INTRODUCTION

The remuneration report provides an overview and understanding of Remgro’s remuneration principles, policy and practices with specific reference to executive and non-executive directors and members of the Management Board. The information provided in this report has been approved by the Board on recommendation by the Remuneration and Nomination Committee.

REMUNERATION AND NOMINATION COMMITTEE

The functioning of this dedicated Board committee is well established within Remgro’s mode of operation. In essence it is the committee’s role to ensure that directors and executives are remunerated fairly and responsibly and that the disclosure of directors’ remuneration is accurate, complete and transparent.

The committee is governed by a mandate that incorporates the recommendations of King III and serves to assist members of this committee in the execution of their role and responsibilities.

The members of the committee for the year under review were:

• Mr J P Rupert (chairman)
• Mr P K Harris
• Mr G T Ferreira
• Mr F Robertson

The Board acknowledges the principle in King III that the Chairman of the Board should not be the chairman of the Remuneration and Nomination Committee but, given the necessity to align the Company’s remuneration approach with corporate strategy, this arrangement is deemed appropriate.

The committee met once during the year and details on the attendance of the meeting are set out in the Corporate Governance Report here.

The terms of reference set out in the mandate of the committee include the following:

In respect of its nomination function –

• Assist the Board with the process of identifying suitable candidates for appointment as directors
• Ensure the establishment of a formal and transparent process for the appointment of directors
• Oversee the development of a formal induction pro­gramme for new directors
• Ensure that formal succession plans for the Board, Chief Executive Officer (CEO) and other Management Board members are developed and implemented

In respect of its remuneration function –

• Oversee the setting and administering of remuneration of all directors, Management Board members and other employees
• Oversee the establishment of a remuneration policy
• Advise on the remuneration of non-executive directors
• Ensure that the remuneration, in cash, share appreciation rights (SARs) and other elements, meets Remgro’s needs and strategic objectives
• Oversee the preparation and recommending to the Board the remuneration report to be included in the In­tegrated Annual Report

The committee is satisfied that it has carried out its responsibilities for the year in compliance with its mandate.

REMUNERATION APPROACH

Remgro has a Remuneration Policy for directors and members of the Management Board. The remuneration policy is aligned with the Company’s approach of rewarding directors and senior executives fairly and competitively, according to their capabilities, skills, responsibilities and level of performance. It aims at supporting the Company’s remuneration principles of:

• Retaining the services of existing directors and senior management

• Attracting potential directors and senior managers
• Providing directors and senior management with remu­neration that is fair and just
• Ensuring that no discrimination occurs
• Recognising and encouraging exceptional and value-added performance
• Ensuring that remuneration structures are consistent with the Company’s long-term requirements
• Protecting the Company’s rights by means of standard contracts of employment

It should be noted that, as in the past, the Board will not ask shareholders for non-binding approval of the Company’s remuneration policy at the Annual General Meeting on 25 November 2014.

EXECUTIVE DIRECTORS AND MEMBERS OF THE MANAGEMENT BOARD

These employees are rewarded by means of a two-tier approach in Remgro’s remuneration structures which entails:

Fixed pay

This element, referred to as total guaranteed package, consists of components such as salary, cash or car allowance and the Company’s contributions towards retirement funding and the medical aid scheme.

As part of the annual review process by the Remuneration and Nomination Committee (the committee), guaranteed packages are benchmarked against the upper quartile of the market for comparable companies as indicated per independent survey(s). The services of an independent remuneration consultancy are contracted for this purpose.

The annual review is based on the executive’s level of responsibility, his/her overall performance and the achievement of specific agreed objectives. The CEO, who attends all committee meetings by invitation, can propose increases to the guaranteed packages, excluding his own, during such review meetings.

The average salary increases paid to executive directors and members of the Management Board during the year under review was 7.5% (2013: 21.0%), compared to an average salary increase paid to general staff of 7.1% (2013: 7.1%). As previously reported, the main reason for the higher average increases awarded to executive directors and members of the Management Board compared to that of the general staff in 2013, were the once-off adjustments to the guaranteed packages of Messrs Jannie Durand and Leon Crouse, thereby reflecting their increased responsibilities following the appointment of Mr Durand as CEO on 7 May 2012.

Variable pay

It is important to note that, due to the nature of the Company’s operation as an investment holding company and in order to align the interests of management with those of shareholders, no short-term incentives are paid to executives.

Remgro currently has one long-term incentive plan, i.e. the Remgro Equity Settled Share Appreciation Right Scheme (the SAR Scheme). The SAR Scheme is an equity settled scheme and has the aim of retaining the services of executives by incentivising them based on long-term growth in the market capitalisation of the Company. This approach ensures alignment between personal wealth creation and corporate strategy. All permanent employees of the Company participate in the SAR Scheme.

