Remuneration report

During 2021, the focus was on refining the short-term incentive scheme structures in terms of the mechanics and the delivery model.

Background statement

Remuneration Committee Chairperson’s report

On behalf of the Remuneration Committee (the committee), I am pleased to present AfroCentric’s remuneration report for the year-ended June 2021. This report supplements the information provided in the corporate governance report, highlights the committee’s focus areas for the year, outlines our policies and practices, and addresses the Group’s performance and corresponding remuneration outcomes.

During 2021, the focus was on refining the short-term incentive scheme structures in terms of the mechanics and the delivery model. To that end, the committee approved changes to the performance contracting and the formula for the bonus calculation. These changes will foster clear alignment of executives and general managers’ performance to the business unit objectives and ensure that profitable business units are not subsidising business units that do not achieve the financial targets. It is critical that top performers are rewarded for their individual strategic contributions to the organisation's success.

An additional driver to the strategic incentive scheme amendments was to ensure that the interests of employees (key and critical staff) are aligned with that of shareholders and drive individual, business and Group performance. Furthermore, the amendments seek to enable the retention of key staff who are entrenched in the business and contribute to the success of AfroCentric’s short-term business objectives and longer-term sustainable value creation for members and shareholders.

The committee also approved a single payment point of the various short-term incentive structures within the Group to ensure that employees are incentivised to maintain enhanced performance throughout the entire performance period. This further creates alignment and consistency of incentive structures throughout the organisation and strengthens the direct link between performance bonuses and performance outcomes.

The incentive policies for the Group’s entities in other jurisdictions (Mauritius and Namibia) were strengthened and approved by the committee.

Operating context and performance highlights

The Group set itself an aggressive target of achieving an EBIT deliverable of R806 million for the 2021 financial year after recording a R740 million EBIT in 2020. It is encouraging to report that the Group achieved an EBIT of R794 million despite an uncertain operating context, where the impact of COVID-19 continues to unsettle the environment. The Group also fared well with the other balanced scorecard (BSC) components, where the transformation, governance, culture and strategic impact key performance areas were met, and even partially exceeded in certain instances. To that end, the Group was able to declare bonuses and settle the bonus payments under the strategic and management incentive schemes. The total management performance bonus pool approved for distribution by the committee was R88 million (2020: R88.5 million).

Further detail on the Group’s overall performance is provided in our CEO’s and CFO’s reviews.

Changes to the remuneration and related policies

In keeping with our philosophy of ensuring fair and responsible remuneration, the committee continuously reviews the Group’s remuneration policies and practices to ensure that they remain relevant and responsive to organisational imperatives. No material changes were made to the Group’s remuneration policy for the year under review.

Focus areas

The Remuneration Committee envisages the following focus areas in advancing the organisation’s value proposition:

Focus areas
Shareholder engagement and voting
Shareholder voting results
Resolution November
2020
November
2019
Ordinary resolution on non-binding advisory vote on remuneration policy 93.90% 96.89%
Ordinary resolution on non-binding advisory vote on implementation report 99.33% 96.89%
Special resolution on Non-executive Directors’ fees 99.34% 99.47%
Special resolution on general authority to repurchase shares 99.75% 99.96%

The remuneration policy and implementation report were presented for shareholder voting at the AGM held on 10 November 2020. The policy was endorsed by 98% of our shareholders, and the implementation report received an in favour vote of 97%.

As required by the Companies Act and King IV, the following resolutions will be tabled for shareholder voting at the AGM, details of which can be found in the Notice of AGM.

In the event that either the remuneration policy or the implementation report, or both, are voted against by 25% or more, the Board will engage with shareholders to understand concerns raised. This engagement may be done by virtual meeting or in writing and will be implemented at a time after the release of the voting results. Where possible and prudent, objections are taken into consideration when formulating any amendments to the Company’s remuneration policy and implementation report in the following financial year.

Appreciation

I would like to thank my fellow Remuneration Committee members for their contribution and support. It is the view of the Remuneration Committee that the remuneration policy achieved its stated objective of attracting and retaining high-calibre talent within the organisation. I am satisfied that the committee responsibly and professionally discharged its obligations.

Thank you to our shareholders for your support and engagement in 2021.

