OVERVIEW OF REMUNERATION POLICY

Overview of remuneration policy

Employees are at the core of our business as we require highly skilled, competent and experienced employees to drive our business growth. Therefore, we need to reward them for their performance and contribution towards wealth maximisation for our shareholders.

While we apply a common remuneration structure across the Group, we differentiate its implementation according to the size of various companies within the Group.

Key principles, consistent with the previous financial year, that govern Group-wide remuneration at all levels are:

Pay for performance methodology, linking executive reward to business performance. This allows for differentiated increases based on the individual's contribution and performance
Ensure (i) that external parity is maintained, (ii) market relevance, and (iii) internal equitability is balanced and that pay adjustments are affordable to the organisation
Ensure a remuneration mix that will attract the best talent in the market and retain top talent in the organisation
Align executives to shareholder interest by linking STI and LTI to performance indicators not limited to financial indicators

Pay for performance

Executives' remuneration is based on level of accountability, complexity and nature of the role which is sized relative to the organisation's turnover, number of employees (including wage bill), market cap, assets and net after tax profitability benchmarked to the external market.

The below table shows the relationship between the Group's strategy, its pay for performance philosophy and requirements set out in the King IV:

Strategic objective: Maximise shareholder value and return sustainably

Strategic aspiration: 15% return on investment year on year

Annual target: R554 million EBIT

Strategic goals

Enhance shareholder value		Achieve objectives
Maximise growth opportunities
Diversity revenue sources
Transformation and skills development		Spend resources wisely
Reduced cost of healthcare		Do it sustainably

Our deliverables, contained in our Balanced Scorecards (BSCs), are derived from and directly support the Group strategy. The Group BSC cascades to the various business units and the individual performance scorecards. Each BSC’s items support the BSC above it, ultimately supporting the Group strategy.

Remuneration structure and relation to remuneration policy

The key components of our remuneration policy, structure and incentive targets are set out in the table below.

Guaranteed pay

Variable pay

Remuneration element

Base pay

Benefits and allowances

Short-Term Incentive (STI)

Long-Term Incentive (LTI) Plan

Monthly salary

Medical aid
Retirement fund¹
Death benefit
Disability benefit

Management performance bonus scheme
Management strategic incentive scheme

Vesting share scheme

¹ Employees elect participation in either a pension fund or the NEHAWU Provident Fund, the latter being available to NEHAWU members only.

Policy principles

Broad bands are set with reference to industries.
For executives, benchmarks are derived from similar comparator groups.
Cost of annual increases are approved by the Remuneration Committee and set in accordance with expected market movements, affordability and forecast inflation.
Increases granted to bargaining and non-bargaining unit employees are linked to individual performance with effective date of 1 July.

Allowances are paid in terms of statutory requirements or policy.
Contributions to all benefits are made by both the employer and employee.

A dual STI structure applies to all employees, managers and senior managers at Patterson grades D1 and above; however, participation is limited to only one scheme.
The STI consists of Group and individual performance targets.
Bi-annual and annual payments are approved by the Committee.
Payment is made in April and September respectively.
Production incentives are paid out quarterly whereas commissions are paid monthly.

The LTIP consists of conditional shares subject to vesting conditions.
Governing resides with the Committee which considers annual awards for eligible employees and discretionary or bonus awards for purposes of retention.
Annual awards are linked directly to the role as well as long-term individual performance and potential. Vesting period is three years.
Share value is determined by volume-weighted average price measured 30 days prior to award date.

Policy application

Salaries are paid monthly, including in countries other than South Africa.
Employees are eligible for adjustments when promoted to other positions; however, specific conditions apply.

In addition to the standard basket of benefits, employees have the option to buy additional benefits at Group rates.
Beneficiaries of employees who pass away while in service receive additional benefits such as education.

Group targets in terms of a BSC basis are set each year and cascaded. Business unit targets are also set in line with the approved business plans.
Individual targets are recorded in the performance contract with reference to the requirements of the role.

Group performance targets include EBIT (40%), risk and audit management (10%) and strategic impact (50%).

Objective of the element

Attraction and retention

Comprehensive remuneration offering inclusive of cash and benefits
Retention

Rewards Company and individual performance
Recognition, motivation, attraction and retention

Rewards Company and individual performance
Rewards contribution to the Group's success
Attraction and retention

Eligibility

All employees

Executive Committee members
General management¹, Senior management² and management³ at corporate and business unit level

Executive Committee members
General management at Group and business unit level
Senior managers and managers at Group and business unit level

¹	General management is defined as positions at grade levels E1 to E3 on the Patterson grading scale.
²	Senior management is defined as positions at grade levels D4 and D5 on the Patterson grading scale.
³	Management is defined as positions at grade levels D1 to D3 on the Patterson grading scale.

