Remuneration Report

This Remuneration Report details the company's compensation policy for executive directors, executive committee members and non-executive directors.

The information provided in the report has been approved by the board as per the recommendation by the Human Resources and Compensation Committee.

The report is split into three sections: Section A details our remuneration background statement disclosures, Section B gives an overview of our remuneration policy and Section C addresses the implementation of the remuneration policy in 2018.

Section A: Remuneration background statement disclosures

I am pleased to present the committee's report on remuneration. Our report and disclosures fully comply with regulatory and statutory provisions relating to reward governance in all the countries in which we operate. This report is aligned to the principles and recommended practices of the King IV Report on Corporate Governance of South Africa (King IV). This demonstrates our continued commitment to good corporate governance.

Sappi Limited Annual General Meeting (AGM) was held on 07 February 2018 and the requisite ordinary resolutions endorsing the remuneration policy and the implementation reports were passed. These resolutions were passed by a 99% and 92% majority respectively. This vote by our shareholders is an endorsement for our ongoing commitment to good governance and disclosure.

Our shareholders also gave us some guidance on areas where we can improve and to ensure clear disclosure on key items. For 2018 our performance criteria on the Management Incentive Scheme (MIS) has been reviewed and an increased score has been allocated to safety. See Risk management for more information. We value the input of our shareholders and will continue to seek their input to ensure good disclosure.

As described in the respective reports by our Chairman, Sir Nigel Rudd, and CEO, Steve Binnie, Sappi's performance in the year under review was in line with last year. This year continued the ongoing improved performance of the last five years, as reflected in the recent Sunday Times business awards. The group's EBITDA excluding special items was US$762 million, being US$3 million less than the previous year when comparing on a like-for-like basis after adjusting US$20 million for the additional accounting week. Implementing the strategy developed, management planned major capital projects in all three regions in order to transition the business to expand in the growing markets of packaging and dissolving wood pulp. The resultant reduction of available capacity to facilitate the capital projects restricted sales volumes and profitability during the current year, but has laid the foundation for improved returns in the year ahead. The major projects are set to deliver on the expected returns which is supported by the growth in earnings demonstrated in the 2019 budget targets.

These projects include the acquisition of the Cham Paper Group (CPG), conversion of paper machine 1 at our Somerset Mill, the conversion of the paper machine at Maastricht Mill and various dissolving wood pulp debottlenecking projects at Saiccor and Ngodwana Mills in Southern Africa.

With product now successfully flowing from these investments and the successful integration of CPG, the market response has been very encouraging, strongly supporting the strategic direction of Sappi.

Bonus performance outcome, against the targets that were set, are outlined in this report. Performance outcomes are reflected in the remuneration received by executive directors.

The performance period for the 2014 PSP ended on 30 September 2018. Half of this award was based on cash flow return on net assets (CFRONA) and the other half on total shareholder return (TSR) performance. Sappi's performance on CFRONA, when measured against the peer group for the above four-year performance period, ranked third. The peer group is detailed below and represents industry players in printing and writing papers, dissolving wood pulp and specialities and packaging papers. In terms of the vesting schedule, 100% on the CFRONA portion vested. In terms of the TSR performance condition, Sappi ranked fifth. Thus, 100% on the TSR portion vested. The result has been a net vesting of 100% of the 2014 share awards.

For 2019, the focus for Steve and his leadership team will be:

  • Drive the 'Own Safety, Share Safety' theme
  • Continue living the Sappi values (integrity, speed, courage and smart)
  • Transition the business towards higher margin growth segments and away from the declining coated woodfree paper
  • Discipline in the execution of all projects
  • Drive One Sappi initiatives across all the regions
  • Reward and the development of our people
  • Sustain the environment and improve Sappi's footprint
  • Operate machines as efficiently and effectively as possible, and
  • Stay focused to achieve our 2020Vision goals and targets an EBITDA of US$1 billion.

Our remuneration policy is continuously benchmarked against the relevant industry peers to ensure that it motivates our senior team to achieve the group's objectives and deliver sustained returns and value creation for our stakeholders. The committee also believes that the remuneration of executives during 2018 reflects our successes to date in the delivery of our strategy. I trust that you will support the remuneration resolutions at this year's Annual General Meeting.

