Remuneration report

The Board has delegated to the Remuneration and Nomination Committee (RNC) the responsibility of determining 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.

The RNC consists of three Independent Non-Executive Directors, namely Messrs GD Harlow (Chairman of RNC), LM Nestadt (Chairman of the Nomination Agenda of the RNC), and JS Mthimunye. The chairpersons respectively report to the Board on deliberations and decisions. The Joint CEOs and the Financial Director may attend meetings of the RNC by invitation, but do not vote on decisions.

With regard to the annual salary review of staff, the Group Head of Human Resources presents recommendations for consideration by the RNC. The RNC formulates 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

Blue Label’s remuneration philosophy is to recruit and retain staff, who believe in and live the culture and values of the organisation. In turn, the remuneration policy strives to reward employees in a fair and equitable way in order 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. Remuneration is designed to support Blue Label’s business strategy and 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 RNC is conscious of the fact that succession planning is essential to perpetuate institutional memory and ensures that comparable alternative candidates are in place for certain identified positions.

During the year, the RNC reviewed its philosophy, while also taking cognisance of best peer practices. As a result thereof, the RNC realigned its policy with regard to the criteria pertaining to the forfeitable share plan as well as introducing an outperformance bonus for members of the Executive Committee.

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 aligned 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;
  • submitting recommendations to the Board with regard to Non-Executive remuneration for ultimate approval by shareholders; and
  • managing stakeholder relations and expectations, as deemed appropriate on remuneration matters.

In the course of deliberations, the RNC considers the views of the Joint CEOs on the remuneration and performance of other Executive Directors and 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 determining the employer’s responsibility to provide retirement funding for staff. Ad hoc consultations are held with key institutional shareholders for their comment and input.

Additional governance principles applicable to the composition and principal activities of the RNC are fully set out on page 39 (Governance Framework) of the integrated annual report.

Policy

The remuneration of Executive Directors and Senior Management is determined on a total cost-to-company basis, comprising four components:

  • Fixed remuneration – fixed monthly salary and benefits. Fixed remuneration is reviewed annually in order to ensure that Executive Directors and Senior Management, who contribute to the success of the Group, remain remunerated at appropriate levels in accordance with the remuneration philosophy.
  • Incentive bonus – 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 it 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 strategic and personal performance. The Joint CEOs may earn an annual incentive bonus of up to 120% and the Financial Director of up to 70% of annualised fixed remuneration. Senior Management may earn up to 50% of their annualised fixed remuneration.
  • Forfeitable share scheme – a long-term performance-related incentive scheme. This incentive, in the form of forfeitable shares awarded in terms of the share plan, is based on a percentage of total annualised fixed remuneration. The intention is to reward sustained long-term performance and to align the interests of the Executive Directors and Senior Management with those of shareholders.
  • Outperformance bonus – a bonus in the form of additional share allocations to members of the Executive Committee, linked to the annual growth in the share price, with the intention of recognising and rewarding their contribution to the overall strategy of the Group.

Fixed remuneration
Blue Label applies a discretionary approach in all remuneration reviews and there is no minimum across-theboard increase to all employees. Salary increases for the 2017 financial year ranged from 0% to 6.5% (2016: 0% to 6%).Management of each operating company were granted discretion to apply an appropriate increase, within the stipulated range, to each staff member under their control. Details of the Directors’ remuneration for the year ended 31 May 2016 appear on pages 136 and 137.

Incentive bonus plan
The Executive Directors and Senior Management participate in an annual incentive bonus structure 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 core headline earnings per share.

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 2016 financial year, the Group achieved the levels required in terms of its predetermined targets for growth in core headline earnings per share. In addition, the non-financial targets set for the Executive Directors and Senior Management were also achieved. As a result, each Joint CEO was paid a bonus of 120% of annual salary and the Financial Director received a bonus of 70% of annual salary.

The bonus parameters for Executive Directors and Senior Management for the 2017 financial year have been determined as follows:

1. Executive Directors

Joint CEOs up to 120% of annual salary, Financial Director 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. 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 case may 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 2013 share scheme allocation was as follows:

  • 40% for retention (three years from date of award);
  • 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 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.

The measurement period was from 1 June 2013 to 31 May 2016.

  • 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.

