The Remuneration Committee has been delegated by the board with responsibility for determining the remuneration of the executive directors and senior managers, as well as for approving the allocation of shares under the company’s forfeitable share plan.

The committee also makes recommendations in respect of the fee structure for non-executive directors and the fees for members of the board committees, for approval by the shareholders once approved by the board.

The committee consists of three non-executive directors, being NN Lazarus SC (chairperson), GD Harlow and KM Ellerine. The chief executive officers and the financial director attend certain meetings of the committee by invitation but do not vote on committee decisions.

While the committee is not constituted by non-executive directors who are categorised as independent, the board is satisfied that it is made up of the board members most suitably qualified to perform the role and that the committee members act impartially and fairly in that role.

The chairperson reports to the board on the committee’s deliberations and decisions.

The remuneration of executive directors and senior management is determined on a total cost-to-company basis and has three components:

• Fixed remuneration – fixed monthly salary and benefits
• Variable remuneration – a short-term performance-related bonus scheme
• Forfeitable Share Plan – a long-term performance-related incentive scheme.

Fixed remuneration is reviewed annually to ensure that the executives and senior management who contribute to the success of the group remain remunerated at appropriate levels in accordance with the remuneration philosophy. The variable pay element provided by the short-term bonus scheme is intended to enhance total pay opportunities, should that be merited by corporate and individual performance. Long-term incentives, in the form of forfeitable shares awarded under the share plan, are based on a percentage of total annualised salary packages and are intended to reward sustained long-term performance and to align the interests of the executive and senior management with those of shareholders.

The purpose of the annual performance-related bonus scheme is to reward and motivate the achievement of group and subsidiary financial targets, as well as to motivate strategic and personal performance. The joint chief executive officers may earn an annual incentive bonus of up to 120% of fixed remuneration and other executive directors up to 70%. Senior management may earn up to 50% of their annualised salary package.

The committee aims to achieve a balance between shareholders’ interests and attractive and appropriate executive and senior management remuneration packages. The remuneration policy is formulated to attract, retain and motivate top-quality people in the best interests of the company. Remuneration arrangements are designed to support Blue Label’s business strategy, vision and to conform to best practices. Total rewards are set at levels that are competitive in the context of the relevant areas of responsibility and the industry in which the group operates. Total incentive-based rewards are earned through the attainment of demanding targets consistent with shareholders’ growth expectations.

In the course of its deliberations, the committee considered the view of the chief executives on the remuneration and performance of the other executive directors and members of senior management.

Independent advice on market information and remuneration trends is provided to the committee by external remuneration consultants. Blue Label’s human resources department also assists the committee by providing supporting information and documentation relating to matters presented to the committee. The company bears all the expenses relating to the appointment of external remuneration consultants and other appropriate independent professional advisors.

In response to increasing challenges around staff retention and attraction of critical skills the board, on the recommendation of the Remuneration Committee, approved the award of shares in terms of the company’s share scheme to redress the retention issues that have resulted from the forfeiture of all shares awarded in November 2008 and February 2009 due to the performance criteria not having been achieved. The performance criteria which were not met are set out in note 30 of the group’s annual financial statements. These performance criteria proved to be overly optimistic and too aggressive, resulting in the share scheme not achieving one of its fundamental purposes, namely staff retention.

Altogether 2 882 000 and 2 269 814 shares were awarded in November 2008 and February 2009 respectively. These shares would have qualified for vesting in September 2010 had the performance criteria been met. These shares were forfeited and will remain in treasury for allocation in future years.

A total of 1 405 621 shares are to be awarded to staff members as a retention award. The retention award will vest in three equal tranches on 30 September 2010, 30 April 2011 and 30 April 2012 and will be subject to forfeiture in the event of the employee not being in the employ of the company on the date of vesting.

No retention awards were made to any of the executive directors.