Pay level is set through

Market benchmarking according to job family grouping, job grade and individual long-term performance.

Hurdle rate for payment is the achievement of EBIT targets
Hurdle for individuals is individual performance targets (below target performance not reawarded)

Participation subject to approval by Remuneration Committee
Allocation based on job grade with Remuneration Committee discretion

Number of participants

402

Guaranteed pay

AfroCentric's policy is to reward its employees fairly and consistently according to their role and their individual contribution to the Group and its performance.

STIs

The strategic management incentive scheme is focused on the executive team as well as tier two managers, being those that report directly to the executive as well as employees selected for value contribution and scarce and critical skills.

Strategic management STI

STI

=

GP

X

On-target %

X

Business multiplier

X

Personal performance multiplier

Based on below threshold – 0%, on-target – 100%, stretch – 150%

Performance rating

Range

Level

Measure 1

Measure 2

Measure 3

150%

Group CEO

60%

125%

Executive irector

60%

EBIT (40%)

Risk (10%)

Strategic impact (50%)

100%

Group CFO

45%

50%

Executive Committee

40 to 50%

STI pool distribution

Earning potential between on-target and stretch performance is interpolated on a linear basis. Also, using the eligibility percentages, organisational and personal performance regulate actual bonus outcomes for the Group. The Group CEO’s, CFO’s and executives’ performance are 100% based on the Group performance and relates to the ‘business multiplier’ component shown above.

Performance below threshold results in a zero score, and the individual will not be eligible for consideration for an STI award. This principle is central to all variants of incentive schemes.

During the 2017 financial year, an alternative STI or management performance bonus targeted at 100% of guaranteed monthly package was introduced at the request of the Remuneration Committee. Exceptional performance was rewarded with additional bonus payments as provided for in the rules. Due to the close relationship to financial targets, payment of any incentives in terms of the strategic management incentive scheme is done on the back of the audited financial results.

Unlike in the 2017 financial year, the gate-keeper target (EBIT) was met in the 2018 financial year, and the Committee approved STI payments at a 100% of the allowable bonus pool. The below graph shows the distribution of payments in respect of the various incentive schemes.

A total STI pool approved for distribution by the Committee in respect of the 2018 financial year was R79 157 million (2017: R60 568 million¹).

All payments in relation to the strategic management incentive scheme, as well as the performance bonus scheme, were approved by the Committee. In addition, the Remuneration Committee approved the Group’s performance areas for the 2018 financial year as well as long-term objectives over a three to five-year period, thus ensuring long-term business sustainability.

¹ Represents the 75% bonus as result of a penalty applied by the Remuneration Committee.

LTI Plan

2018 saw the LTI Plan approved by the Board and shareholders at the Annual General Meeting held on 8 November 2017 with a majority vote.

The LTI Plan is aimed at retaining, motivating and rewarding executives and senior management who influence the long-term sustainability, value creation and strategic objectives of the Group on a basis which aligns their interests with those of the Group’s shareholders. It also, provides necessary market related remuneration, particularly at executive level.

The mechanism of the LTI Plan is shown below:

		Share appreciation rights
Award mechanism		Linked to job grade and allocated by the Committee. The Committee has discretion within a range per job grade with a maximum number of shares set per grade.


Bonus shares		Discretionary allocation by Committee taking into account scarce skills, personal performance ratings, leadership and potential.


Vesting		Five-year vesting based on anniversary of allocation: Year 3 – 1/3, year 4 – 1/3 and year 5 – 1/3.


Participation		Individual participation is reviewed annually by the Committee to ensure alignment to the strategic objectives of the Group and consideration is given to: Individual long-term performance (over a three-year period) Scarce and critical skills, particularly at other levels Strategic importance of the role Potential or talent of the employee (in particular ability, attitude, aspiration)


Eligibility		Executives, general managers, senior managers and specialists


Conditions		Share award is conditional to the retention period provided employee is eligible

The first award has been made in terms of the registered rules and a total of 4 440 000 shares were awarded to participants. The allocations for all participants were approved by the Remuneration Committee. The Group CEO and Executive Directors do not participate in the LTI Plan.

Service contracts and notice periods

AfroCentric can terminate executive employment summarily for any reason recognised by law in the respective jurisdiction.

