Remuneration report

Remuneration and Nomination Committee

The Remuneration Committee has been delegated by the Board with the responsibility of 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 Remuneration Committee also acts as the Nomination Committee. Refer to pages 52 to 57 for further details relating to the above.

In respect of the annual salary review of staff, the Group Head of Human Resources provides recommendations to the RNC for its consideration. In turn, the RNC also submits recommendations regarding the fee structure for non-executive directors and the fees for members of the Board committees, for approval by the Board and ultimately shareholders.

The RNC consists of three non-executive directors, namely, Messrs 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.

Whilst the majority of the Committee members are not categorised as independent, the Board is satisfied that the RNC comprises the Board members most suitably qualified to perform the role and that the Committee members act impartially and fairly in that position.

The chairperson reports to the Board on the RNC’s deliberations and decisions.

Philosophy

The Group’s remuneration philosophy strives to reward employees in a fair and responsible way and to ensure a culture of high performance through employees who are motivated, engaged and committed in achieving a balance between shareholder interests and appropriate remuneration packages. The remuneration policy is formulated to attract, retain and motivate top-quality people in the best interests of the Group. 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, with due regard to market conditions. Total incentive-based rewards are earned through the attainment of demanding key performance indices and targets, consistent with shareholder growth expectations.

The Group is conscious of succession planning in order to ensure that successors are in place in respect of certain identified positions.

Governance

Key duties of the Committee include:

•	ensuring that the Group upholds its entrenched remuneration philosophy,
•	ensuring that the combination of fixed and variable pay is appropriate when benchmarking remuneration levels,
•	reviewing incentive schemes in order to ensure continuing contribution to growth in shareholder value,
•	reviewing incentive schemes in order to ensure that they are administered and implemented in terms of the rules and performance targets
•	reviewing remuneration of Executive Directors and Senior management, and
•	submitting recommendations to the Board with regard to non-executive remuneration for ultimate approval by shareholders.

In the course of deliberations, the RNC considers the views of the Chief Executive Officers on remuneration and performance of other Executive Directors and members of Senior management.

Independent advice on market information and remuneration trends is provided to the RNC by external remuneration consultants from time to time. Blue Label’s Human Resources Department also assists the Committee by providing supporting information and documentation relating to matters presented to the RNC.

Additional governance principles applicable to the composition and principal activities of the RNC are more fully set out on page 37 of this report.

Policy

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 Group and individual performance. 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.

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.

Fixed remuneration

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

Salary increases for the 2014 financial year range from 0% to 6% in bands of 0%, 3% and 6%. Management of each operating company were given the discretion to apply the appropriate increase to each staff member falling under their control within the stipulated range.

The annual salary increase of the Executive Directors for the forthcoming year is 6%.

Details of the Directors’ and Prescribed officer’s remuneration for the year ended 31 May 2013 appear on pages 190 and 191.

Incentive bonus plan

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 is 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 delivery of the Group’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.

The Group’s performance for the 2013 financial year achieved the levels required in terms of the Group’s predetermined target for growth in headline earnings per share. This growth was measured on exclusion of the once-off income receipt in the comparative year. In addition, the non-financial targets set for the Executive Directors and Senior management were also met. The achievement of these targets resulted in each Joint Chief Executive Officer being paid a bonus of 120% of annual salary and the Financial Director and Chief Operating Officer each receiving a bonus of 70% of annual salary.

The bonus parameters for Executive Directors and Senior management for the 2014 financial year have been determined as follows:

1. Executive directors

Chief Executive Officers at 120% of annual salary, Financial Director and Chief Operating Officer at 70% of annual salary, of which 80% will apply to financial criteria and 20% to non-financial criteria.

•

Financial (80%)

–	If growth in headline earnings per share is less than CPI, no element of the 80% will be paid.
–	If growth in headline earnings per share is equal to CPI plus 10%, then 70% of the 80% will be paid either in full or pro rata, as the case may be.
–	If growth in headline earnings per share exceeds CPI plus 10%, then an additional 30% of the 80% will be paid

•

Non-financial (20%)

The following criteria will be taken into account in determining qualification for the 20%: leadership, corporate governance best practice, strategy implementation and risk mitigation.

2. Executive and Senior management

A maximum of 50% of annual salary will be paid, of which 80% will apply to financial criteria and 20% to non-financial criteria.

The financial criteria will be split as to 60% on the performance of the subsidiary and 20% on Group performance.