Mike Fallon

Chairman

Human Resources and Compensation Committee

Statement of voting at Annual General Meeting

The Annual General Meeting (AGM) of Sappi Limited was held on 07 February 2018 and the requisite resolutions endorsing the remuneration policy and the implementation report were passed as follows:

Ordinary resolution number 7: Non-binding endorsement of remuneration policy
For Against Shares voted Abstain
447,387,560 2,550,370 453,163,691 3,225,761
(99.43%) (0.57%) (100%)
Ordinary resolution number 8: Non-binding endorsement of implementation report
For Against Shares voted Abstain
414,427,624 35,376,959 453,163,691 3,359,108
(92.14%) (7.86%) (100%)

At the February 2016 and 2017 AGMs, the results for the requisite ordinary resolution endorsing the remuneration policy were 81.2% and 94.7% respectively.

Human Resources and Compensation Committee

The purpose of the committee is to oversee remuneration matters for all controlled subsidiaries of Sappi Limited. Its key objectives are to:

  • Make recommendations on remuneration policies and practices, including Sappi's employee share schemes
  • Ensure effective executive succession planning, and
  • Review compliance with all statutory and best practice requirements on labour and industrial relations management.

At the end of the year, the committee consisted of four independent non-executive directors:

  • Mr MA Fallon (Chairman)
  • Mr NP Mageza
  • Mr JD McKenzie
  • Mr RJ Renders.

The Chairman of the company, Sir Nigel Rudd, attends committee meetings ex-officio while the group's Chief Executive Officer, Mr SR Binnie together with Group Head Human Resources, Mr Fergus Marupen attend meetings by invitation.

Mrs A Mahendranath, Group Company Secretary, attends the meeting as secretary to the committee.

The Human Resources and Compensation Committee met four times during the year and held one telephone conference.

Attendance at meetings by individual members is detailed in the Corporate governance.

None of the committee members has any significant personal financial interest, or conflict of interest, or any form of cross directorship, or day-to-day involvement in the running of the business.

Executive directors and managers are not present during committee discussions relating to their own compensation.

The Human Resources and Compensation Committee ensures that the compensation practices and structures within the group support the group's strategy and performance goals. The policy also enables the attraction, retention and motivation of executives and all employees.

The key activities of the committee during 2018 are summarised as follows:

  • Reviewed and approved the vesting, or otherwise, of the performance share plan awards which were awarded on 04 December 2014
  • Approved the allocation of 2018 performance share awards to executive directors and all other eligible participants
  • Reviewed and approved salary increases and bonus payments for executive directors and other key senior managers for 2019
  • Recommended fee levels for non-executive directors of the Sappi Limited board for consideration and recommendation to shareholders for approval
  • Approved the allocation model and the comparator peer group for the 2018 performance share plan
  • Reviewed the Remuneration Report, including the content of the company compensation policy and practices, which was put to shareholders for a non-binding vote at the Annual General Meeting in February 2018
  • Approved the 2019 Management Incentive Scheme rules and reviewed the Share Incentive Plan rules, including changes to the Performance Share Plan
  • Reviewed the succession, retirement and development plans for key management positions, and
  • Review the group's industrial relations policy and implementation.
Independent advice

Management engaged the services from the following organisations to assist in compensation work during the course of the year:

  • Mercer Kepler (United Kingdom)
  • Korn Ferry (South Africa)
  • KPMG Inc (South Africa), and
  • PricewaterhouseCoopers Tax Services (South Africa).
Compliance statement

The Human Resources and Compensation Committee is committed to maintaining high standards of corporate governance and supports and applies the principles of good governance advocated by the King IV Report on Corporate Governance for South Africa 2016 (King IV). Our remuneration approach and disclosures fully comply with regulatory and statutory provisions relating to reward governance in all the countries in which we operate. The committee ensures compliance with legal and regulatory requirements as they pertain to compensation.

The Human Resources and Compensation Committee is of the view that the objectives stated in the remuneration policy have been achieved for the period under review. The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference and with the status of remuneration and incentives in the group.

Areas of focus for 2019

Key activities for the committee in 2019 will be, inter alia, the approval of the remuneration and bonuses for executive directors and senior management.

In addition to the annual work plan as approved by the committee, the chairman of the committee and senior executives from Sappi will, if required, also be visiting key shareholders to discuss issues of mutual concern. The committee will also consider options available for a future Sappi empowerment scheme to replace the Sefate scheme that will vest in August 2019.