In line with the criteria being met in all respects, vesting of the 2013 share scheme allocations fell due on 31 August 2016. The vesting of these awards was postponed due to the Company trading under a Cautionary Announcement with regard to the subscription of shares in Cell C Proprietary Limited. The cautionary was, however, withdrawn on 18 October 2016 and accordingly the 2013 share awards vested on that date.

The financial performance criteria for the forfeitable shares allocated in 2014 and 2015 to Senior Management will be measured at subsidiary level as opposed to Group level.

The vesting criteria for the forfeitable shares allocated in September 2016 to Executive Directors are as follows:

  • 33.33% for retention (three years from date of award);
  • 66.67% financial (33.33% for growth in core headline earnings per share and 33.33% based on shareholder returns);
  • The 33.33% for growth in core headline earnings per share is based on the following achievements:
    • If growth is 5% above CPI compounded annually over three years, then 20% of the 33.33% 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 33.33% would vest. If growth is between 5% and 10% above CPI over the three years then the additional 50% will be reduced on a pro-rata basis.
    • If growth is 25% above CPI compounded annually over three years, then a further 30% (i.e. a total of 100%) of the 33.33% will vest. If growth is between 10% and 25% above CPI over the three years then the additional 30% will be reduced on a pro-rata basis.
  • The 33.33% for shareholder return is 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.

The measurement period is from 1 June 2016 to 31 May 2019.

The vesting criteria for the forfeitable shares allocated in September 2016 to Senior Management are as follows:

  • 40% for retention (three years from date of award); and
  • 60% financial (30% for growth in core headline earnings per share and 30% based on shareholder returns).
  • The 30% for growth in core headline earnings per share is based on the following achievements:
    • If growth is 5% above CPI compounded annually over three years, then 20% of the 30% 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 30% would vest. If growth is between 5% and 10% above CPI over the three years then the additional 50% will be reduced on a pro-rata basis.
    • If growth is 25% above CPI compounded annually over three years, then a further 30% (i.e. a total of 100%) of the 30% will vest. If growth is between 10% and 25% above CPI over the three years then the additional 30% will be reduced on a pro-rata basis.
  • The 30% for shareholder return is 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.

The measurement period is from 1 June 2016 to 31 May 2019.

Outperformance bonus

This bonus, awarded in shares, is earmarked for members of the Executive Committee and will be based on the growth in the share price as follows:

  • Should the share price increase by 20% or more, the bonus will equate to 50% of the employee’s annual cost-to-company remuneration.
  • Should the share price increase from between 15% and 20%, the employee will be entitled to a pro-rata share of this bonus.
  • No outperformance bonus will be awarded if the growth in the share price is less than 15%.

The quantum of shares to be awarded will be calculated on an annual basis at the end of each financial year and at the ruling share price at that date. 50% of the award will vest one year later and a further 50% one year thereafter, on the proviso that the recipients remain in the employ of the Company throughout the relative vesting periods.

The Remuneration Committee has the right to exercise its discretion from time to time in the awarding of all of the above incentive bonuses as well as the awarding and vesting of shares pertaining to the forfeitable share scheme. The exercising of this right only occurs in exceptional circumstances in which the committee believes that a change in policy is merited.

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 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 or outperformance bonus 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. There were no services contracted with Non- Executive Directors during the year, as is reflected on Note 5 of the integrated annual report.

The Board resolved at its meeting held on 28 June 2016 that Non-Executive Directors’ remuneration be increased for the 2017 financial year by 6.5%, 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)       R946 858       R1 008 404  
– Board members (per meeting)       R43 353       R46 171  
Audit, Risk and Compliance Committee (per meeting)                  
– Chairman       R60 212       R64 126  
– Member       R36 128       R38 476  
Remuneration and Nomination Committee (per meeting)                  
– Chairman       R48 170       R51 301  
– Member       R28 903       R30 782  
Investment Committee (per meeting)                  
– Chairman       R36 128       R38 476  
– Member       R21 677       R23 086  
Transformation, Social and Ethics Committee (per meeting)                  
– Chairman       R36 128       R38 476  
– Member       R21 677       R23 086  
Ad hoc Committee (per meeting)                  
– Chairman       R36 128       R38 476  
– Member       R21 677       R23 086  


On behalf of the Remuneration Committee:
GD Harlow
Chairman
9 November 2016