It is the policy that the Executive Directors and executives have employment agreements with the Group which may be terminated with notice periods of three months. Executive Directors may be required to work during the notice period but, if not, the full notice period may be provided with pay in lieu of notice (subject to mitigation where relevant).

STIs on termination of employment

There is no automatic entitlement to annual STIs on termination, but it may be considered at the Committee's discretion taking into account performance measures during the period. Any such payment will be pro-rated to service. The governing rules require active employment on the date of payment.

No bonus will be payable in the case of misconduct or resignation, unless done under extenuating circumstances.

Unvested share awards

Outstanding unvested bonus awards would lapse if the Executive Director or prescribed officer leaves by reason of resignation or termination for gross misconduct. However, in the case of death, the Executive Director (through his/her estate) will continue to be eligible to be considered for unvested portions or deferred awards, subject to the rules of the plan. In instances of termination on the basis of injury, disability, ill-health, retirement or redundancy, unvested shares will be managed in accordance with the rules of the plan.

Any unvested shares in the case of misconduct will lapse with immediate effect.

Implementation of the remuneration report and remuneration policy

The implementation report details the principles implemented in 2018.

Fixed remuneration increases

Recognising the need to remunerate executive management fairly and responsibly in the context of overall remuneration, we award higher increases to bargaining unit employees than to executive levels as shown. Increases in respect of the bargaining unit are negotiated annually with NEHAWU, the recognised labour union, taking into account a variety of internal and external factors such as affordability, market conditions, benchmark information, to name but a few.

The remuneration policy and implementation report set out above are proposed to shareholders in separate non-binding advisory notes in terms of the notice of annual general meeting. In the event that either the remuneration policy or the implementation report, or both, are voted against by 25% or more of the votes excised at the annual general meeting, the Board of Directors will engage with such shareholders in order to clarify the nature of and evaluate the validity of such objections and will, where possible and prudent, given the objectives of the remuneration policy, take objections into consideration when formulating any amendments to the company’s remuneration policy and implementation report in the following financial year.

Remuneration increase (%)

Executive and Non-executive Directors' remuneration

Non-executive Directors

The table below sets out the remuneration principles applied by the Group for the 2018 financial year for Non-executive Directors. These policies also apply for the 2019 financial year and form the underlying basis for the fees tabled for approval at the AGM held on 8 November 2017.

	Chairman	Deputy Chairman	Directors and Lead Directors	Committee

Objective	A market-related fee to attract and retain experienced and diverse Non-executive Directors.			Fees to reflect the additional responsibilities undertaken through membership of committees. Committee chairmen receive an additional amount.


Fee principles	Fees are reviewed annually, and fees in respect of the Chairman and Deputy Chairman were adjusted during the reporting period following the benchmark done by PwC. Fees reflect the time commitments in respect of meetings but also additional stakeholder relations as well as other standard duties associated with each role. Fees are fully inclusive. The Remuneration Committee recommends the fees to the Board for final approval.


Payable	Main Board – quarterly Subsidiary Board – monthly		Per meeting fee payable monthly

The below table sets out the fees for the period 1 January 2018 to 31 December 2018 approved by means of majority vote during the Annual General Meeting.

	Approved 2018 (R)	Current 2017 (R)	Increase (%)
Main Board (annualised retainer fee)
Chairman	1 200 000	833 000	Benchmarked
Deputy Chairman	900 700	861 000	Benchmarked
Member	223 000	209 400	6.5
Subsidiary Board (per meeting)
Chairman	20 400	19 155	6.5
Member	15 000	14 047	6.5
Audit and Risk Committee (per meeting)
Chairperson	27 200	25 539	6.5
Member	20 000	18 574	6.5
Remuneration Committee (per meeting)
Chairperson	20 400	19 155	6.5
Member	15 000	14 047	6.5
Nomination Committee (per meeting)
Chairperson	20 400	19 155	6.5
Member	15 000	14 047	6.5
Social and Ethics Committee (per meeting)
Chairperson	20 400	19 155	6.5
Member	15 000	14 047	6.5
Investment Committee (per meeting)
Chairperson	20 400	19 155	6.5
Member	15 000	14 047	6.5
ICT Steering Committee (per meeting)
Member	15 000	14 047	6.5