Section B: Overview of the remuneration policy

Compensation strategy and policy

Our compensation packages:

  • Are designed to attract, retain and motivate executives and all employees to deliver on performance goals and strategy
  • Are simple, transparent and aligned with the interests of shareholders
  • Reflect the views of our investors, shareholder bodies and stakeholders
  • Are structured in a way that superior rewards are only paid for exceptional performance and that poor performance does not earn an incentive award
  • Encourage behaviour consistent with the group's risk and reward philosophy
  • Have an appropriate and balanced reward mix for executive directors and other executive managers based on base pay; benefits and short and long-term incentives within the context of the industry sector
  • Are applied consistently across the group to promote alignment and fairness, and
  • Through the executive Management Incentive Bonus Scheme, provide for a voluntary deferral of 40% of the Chief Executive Officer's annual bonus, and 30% of the executive managers' annual bonuses (to purchase Sappi shares), as this is to ensure a long term focus on the company's performance by the individual concerned and establish a personal stake in the company.
Summary of reward components of executive directors and other members of the Group Executive Committee.

The compensation of executive directors and other executive committee members comprises fixed and variable components.

Purpose   Operations   Opportunity
Fixed        
Component – Base salary  
  • To reflect market value of the role, individuals' skills, contribution, experience and performance
  • To attract and retain key talent
 
  • Paid monthly in cash
  • Reviewed annually with any increases to be effective from 01 January each year
  • Base salary reviews take into account prevailing market practices, economic conditions and the levels of base salary increase mandates provided to the general employee population
 
  • Increases are applied in line with outcomes of performance discussions with the individuals concerned
Component – Benefits  
  • To provide protection and market competitive benefits to aid recruitment and retention
 
  • Private medical insurance
  • Income in the event of death or disability
These are:
  • Appropriate in terms of level of seniority
  • Market related
  • Death benefit is a multiple of base salary, and
  • Non-pensionable
  None
Fixed        
Component – Pension  
  • Make ongoing company contributions during employment
  • To provide market related benefits
  • Facilitate the accumulation of savings for post-retirement years
 
  • Comprises defined benefit and defined contribution plans
  • A large number of defined benefit plans are closed to new hires
  • Employees in legacy defined benefit plans continue to accrue benefits in such plans for both past and future service
  • Retirement plans differ by region
 
  • Executive members of defined contribution plans receive a company contribution of up to 18.47% of salary
  • Executive members of defined benefit plans receive company contributions of up to 31.24% of salary. This applies to only one executive committee member. The contribution varies based on the actuarial valuation of the reserves of the relevant schemes
Variable        
Component – Annual cash incentive  
  • Focus participants on targets relevant to the group's strategic goals
  • Drive performance
  • Motivate executives to achieve specific and stretching short-term goals
  • Reward individuals for their personal contribution and performance
  • Deferred share proportion of the annual bonus aligns interests with shareholders
 
  • All measures and objectives are reviewed and set at the beginning of the financial year
  • Payments are reviewed and approved at year-end by the committee based on performance against the targets
  • Threshold is required to be met for any bonus payment to occur
  • Target level of bonuses varies from 65% to 85% of base salary
  • Weightings for 2018 were: EBITDA (50%); working capital (20%), safety (10%) and individual performance (20%)
  • Bonuses are paid in cash. The group Chief Executive Officer and executive committee members have volunteered to purchase shares with 40% and 30% of their after-tax cash bonus respectively. The right to sell the shares is deferred for up to three years, subject to individual members not being terminated for cause
  • Non pensionable
 
  • The maximum bonus for executive directors is 116% of base salary
  • Executive Committee members and other senior managers may earn a maximum bonus of up to 95% of base salary
  • The number of shares arising from the deferred Executive Management Incentive Scheme will be increased by 20% of the original number of shares purchased provided the employee holds all the shares for a period of three years
Variable        
Component – Long-term share incentive plans  
  • Align the interests of the executive members with those of the shareholder
  • Reward the execution of the strategy and long-term outperformance of our competitors
  • Encourage long-term commitment to the company
  • Is a wealth creation mechanism for executive members if the company outperforms the peer group
 
  • Conditional grants awarded annually to executive directors, Executive Committee members and other key senior managers of the company
  • Straight-line vesting after four years
  • Performance is measured relative to a peer group of 16 other industry-related companies
  • The number of conditional shares allocated varies from 142,000 conditional share awards to the Chief Executive Officer, and between 39,000 and 79,000 conditional share awards to Executive Committee members
  • Measures for 2018 awards were relative total shareholder return (TSR) – 50% and relative cash flow return on net assets (CFRONA) – 50%
  None
Component – Broad-based black economic empowerment  
  • Provide black managers with the opportunity to acquire equity in the company
  • Attract, motivate and retain black managers
 
