Blue Label Telecoms Limited

Remuneration report

The Board has delegated to the Remuneration and Nomination Committee the responsibility to determine the remuneration of the Executive Directors and Senior Managers, as well as to approve the allocation of shares under the Group’s Forfeitable Share Scheme. The RNC also fulfils the functions of the Nomination Committee.

Following the resignation of Mr NN Lazarus SC as Chairman of the RNC on 27 January 2015, Mr GD Harlow was appointed Chairman to the RNC. Mr LM Nestadt continues to chair the Nomination Agenda at meetings of the Committee. Mr JS Mthimunye was appointed as a member of the Committee during February 2015.

The RNC consists of three independent non-executive directors, namely Messrs LM Nestadt, GD Harlow and JS Mthimunye. The Joint CEOs and the Financial Director attend meetings of the RNC by invitation, but do not vote on decisions. The chairpersons of the RNC report to the Board on its deliberations and decisions.

In respect of the annual salary review of staff, the Group Head of Human Resources presents recommendations for the RNC’s consideration. The RNC makes its own proposals regarding the fee structure for non-executive directors and the fees payable to 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 equitable manner 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 individuals. Remuneration is 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 the fact that succession planning is essential and ensures that alternative candidates are in place for certain identified positions.

GOVERNANCE

Key duties of the RNC 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 to ensure a continuing contribution to growth in shareholder value,
• reviewing incentive schemes 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 RNC considers the views of the Joint CEOs on the remuneration and performance of other Executive Directors and members of Senior Management.

From time to time independent advice on market information and remuneration trends is provided to the RNC by external remuneration consultants. Blue Label’s human resources department also assists the Committee by providing supporting information and documentation relating to matters for its consideration, including the assessment of proposed changes to legislation such as in determining the employers’ responsibility to provide retirement funding for staff.

Additional governance principles applicable to the composition and principal activities of the RNC are more fully set out in (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, comprising three components:

• Fixed remuneration – fixed monthly salary and benefits. Fixed remuneration is reviewed annually in order to ensure that the Executive Directors 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 fixed 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 fixed 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 a discretionary approach in all remuneration reviews and there is no minimum across-the-board increase to all employees.

Salary increases for the 2016 financial year ranged from 0% to 6% (2015: also 0% to 6%). Management of each operating company was afforded their own 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 financial year is 6%.

Details of the Directors’ remuneration for the year ended 31 May 2015 appear on pages 172 and 173.

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 core headline earnings per share. Historically the performance component was based on growth in headline earnings per share. However, going forward it will be more prudent to apply growth in core headline earnings per share, as the latter is more indicative of the trading performance of the Group.

The non-financial elements include the achievement of transformation targets, progress in delivering the Group’s growth strategy, rolling out the Group’s transactional footprint, the rate and level of progress in respect of organisational development and succession planning, together with the application of leadership qualities, corporate governance best practices and risk mitigation.

For the 2015 financial year, the Group achieved the levels required in terms of its predetermined targets for growth in headline earnings per share. In addition, the non-financial targets set for the Executive Directors and Senior Management were also achieved. The achievement of these targets resulted in each Joint Chief Executive Officer being paid a bonus of 96% of annual salary and the Financial Director and Chief Operating Officer each receiving a bonus of 56% of annual salary.

The bonus parameters for Executive Directors and Senior Management for the 2016 financial year have been determined as follows:

1. Executive Directors

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

• Financial (80%)
  – If growth in core headline earnings per share is less than CPI, no element of the 80% will be paid.
  – If growth in core 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 core 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 delivering the Group’s growth strategy, the roll-out of the Group’s transactional footprint, the rate and level of progress made in respect of organisational development and succession planning, together with the application of leadership qualities, corporate governance best practices 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 which employs the person concerned (where applicable) and 20% on Group performance.

