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Our remuneration philosophy underpins our group’s strategy and enables us to achieve our business objectives

Remuneration

Craig Enenstein, chairperson of the Naspers HR & remuneration committee, answers questions on Naspers’ approach to Remuneration and how we make pay decisions.

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An introduction to remuneration at Naspers How remuneration continues to evolve FY2020 Performance Shares Units (PSUs) Disclosure Notable transactions

An introduction to remuneration at Naspers

FY2020 Performance Shares Units (PSUs)

Mechanics of 2019 PSU Awards

 

Introduction of performance share units

This year we introduce a new type of LTI for senior executives which will offer performance share units (PSUs). PSU vesting is not just determined by time: in order for the participant to receive a share, time must have elapsed and the performance condition must have been met. At the time of the publication of our FY19 remuneration report, the HR & Remuneration Committee was still in deliberations about the final design of the PSU performance condition and as such, was unable to disclose all of the details. I’m pleased to say we have now settled on the final details and have made the awards to the CEO, CFO and other members of the management team.

The decision about the most relevant index against which to compare the performance of the Ecommerce businesses (excluding Tencent) has not been a straightforward one, and indeed it was one of the reasons for the long duration of our deliberations. We considered a variety of equity indices such as MSCI Emerging Markets, Nasdaq, etc., but struggled to find an equity index that reflected the global nature of Naspers’ ecommerce operations, without skewing too much towards China or towards non-tech companies. Therefore having taken extra time to consider all the options and listening to shareholder input on the matter, the committee settled on a bespoke peer group. While this is not what was originally disclosed in our Remuneration Report, we are satisfied that the bespoke peer group is the most suitable approach.

Craig Enenstein
 

A blend of LTIs

The addition of PSUs to the blend of LTIs offered will not materially increase the quantum of executive compensation over time. Rather it will further align our business strategy and objectives with executive compensation and shareholder returns. Each element of the LTI programme plays a distinct part in delivering a remuneration approach that drives business performance for the longer term and is fair, responsible, aligned with shareholder outcomes and relevant to the talented executives we need to attract and retain.

The blend of LTIs aligns our business strategy with executive compensation and shareholder outcomes.
 
Plan type Focus Performance criteria Shareholder outcome Vesting period


Naspers share option
To increase the value of all Naspers’ businesses over time (including Tencent)
 
  • Time
  • Value, as measured by the share price, must increase after grant is made.

 
  • Increased market cap of Naspers (including Tencent stake).
  • Alignment between management and stakeholders – management is exposed to the market’s view of Naspers, same as shareholders.
Four-year annual vesting, equal tranches of 25%. Participants must purchase the shares, thus becoming Naspers shareholders, at the original grant price. They can realise a profit if they choose to subsequently sell their shares at a higher price.
 


Naspers Global Ecommerce SAR Plan
 
To increase the value of Naspers’ listed and unlisted internet businesses over time (excluding Tencent) by driving growth
and profitability
 
  • Time
  • Sum-of-the-parts valuation of all internet businesses, excluding Tencent. Value as measured by third-party valuation, must increase after grant is made.
  • Growth, scale and profitability on the underlying assets. This is the biggest lever management has to create value.
Four-year annual vesting, equal tranches of 25%. Participants can exercise vested shares and receive Naspers shares equal to the difference in value on the grant date and the exercise date.
 


Naspers performance share unit
 
To increase the value of Naspers’ internet businesses (excluding Tencent) over time and
deliver superior returns
to shareholders





 
  • Time
  • Ecommerce SAR scheme three-year CAGR as compared against the TSR of a bespoke peer group
  • A clear link between management compensation and value creation measured against a peer group of technology companies, in the directly managed ecommerce assets (via the Ecommerce SAR plan, which excludes Tencent).
  • Further alignment created by the exposure to controllable or influenceable drivers of Naspers share price.
Three-year cliff vesting (i.e. all shares vest, subject to performance condition achievement on the third anniversary of the grant. Participants receive Naspers shares, the amount of which depends on the three-year performance against the performance condition set on the grant date.
 

Note

(1) Details of performance conditions and comparator equity index will be included in the offer of PSUs to participants.

Main features of the PSU plan:

Design element Summary
1. Participation CEO and direct reports.
2. Vesting period Three years, cliff vesting
(100% vests on third anniversary).
3. Performance hurdle Three-year compound annual growth rate (CAGR) of the share price of the Ecommerce SAR scheme (value per share), which excludes Tencent, as compared against the TSR of a bespoke peer group. Achievement of the performance condition will be assessed by the human resources and remuneration committee, based on the share price of the Ecommerce SAR scheme (in absolute and relative terms), validated by the valuations subcommittee as per the valuations process described on page 19 and 20 of the FY 19 remuneration report.
4. Measurement On a ranking basis, calculated on a per share basis
5. Award schedule
  • Threshold performance: 50% of awarded shares will vest
  • Target performance: 100% of awarded shares will vest
  • Maximum performance: 200% of awarded shares will vest
Below the threshold level of performance, there is no payout and on reaching the maximum level of performance, the payout will not increase beyond 200%.