  • Established to meet the requirements of the Forestry Sector Charter BBBEE codes
  • Eligible employees receive an allocation based on seniority of 'A' ordinary shares
  • Shares vest 40% after three years and 10% each year thereafter
  • Shares can only be taken up after September 2019
  • Managers receive the net value in shares or cash at the end of the lock-in period
  None
Component – Service contracts  
  • Provide an appropriate level of protection to both the executive and to Sappi
 
  • Executive Committee members have notice periods of 12 months or less
  • Separation agreements, when appropriate, are negotiated with the individual concerned with prior approval being obtained in terms of our governance structures
 
  • In circumstances where there is a significant likelihood of a transaction involving the Sappi group or a business unit, limited change in control protections may be agreed and implemented if deemed necessary for retention purposes
Service contracts

Messrs Binnie and Pearce have an ongoing employment contract which requires six months' notice of termination by the employee and 12 months' notice of termination by the company.

Depending on their location, Executive Committee members have ongoing employment contracts which require between three to six months' notice of termination by the employee and six to 12 months' notice of termination by the company.

Other than in the case of termination for cause, the company may terminate the executive directors' service contracts by making payment in lieu of notice equal to the value of the base salary plus benefits which they would have received during the notice period.

Executive directors are required to retire from the company at the age of 63 years. The retirement age of Executive Committee members is generally between the ages of 63 years and 65 years, and differs by region.

Choice of performance measures and approach to target setting
Short-term incentive

The table below shows the metrics for 2018, why they were chosen and how targets are set.

  Metric Percentage (%) Relevance How do we set the targets?
  EBITDA 50 A key indicator of the underlying profit performance of the group, reflecting both revenues and costs. Aligns closely with our strategic goals of achieving cost advantages and growth. More efficient water, energy and raw material usage is also encouraged. Targets and ranges are set each year by the board taking account of required progress towards strategic goals, and the prevailing market conditions.
  Working capital 20

A key indicator of accounts payable, accounts receivable and stock levels.

Achieving optimum working capital levels in the business requires efficient use of resources throughout the supply chain and influences cash management, a key pillar of our strategy.

Targets and ranges are set each year by the board taking account of the required progress towards strategic goals, and the prevailing market conditions.
  Safety 10 One of the key indicators of whether the business is meeting its sustainability goal of zero harm. The committee considers input from the SETS Committee, and sets appropriate standards and goals.
  Individual performance 20 An indicator of the contribution of each executive director, individual performance for relevant managers includes several key non-financial targets in relation to sustainability (environment, energy consumption, water usage and waste management), living the Sappi values, discipline in executing all projects and operating machines as efficiently and effectively as possible, and BBBEE in the case of South Africa. Targets and ranges are set each year by the committee, based on the specific priorities, and areas of responsibility of the role.
Performance Share Plan (PSP)

The table below shows the metrics for 2018 grants, why they were chosen and how targets are set.

  Metric   Relevance How do we set the targets?
  Total shareholder return (TSR)   TSR measures the total returns to Sappi’s shareholders, so provides close alignment with shareholder interests. The committee sets the performance requirements for each grant. A peer group of packaging and paper sector companies is used. Nothing vests in positions 10 – 17 of the peer group. Vesting increases from 25% at position 9 to 100% for positions 1 – 5.
  Cash flow return on net assets   A key indicator of the effective use of capital The committee sets the performance requirements for each grant. A peer group of packaging and paper sector companies is used. Nothing vests in positions 10 – 17 of the peer group. Vesting increases from 25% at position 9 to 100% for positions 1 – 5.
Remuneration scenarios at different performance levels

Remuneration levels (CEO and CFO)
(percentage of base pay)

Remuneration levels (CEO and CFO) (percentage of base pay)

The charts below illustrate the total potential remuneration (base pay and short-term incentives) for executive director at different performance levels.

Performance Share Plans (PSPs) are excluded from these scenarios as their vesting depends on performance conditions being met. Vesting is based on a linear vesting schedule.

Statement of fair and responsible remuneration

The group's compensation policy for the remuneration of executive directors and other senior executives is set taking appropriate account of remuneration and employment conditions of other employees in the group.

The committee annually receives a report from management on pay practices across the group, including salary levels and trends, collective bargaining outcomes and bonus participation.

At the time that salary increases are considered the committee additionally receives a report on the approach management proposes to adopt for general staff increases. Both these reports are taken into account in the committee's decisions about the remuneration of executive directors and other senior executives.

In some countries where the group operates, more formal consultation arrangements with employee representatives are in place relating to employment terms and conditions, in accordance with local legislation and practice. The group also conducts employee engagement surveys every two years which gauge employees' satisfaction with their working conditions. The Sappi board is given feedback on these survey results.