•

Financial per subsidiary (60%)

–	If growth is less than CPI, no element of the 60% will be paid.
–	If growth in headline earnings per share is equal to CPI plus 10%, then 70% of the 60% will be paid either in full or pro rata, as the case may be.
–	If growth in headline earnings per share exceeds CPI plus 10%, then an additional 30% of the 60% will be paid.

•

Group performance (20%)

–	If growth is less than CPI, no element of the 20% will be paid.
–	If growth in headline earnings per share is equal to CPI plus 10%, then 70% of the 20% will be paid either in full or pro rata, as the case may be.
–	If growth in headline earnings per share exceeds CPI plus 10%, then an additional 30% of the 20% will be paid.

•

Forfeitable share plan

The forfeitable share scheme vesting criteria for the 2010 share scheme allocation was 25% for retention, 25% for the achievement of non-financial indicators and 50% determined with reference to growth in CPI plus 15% over the three-year vesting period.

Vesting of the 2010 share scheme allocations fell due on 31 August 2013. The shortfall between CPI plus 15% and the growth in core headline earnings per share over this period was 2.31%. The Company determined that 3.75% of the shares allocated in 2010 should be forfeited to accord with the shortfall between the target set and the target achieved.

The vesting criteria for the forfeitable shares allocated in September 2013 for vesting over the next three years is as follows:

•	40% for retention (three years from date of award); and
•	60% financial (50% for growth in core headline earnings per share and 10% based on total shareholder return).

The 50% for growth in core headline earnings per share will be based on the following criteria:

•	If growth is 5% above CPI over three years, then 20% of the 50% will vest.
•	If growth is 10% above CPI over three years, then an additional 50% of the 50% will vest.
•	If growth is 25% above CPI over three years, then a further 30% of the 50% will vest.

The 10% for total shareholder return will be based on a 10% compounded growth in the share price over the three-year vesting period measured with reference to the weighted average price per share during the month of the commencement of the allocation and the weighted average share price for the month during which the vesting takes place, plus dividends over the three-year period.

Executive service contracts

The three-year service contracts of the four Executive Directors are due to expire in November 2013. Mr DB Rivkind, the Group Financial Director, has elected not to renew his contract. Negotiations are underway to renew the contracts of the remaining Executives for a further three-year period. The existing contracts include a restraint of trade undertaking applicable for a period of 12 months from the date the Executive leaves the employ of the Company of his own accord. The restraint of trade is not enforceable in the event of the employment contract not being renewed by the Company or if the Executive’s employment is terminated by the Company.

Non-Executive remuneration

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 forfeitable share plan of the Company. The fees payable to the Chairman and Non-Executive Directors are recommended by the RNC 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 considered by Executive management and approved by the Chairman of the Board and thereafter submitted to the Board for its approval. Details of the fees paid to each of the Non-Executive Directors during the year are reflected on pages 190 and 191.

For the 2014 financial year, the Group intends to continue to use the services of Mr NN Lazarus SC for the provision of legal, corporate, financial and strategic advice, for which he shall continue to receive market-related fees. Such fees shall continue to be considered by Executive management, approved by the Chairman of the Board, who in turn will submit the fees to the Board for approval. The Board resolved at its meeting held on 29 May 2013 that Non-Executive Directors’ remuneration be increased for the 2014 financial year by 6%, subject to the approval of shareholders.

The proposed fees payable to Non-Executive Directors are set out below:

	Current fee per meeting	Proposed fee per meeting*	Proposed capped fee per annum**
Services as Directors
– Chairman of the Board	–		R842 700
– Board members	R36 400	R38 584	R192 920
Audit, Risk and Compliance Committee
– Chairman	R50 556	R53 589	R214 356
– Member	R30 334	R32 154	R128 616
Remuneration and Nomination Committee
– Chairman	R40 444	R42 871	R171 484
– Member	R24 268	R25 724	R102 896
Investment Committee
– Chairman	R30 334	R32 154	R257 232
– Member	R18 200	R19 292	R154 336
Transformation, Social and Ethics Committee
– Chairman	R30 334	R32 154	R128 616
– Member	R18 200	R19 292	R77 168
Ad hoc committee
– Chairman	R30 334	R32 154	R128 616
– Member	R18 200	R19 292	R77 168

*	In the event that there are fewer meetings held per year than envisaged, the member shall receive the fee in respect of the number of meetings attended.
**	In the event that there are more meetings held per year than initially planned, directors’ fees will be paid only up to the cap.