Integrated Annual Report 2015

Remuneration report

Chair of remuneration committee statement

This remuneration report was prepared by the board remuneration committee (the committee) and approved by the board.

Overview of the year

Changes were put in place for the 2015 financial year in response to the cap on variable remuneration that can be paid to Prudential Regulation Authority (PRA) Code Staff under the Capital Requirements Directive IV (CRD IV) and the PRA Remuneration Code (PRA Code). These regulations affect the remuneration that we can pay the chief executive, managing director and group risk and finance director, as well as some of our employees in the Specialist Bank in the UK who are classified as PRA Code Staff.

Although shareholders at the 2014 annual general meeting voted overwhelmingly in favour of our remuneration report for the year ended 31 March 2014, the committee was disappointed that only 56% of shareholders supported the executive directors’ remuneration policy.

Listening to and acting on shareholders’ concerns

The committee has directed much of its time and effort since the 2014 annual general meeting into establishing the reasons behind the significant vote against the directors’ remuneration policy and implementing changes to address shareholders’ concerns.

The four main areas identified by shareholders as reasons for voting against the directors’ remuneration policy were:

We have responded to those issues by:

In addition, in view of the forthcoming changes to the PRA Code, we have built flexibility into the directors’ remuneration policy to lengthen deferral or holding periods to comply with future regulatory requirements for individuals identified as PRA Code Staff without the need to revert to shareholders for a further binding vote in 2016. We have also extended the current malus provision to all incentives and introduced clawback so that the committee can apply either malus or clawback to all incentives for a period of up to seven years from the date of award (for PRA Code Staff).

These proposals will be put to shareholders for approval at the annual general meeting in August 2015 as part of the directors’ remuneration policy and the remuneration report. We have discussed these proposals with a representative group of our largest shareholders both in the UK and South Africa. These shareholders have been broadly supportive of these proposed changes and share the committee’s view that Investec has to adopt policies that allow it to remain competitive in attracting and retaining talent and ensuring the long-term success of the business. We would like to thank our shareholders for the open and frank nature of these conversations and for the various suggestions that were made.

Business context and outcomes for the year under review

Investec successfully executed on its key strategic initiatives embarked upon over the past two years. The group continued to grow its core franchises and simplified the Specialist Banking business through restructuring and strategic sales. The resultant simplification enables the group to enhance the operational focus to grow and develop its core businesses, so that the right outcomes can be delivered for clients and stakeholders including acceptable returns for shareholders.

The group’s performance against key metrics is shown in the table below.

Group performance metrics 

Year ended 
31 March 
2015 
Year ended 
31 March 
2014 
% change 
Earnings attributable to shareholder before goodwill, acquired intangibles, non-operating items and after non-controlling interests   £339.5 million  £326.9 million  3.9% 
Adjusted earnings per share  39.4 pence  37.9 pence  4.0% 
Dividends per share  20.0 pence  19.0 pence  5.3% 
Return on equity  10.6%  10.1%    
Recurring income as a % of total operating income  74.2%  70.7%    
Return on average risk-weighted assets  1.25%  1.14%    
Total capital adequacy ratio, Investec plc  16.7%  15.3%    
Core tier 1 capital ratio, Investec plc  10.2%  8.8%    
Leverage ratio, Investec plc  7.7%  7.4%    
Total capital adequacy ratio, Investec Limited  14.7%  14.9%    
Core tier 1 capital ratio, Investec Limited  9.6%  9.4%    
Leverage ratio, Investec Limited  8.1%  7.8%    
Total shareholder return, Investec plc (Pounds Sterling)  19.7%  9.6%    
Total shareholder return, Investec Limited (Rands)  22.5%  36.3%    
Variable remuneration pool  £337 million  £305 million  10.5% 


In light of the positive financial performance of the group in 2015 and the resultant progress achieved across a range of financial and non-financial measures (in terms of the executive short-term incentive plan as approved by shareholders and reflected here), the remuneration committee approved an annual bonus of £2.5 million each for Stephen Koseff and Bernard Kantor, and £2.25 million for Glynn Burger. Stephen Koseff, Bernard Kantor and Glynn Burger receive 20% of their bonuses in cash with the balance deferred in shares over three years, subject to six months retention. Malus and clawback arrangements apply to these awards.

Hendrik du Toit was awarded a bonus of £4.36 million, determined solely in relation to the performance of Investec Asset Management as set out here. The bonus payable to Hendrik du Toit will not be deferred until such time as the debt taken out by him to fund a substantial investment into Investec Asset Management has been repaid.

The remuneration committee approved inflationary increases in the salary and benefits of the executive directors in line with average salary increases provided to employees across the group.

The board approved a modest increase in fees for the forthcoming year for the non-executive directors, roughly in line with inflation.

