvement plan developed•Planning for upcoming performance period initiated

Performance Planning (Setting Goals)(Prior to performance period)•Annual business plan•Organisation performance goals•Tech/funct knowledge areas defined•Behavioural competencies determined

Implementation(during performance period)•Ongoing feedback and coaching to improve performance•Interim performance resultsrelative to expectations communicated

Assessment(after performance period)•Results measured•Performance relative to expectation assessed•Rewards decisions determined•Performance improvement plan developed•Planning for upcoming performance period initiated

  Current SOE Performance Policies - Alexkor

SOE Objective Criteria Reward

Alexkor • To assist staff to enhance their performance and maximise their potential contribution to the success of the organisation as well as to provide a mechanism for determining reward for performance.

•Results expected (output /outcome)•Behavioral Competency •Technical Competency .

• The size of pay awards to staff including performance awards are determined by the Board.•The actual reward is based on rating.

SOE Objective Criteria Reward

Alexkor • To assist staff to enhance their performance and maximise their potential contribution to the success of the organisation as well as to provide a mechanism for determining reward for performance.

•Results expected (output /outcome)•Behavioral Competency •Technical Competency .

• The size of pay awards to staff including performance awards are determined by the Board.•The actual reward is based on rating.

  Current SOE Performance Policies - Denel

SOE Objective Criteria Reward

Denel • The aim of the policy is to track and manage performance.

•The Policy also seek to ensure that employees receive fair evaluations and their performance is managed appropriately and satisfactorily.

• Setting performance expectations and goals.•Measuring performance and providing feedback to employees. •Increasing the capacity to perform through training and development.•Evaluating employees’ performance against elements and standards in a performance plan.

• The actual reward is based on rating.

  Current SOE Performance Policies - PBMR

SOE Objective Criteria Reward

PBMR • The Executive and Senior Managers review PBMR’s overall Strategic Intent and compile a Corporate Plan with objectives and budges according to PBMR’s strategic and business planning process. •The Balanced Scorecard is used to formulate and communicate the strategic objectives to the Company.

• How the employees supports the objectives and performance standards of the organisation.

•The actual reward is based on rating.

  Current SOE Performance Policies – South African Airways

SOE Objective Criteria Reward

South African Airways

•To improve organisational performance. •To create a performance driven culture.

•SAA must have achieved its financial target for purposes of paying an Incentive bonus.• Achievement of operating profit will serve as the qualifying criteria for bonus payouts.

• If SAA achieves the financial target Management are eligible for payment of bonus as follows:• Target x Modifier x Individual Score x % package

  Current SOE Performance Policies - SAX

SOE Objective Criteria Reward

South African Express

• To manage the performance of Executive Management through the Balanced Scorecard. •The Scorecard determines the remuneration for performance by means of annual salary increases and annual performance bonuses.

• Financial Performance.•Strategic • Providing quality service to customers.•Improvement on internal business processes.•Learning and growth

•Bonuses are strictly dependent on SAX reaching its financial target. •Performance achievements of 50% and below do not qualify for Bonuses.

  Current SOE Performance Policies - Safcol

SOE Objective Criteria Reward

SAFCOL • Develop a strategic and integrated management process focusing on individual and team performance and developing capabilities of individuals by evaluating their contributions and results.

•Meeting the target and goals of the organisation.

•The actual reward based on rating.

  Current SOE Performance Policies - Transnet

SOE Objective Criteria Reward

Transnet • Establish a clear link between Transnet’s strategic objectives and contribution of employees.•Focusing employee performance on achieving business objectives.•Encouragement and rewarding of good performance.•Management of poor performance.•Fostering commitment to team and individual performance.

• Meeting the objectives of the company.•Developments needs.

• The actual reward based on rating.

  Current SOE Performance Policies - Infraco

SOE Objective Criteria Reward

Broadband Infraco • Encouraging and rewarding outstanding performance.• Compelling all employees to develop and grow.•Attract, motivate and retain right people.

• Performance and profitability of Infraco.•Contracted outputs and results that benefit the organisation.

•The actual reward based on rating.

Remuneration

• Remuneration Guidelines were approved by Cabinet in

November 2007.

• Remuneration is approved by MPE in terms of the DPE’s

Remuneration Guidelines and is defrayed by SOE.

• The remuneration, or any adjustment of the

remuneration, of executive and non-executive directors

are determined by the SOE in Annual General Meeting

having due regard to the Remuneration Guidelines.

Remuneration Guidelines

Non-Executive Directors

• SOE size categorised in terms of assets

and revenue;

• SOE Chairperson and NED

remunerated in line with SOE size;

• Quarterly retainer paid at median;

• Additional retainer per sub-committee;

• Additional fee for Chairpersonship: total

remuneration between median and

upper quartile;

Executive Directors• CEO and ED remunerated in line with

SOE size and Enterprise performance;• Enterprise performance measured in

terms of revenue, profits, market value or return on investment reflecting company performance levels;

• Scarcity allowance: remunerated in upper quartile;

• CEO and ED performance exceeding expectations: remunerated in upper quartile;

• Remuneration reviewed annually and adjusted in terms of individual and organisation performance in line with appropriate benchmarks.

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Remuneration Guidelines

• Short term performance is measured and scored based upon strategic short

term performance measures and targets;

• Only a portion of the calculated incentive is deemed to be earned in Year 1 -

since it is unknown whether short term performance has been delivered at

the expense of longer term strategic performance criteria;

• Long term performance against strategic performance measures assessed

at the end of future years - if met, then the remaining calculated incentive is

deemed to be earned;

• If future long term strategic targets are not met, the unearned incentives

remain unearned and are not paid out.

Remuneration Committee

• SOE boards are encouraged to establish remuneration committees in line with best practice corporate governance principles

• The Committees should review and recommend to the Board on:• Executive remuneration and incentive policies

• Remuneration packages of senior management

• Recruitment, retention and termination policies and procedures for senior management

• Remuneration framework for directors

• The structure of NED remuneration should be clearly distinguished from that of executives

• NEDs should not participate in schemes, including incentive payments designed for Executives.

THANK YOU