2012 Integrated report - Sappi

Compensation
report
The two large specialised
cellulose projects are
well on their way and the
increase in dissolving
wood pulp capacity
forms a major part of our
business growth strategy.
Arising from the requirements of the New Companies Act 71
of 2008, Sappi’s board committees were restructured to
accommodate the need for a social and ethics committee. This
resulted in the reconstitution of the compensation committee as
the human resources and compensation committee.
This report deals only with those matters pertaining to the duties
and responsibilities of this committee which relate to compensation.
The 2012 financial year saw improved underlying performance
for the group in a continuously challenging environment.
The two large specialised cellulose projects are well on their way
and the increase in dissolving wood pulp capacity forms a major
part of our business growth strategy.
Restructuring initiatives in the paper and pulp sectors of our
business, which commenced in financial year 2011, were largely
concluded during this year.
The committee is aware of the sensitivity of our business to the
global economic environment and it is a tribute to management
that they were able to produce the results which they did in an
industry sector characterised by weak performance, volatile
exchange rates and over capacity.
The clear strategic objectives and the performance of the
business within the global context provided a context for the
committee’s discussions on compensation. Due cognisance was
given to the comments received from some shareholders on the
compensation philosophy which was put forward for a nonbinding
vote at the annual general meeting in February 2012.
Some of the key decisions made by the committee during the
course of the year included:
> Changing the reporting of annual bonus awards so as to be
reported in the calendar year in which the bonus was earned
(rather than in the next year as had been the practice) in order
to make our compensation reporting more easily understood.
> Introducing an amendment to the annual management
incentive scheme (as applicable to executive directors and
other members of the group executive committee) so that on
receipt of their annual cash bonus, participants will voluntarily
undertake to purchase Sappi shares with an agreed portion
of their cash bonus and that such shares will be voluntarily
held for a period of three years. This amendment was
introduced with the agreement of the executives concerned to
address the concern of some shareholders that the longer
term element of compensation be increased, thereby
increasing alignment with shareholder interests.
> Discontinuing the granting of share options to eligible
participants in general management categories and instead
to grant performance plan shares to all eligible participants.
The performance share incentive plan incorporates cliff vesting
after four years and has performance measures.
This addressed concerns that the share option scheme lacked
performance measures and that the vesting of the awards
commenced after one year.
> Amending the performance criteria in the annual management
incentive scheme to include a Safety criterion in line with other
resource-based organisations.
Further information on the above is provided in the relevant
sections of this report.
Compensation committee
The human resources and compensation committee’s
responsibilities concerning compensation are:
> Reviewing the terms of employment and compensation of the
executive directors and other senior key managers.
> Ensuring that the compensation policy and practices of the
group encourage, reinforce and reward the delivery of growth
and shareholder value.
> Reviewing and approving short and long term incentive plan
rules; the award, allocation or issue of shares or payments in
cash incentives.
> Reviewing and approving proposals submitted by the group
executive committee on the fees and benefits of non-executive
directors, including the chairman.
Part of the committee’s responsibilities to shareholders is to
assure shareholders that the compensation of senior executives
is set by an independent committee and that all disclosure set
out in this report is to the best of their knowledge, accurate,
complete and transparent.
sappi Integrated Report 2012 83