Remuneration report

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 2022. This report supplements the information provided in the corporate governance report on corporate governance review. In addition, this report highlights the committee's focus areas for the year, outlines policies and practices, and addresses the Group's performance and corresponding remuneration outcomes.

In 2022, the committee focused on designing a new long-term incentive (LTI) plan for the Group in the form of a forfeitable share plan. The previous AfroCentric Group management LTI plan came to an end effective 30 June 2022. The previous LTI plan was approved by the Board and shareholders of the Company in 2017, with the first share awards under the plan granted to participating employees in November 2017. Share awards in terms of the plan were approved over five years.

The committee approved the implementation of the new forfeitable share plan at the May 2022 meeting, and the key differences from the previous plan include:

• Vesting of shares is subject to meeting performance conditions, whereas in the previous plan, there were no performance conditions linked to vesting
• The participants are entitled to receive dividends during the vesting period, whereas under the previous plan, there were no dividend rights prior to vesting
• All shares will start vesting on its third anniversary from the date of first grant, whereas the shares vested in equal tranches in years three, four and five

The new plan will further strengthen the alignment of management and shareholder interests by driving sustainable capital growth and a potential high dividend yield.

Operating context and performance highlights

The Group set an aggressive target of achieving an EBIT deliverable of R871 million for the 2022 financial year after recording an R830 million EBIT in 2021. On the back of a tumultuous year characterised by volatile global markets, the Group fell 5.4% short of achieving the EBIT target for the year. However, it is encouraging that the R824 million EBIT achievement came 0.7% lower than the prior year's EBIT, given that market conditions were unpredictable over the period. Despite the challenging operating environment, the Group fared well with the other balanced scorecard (BSC) components, where the transformation, governance, and strategic impact key performance areas were met and partially exceeded in some 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 R57.7 million.

Further detail on the Group's overall performance is provided in our CFO's review.

Changes to the remuneration and related policies for the 2022 financial year

In keeping with our philosophy of ensuring fair and responsible remuneration, the committee continuously reviews the Group's remuneration policies and practices to ensure 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 committee envisages the following focus areas in advancing the organisation's value proposition:

Shareholder engagement and voting

Shareholder voting results

Resolution	November 2021	November 2020
Ordinary resolution on non-binding advisory vote on the remuneration policy	93.09%	93.90%
Ordinary resolution on non-binding advisory vote on the implementation report	99.20%	99.33%
Special resolution of Non-executive Directors' fees	99.98%	99.34%
Special resolution of general authority to repurchase shares	99.22%	99.75%

The remuneration policy and implementation report were presented for shareholder voting at the AGM held on 11 November 2021. 93% of shareholders endorsed the policy, and the implementation report received a favourable vote of 99%.

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.

If either the remuneration policy or the implementation report, or both, are voted against by 25% or more of the shareholders, the Board will engage with shareholders to understand the concerns raised. This engagement may be done via 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 thank my fellow committee members for their contribution and support. The committee believes 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 2022. We look forward to further interaction on AfroCentric's remuneration policy.

Joe Madungandaba

Remuneration Committee Chairperson

8 September 2022

Remuneration oversight and policies

Remuneration governance

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

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

Employees are at the core of our business since we require highly skilled, competent and experienced employees to drive our business growth. Accordingly, 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

Executives' remuneration is based on the level of accountability, complexity and nature of the role, which is sized relative to the organisation's turnover, the number of employees (including wage bill), market cap, assets and net after-tax profitability benchmarked to the external market. In line with market trends, AfroCentric intends to incorporate ESG attributes into performance metrics from the 2023 financial year onwards.

The table below shows the relationship between the Group's strategy, its pay-for-performance philosophy and the 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 Developing a remuneration policy aimed at the Board and senior executives, whereby their remuneration is tied to the achievement of ESG objectives connected to the Company's purpose, strategy, and long-term value creation	FINANCIAL (40% weighting)
	GOVERNANCE (15% weighting)
	TRANSFORMATION (10% 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 awarded higher increases to bargaining unit employees compared to executive levels (5.5%). Increases in respect of the bargaining unit are negotiated annually with National Education, Health and Allied Workers' Union (NEHAWU), the recognised labour union, considering a variety of 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 performance-related pay in senior roles. Lower maximum variable pay limits, as a percentage of guaranteed pay, apply for roles 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 STI and LTI schemes, where these plans are targeted at individuals with the greatest responsibility for Group performance.

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

Pay parity

To meet the requirements of our newly developed ESG framework, AfroCentric intends to disclose the following information from the 2023 financial year onwards:

• The ratio of the CEO's total annual compensation to the median total annual compensation of all employees (excluding the CEO)
• The ratio of the basic salary and remuneration for each employee category by significant location of operation for the priority areas of race, gender, and other relevant equality areas
• Ratios of standard entry-level wage by race and gender compared to the local minimum for the sector
• The mean pay gap of basic salary and remuneration of full-time relevant employees based on gender (women to men) and indicators of race at a Company level by significant location of operation

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 according to 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 management2, senior management3 and management4 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 the threshold results in a zero score, and the individual will not be eligible for an STI award 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 such 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 3 – 1/3, year 4 – 1/3 and year 5 – 1/3 Governing 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 and long-term individual performance and potential Share value is determined by volume weighted average price measured 30 days prior to the award date Group performance targets include financial (40%), governance (15%), transformation (10%) and strategic impact (35%)
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 487 for management; 3 250 for general staff	Number of participants 78

2	General management is defined as positions at grade levels E1 to E3 on the Paterson grading scale.
3	Senior management is defined as positions at grade levels D4 and D5 on the Paterson grading scale.
4	Management is defined as positions at grade levels D1 to D3 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 an STI award.

Management strategic incentive scheme

The annual strategic management incentive scheme focuses on the executive team and tier two managers, who report directly to the executives and employees selected for value contribution, and scarce and critical skills. This applies to employees whose roles directly impact 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.

Group performance

The Group achieved EBIT of R824 million. The performance conditions for the STI bonus were evaluated to determine if the minimum incentive trigger had been achieved.

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 through a reward of 100% of the guaranteed monthly package and additional bonus payments as given in the rules.

Bargaining unit 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 all-inclusive 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 occur, provision is made for redress against remuneration through either malus (pre-vesting forfeiture) or clawback (post-vesting forfeiture). The Group Malus and Clawback policy govern Malus and clawback provisions and the application thereof to trigger events.

Vesting share scheme

	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 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 and additional stakeholder relations and 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