2012 Integrated report - Sappi

strategic
The primary components of pay include base salary and benefits
eg medical and retirement, which equates to guaranteed pay,
short term incentive awards and long term incentives.
Compensation levels are set to reflect competitive market
practices, ensure internal equity and reward company and
individual performance.
Sappi’s benchmarking philosophy is to pay at the median of the
market for all components of pay except for short term incentives
which are targeted at the 75th percentile. Total compensation is
between the 50th and 75th percentiles of the market.
Guiding principles
The company strives to reward employees fairly and equitably.
The following guiding principles have been established to guide
compensation decisions:
> In determining the value of work, we use a common job
evaluation methodology and combine that with market pricing.
> Each job is allocated a job grade and Hay Reward Level.
> Salary ranges are established 25% below and above the
midpoint, which is determined at the market median.
> Market conditions – all components of pay are set competitively
with due consideration to market pay practices of companies
of similar size and complexity in regional markets.
> Performance – relevant components of compensation are
linked to the performance of individuals and that of his/her
specific business unit or function and/or company.
> The behaviour of individuals in terms of how they achieved
results, made decisions and took action must be consistent
with our values, ethics and leadership competencies.
> Cost – compensation programmes are based on costs which
are reasonable, affordable, and appropriate, and are aligned to
the short and long term financial and strategic business results.
> Determining an appropriate reward mix for executive directors
and other key senior personnel based on base pay and
benefits and short and long term incentives, within the context
of our industry sector.
> Risk and reward – our compensation structure is designed to
ensure that policies encourage behaviour consistent with the
group’s risk and reward strategy.
> Variable pay – our short and long term incentive plans have
different performance criteria. Short term incentives are based
on absolute performance against budget targets on operating
profit, working capital and capital expenditure.
> In order for an individual to qualify for a payout of a short term
incentive under the rules of the scheme, the prescribed
performance threshold of 75% of budgeted Operating Profit 1
must be achieved.
For financial year 2013 onwards, we have amended the annual
management incentive scheme to incorporate the voluntary
purchase of Sappi shares by executive directors and all other
group executive committee members from their annual cash
incentive and who voluntarily undertake to hold the shares for
three years. We have also replaced capital expenditure as a
performance criterion with a safety target.
Long term incentives measure total shareholder return and
cash flow return on net assets relative to a peer group of 14
other industry related companies.
Under the long term incentive plans, share option awards vest
25% each year and have an eight year term; performance plan
shares have cliff vesting after four years.
Share option awards will be discontinued for financial year
2013 onwards, and only performance plan shares will be
granted to all eligible participants.
Incentive awards are capped.
Performance related incentives are designed to align the
interests of executives with those of shareholders.
Employment and separation agreements
Employment agreements typically stipulate notice periods
required by the employer and employee in the event of termination
of employment, except for our North American operations where
employment is generally ‘at will’. Some senior North American
employees are, however, required to provide three months’ notice
to the company in exchange for a year of separation benefits if the
company terminates their employment other than for cause.
For other employees in the group notice periods are based on
seniority and geography and these notice periods vary from one
month to eighteen months. Some notice periods are legacy
practices, particularly where individuals have long tenure with Sappi.
Separation agreements, when appropriate, are negotiated with an
affected employee with prior approval having been obtained in
terms of our governance structures.
Employment contracts do not make any commitments to payment
in the event of termination for cause or in the event of a change in
control. In circumstances where there is a significant likelihood of
a transaction involving a business unit, limited change in control
protections may be agreed and implemented if deemed
necessary for retention purposes.
1. Operating Profit excluding Special Items, adjusted for Fair Value Plantations Adjustment – Volume, External Securitisation Costs, MIS and Share
Scheme Costs and Other non-operating Costs (where applicable).
sappi Integrated Report 2012 85