Approach to remuneration benchmarks

Executive compensation is benchmarked on data provided in national executive compensation surveys, for countries in which executives are domiciled, as well as information disclosed in the annual reports of listed companies of the Johannesburg Stock Exchange. Sappi participates in global remuneration surveys and uses data from global remuneration survey, ie PWC, Mercer, et al to determine appropriate remuneration levels.

Ensuring an appropriate peer group in order to retain the integrity and appropriateness of the benchmark data is a key task of the Human Resources and Compensation Committee. Executive pay is benchmarked every alternate year.

The remuneration package for a newly appointed executive director would be set in accordance with the terms of the group's approved remuneration policy in force at the time of appointment. The variable remuneration for a new executive director would be determined in the same way as for existing executive directors. For internal and external appointments, the group may meet certain relocation expenses, as appropriate.

Remuneration policy for non-executive directors (fees)
  Element Purpose How it works? Fees
  Non-executive chairman (fees)
  • To attract and retain high-calibre chairmen, with the necessary experience and skills
  • To provide fees which take account of the time commitment and responsibilities of the role
  • The chairman receives an all-inclusive fee
  • The chairman's fees are reviewed periodically by the committee
  • Fees are set by reference to market median data for companies of similar size and complexity to Sappi
  Other non-executive directors (fees)
  • To attract and retain high-calibre non-executives, with the necessary experience and skills
  • To provide fees which take account of the time commitment and responsibilities of the role
  • The non-executives are paid a basic fee
  • Attendance fees are also paid to reflect the requirement for non-executive directors to attend meetings in various international locations
  • The chairmen of the main board committees and the lead independent director are paid additional fees to reflect their extra responsibilities
  • Non-executive directors' fees are reviewed periodically by the chairman and Human Resources and Compensation Committee
  • Fees are set by reference to market median data for companies of similar size and complexity to Sappi

Sappi may reimburse the reasonable expenses of board directors that relate to their duties on behalf of Sappi. Sappi may also provide advice and assistance with board directors' tax returns where these are impacted by the duties they undertake on behalf of Sappi.

All non-executive directors have letters of appointment with Sappi Limited for an initial period of three years. In accordance with best practice, non-executive directors are subject to re-election at the Annual General Meetings after the three-year period. Appointments may be terminated by Sappi with six months' notice. No compensation is payable on termination, other than accrued fees and expenses.

Voting on remuneration

As required by King IV, Sappi's remuneration policy and implementation report as detailed in this Remuneration Report, need to be tabled for separate non-binding advisory votes by shareholders at the upcoming Annual General Meeting (AGM). In the event that either the remuneration policy or the implementation report, or both, are voted against by 25% or more of the voting rights entitled to be exercised by shareholders at such AGM, then the committee will ensure that the following measures are taken in good faith and with best reasonable efforts:

  • An engagement process to ascertain the reasons for the dissenting votes, and
  • Appropriately addressing legitimate and reasonable objections and concerns raised which may include amending the remuneration policy or clarifying or adjusting remuneration governance and/or processes.

Section C: Remuneration implementation report

Compensation structure

Total compensation comprises fixed pay (ie base salary and benefits) and variable performance related pay, which is divided further into short-term incentives with a one-year performance period and long-term incentives which have a four-year performance period.

Compensation mix

The compensation mix for executive directors and executive committee members is shown in the schematics below.

The term 'target' in terms of short-term incentive refers to the annual bonus award if all performance criteria were met at 100% achievement.

The long-term incentive awards are based on the face value of the performance plan shares issued in December 2017 (share price at date of allocation: ZAR95,64 December 2017).

Executive directors (average)
(number of employees at 30 September 2018 = 2) (%)
Executive Committee (average)
(number of employees at 30 September 2018 = 7) (%)
Base salary

The Compensation Committee approved the level of base salary for each executive director, executive committee member and other key senior managers.

Increases are effective from 01 January each year. There are no automatic annual base salary adjustments.

The 2018 salary increases were based on individuals' performances and contributions, internal relativities, inflation rates in the countries of operation, general market salary movement and overall affordability.

The same salary increase percentages were applied in determining the salaries for executive director and executive committee members' increases as was the mandate for general staff, dependent on location.

Mr Binnie received a market adjustment to his salary in June 2017. The adjustment was to ensure that his salary stays market competitive and was fully disclosed in last year's report.

For 2018, Mr Binnie received a salary increase of 5.5% on the South African portion of his salary and 1.5% on the off-shore portion of his salary. His salary with effect from 01 January 2018 was USD$558,318 per annum.

