The objective of Harmony’s reward strategy is to enable the business to:
- recruit high-performing skills from a limited pool of talent
- retain competent employees who continuously enhance business performance
- reinforce, encourage and promote superior performance
- direct employees’ energies and activities to achieving key business goals
- achieve most effective returns (employee productivity) for total employee spend
- embrace diverse needs of employees in building the Harmony culture.
To achieve this, Harmony rewards employees in a way that fairly reflects the dynamics of the market and the context in which it operates. All components of the reward strategy are aligned to Harmony’s strategic direction, business-specific value drivers and operational results.
Reward strategy – design principles
The principles that govern Harmony’s reward strategy include:
- Competitive pay levels: Harmony is committed to paying packages that are competitive relative to the target labour market
- Pay for performance: Remuneration practices reward high-performing employees for their contribution to the company
- Internal equity: Remuneration differentiation between employees is based on criteria that are fair and objective
- Cost management: Harmony manages the total cost of employment for all employees
- Holistic approach: Harmony has adopted an integrated approach to reward strategy – a balanced design that includes the following components:
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Guaranteed pay |
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Short-term incentive pay |
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Long-term (share-based) incentive pay |
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Performance management |
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Employee growth and development |
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Non-financial rewards and recognition |
- Regular revision: Harmony recognises that the reward strategy and resultant remuneration policies are dynamic and should be reviewed regularly to ensure that practices keep pace with both the company’s objectives and market practices
- Communication: Harmony is committed to ensuring employees are aware of the company’s reward strategy.
Remuneration governance
The remuneration committee has been established by the board to assist in its responsibility for setting and administering remuneration policies in the company’s long-term interests, and to ensure that Harmony’s directors and senior executives are fairly rewarded for their individual contributions to overall performance; and to give due regard to the interests of shareholders and the financial and commercial health of Harmony.
The proceedings of the remuneration committee are governed by a charter approved by the board. The committee’s primary objectives are to specifically address reward strategies for those employees who fall outside the bargaining units. The committee especially concerns itself with the remuneration of senior executives, including executive directors, and to monitor and strengthen its objectivity and credibility in linking remuneration to individual performance, Harmony’s performance and market conditions. It also advises the board on the remuneration of non-executive directors.
The committee is charged to promote a culture that supports enterprise and innovation by adopting remuneration policies and practices with appropriate short- and long-term performance-related rewards that are fair and achievable, aligned with the company’s strategy, and create value for the company over the long term.
The responsibilities and duties of the remuneration committee include:
- Annual review of Harmony’s reward strategy and remuneration policies, for employees in general and, specifically, for senior executives’ and directors’ remuneration
- Annual review of the basis of calculating senior executives’ and directors’ remuneration to ensure it is reasonable, taking into account the measurement of performance against predetermined and agreed criteria
- Monitoring and reviewing the company’s compliance with the remuneration guidelines of King III
- Review of current industry and general best practice in remuneration, including:
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professional executive recruitment organisations’ publications |
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evolving and changing methods of remunerating senior executives and directors |
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existing and developing concepts in fringe benefits and share plan architectures |
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retirement and termination payments |
- Review of related-party transactions and disclosure, if any
- Review of terms and conditions of executive directors’ service agreements
- Acting as trustees of the Harmony share trust and monitoring the vesting and exercise of share options in terms of the share option scheme
- Approving allocations/awards/grants of share appreciation rights/performance shares/restricted shares in terms of the 2006 Harmony share plan
- Approving payments of incentive bonuses to executives in terms of all incentive plans
- Coordinating its efforts with the chairman of the board and the executive committee
- Ensuring that the remuneration report included in Harmony’s annual report fully complies with the guidelines of King III and that it will find favour with, and be approved by, shareholders in the annual general meeting.
The committee currently comprises six non-executive directors, four of whom are independent. The current chairman of the remuneration committee, Cedric Savage, is an independent non-executive director, elected on the basis of his business knowledge and experience, and familiarity with the challenges facing directors and executive managers. He has ensured that decisions were fair and unbiased. However, he will resign from office on the date of the annual general meeting to be held in November 2011, and the board has agreed to recommend that Frank Abbott be appointed as chairman in his stead.
Although Mr Abbott is a not an independent non-executive director, this recommendation is based on:
- His extensive knowledge of the company’s remuneration policies and procedures
- The best interests of the company
- The lead independent director serving as a member of the committee
- A majority of the members of the committee being non-executives, the majority of whom in turn will be independent.
The chief executive officer, financial director and the executive: human resources are invited to attend all meetings. The remuneration committee is expected to meet at least quarterly or, alternatively, to pass resolutions by round robin if a formal meeting cannot be held.
Guaranteed pay considerations
In reviewing and approving levels of guaranteed pay, the remuneration committee ensures that these reflect the market sector in which Harmony operates, and the contribution of employees, particularly senior executives and executive directors.
To compete effectively for skills in a challenging employment market, Harmony identifies the target market, those organisations or companies from which skills are acquired, or to which skills are lost. Operation and technical comparisons are made predominantly to the mining and resources market, while more general comparisons are made to the national market and, at executive level, comparisons are made to top executive surveys.
For all positions other than those for which specific premiums are deemed appropriate due to scarcity or criticality of skills, Harmony will target guaranteed pay levels relative to the market median of the target market.
In the context of guaranteed pay, all other benefits including pensions, benefits in kind and other financial arrangements are scrutinised to ensure they are justified, appropriately valued and suitably disclosed. Additionally Harmony ensures that guaranteed pay is a sufficient proportion of total remuneration to allow for a fully flexible incentive scheme to operate.
Short-term incentive pay considerations
The remuneration committee ensures that Harmony’s directors and senior executives are fairly rewarded for their individual contributions to overall performance. In September 2006, the committee approved an annual incentive scheme as part of Harmony’s reward philosophy to benefit executive directors and members of management. This scheme was revised in 2010 to provide twice-yearly incentive bonuses for all management employees applying to corporate, Harmony central services, medical services and central operations; and quarterly incentive bonuses for designated shaft management team members as well as regional operations management teams.
Although bonuses are payable bi-annually and quarterly, they are still related to performance against annual objectives consistent with long-term value for shareholders, with both business and corporate performance targets, both financial and non-financial, and tailored to the needs of the business. They are reviewed annually to ensure they remain appropriate.
While Harmony’s fundamental aim is to generate profit for its shareholders while continuing to grow, it is equally committed to ensuring that the safety, health and well-being of its employees is a primary area of focus. Therefore remuneration is linked to safety performance at all levels of the organisation to reinforce safety as a top priority.
Minimum levels of financial and operational performance are also included, with targets for threshold, expected and stretch levels of performance set and robustly monitored. Performance drivers are not duplicated, and a balance is struck between the need to reward success over the short and long terms.
Scorecards of multiple targeted performance measures are used to avoid manipulation of results or poor business decisions. Currently, the principles of the scheme are based on the key performance targets of improvements in safety, and performance against budget targets for: kilograms of gold produced, underground grade, cash cost and capital expenditure.
Throughout, the remuneration committee satisfies itself on the accuracy of recorded performance measures that govern vesting of incentives. Risk-based oversight of bonuses payable is exercised to ensure behaviours contrary to the company’s risk management strategy are eliminated.
Occasionally, external factors impacting on performance outside the control of participants may be accommodated to a limited extent for executives (with board discretionary approval), but may be more generously applied at lower levels in the organisation (with executive committee discretionary approval). |
