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REMUNERATION REPORT

REMUNERATION AND NOMINATION COMMITTEE

The Board has delegated to the Remuneration Committee responsibility for determining the remuneration of the executive directors and senior managers, as well as for approving the allocation of shares under the Group’s forfeitable share scheme. The Remuneration Committee also acts as the Nomination Committee.

Following a query from the JSE in late 2013 regarding the independence of the Remuneration and Nomination Committee, the Chairman of Blue Label, Mr LM Nestadt, was appointed to the Remuneration and Nomination Committee in order to chair nomination matters. Mr Lazarus SC continues to chair the remuneration matters at the meetings of the Committee. Mr Ellerine resigned as a member of the Committee due to the need to restructure the composition of the Committee to accord with the requirements of the JSE. The majority of the Committee is comprised of independent non-executive directors.

The Committee consists of three non-executive directors, namely Messrs LM Nestadt, NN Lazarus SC and GD Harlow. The Joint CEOs and the Financial Director attend certain meetings of the Committee by invitation, but do not vote on Committee decisions. The chairpersons of the Committee report to the Board on the Committee’s deliberations and decisions.

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

Philosophy

The Group’s Remuneration Philosophy is to strive to reward employees in a fair and responsible way and to ensure a culture of high performance through employees who are motivated, engaged and who subscribe to the principle of achieving a balance between shareholder interests and appropriate remuneration packages. The Remuneration Policy is formulated to attract, retain and motivate top-quality people. Remuneration arrangements are designed to support Blue Label’s business strategy, vision and to align with 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 for 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 a continuing contribution to growth in shareholder value;
	reviewing incentive schemes in order to ensure that they are administered and implemented in terms of their 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 Committee considers the views of the CEOs on the remuneration and performance of other Joint Executive Directors and members of Senior Management.

From time to time 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 for the Committee’s consideration, including assessing proposed changes to legislation determining employers’ responsibility to provide retirement funding for staff.

Additional governance principles applicable to the composition and principal activities of the Committee are more fully set out on page 43 (governance framework) of this integrated annual 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. 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.
	Variable remuneration – a short-term performance-related bonus payment. The variable pay element provided by the short-term bonus plan is intended to enhance total pay opportunities, should that be merited by Group and individual performance. The purpose of the annual performance-related bonus payment is to reward and motivate the achievement of Group and subsidiary financial targets, as well as to motivate strategic and personal performance. The Joint CEOs may earn an annual incentive bonus of up to 120% of fixed remuneration and other Executive Directors of up to 70%. Senior Management may earn up to 50% of their annualised salary package.
	Forfeitable share plan – a long-term performance-related incentive scheme. 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 Directors 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 2015 financial year ranged from 0% to 6%. Management of each operating company was again given the discretion to apply the appropriate increase within the stipulated range to each staff member falling under their control.

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

Details of the directors’ and prescribed officers’ remuneration for the year ended 31 May 2014 appear on pages 200 and 201.

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, the roll-out of the Group’s transactional footprint, the level of progress made in respect of organisational development and succession planning, together with leadership qualities, corporate governance best practice, strategy implementation and risk mitigation.

The Group’s performance for the 2014 financial year was not satisfactory, as a result of which:

	the Committee only authorised the payment of R18.3 million in aggregate, for bonuses, which amounts to 2.8% of the total pre-tax profit; and
	the Executive Directors, including the two most senior employees of The Prepaid Company, agreed to forfeit their right to receive any portion of their bonus entitlement.

The bonus parameters for Executive Directors and Senior Management for the 2015 financial year have been determined as follows:

1.

Executive directors Joint CEOs 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. the Committee only authorised the payment of R18.3 million in aggregate, for bonuses, which amounts to 2.8% of the total pre-tax profit; and – 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%: – the achievement of agreed transformation targets, progress in the delivery of the Group’s growth strategy, the roll-out of the Group’s transactional footprint, the level of progress made in respect of organisational development and succession planning, together with leadership qualities, corporate governance best practice, strategy implementation and risk mitigation.

2.

Executive directors 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. Non-financial (20%) The following criteria will be taken into account in determining qualification for the 20%: leadership, corporate governance best practice, strategy mplementation and risk mitigation.

The forfeitable share scheme vesting criteria for the 2011 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 2011 share scheme allocations fell due on 31 August 2014. The Group achieved its performance targets with the result that there was no necessity for any forfeitures.

The vesting criteria for the forfeitable shares allocated in September 2014 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 directors’ service contracts

The three-year service contracts of the four executive directors expired in November 2013. Mr DB Rivkind, Financial Director, elected not to renew his contract, while those of the Joint CEOs, Messrs BM Levy and MS Levy and the COO, Mr MV Pamensky, were each renewed for a further three-year period. A three-year service contract was concluded with Mr DA Suntup, Financial Director, with effect from 14 November 2013. Each contract, save for Mr Pamensky’s, includes a restraint of trade undertaking applicable for a period of 12 months from the date the executive of his own accord leaves the employ of the Company. The restraint of trade is not enforceable in the event that the employment contract is not renewed by the Company, or if the executive’s employment is terminated by the Company.

Non-executive remuneration

Non-executive directors receive fees for their services on the Board and Board Committees, dependent on their attendance at meetings, although total fees payable are capped. Non-executive Directors neither 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 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 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 200 and 201.

For the 2015 financial year, the Group will continue to use the services of Mr NN Lazarus SC for the provision of legal, corporate, financial and strategic advice, for which he shall receive market-related fees. Such fees shall be considered by executive management, approved by the Chairman of the Board, who in turn submits them to the Board for approval. The Board resolved at its meeting held on 30 June 2014 that non-executive directors’ remuneration be increased for the 2015 financial year by 6%, subject to the approval of shareholders.

The proposed fees payable to non-executive directors are set out below:

On behalf of the Remuneration Committee:

NN Lazarus SC
Chairman

22 October 2014