Dr Shirley Zinn
Remuneration Committee Chairperson
13 September 2021

Remuneration oversight and policies

Remuneration governance

AfroCentric’s remuneration policy, structures and processes are set within a governance framework with designated levels of authority.

SHAREHOLDERS

Approve Non-executive Directors’ fees and nonbinding approval of the remuneration policy and implementation report

BOARD OF DIRECTORS

Approval of the remuneration policy

Provide Group Remuneration Committee with specific mandates

GROUP REMUNERATION
COMMITTEE

Recommends the policy and monitors implementation of the remuneration policy

GROUP CEO
AND EXECUTIVES

Implementation, oversight, communication and formulation of recommended policies and remuneration supported by the Group CFO and Human Capital Executive

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

Remuneration policy design principles

Our remuneration policy provides a framework for managing total remuneration within the Group and supports the Group’s employee value proposition.

Remuneration objectives    
Talent motivation and engagement   Ensures strategic alignment with organisational and individual objectives, thus keeping employees engaged.
Talent attraction and retention   Manages high-calibre talent for the achievement of strategic objectives.
Leveraging the total reward offering and enhancing our employee value proposition   Balances financial and non-financial rewards for a holistic reward mix that is sustainable.

Remuneration principles

Our people are at the core of our business success as we require highly skilled, competent and experienced employees to drive our business growth. AfroCentric’s remuneration policy is designed to reward employees for their performance and contribution towards value for our shareholders. The following principles govern Group-wide remuneration at all levels:

PAY FOR PERFORMANCE

Pay-for-performance methodology, linking executive reward to business performance. This allows for differentiated increases based on the individual’s contribution and performance.

PARITY AND EQUITY

Ensure external parity is maintained, market relevance, balanced internal equity, and pay adjustments are affordable for the organisation.

TALENT ATTRACTION AND RETENTION

Ensure a remuneration mix that will attract the best talent in the market and retain top talent within the organisation.

PERFORMANCE INCENTIVES

Align executives to shareholder interests by linking STIs and LTIs to performance indicators not limited to financial indicators.

FAIR AND RESPONSIBLE PAY

Internal equity: Ensuring all our employees are appropriately and fairly rewarded for their contributions, irrespective of gender, race, age, ethnicity, religion or sexual orientation.

Pay for performance

Executives’ remuneration is based on their 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 table below shows the relationship between the Group’s strategy, its pay-for-performance philosophy and requirements set out in King IV:

Strategic objective: Maximise shareholder value and returns
Strategic aspiration: Operating profit (EBIT) target as agreed with the Board from time to time
Pillars of the BSC support the delivery of our strategic objectives

Strategic impact

  • Enhancing our operating model
  • Stabilising IT systems and enhancing the infrastructure
  • Launching and implementing primary care products to create a unique value proposition for the Group
  • Delivering a successful medicine capitation model with full value chain optimisation

FINANCIAL (40% WEIGHTING)

GOVERNANCE (10% WEIGHTING)

TRANSFORMATION (10% WEIGHTING)

ORGANISATIONAL CULTURE (5% WEIGHTING)

STRATEGIC IMPACT (35% WEIGHTING)

Our deliverables, contained in our BSCs, are derived from and directly support the Group strategy. The Group BSC cascades to the various business units and is aligned with the business unit and individual performance objectives.

Remuneration arrangements for other employees

Recognising the need to remunerate executive management fairly and responsibly in the context of the overall remuneration, we award higher increases to bargaining unit employees than to executive levels (see Implementation report). Increases for the bargaining unit are negotiated annually with National Education, Health and Allied Workers’ Union (NEHAWU), the recognised labour union, considering various internal and external factors such as affordability, market conditions, and benchmark information. PwC’s Remchannel Salary Survey formed the basis for market benchmark information to facilitate the remuneration review.

Differences in remuneration policy for executives compared to other employees

There are differences in the remuneration policy’s structure for Executive Directors, prescribed officers and other salaried employees, which are necessary to reflect the different levels of responsibility and market practices. The key difference is the increased emphasis on incentives or variable performancerelated pay in senior roles. Lower maximum variable pay limits, as a percentage of guaranteed pay, apply for positions below the executive level, driven by market benchmarks and the relative impact of the role.

