Fair and responsible remuneration

OUR PERFORMANCE AND PAY OUTCOMES IN FY22

The Group achieved a strong operational and financial performance across all divisions during FY22 despite global semiconductor shortages and ongoing supply chain constraints which have resulted in a growing backlog. We commenced a Strategic Review process seeking to unlock value for shareholders and paid a special dividend of $70 million.

• Executives received a 5% increase in fixed pay for FY22 having had no rise the previous year due to Covid-19 uncertainty
• Likewise, non-executive directors' fees were increased 5% (the first increase for three years)
• Short-term incentives earned for FY22 reduced compared to FY21 as targets were achieved but with less over-performance than the prior year
• The CSP awards granted in May 2019 with a performance period that ended 28 February 2022 vested at 25%, because the ROIC was at the threshold for the performance conditions but the uEPS target was not achieved

OBJECTIVES OF OUR REMUNERATION POLICY:

To achieve this, Datatec rewards its executives and managers in a way that reflects market dynamics and the context in which it operates. Datatec is structured as a group which actively manages its principal divisions, Logicalis, Westcon International and Analysys Mason. The remuneration policy applies throughout the Group but the details provided are applicable to the Datatec executives. All elements of the remuneration policy are aligned to the strategic goals of the Group.

KEY PRINCIPLES OF THE REMUNERATION POLICY:

These principles are enshrined in the three main elements of remuneration:

The STI is calculated in relation to base salary as follows:

Base salary x on-target STI percentage x [(personal score x personal weighting) + (corporate score x corporate weighting)]

For executive directors and some senior management:

• 75% corporate
• 25% personal weighting

Other senior management:

• 50% corporate
• 50% personal (with exceptions where appropriate as agreed by the Remuneration Committee ("the committee")) weighting

SHAREHOLDER ENGAGEMENT

The Remuneration Committee maintains a programme of shareholder consultation to ensure shareholders’ views on remuneration are properly addressed by the committee and considered in the Group’s remuneration policy and implementation practices.

During FY22, consultation was held in November 2021 with Stephen Davidson, then Chair of the Board and Maya Makanjee then Chair of the Remuneration Committee visiting investment managers to address remuneration-related issues among other ESG matters.

The FY21 remuneration policy was put before shareholders for an advisory vote at the AGM on 29 July 2021 and received support from 93.0% of shares voted (2020: 91.5%). The FY21 remuneration implementation report was put before shareholders for an advisory vote at the AGM on 29 July 2021 and received support from 64.7% of shares voted (2020: 87.2%).

The consultation process was open to all shareholders who were invited to make contact as per a SENS announcement. In particular, reasons for voting against the implementation report at the AGM were sought to identify areas for improvement.

Other topics of discussion with shareholders during the consultation process included the development of fair and responsible pay reporting and the Companies Act amendments currently under consideration and their potential impact on remuneration committees and reporting of remuneration.

Shareholders and the committee both value the consultation process which has been continuing for a number of years now and will continue with further engagement in the next financial year.

FUTURE FOCUS AREAS

The committee intends to continue the consultation process with shareholders and discuss the continuing evolution of the remuneration policy with an increasing focus on ESG. The committee will continue to focus its oversight on fair and responsible pay, diversity, equity and inclusion and talent management throughout the Datatec Group.

FY23 METRICS:

The corporate financial goals constitute 75% of the total STI for FY23. These targets include uEPS and EBITDA (with the relative weighting amended as described above). Also included are cash management/working capital targets with separate metrics for Logicalis and Westcon International as the two businesses have different working capital dynamics.

FY23 bonus structure

1) Underlying earnings per share		US cents	Bonus
Lower guard-rail	-12%		40%		35%
On target	Budget		100%
Upper guard-rail	12%		160%
2) EBITDA		US$ million	Bonus
Lower guard-rail	-14%		40%		30%
On target	Budget		100%
Upper guard-rail	14%		160%
3a) Logicalis working capital – operating cash conversion		US$ million	Bonus
Lower guard-rail	-20%		40%		5%
On target	Target		100%
Upper guard-rail	25%		160%
3b) Westcon net working capital days – net working capital days		Days	Bonus
Lower guard-rail	10%		40%		5%
Actual	Target		100%
Upper guard-rail	-10%		160%
4) Personal KPIs – CEO and CFO
ESG			10%		25%
Leadership			5%
Reduce structural discount			10%
Total on-target bonus					100%

The FY23 targets for uEPS, EBITDA and working capital metrics based on budget are not shown as this is commercially sensitive information but will be fully disclosed next year in the implementation section of the FY23 remuneration report.

The personal KPIs agreed by the committee for the executive directors for FY23 are as follows:

• ESG – corporate citizenship and governance evolution
• Leadership – development of the Group’s operational and organisational strategy and
• Reduce structural discount – initiatives to achieve value realisation

These KPIs are the same as used in FY22 and the committee has developed a culture scorecard to provide quantitative evaluation of achievement against the ESG and Leadership KPIs. This will be used to monitor and evaluate ESG developments such as setting targets for environmental metrics and reporting on progress.