• Financial per subsidiary (60%)
  – If growth in core headline earnings per share is less than CPI, no element of the 60% will be paid.
  – If growth in core headline earnings per share is equal to CPI plus 10%, then 70% of the 60% will be paid in full or pro rata, as the casemay be.
  – If growth in core headline earnings per share exceeds CPI plus 10%, then an additional 30% of the 60% will be paid.
• Group performance (20%)
  – If growth in core headline earnings per share is less than CPI, no element of the 20% will be paid.
  – If growth in core 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 core 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%: the achievement of agreed transformation targets, progress in delivering its growth strategy, the roll-out of its transactional footprint, the rate and level of progress made in respect of organisational development and succession planning, together with the application of leadership qualities, corporate governance best practices and risk mitigation.

Forfeitable share scheme

The forfeitable share scheme vesting criteria for the 2012 share scheme allocation was 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 shareholder returns).
• The 50% for growth in core headline earnings per share was based on the following achievements:
  – If growth is 5% above CPI compounded annually over three years, then 20% of the 50% would vest.
  – If growth is 10% above CPI compounded annually over three years, then an additional 50% (i.e. a total of 70%) of the 50% would vest.
  – If growth is 25% above CPI compounded annually over three years, then a further 30% (i.e. a total of 100%) of the 50% would vest.
  The measurement period was from 1 June 2012 to 31 May 2015.
• The 10% for shareholder return was 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 plus dividends over the three-year period against the weighted average share price for the month during which the vesting takes place.

Vesting of the 2012 share scheme allocations fell due on 31 August 2015. Although the cumulative growth in core HEPS over the three-year period resulted in 70% of the 50% of this portion of the performance criteria qualifying for vesting, the Board exercised its discretion and approved that 100% of the 50% element of the financial criteria will vest.

The criteria for a minimum return to shareholders of compounded growth of 10% per annum over the three-year period were achieved.

The vesting criteria for the forfeitable shares allocated in September 2015 are 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 shareholder returns).
• The 50% for growth in core headline earnings per share will be based on the following achievements:
  – If growth is 5% above CPI compounded annually over three years, then 20% of the 50% will vest.
  – If growth is 10% above CPI compounded annually over three years, then an additional 50% (i.e. a total of 70%) of the 50% will vest.
  – If growth is 25% above CPI compounded annually over three years, then a further 30% (i.e. a total of 100%) of the 50% will vest.
  The measurement period is from 1 June 2015 to 31 May 2018.
• The 10% for 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 plus dividends over the three-year period against the weighted average share price for the month during which the vesting takes place.

EXECUTIVE DIRECTORS’ SERVICE CONTRACTS

The three-year service contracts of the Executive Directors expire as follows:

• Messrs BM Levy and MS Levy, Joint CEOs – 14 November 2016,
• Mr MV Pamensky, COO – 1 August 2017,
• Mr DA Suntup, FD – 14 November 2017.

Each contract includes a restraint of trade undertaking applicable for a period of 12 months from the date from which the executive leaves the employment from the Company on his own accord. 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 illegitimately 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. 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 AGM.

Non-Executive Directors may be contracted to render services to the Group in addition to the aforegoing services from time to time. Details of the fees paid to each of the Non-Executive Directors during the year are reflected on pages 172 and 173.

The Board resolved at its meeting held on 30 June 2015 that Non-Executive Directors’ remuneration be increased for the 2016 financial year by 6%, subject to the approval of shareholders.

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

	Services as Directors		Current fee		Proposed fee
	– Chairman of the Board (per annum) – Board members (per meeting)		R893 262 R40 899		R946 858 R43 353
	Audit, Risk and Compliance Committee (per meeting) – Chairman – Member		R56 804 R34 083		R60 212 R36 128
	Remuneration and Nomination Committee (per meeting) – Chairman – Member		R45 443 R27 267		R48 170 R28 903
	Investment Committee (per meeting) – Chairman – Member		R34 083 R20 450		R36 128 R21 677
	Transformation, Social and Ethics Committee (per meeting) – Chairman – Member		R34 083 R20 450		R36 128 R21 677
	Ad hoc Committee (per meeting) – Chairman – Member		R34 083 R20 450		R36 128 R21 677

On behalf of the Remuneration Committee:

GD Harlow
Chairman

23 October 2015