 


Award schedule

The level of achievement relative to the performance condition at the end of the three-year performance period drives the number of shares that ultimately will vest.

If the threshold level of performance is not achieved, no shares will be awarded to the participant.
  • At threshold performance: 50% of the allocated shares would be awarded if the performance is at the 25th percentile of the peer group.
  • At target performance: 100% of the allocated shares would be awarded if the performance is at the median of the peer group.
  • At maximum performance: 200% of the allocated shares would be awarded if the performance is at the 75th percentile of the peer group.
If more than the maximum performance is achieved, no more than 200% of the allocated shares would be awarded.
Performances between threshold and maximum will be interpolated on a linear basis.


 

Performance share units (PSUs) in detail

In designing the new plan, the human resources and remuneration committee considered LTI practices at a number of peer companies(1) and sought advice from Willis Towers Watson and FW Cook.

The PSU plan will incentivise management directly on the performance of the Ecommerce businesses, excluding Tencent, by means of the three-year CAGR on the Ecommerce SAR scheme valuation (value per share), as compared against the TSR of a bespoke peer group (2). In choosing an appropriate performance measurement, it is important to choose a metric that:
 
Drives value creation over the long term Does not incentivise decision making for the short term.
Encourages an appropriate level of risk-taking Does not incentivise inappropriately conservative actions.
 
Does not force inappropriate comparisons with other companies Total shareholder return is a commonly used performance condition in other public companies.
However, in Naspers’ case, calculating this metric relative to the JSE index would be inappropriate due to the disproportionally large size and higher performance of Naspers compared to other JSE-listed companies. Calculating the metric relative to other non-JSE-listed companies that are similar to Naspers would skew towards the Chinese internet ecosystem which would be inappropriate as the PSU programme is designed to focus on Naspers’ performance outside the Tencent investment.
Will be applicable over the three-year vesting period Our focus is on value creation over the long term.
Measuring over three years means that any short-term market movements will not have a disproportionate impact, it requires the management team to make investment decisions with an appropriately longer-time horizon that will deliver performance consistently.
Is relatively easy to understand for all stakeholders Avoids creating unnecessary complexity in our compensation system.

 
For these reasons we view the CAGR of the Ecommerce SAR scheme relative to the TSR of a bespoke peer group to be an appropriate hurdle for our business. We focus on both operating and investing  and would find it challenging to create a precise 36 to 42-month profit and loss plan which will not  substantially change over the performance period of the PSUs, in the context of the high-growth nature of many of our businesses, our extensive M&A activity and the competitive landscape in which  we operate. The Ecommerce SAR scheme CAGR performance condition on the PSUs will drive  participants to increase the value of our Ecommerce businesses over time and deliver returns that are  comparable to, or better than the market. The annual Ecommerce SAR scheme valuation process is  outlined on pages 19 and 20 of the FY2019 Remuneration Report, and the extent to which the performance condition has been achieved will  be considered by the committee as soon as is practicable after the PSU vests, having considered the input from the valuations subcommittee.

Note
(1) Adyen, Alibaba Group Holding, Alphabet, Altaba, Amazon, AutoTrader Group, Baidu, Booking Holdings, Cnova, eBay, Expedia, Facebook, Groupon, IAC/InterActiveCorp, MakeMyTrip, Netflix, Ocado Group, PayPal, Qurate Retail, Schibsted, Snap, Twitter, Wayfair, Zalando and Zillow Group.
(2) Alibaba, Altaba and Baidu were removed from the peer group for PSUs to avoid a skew towards Chinese internet (as Tencent is not included in the Ecommerce SAR valuation) and listed companies in which Naspers has an interest were removed to avoid circular references e.g., Make My Trip, Delivery Hero


Details of bespoke peer group

Company Name

Market Cap @ Aug 30th 2019 ($ millions)

Stock Exchange

HQ Location

Amazon

$878,653

Nasdaq

USA

Alphabet

$824,667

Nasdaq

USA

Facebook

$529,707

Nasdaq

USA

Netflix

$128,614

Nasdaq

USA

PayPal

$128,316

Nasdaq

USA

Booking Holdings

$83,596

Nasdaq

USA

eBay

$33,794

Nasdaq

USA

Twitter

$32,892

New York

USA

Expedia

$22,152

Nasdaq

USA

Snap

$21,834

New York

USA

Adyen

$21,473

Euronext

The Netherlands

IAC

$21,466

Nasdaq

USA

Zalando

$12,252

Xetra

Germany

Ocado Group

$11,019

London

UK

Wayfair

$10,410

New York

US

Zillow Group

$7,097

Nasdaq

US

Schibsted

$7,017

Oslo

Norway

Auto Trader

$5,997

London

UK

Qurate Retail

$4,480

Nasdaq

US

Groupon

$1,408

Nasdaq

US

Cnova

$1,139

Euronext

The Netherlands


Source: FW Cook / S&P Capital IQ