Senior executives, general management and key strategic resources at senior management, middle management or specialist levels may participate in both STI and LTI schemes, where these plans are targeted at individuals who have the greatest responsibility for Group performance.

General staff are eligible to participate in a performance-based bonus scheme.

Remuneration model

AfroCentric’s remuneration model balances short-term and long-term financial and non-financial rewards to drive a high-performance culture. The critical components of this model, including policy elements, are illustrated below:

GUARANTEED PAY

This comprises the benchmarked, market-related fixed component of AfroCentric’s remuneration offering set to attract and retain qualified and experienced employees

Base pay Benefits and allowances
Market-related salary reflecting individual contribution, roles and responsibilities Market-related benefits, including medical aid, retirement fund1 and insured benefits such as Group death and disability benefits, Nedbank workplace banking benefits
Purpose
To attract and retain qualified and experienced employees
Purpose
To retain employees and contribute to their overall wellbeing
Mechanics
  • All employees
  • Pay bands are set with reference to industries
  • For executives, benchmarks are derived from similar comparator groups
  • Salaries are paid monthly
  • Employees are eligible for adjustments when promoted to other positions; however, specific conditions apply
  • Market benchmarking according to job family grouping, job grade and individual long-term performance
Mechanics
  • Applicable to all employees
  • Allowances are paid in terms of statutory requirements or policy
  • Contributions to all benefits are made by both the employer and employee
  • Beneficiaries of employees who pass away while in service receive additional benefits such as education benefits, medical aid premium waivers, etc.
Maximum opportunity
  • Cost of annual increases is 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
Maximum opportunity
  • In addition to the standard basket of benefits, employees can buy additional benefits at Group rates, e.g. extended family funeral cover
1 Employees elect participation in either a pension fund or the NEHAWU Provident Fund, the latter being available to NEHAWU members only.

VARIABLE PAY

Additional financial compensation in the form of STIs and LTIs aligned with the Group’s performance, strategy and value creation

STI scheme LTI scheme
Performance-based Group annual incentive schemes
  • Management strategic incentive scheme
  • Management performance bonus scheme
  • Performance-based bonus for all general staff
  • Actuarial incentive scheme
  • Other sales incentive schemes (self-funding)
Share scheme designed to incentivise the delivery of long-term strategic goals aligned with shareholder expectations
Purpose
  • To motivate employees, management and executives to achieve short-term strategic, financial and non-financial objectives
  • To reward Company, business unit and individual performance
  • To recognise, motivate, attract and retain
Purpose
To retain, motivate and reward executives and senior management or individuals who influence the long-term sustainability, value creation and strategic objectives of the Group on a basis that aligns their interests with those of the Group’s shareholders
 
Mechanics
  • Executive Committee members, general management1, senior management2 and management3 at corporate and business unit level as well as general staff
  • The STI consists of Group and individual performance targets
  • Group targets on a BSC basis are set each year and cascaded
  • Business unit targets are set in line with the approved business plans
  • Individual targets are recorded in the performance contract with reference to the role’s requirements
  • Performance below threshold results in a zero score, and the individual will not be eligible for an STI award
  • A hurdle for payment of any STI is the achievement of EBIT targets; however, a sliding scale is applicable at the Remuneration Committee’s discretion upon achieving all other key performance area targets
  • The committee approves any payments in respect of performance-based STIs
  • Other STIs, as general staff performance bonuses or commissions, are paid quarterly or monthly as per the respective set of rules
Mechanics
  • Vesting share scheme
  • Executive Committee members, general and senior management at Group and business unit levels
  • The LTI scheme consists of conditional shares subject to vesting conditions
  • Three-year staggered vesting as follows: Year three – one-third, year four – one-third, and year five – one-third
  • Governance resides with the committee, which considers annual awards for eligible employees and discretionary or bonus awards for retention purposes
  • Annual awards are linked directly to the role as well as longterm individual performance and potential
  • Share value is determined by volume-weighted average price measured 30 days before award date
  • Group performance targets include EBIT (40%), governance (10%), organisational culture (5%), transformation (10%) and strategic impact (35%) (see page 108)
 
Maximum opportunity
  • Stretch performance percentage of guaranteed pay of 150%, or 14th cheque depending on the scheme in which the employee participates
  • Participation is limited to one scheme only
Maximum opportunity
  • The employee’s job grade determines the maximum allocation
Number of participants
489 FOR MANAGEMENT
3 193 FOR GENERAL STAFF
Number of participants
59
1 General management is defined as positions at grade levels E1 to E3 on the Paterson grading scale.
2 Senior Management is defined as positions at grade levels D3 to D5 on the Paterson grading scale.
3 Management is defined as positions at grade level D2 on the Paterson grading scale.