Mr Pearce received a salary increase of 5.5% on the South African portion of his salary and 1% on the off-shore portion of his salary. Mr Pearce's salary with effect from 01 January 2018 was US$322,878 per annum.

Retirement benefits

Retirement benefits are largely in the form of defined contribution schemes. In some instances, legacy defined benefit schemes exist. Almost all the defined benefit schemes are closed to new hires.

Mr Binnie and Mr Pearce are both members of defined contribution funds and the total employee and company contribution is ZAR350,000 each.

No additional payments were made to any retirement fund on behalf of the executive directors.

Short-term incentive

Performance-related annual bonuses may be paid to executive directors and other executive and senior managers under the Management Incentive Scheme. The scheme is designed to incentivise the achievement of pre-defined annual financial targets and personal objectives which are critical measures of business success.

For the 2018 financial year, the financial business performance criteria were: EBITDA (50%), working capital (20%) and safety (10%)-which accounted for 80% of the bonus calculation, with the remaining 20% being based on individual performance during the course of the year.

The bonus payment opportunity available to executive directors and executive committee members is as follows:

On-target bonus Stretch target  
Executive director 85% of base salary 116% of base salary  
Regional chief executive officer 70% of base salary 95% of base salary  
Other prescribed officers (ie Executive Committee members) 65% of base salary 88.5% of base salary  

A performance threshold of 85% of EBITDA for the group is required before any bonus can be paid to participants in the group scheme.

Furthermore, if a region does not achieve the 85% bonus threshold target, no bonus is paid to participants in the region irrespective of overall group performance. The group and all other regions met the performance threshold which entitled them to a bonus payment for fiscal 2017.

The group's performance for the 2018 financial year:

Performance criteria Target   2018 
Actual achievement 
 
EBITDA 50   58.5     
Working capital 20   29.3     
Safety 10   0*    
Total 80   87.8     

* The group and regional safety performance improved, zero was allocated to the Executive Committee and applicable regions due to the tragic fatalities.

Mr Binnie will receive a bonus award of US$525,830 and Mr Pearce will receive a bonus award of US$303,971 to be paid in December 2018.

The terms and conditions of the annual incentive scheme for executive directors and Executive Committee members affords the company the right to seek redress and recoup from an individual where for any reason the board determines, within a 12-month period of such payment, that the performance goals (whether for the participant or for the group) were in fact not achieved following the restatement of financial results or otherwise.

Changes to the short-term incentive scheme

The percentage values of the performance criteria were changed as follows for 2018:

  • EBITDA from 48% to 50%
  • Working capital from 24% to 20%, and
  • Safety from 8% to 10%.
Long-term incentive

The Sappi Performance Share Plan (PSP) provides for annual awards of conditional performance shares which are subject to meeting performance targets measured over a four-year period. These awards will only vest if Sappi's performance, relative to a peer group of 16 other industry related companies is ranked at median or above the median.

The performance criteria are relative total shareholder return (TSR) and relative cash flow return on net assets (CFRONA).

The peer group for the 2018 PSP award will consist of the following 16 industry-related companies:

  • Fortress Paper
  • Lenzing
  • Rayonier Advance Materials
  • Ahlstrom-Munksjo
  • Borrogaard
  • Domtar
  • West Rock
  • Sun Paper
  • UPM-Kymmene, and
  • Holmen.
Share awards 2014
%
2015
%
2016
%
2017
%
  2018
%
 
TSR 0 0 100 100   100  
CFRONA 100 100 100 100   100  
Aggregate 50 50 100 100   100  

Mr Binnie was awarded 137,000 conditional performance plan shares in December 2017 in line with the plan rules.

Mr Pearce was awarded 63,000 conditional performance plan shares in December 2017, in line with the plan rules.

Changes to the long-term incentive scheme

The committee also approved the linear vesting schedule for the 2015 allocations which will be applicable from the 2019 and onwards vesting. This will have the impact that at median performance, 25% of vesting will happen. The vesting schedule is as follows:

  • Metsá Board
  • Verso
  • Mondi Plc
  • International Paper
  • Stora Enso, and
  • Resolute Forest Products.
Performance Share Plan

The vesting schedule for 2014 allocation for both TSR and CFRONA

Position Vesting
1 – 5 100%
6 – 7 75%
8 – 9 50%
10 – 17 0%

For the four-year period ending September 2018, Sappi's performance relative to the peer group measured on TSR was ranked fifth, which meant that 100% TSR component shares vested on the due date in December 2018.