Remuneration philosophy remains unchanged

Our overarching remuneration philosophy has remained unchanged from prior years as we maintain focus on employing and retaining the highest calibre individuals through the payment of industry competitive packages and long-term share awards which ensure alignment with key stakeholders in our business.

Our rewards continue to be distributed from pools of realised earnings generated in excess of targeted thresholds which reflect usage of risk-adjusted capital. This economic value-added model has been in operation for about 16 years and ensures that risk and capital management form the basis for key processes at both a group and transaction level thus balancing the rewards between all stakeholders.

We recognise that financial institutions have to distribute the return from their enterprises between the suppliers of capital and labour and the societies in which they do business, the latter through taxation and corporate social responsibility activities. Our group-wide remuneration philosophy seeks to maintain an appropriate balance between the interests of these stakeholders, and is closely aligned to our culture and values which include risk consciousness, meritocracy, material employee ownership and an unselfish contribution to colleagues, clients and society.

Looking forward

The committee will continue to ensure that reward packages remain appropriately competitive, provide an incentive for performance, and take due regard of our culture, values, philosophies, business strategy, risk management and capital management frameworks.

Where appropriate, we will continue to consult shareholders and shareholder bodies on any significant proposed changes in remuneration policy.

We are seeking shareholder approval at the 2015 annual general meeting for:

Signed on behalf of the board

Perry Crosthwaite

Perry Crosthwaite
Chairman, DLC remuneration committee

10 June 2015

Navigating this report

To help shareholders navigate the remuneration report, a brief summary of key content is set out below.

Where to find details of the key remuneration information 
Compliance and governance statement 
A summary of the remuneration decisions made during the year ended 31 March 2015 
Annual report on directors’ remuneration
Composition and role of the committee 
Statement of implementation of remuneration policy for the year ending 31 March 2016 
Executive directors’ single total figure of remuneration (audited) 
Executive short-term incentives – achievement of performance targets 
Non-executive directors’ single total figure of remuneration (audited) 
Directors’ interest in shares 
Shareholder dilution 
Total shareholder return performance graph and CEO remuneration table 
Percentage change in CEO remuneration and relative importance of spend on remuneration 
Statement of voting at 2014 annual general meeting
Additional remuneration disclosures (unaudited) 
Directors’ remuneration policy for the year ending 31 March 2016 and subsequent years 
Benchmarks 
Impact of CRD IV on executive directors’ remuneration arrangements 
Remuneration of the CEO of IAM 
Executive directors’ remuneration policy table 
How will executive directors’ performances be assessed? 
Differences between the remuneration policy of the executive directors and the policy for all employees 
Policy for the recruitment of new executive directors 
Service contracts and terms of employment 
Remuneration policy for non-executive directors 
Shareholder and employee views 
Additional remuneration disclosures (unaudited) 
PRA Remuneration Code disclosures 
SARB Pillar III remuneration disclosures 

Executive directors

The executive directors whose remuneration is disclosed in this report are referred to as follows:

Reporting standard

Compliance and governance statement

The remuneration report complies with the provisions of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the UK Corporate Governance Code 2012, the UK Companies Act 2006, the Rules of the UK Listing Authority, the UK Financial Conduct Authority rules, the PRA Remuneration Code, the South African King III Code of Corporate Practice and Conduct, the South African Companies Act 2008, the JSE Limited Listings Requirements and the South African Notice on the Governance and Risk Management Framework for Insurers, 2014.

The remuneration report comprises the annual statement from the committee chair, the revised directors’ remuneration policy that sets out our remuneration policy for the next three years and the differences between the future policy and the policy operated in the 2015 financial year, and the annual report on remuneration that explains how the policy has been implemented in the 2015 financial year. The report also contains Pillar 3 disclosures as mandated by the UK’s PRA and the South African Reserve Bank.

A summary of the remuneration decisions made during the year ended 31 March 2015

Remuneration philosophy

Our philosophy, which remains unchanged from prior years, is to:

In summary, we estimate our total economic return has been divided between government through taxation, owners through dividends and employees through total compensation as follows:

The total cost of compensation is managed through staff compensation ratios which are reviewed regularly. The total staff compensation ratios are as follows:

Value add contribution

Value add contribution

   Staff compensation ratios 
   Year ended 
31 March 
2015 
Year ended 
31 March 
2014 
Total for the group  47.4%  46.3% 
Asset Management  47.6%  47.7% 
Wealth & Investment  55.9%  56.1% 
Specialist Banking  45.2%  43.5% 

Outcomes for executive directors during the year

The following table summarises awards made to executive directors for the year. A further breakdown of these awards can be found here.