Participants in the SAR Scheme are remunerated with Remgro shares to the value of the appreciation of their rights to a specific number of Remgro ordinary shares that must be exercised within a period of seven years after the grant date. The earliest intervals at which the SARs are exercisable are as follows:

• One-third after the third anniversary of the grant date
• Two-thirds after the fourth anniversary of the grant date
• The remainder after the fifth anniversary of the grant date

No specific performance criteria are stipulated. Awards to executives in terms of the SAR Scheme are made from time to time by the committee and such awards are usually based on a multiple of the total guaranteed package.

No award will be made to a single participant if at the time of or as a result of the making of such grant, the aggregate number of Remgro ordinary shares in respect of which any unexercised SARs granted to the participant may be exercised, shall exceed 2 197 399 Remgro ordinary shares.

Similarly, no award will be made if at the time of or as a result of the making of such grant, the aggregate number of Remgro ordinary shares in respect of which any unexercised SARs may be exercised, shall exceed 21 000 000 Remgro ordinary shares.

For detail of the current status of awards that were made to executive directors and members of the Management Board in terms of the SAR Scheme, click here.

If it is assumed that all of the participants to the SAR Scheme exercise all options awarded to them on 1 July 2014, Remgro will have to deliver 2.1 million shares in order to settle its obligations. This calculation is based on Remgro’s closing share price on 30 June 2014 of R230.00. A 10% increase or decrease in the Remgro share price will require the number of shares to be delivered to be 2.3 million shares and 1.8 million shares, respectively.

At 30 June 2014 Remgro held sufficient treasury shares to settle its obligations to deliver shares to the SAR Scheme participants.

Contracts of employment

Executive directors and members of the Management Board do not have fixed-term contracts, but are employed in terms of the Company’s standard contract of employment. The notice period for termination of service is one calendar month and the normal retirement age is 63. Executive directors and members of the Management Board also do not have exceptional benefits associated with the termination of their services.

NON-EXECUTIVE DIRECTORS’ REMUNERATION

Independent non-executive directors

Independent non-executive directors do not have any employment contracts and do not receive any benefits associated with permanent employment. Furthermore, they do not participate in the Company’s long-term incentive plan.

The Board, on recommendation by the Remuneration and Nomination Committee, has decided that independent non-executive directors should not be remunerated by means of a base fee and attendance fee in respect of their Board and committee obligations. The fee payable to non-executive directors will thus, as in the past, be a fixed annual fee. The fee structure is reviewed annually on 1 July subject to prior approval by shareholders at the Company’s Annual General Meeting. The fees are market related and take into account the nature of Remgro’s operations. Remgro also pays for all travelling and accommodation expenses reasonably and properly incurred in order to attend meetings.

The annual fees payable to independent non-executive directors for the period commencing on 1 July 2013 were approved by shareholders on 3 December 2013.

Non-independent non-executive directors

Previously Remgro had four non-independent non-executive directors, i.e. Mr  J P Rupert, Dr E de la H Hertzog, as well as Messrs P E Beyers and J Malherbe. Effective 31 August 2012, Dr Hertzog retired from his executive role at Mediclinic International Limited (Mediclinic), while Mr Beyers retired from the Remgro Board on 31 January 2013.

Until his retirement Dr Hertzog’s remuneration was borne by both Mediclinic (65%) and Remgro (35%). A portion of the latter, as approved by shareholders annually, was regarded as director’s fees. Similarly Mr Beyers received a salary of which a portion was also regarded as director’s fees and approved annually by shareholders. Since his retirement Dr Hertzog receives an annual director’s fee similar to that paid to independent non-executive directors. Mr Rupert receives no emoluments from Remgro, while Mr Malherbe also receives an annual director’s fee similar to that paid to independent non-executive directors.

In terms of King III and the JSE Listings Requirements, a director shall not be regarded as independent if he has been employed by the Company or the Group in any executive capacity during the preceding three financial years. Accordingly, Dr Hertzog is still regarded as a non-independent non-executive director.

Until their retirement Dr Hertzog and Mr Beyers, in addition to their duties as non-executive directors, represented the Company on the boards of certain investee companies.

As in the case of independent non-executive directors, these directors do not participate in the Company’s long-term incentive plan. It should, however, be noted that, subsequent to the acquisition of VenFin Limited during November 2009, Remgro SARs were awarded to Mr J Malherbe to compensate him for the cancellation of the VenFin Share Appreciation Right Scheme. Mr Malherbe does not qualify for any further allocation of SARs.

Details of the remuneration paid to executive directors and fees paid to non-executive directors for the year under review, are set out on the following page. The current status of all offers made to the above groups in terms of the SAR Scheme is also presented.

The information for Messrs N J Williams and P J Uys, who are members of the Management Board and also prescribed officers in terms of the Companies Act, are presented separately.