The determination of the vesting of the shares was provided by Mercer Kepler, an independent third party.

Sappi's performance relative to the peer group measured on CFRONA for the same period resulted in 100% of this portion of the awards vesting, as Sappi's performance was ranked in third place. The determination of the vesting of this portion of the shares was verified by KPMG South Africa auditors.

In aggregate, therefore 100% of the total 2014 awards vested.

In December 2014, Mr Binnie was granted 175,000 conditional performance plan shares of which 175,000 will vest in December 2018.

In December 2014, Mr Pearce was granted 85,000 conditional performance plan shares of which 85,000 will vest in December 2018.

The historical vesting of Performance Share Plan awards:

Position Vesting
1 – 5 100%
6 80%
7 65%
8 45%
9 25%
10 – 17 0%
Employee Share Ownership Plan (Broad-based black economic empowerment)

The Employee Share Ownership Plan (Sefate) was established in 2009 to meet the requirements of broad-based black economic empowerment established in the Forestry Sector Charter and in line with the codes set out by the South African Department of Trade and Industry.

There are two schemes which make up Sappi's Employee Share Ownership Plan, namely the ESOP (Employee Share Ownership Plan) and MSOP (Management Share Ownership Plan). There were 5,607 participants in the schemes at the end of September 2014. Eligible employees receive an allocation based on seniority, of 'A' ordinary shares and ordinary shares. Shares vest 40% after three years and 10% each year thereafter.

Shares may, however, only be taken up after September 2019. Employees receive the net value in shares or cash at the end of the lock-in period.

Remuneration disclosure of executive directors and prescribed officers
Executive directors' emoluments for 2018 (US$)
  Salary Performance-
related
remuneration
Sums paid
by way of
expense
allowance
Contributions
paid under
pension and
medical aid
schemes
Share based
payment
benefit
  Total
2018
 
SR Binnie 558,318 525,830 14,907 85,129 701,472   1,885,656  
GT Pearce 322,878 303,971 8,473 63,461 292,857   991,640  
Dilution

If all outstanding options and plans shares were to be exercised or vest as at September 2018, the resulting dilution effect would be 2.42% (2017: 2.79%) of issued ordinary share capital excluding treasury shares. To the extent possible, treasury shares will continue to be used to meet future requirements for shares arising from the exercise of options and vesting of awards.

Share ownership guidelines and restrictions

The Chief Executive Officer, Mr Binnie, volunteered to hold a target number of shares equal to 2x his annual base salary by December 2020. He currently holds shares to the value of approximately 250% of his annual base salary. There is no requirement for the Chief Financial Officer and the Executive Committee members to hold a specific number of shares during their employment with the company.

Executive directors' emoluments for 2017 (US$)
  Salary Performance-
related
remuneration
Sums paid
by way of
expense
allowance
Contributions
paid under
pension and
medical aid
schemes
Share based
payment
benefit
  Total
2017
 
SR Binnie 464,563 440,139 12,944 76,580 561,959   1,555,821  
GT Pearce 302,683 283,986 8,295 61,090 212,657   868,711  
  • Base salary – the actual salary earned during 2018.
  • Retirement benefits – the annual contribution paid by the company into a defined benefit fund on behalf of the members determined as a percentage of their base salary.
  • Other payments – expenses allowances.
  • Annual cash bonus – the actual bonus earned in 2018 based on the rules of the Management Incentive Scheme.
  • Long-term incentive – conditional performance plan shares awarded in 2018 financial year which will vest in 2022.
  • Local earnings are translated into the reporting currency (US Dollar) using the average exchange rate over the financial year. The average rate for South African Rand appreciated by 2.5%, and for the Swiss Franc by 1.1%.
Prescribed officers/Executive Committee members

Prescribed officers are members of the Group Executive Committee.

The table below sets out the remuneration for prescribed officers for 2018 (US$).

  Salary Performance-
related
remuneration
Sums paid
by way of
expense
allowance
Contributions
paid under
pension and
medical aid
schemes
Share based
payment
benefit
  Total
2018
 
B Wiersum 779,507 511,203 2,976 261,304 353,023   1,908,013  
M Gardner 548,690 442,734 56,125 353,023   1,400,572  
A Thiel 336,541 230,261 9,435 61,199 384,436   1,021,872  
A Rossi 84,049 43,391 2,460   129,900  
M van Hoven 173,061 123,824 4,994 47,087 279,116   628,082  
G Bowles 251,038 183,597 7,534 104,581 297,682   844,329  
F Marupen 188,705 134,788 5,250 50,189 196,818   575,750  
M Mansoor 205,370 152,653 115,083 73,390 66,188   612,684  

The table below sets out the remuneration for prescribed officers for 2017 (US$).

