Group review
Sustainability
and governance
Annual financial statements
 

Salient features of The JD Group Share Appreciation Rights Scheme

(the SAR Scheme)

1. Overview and purpose   
  The SAR Scheme, which was approved by shareholders on 12 August 2009, is a new generation incentive scheme with the overarching goal of creating value to shareholders and financial benefits for participants. The SAR Scheme is structured to optimise JD Group’s interests, as only the appreciation value of the share price is settled. Compared to a normal share option scheme, this reduces the dilutive impact considerably. The SAR Scheme also facilitates the attraction and retention of key talent.
       
2. Mechanics of the SAR Scheme   
  Participants receive share appreciation rights as opposed to share options. Share appreciation rights are rights to receive shares equal to the value of the difference between the grant price and the exercise price of the instrument. Of critical importance is that the vesting of rights is subject to the achievement of challenging predetermined performance conditions.
  SARs are granted at market value and against a face value of the average total cost to company (CTC) of an employee, adjusted to make provision for unique and individual retention risk and other circumstances and factors. Certain maximum thresholds of awards apply, namely that no employee, save for those on Patterson job grade F or higher, may receive an allocation in excess of 200% of the employee’s annual CTC. The maximum number of shares that may be allocated to a participant, inclusive of all unvested awards granted to that participant in respect of any and all incentive schemes in operation by the Group, may not exceed 1% of JD Group’s total issued share capital from time to time.
  When rights are exercised, the Company settles the difference between the then current market price and the grant price. Consequently, participants require no financial assistance to acquire any shares, neither at the moment of grant nor upon exercising of the SAR. Furthermore, participants will not be liable for the payment of tax in respect of the SAR Scheme prior to the realisation of any benefits.
  Whilst the JD Group Remuneration Committee (RemCom) has been mandated to propose awards and thresholds in respect of executive directors, Exco shall act accordingly in respect of other employees. Eligible participants include executive directors, but exclude non-executive directors.
  The primary intent is to settle the benefits ensuing from a vested SAR by purchasing shares in the market for delivery to participants. However, the Company retains the right to settle the benefits in any other manner that may be in the best interest of the Company. Circumstances will in each instance dictate the most appropriate mode of settlement.
       
3. Manager of the SAR Scheme   
  The operation of the SAR Scheme is administered by the RemCom, a subcommittee of the JD Group board (the board). The RemCom, exclusively comprising non-executive directors, has an independent non-executive director as chairman.
RemCom manages the SAR Scheme in accordance with the rules of the SAR Scheme and operates under a mandate and directives from the board, which include, amongst others, to make ad hoc and annual grants to participants.
  RemCom may not change the rules of the SAR Scheme in a way that would abrogate or adversely affect the subsisting rights of a participant, unless it has obtained the written consent of participants who are entitled to acquire 75% of the shares. Material changes of substance to the SAR Scheme rules are subject to shareholders’ approval in general meeting.
  In terms of its mandated discretion, RemCom has procured the services of Compensation Technologies (Pty) Ltd and JD Group Secretariat to assist with the task of operating and administering the SAR Scheme.
  The board has a supervisory function and may issue directives and mandates to the RemCom and other forums as it deems appropriate from time to time in terms of the rules of the SAR Scheme.
       
4. Performance criteria and assessments   
  The performance criteria are set by the RemCom in a forward looking manner, subject to board approval. The terms of the criteria, including historic performance against benchmarks, are disclosed in the annual report. In line with global best practice, the performance conditions are applicable to three, four and five year periods and, whilst stretched, they are both simple to understand and achievable in order to maximise the retention effect and motivational value. Consequently, the board approved headline earnings per share (HEPS) growth, measured against CPI to ensure a real return in excess of inflation, as the basic performance condition. An additional condition for the vesting of rights is the achievement of a minimum growth rate in net asset value (NAV) per share, calculated as if dividends are reinvested over the vesting period.
  The following performance criteria have been set by the RemCom and approved by the board in respect of SAR Scheme offer number 1:   
 
  • 2011 HEPS of 600 cents and a minimum compounded growth in NAV of 11%, or
  • 2012 HEPS of 720 cents and a minimum compounded growth in NAV of 12%, or
  • 2013 HEPS of 860 cents and a minimum compounded growth in NAV of 13%.
The aforementioned HEPS and NAV targets are aligned with the Group’s strategic growth targets.
       
5. SAR Scheme offer number 1   
  On 12 August 2009 the shareholders placed 2,5 million shares (1,47% of the issued share capital) under the control of the directors for purposes of the SAR Scheme. The RemCom granted the following SARs to 15 participants, based on the volume weighted average market price of JD Group’s ordinary shares quoted on the JSE Limited as at 20 August 2009:
  Date of grant   Price (cents)     Number of  
SARs  
allocated  		 Number of  
shares  
available for  
utilisation  
  21 August 2009   4 171     1 105 000   1 395 000  
       
6. Vesting and exercise of SARs and other rights   
  The vesting of SARs is subject to the achievement of set performance criteria, which are aligned to the Group’s strategic goals and which are unique for each grant. A vesting period of three years and an expiry date, seven years after the date of grant, apply.
  At the end of the vesting period i.e. three years after the date of grant, RemCom will assess whether fulfilment of the performance criteria has occurred. Retesting of the performance conditions is allowed on the fourth and fifth anniversary from the date of grant. In the instance that the performance criteria have not been achieved by then, the SARs will not vest and the rights will lapse and be of no effect.
  No purchase price is payable by a participant following the vesting and exercise of a SAR. The appreciation value of the share price is settled by the Company i.e. the difference between the then current market price and the grant price is settled.
  Vested SARs that have been both exercised and released from the SAR Scheme shall rank pari passu in all respects with existing JD Group ordinary shares in issue. From the release date onwards, the beneficial owner of such shares will qualify for dividends from the Company and will have full voting rights in respect of JD Group’s ordinary shares.
  Shares set aside for purposes of the SAR Scheme may not be voted or be taken account of at general meetings for resolution approval purposes or for purposes of determining categorisations as set out in the JSE Listings Requirements.
   
7. Principal terms of loans   
   
7.1   Loans between the Company and participating companies  
  Loans between the Company and participating companies will bear interest at rates as agreed upon between the Company and the participating companies from time to time.
7.2   Loans between the Company and participants  
  There are no loans between the Company and participants of the SAR Scheme.