Payments made to Non-executive Directors

The below fees were paid in respect of the ACT Board

Name of Director	Board fees (R)	Audit Committee (R)	Remun- eration Committee (R)	SEC (R)	ICT Steerco (R)	Nominations (R)	Investment Committee (R)	Total current year 2017 – 2018 (R)	Total previous year 2016 – 2017 (R)
AT Mokgokong	714 250	–	–	–	–	20 400	–	734 650	261 060
MJ Madungandaba	693 919	–	61 200	–	–	–	61 200	816 319	323 461
A Banderker	216 200	–	58 094	–	–	15 000	87 141	376 435	260 888
I Kirk	216 200	–	–	–	–	–	–	216 200	204 700
SE Mmakau	216 200	154 296	–	–	63 202	–	–	433 698	174 469
ND Munisi	216 200	–	–	59 955	–	–	15 000	291 155	223 855
LL Dhlamini	216 200	210 956	–	–	–	–	–	427 156	281 317
GH Motau	200 998	97 148	–	–	–	–	–	298 146	34 900
R Mundalamo	–	–	59 047	–	–	–	–	59 047	–
Total	2 690 167	462 400	178 341	59 955	63 202	35 400	163 341	3 652 806	1 764 650

Mr Michael (Motty) Sacks and Meyer Kahn waived all fees.

Fees paid in respect of AHL Board

The AHL Board was incorporate into the ACT Board effective 1 January 2018 and hence fees received are for the period 1 July 2017 to 31 December 2017.

Name of Director	Status	Board fees (R)	Audit and Risk Committee (R)	Remuneration Committee (R)	Other committees (R)	Total current year 2017 – 2018 (R)	Total previous year 2016 – 2017 (R)
AT Mokgokong	Active	324 929				324 929	649 858
MJ Madungandaba	Active	207 338				207 338	504 375
A Banderker	Active	207 338				207 338	441 508
Total		739 605				739 605	1 595 741

Executive management remuneration (%)

Executive management remuneration

To maintain a high-performance culture and an alignment with shareholders through value creation, the total reward mix for the Group CEO, Executive Directors, executives and senior management is geared towards a higher percentage of variable pay 'at risk' for achieving stretch goals.

The chart below represents the potential mix of guaranteed pay (GP), STI and LTI for the Group CFO¹ at below, on-target and stretch levels. The below target assumes no STI payments.

Payments made to Executive Directors

Antoine van Buuren – Group CEO

The Group CEO does not participate in the LTI scheme.

	2017 (R)	2018 (R)
Salary	3 488 792	3 740 377
Medical aid	27 758	17 755
Retirement benefits	191 991	209 918
Other employee benefits		20 377
Total fixed remuneration	3 708 541	3 988 428
Increase in guaranteed pay	6.5%	7%
STI	1 533 000²	2 689 391³
Total variable remuneration	1 533 000	2 689 391
Total remuneration	5 241 541	6 677 819

Group CEO

¹	Group CEO and Executive Directors participate only in the STI and not the LTI Plan.
²	Incentive pay-out calculated at 75% of the allowable bonus.
³	Relates to the FY2017.

Willem Britz – Executive Director

Executive Directors do not participate in the LTI scheme with the exception of the Group CFO.

	2017 (R)	2018 (R)
Salary	3 376 407	3 646 973
Medical aid	140 143	103 672
Retirement benefits	191 991	197 028
Other employee benefits		40 753
Total fixed remuneration	3 708 541	3 988 428
Increase in guaranteed pay	6.5%	7%
STI	1 533 000	2 689 391
Total variable emuneration	1 533 000	2 689 391
Total remuneration	5 241 541	6 677 819

Executive Director

Hannes Boonzaaier – Group CFO

	2017 (R)	2018 (R)
Salary	2 593 947	2 824 019
Medical aid	65 594	42 152
Retirement benefits	135 204	150 565
Other employee benefits		31 143
Total fixed remuneration	2 794 745	3 030 644
Increase in guaranteed pay	13.3%	7%
STI	1 043 544	1 509 468
Number of shares awarded¹		200 000
Value of awarded Shares		1 208 000
Total variable remuneration	1 043 544	2 717 468
Total remuneration	3 838 290	5 748 112
¹ One-third of the awarded shares will vest in 2020.

Group CFO

Termination of office payments

No payments were made on termination of employment or office of any members of the executive management.

Statement regarding compliance with remuneration policy

The Committee has satisfied itself that the remuneration policy as detailed in the report was complied with, and there were no substantial deviations from the policy during the year.

Advisory vote on the implementation report

The implementation report as it appears above is subject to an advisory vote by shareholders at the 2018 Annual General Meeting. Accordingly, shareholders are requested to cast an advisory vote on the implementation of the remuneration policy for 2018.

Approval of the remuneration report by the Board of Directors

The remuneration report was approved by the Board of Directors on 12 September 2018.