FY22 bonus outcome

For the CEO:

• ESG – during FY22, the Group appointed a Head of Responsible Business to co-ordinate the Group’s activities in the area of responsible business – particularly the environmental and social aspects of ESG and to drive improvements in these areas. Great progress has already been made as reflected in the Responsible Business section. The committee considered that the CEO’s direction and close involvement in championing responsible business merits an achievement of 11% for this KPI (target 10%).
• Leadership (operational and organisational) – qualitative measure assessed by the Remuneration Committee considering how the CEO has led the Group while promoting its values and Code of Conduct. This was assessed to be 6%, above the target of 5%.
• Reduce structural discount – during FY22, Datatec announced a Strategic Review with the aim of unlocking the value perceived to be contained in the Group’s assets but not recognised in the share price. The Strategic Review is progressing very well the Company’s share price grew notably during FY22. The committee considers the achievement of this metric to be 9% (target – 10%).

For the CFO:

• ESG – the CFO’s role in ESG is primarily focused on the governance area with the committee viewing financial reporting and compliance of paramount importance. In assessing achievement of this KPI the committee noted the positive outcome of the JSE’s proactive monitoring review of the Group’s FY21 annual financial statements carried out during FY22 and initiatives in financial governance led by the CFO during the year. The committee concluded an achievement of 11% for this KPI was merited (target 10%).
• Leadership (operational and organisational) – qualitative measure assessed by the Remuneration Committee considering how the CFO has led the finance teams across the Group while promoting its values and Code of Conduct. This was assessed to be 6% (target 5%).
• Reduce structural discount – the committee assessed that the CFO’s inputs on the Strategic Review has been highly effective in support of the CEO and therefore the same achievement of 9% (target 10%) for this metric is merited.

FY22 bonus

1) Underlying earnings per share		US cents	Bonus		Target		Actual
Lower guard-rail	-13%	14.0	40%		45%		72.0%
On target	Budget	16.0	100%
Upper guard-rail	13%	18.0	160%
Actual		18.7	160%
2) EBITDA		US$ million	Bonus
Lower guard-rail	-13%	140	40%		20%		16.7%
Actual		154.5	84%
On target	Budget	160	100%
Upper guard-rail	13%	180	160%
3a) Working capital – Logicalis net cash/overdraft		US$ million	Bonus
Outcome		(32)	0%		5%		0.0%
Lower guard-rail	-25%	6	40%
On target	Target	8	100%
Upper guard-rail	25%	10	160%
3b) Working capital – Westcon net working capital days		Days	Bonus
Lower guard-rail	10%	21	40%		5%		8.0%
On target	Target	19	100%
Upper guard-rail	-10%	17	160%
Outcome		15	160%
Total corporate					75%		96.7%
4) Personal KPIs – CEO and CFO		Target	Actual
ESG		10%	11%		25%		26.0%
Leadership (operational and organisational)		5%	6%
Reduce structural discount		10%	9%
		25%	26%
Total on-target bonus					100%		122.7%

The achievement of the targets translated into the following bonus payment for FY22.

Executive director	Base salary  (A)	On target  bonus rate  (B)	Weighted  corporate  score  (target 75%) (C)	Weighted  personal  score  (target 25%) (D)	Final STI    (A x B x (C+D))
Jens Montanana – CEO	1 200 000	175%	96.7%	26.0%	2 577 116
Ivan Dittrich – CFO	530 000	95%	96.7%	26.0%	617 894

The targets and outcomes of the annual bonuses of the executive directors for FY22 shown as a percentage of base salary and split by the bonus elements, are illustrated below.

Single figure remuneration of executive directors

The following tables show the composition of a single figure of remuneration for the executive directors:

		CEO		CFO
Component		FY22 US$’000	FY21 US$’000	FY22  US$’000	FY21  US$’000
LTI	CSP	372	1 096	131	344
	DBW	–	–	–	–
	DBP	–	1 039	–	225
Total LTI		372	2 135	131	569
STI	Cash	1 953	1 700	494	450
	Deferred	624	1 039	124	225
Total STI		2 577	2 739	618	675
Pension		214	214	84	84
Benefits		59	55	49	46
Base salary		1 200	1 140	530	503
Guaranteed package		1 473	1 409	663	633
		4 422	6 283	1 412	1 877

CSP

The remuneration from the CSP shown for FY22 is the fair value of 25% of the award expected to vest because the ROIC for FY22 is equal to the threshold for the performance condition for half of the June 2019 CSP grant. The uEPS performance condition for the other half of the 2019 CSP grant will not be met. The CSP remuneration shown for FY21 arises from the vesting of half of the June 2018 CSP in June 2021 following achievement of the uEPS target. Fair value is calculated using the 30-day volume-weighted average price of Datatec shares as at 28 February in each year.

DBW and DBP

The value of the SARs granted by the Company in respect of FY22 bonus deferred by the directors is not included in the single figure remuneration for FY22. The intrinsic value of these SARs will be reported in the single figure remuneration table for the financial year preceding their vesting. This contrasts with the presentation of the co-investment shares granted under the terms of the DBP in FY21 which are included in the single figure remuneration at their year-end value. The different treatment of the co-investment corresponds to the different nature of the co-investment financial instruments (SARs vs. shares).

STI

The STI shown above is split between the element deferred into the DBW (FY22) or DBP (FY21) and the element paid in cash after publication of the Group results.