  Salary Performance-
related
remuneration
Sums paid
by way of
expense
allowance
Contributions
paid under
pension and
medical aid
schemes
Share based
payment
benefit
  Total
2017
 
B Wiersum 713,361 522,618 2,764 233,429 275,892   1,748,064  
M Gardner 534,626 276,294 54,754 275,892   1,141,566  
A Thiel 315,836 224,665 9,237 59,159 360,039   968,936  
A Rossi 325,362 162,220 9,682   497,264  
M van Hoven 161,408 115,370 4,888 44,891 220,367   546,924  
G Bowles 204,802 160,033 6,254 87,767 235,990   694,846  
F Marupen 176,898 125,925 5,140 48,381 125,608   481,952  
M Mansoor    
Non-executive directors' fees

Directors are normally remunerated in the currency of the country in which they live or work from. Their remuneration is translated into US Dollar, the group's reporting currency, at the average exchange rate prevailing during the financial year. Directors' fees are established in local currencies to reflect market conditions in those countries.

Non-executive directors' fees reflect their services as directors and services on various sub-committees on which they serve. The quantum of committee fees depends on whether the director is an ordinary member or a chairman of the committee. Non-executive directors do not earn attendance fees; however, additional fees are paid for attendance at board meetings more than the five scheduled meetings per annum.

The chairman of the Sappi Limited board receives a flat director's fee and does not earn committee fees. Non-executive directors do not participate in any incentive schemes or plans of any kind.

In determining the fees for non-executive directors, due consideration is given to the fee practice of companies of similar size and complexity in the countries in which the directors are based. The extreme volatility of currencies, in particular the ZAR/US$ exchange rate in the past few years, caused distortions of the relative fees in US Dollar paid to individual directors.

Non-executive directors' fees are proposed by the Executive Committee, agreed by the Human Resources and Compensation Committee, recommended by the board and approved at the AGM by the shareholders.

The non-executive directors' fees for 2018 financial year were approved by shareholders. The table below sets out the remuneration for non-executive directors for 2018:

  2018  
US$ Board
fees
Committee
fees
Travel
allowance
  Total  
D Konar(1) 13,686 14,344   28,030  
KR Osar 74,140 34,100 18,000   126,240  
JD McKenzie 50,394 20,511 7,200   78,105  
ANR Rudd 419,684 10,800   430,484  
NP Mageza 34,729 37,569 7,200   79,498  
R Thummer(2) 24,700 7,478 7,000   39,178  
MV Moosa 34,729 24,834 7,200   66,763  
MA Fallon 66,335 67,223 10,800   144,358  
RJ DeKoch(3) 65,806 21,357 14,400   101,563  
RJAM Renders 78,937 67,022 10,800   156,759  
B Mehlomakulu(4) 31,565 10,255 7,200   49,020  
894,705 304,693 100,600   1,299,998  
  2017    
US$ Board
fees
Committee
fees
Travel
allowance
  Total    
D Konar 35,200 43,811 7,000   86,011    
B Radebe(5) 15,156 3,969   19,125    
KR Osar 79,360 41,800 10,500   131,660    
JD McKenzie 49,751 19,053 7,000   75,804    
ANR Rudd 395,427 14,000   409,427    
NP Mageza 35,200 24,750 7,000   66,950    
R Thummer 78,745 27,781 14,000   120,526    
MV Moosa 35,200 18,305 7,000   60,505    
MA Fallon 67,177 62,446 14,000   143,623    
GPF Beurskens(5) 27,384 22,570   49,954    
RJ DeKoch 79,360 23,920 7,000   110,280    
RJAM Renders 78,745 53,070 14,000   145,815    
B Mehlomakulu 20,043 5,557 7,000   32,600    
996,748 347,032 108,500   1,452,280    
(1) Retired from the board in January 2018.
(2) Retired from the board in December 2017.
(3) Retired from the board in August 2018.
(4) Appointed to the board in March 2017.
(5) Retired from the board in February 2017.
Statement by the board regarding compliance with the remuneration policy

The board annually receives a report from the Human Resources and Compensation Committee on pay practices across the group, including salary levels and trends, collective bargaining outcomes and bonus participation.

The board endorses the Human Resources and Compensation Committee position that Sappi's remuneration policy is set taking appropriate account of remuneration and employment conditions of other employees in the group and external factors. It is the view of the board that this policy as detailed herein, drives business performance and value creation for all stakeholders.