STI schemes

The Group relies on various bonus schemes designed to achieve its strategic objectives.

Individual performance below the threshold results in a zero score, and the employee will not be eligible for consideration for the STI award.

Management strategic incentive scheme

The annual strategic management incentive scheme is focused on the executive team and tier two managers, being those who report directly to the executives and employees selected for value contribution as well as scarce and critical skills. This applies to employees whose roles have a direct impact on the Group’s strategic imperatives.

Strategic incentives are calculated as shown below; however, any payment is subject to the achievement of the Group performance scorecard on a sliding scale basis.

On-target % X business multiplier X individual performance multiplier
On-target % X business multiplier X individual performance multiplier
Group performance

The Group achieved an EBIT of R794 million compared to a budget of R806 million which falls within an acceptable range (5%) of the target being met.

Management performance bonus scheme

The management performance bonus scheme was introduced during the 2017 financial year at the Remuneration Committee’s request. This scheme targets exceptional performance by rewarding 100% of the guaranteed monthly package and additional bonus payments as given in the rules.

Performance-based bonus

The performance-based bonus scheme was introduced in 2019, with the Remuneration Committee’s support. This scheme is aimed at non-management level employees and ensures an allinclusive performance-based total reward strategy for the Group across all levels.

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, considering 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.

LTI scheme

AfroCentric’s LTI scheme (the vesting share scheme) commenced in November 2017, following approval by the Board and shareholders at the AGM held on 8 November 2017.

The Remuneration Committee approves the allocations for all participants

Malus and clawback

Where defined trigger events take place, provision is made for redress against remuneration through either malus (pre-vesting forfeiture) or clawback (post-vesting forfeiture). Malus and clawback provisions and the application thereof to trigger events are governed by the Group Malus and Clawback policy.

Vesting share scheme

Award mechanism Linked to job grade and allocated by the committee. The Remuneration Committee has discretion within a range per job grade with a maximum number of shares set per grade.
Bonus shares Discretionary allocation by the committee considering scarce skills, personal performance ratings, leadership and potential.
Vesting Five-year vesting based on the anniversary of allocation: Year three – one-third, year four – one-third and year five – one-third.
Participation Individual participation is reviewed annually by the committee to ensure alignment with the strategic objectives of the Group, and consideration is given to:
  • Individual long-term performance (over three years)
  • Scarce and critical skills, particularly at other levels
  • Strategic importance of the role
  • Potential or talent of the employee (in particular ability, attitude, aspiration)
Conditions Share award is conditional to the retention period provided the employee is eligible.
Performance conditions Long-term individual performance.
Remuneration mix

To maintain a high-performance culture and 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, STI and LTI for the Group CEO at below, on-target and stretch levels. The below target assumes no variable incentive payments.

Remuneration processes
Service contracts and notice periods

AfroCentric can summarily terminate executive employment for any reason recognised by law in the respective jurisdiction. It is policy that the Executive Directors and executives have employment agreements with the Group that may be terminated with a three-month notice period. 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).

Non-executive Directors’ remuneration

The table below sets out the remuneration principles applied by the Group for the 2021 financial year for Non-executive Directors. These policies also apply for the 2021 financial year and form the underlying basis for the fees tabled for approval at the AGM to be held on 11 November 2021.

Chairperson Deputy Chairperson 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 Chairpersons receive an additional amount
Fee principles
  • Fees are reviewed annually, and fees in respect of the Chairperson and Deputy Chairperson were adjusted during the reporting period following the benchmark done by PwC
  • Fees reflect the time commitments in respect of meetings and 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