   Total cash benefits,
salary, bonus 
Total deferred
bonus* 
Fixed allowance
payable in shares
subject to retention
period^ 
Total remuneration
awarded in current
period 
Value of vestedLTIPS** 
£’000  31 March 
2015 
31 March 
2014 
31 March 
2015 
31 March 
2014 
31 March 
2015 
31 March 
2014 
31 March 
2015 
31 March 
2014 
31 March 
2015 
31 March 
2014 
CEO  970  844  2 000  1 576  1 000  ^^  3 970  2 420  –   –  
MD  970  844  2 000  1 576  1 000  ^^  3 970  2 420  –   –  
GRFD  773  685  1 800  1 416  1 000  ^^  3 573  2 101  –   –  
CEO IAM  4 811  4 811  –   –   –   –   4 811  4 811  3 319  799 

Changes to executive remuneration

We are proposing to respond to the issues raised by shareholders by making the following changes to the remuneration arrangements of the executive directors who are subject to CRD IV:

These proposals apply from the 2016 financial year (and subsequent years) and are subject to approval at the 2015 annual general meeting.

An example of how the changes will impact the remuneration package of the CEO is shown in the table below:

    Year ended
31 March 2015 
 Year ending
31 March 2016 
Salary   £470 000   £480 000 
Fixed allowance   £1 million (paid in shares)   £1 million (paid in shares) 
Short-term incentive (maximum)   200% of fixed remuneration   100% of fixed remuneration** 
Long-term incentive   n/a   100% of fixed remuneration** 


The graphs below compare the current and proposed remuneration structures on a target basis. Specific values shown relate to the CEO although a similar structure would apply to all executive directors subject to the CRD IV bonus cap.

Proposed remuneration structure

Proposed remuneration structure

The remuneration of the CEO of IAM will continue to be determined by reference to the remuneration policy applicable to the IAM business.

Annual report on directors’ remuneration

The Investec group aims to apply remuneration policies to executive directors and employees that are largely consistent across the group, but recognises that certain parts of the group are governed by local regulations that may contain more onerous requirements in certain respects.

Composition and role of the committee

Perry Crosthwaite is the chairman of the committee. The other members of the committee are Fani Titi and Charles Jacobs. During the year Olivia Dickson, Bradley Fried and Sir David Prosser stepped down from the committee.

Current members of the committee are deemed to be independent as discussed here.

One of the members of the committee is also a member of the group’s board risk and capital committee (as discussed here), thus bringing risk and control mechanisms into the committee’s deliberations.

The committee’s principal responsibilities and objectives are to:

The committee is authorised by the board to seek any information it requires from any employee in order to perform its duties.

The committee’s terms of reference are subject to annual review and are available on our website.

Meetings

The remuneration committee met nine times during the financial year. An attendance schedule is provided here.

The company secretary of Investec plc acts as the secretary. Executive directors do not attend meetings of the committee, unless invited or required to do so by the chairman of the committee. The chairman of the committee reports on the activities of the committee at each meeting of the board.

Advisers to the committee and the company

Where appropriate, the committee has access to independent executive remuneration consultants. The selection of the advisers is at the discretion of the committee and Investec funds any expenses relating to their appointment.

During the financial year, the committee continued to use the services of its principal advisers, New Bridge Street, which among other things specifically reviewed and provided information on executive remuneration and our remuneration policy in light of CRD IV, industry consultation papers, regulations and developments with respect to remuneration practices and our alignment to them. In addition, they continued to review and provide information on appropriate benchmarks, industry and comparable organisations’ remuneration practices. Their recommendations are valued in the ongoing review of our remuneration practices. New Bridge Street is a signatory to the UK Remuneration Consultants Group’s Code of Conduct and does not conduct any material work for the company other than for the committee and is part of Aon plc. The committee, on an annual basis, formally evaluates the advice received from New Bridge Street to ensure that it is both objective and independent, and considers whether this service should be retained for the forthcoming year. Total fees paid to New Bridge Street for the year amounted to £31 000, (based on their standard hourly rates).

The company retained the services of PricewaterhouseCoopers to assist with the development of executive director and other PRA Code Staff incentive arrangements in light of CRD IV and to understand industry remuneration developments. This information was also shared with the committee.

Furthermore, we have used the services of Linklaters who have advised this year mainly on a number of issues pertaining to our existing incentive plans. Linklaters is one of Investec plc’s legal advisers.

Certain specialist divisions within the group, for example, human resources and the staff shares schemes division, provide supporting information and documentation relating to matters that are presented to the committee. This includes, for example, comparative data and motivations for proposed salary, bonus and share awards. The variable remuneration pools are determined by our finance teams taking into account risk-adjusted capital requirements and after eliminating unrealised gains. The employees within these specialist divisions, which provide support to the committee, are not board directors and are not appointed by the committee.

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