For future awards the criteria for vesting has been changed from the May 2009 criteria. Retention comprises 25%, non-financial indicators 25% and group performance makes up 50% determined with reference to growth in CPI plus 15% over the three-year vesting period.

In making these changes to Blue Label’s remuneration policy, the committee received advice from external remuneration consultants and conducted its own research in order to ensure that the changes achieve an alignment between the interests of shareholders whilst providing attractive and competitive remuneration packages to ensure that the group attracts, retains and continually motivates the high calibre of employees required to run the group efficiently and successfully.

Blue Label applies discretion in all remuneration reviews and there is no minimum across-the-board increase to all employees.

The current inflation rate is approximately 5%. Salary increases for the forthcoming financial year ranged from 0% to 5.5% in bands of 0%, 2%, 4% and 5.5%. Management of each operating company was given the discretion to apply the appropriate increase to each staff member falling under their control within the stipulated range. Proposed increases in excess of 5.5% were required to be motivated to the Remuneration Committee for its approval. Increases above the maximum range were approved by the committee in circumstances where a member of staff was promoted or where the member’s salary was not market related.

The salaries of executive management for the forthcoming year, with the exception of the chief operating officer, Mark Pamensky, were increased by 5.5%. His salary was increased by 22% due to the amount of time that he was required to spend outside South Africa attending to the group’s overseas operations.

Details of the directors’ emoluments for the period ended 31 May 2010 appear on pages 218 to 219 of this report.

The executive directors and senior management participate in an annual incentive bonus plan, which is based on the achievement of short-term performance targets. These targets comprise financial and non-financial components. The financial performance component was based on growth in profits, as measured by headline earnings per share. The non-financial elements include the achievement of agreed transformation targets, progress in the company’s growth strategy in the countries in which it operates, the rollout of the group’s transactional footprint and the level of progress made in respect of organisational development issues and succession planning. Each of these elements carried an appropriate weighting.

For the year ended 31 May 2010 the joint chief executive officers and the chief operating officer elected not to take up their bonus allocations as they were not satisfied with the group’s financial performance. They are to be commended for leading by example.

The aggregate sum of the bonuses allocated to senior members of staff and executives amounted to R22 049 695.

Forfeitable shares awarded in September 2009 will vest over a period of three years commencing on 1 September 2009 and ending on 31 August 2012. The element of performance criteria will be based on group results and individual performance for the years ended May 2009 to May 2012.

Details of the once-off retention awards made in 2010 have been set out earlier in this report.

The forfeitable shares that were granted to executive directors during the year are as follows:

* These shares have been forfeited as detailed earlier in this report

Non-executive directors receive fees for service on the board and board committees, dependent on attendance. Non-executive directors do not receive short-term incentives nor do they participate in the share plan of the company. The fees payable to the chairman and non-executive directors are recommended by the Remuneration Committee to the board, which in turn proposes the fees for approval by the shareholders at the annual general meeting.

Non-executive directors may be contracted to render services to the group in addition to the aforegoing services from time to time. The remuneration for such additional services is signed off by the chairman of the board on a monthly basis and is submitted to the board for recommendation to shareholders. During the year, the group paid consulting fees to NN Lazarus SC and to GD Harlow. Details of the fees paid to each of the non-executive directors during the period under review are reflected on pages 218 to 219 of this report.

The group intends to continue to use the services of GD Harlow and NN Lazarus SC during the forthcoming 2011 financial year for the provision of legal, corporate, financial and strategic advice, and the nonexecutive directors shall continue to render those services for market related fees. The fees shall continue to be approved by the chairman of the board on a monthly basis, who shall in turn submit those fees to the board from time to time for consideration.

For the first time the chairman conducted a non-executive director evaluation process, the outcome of which was reported to the committee, with the object to engage the non-executive directors with a view to focusing on weaknesses identified and the improvement thereof.

The proposed fees payable to the non-executive directors for the period 1 June 2010 to 31 May 2011 have been increased by 5.5% from the prior year and are as follows: