Remuneration report

The Committee meets biannually and attendance for the year is shown on page 97 of the Corporate governance report.

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

•	T Brewer
•	HR Levin (Chairman)
•	APH Jammine
•	SJ Vilakazi

T Brewer, APH Jammine and SJ Vilakazi are all independent non-executive directors. HR Levin is not an independent non-executive director, however, the Board has deemed his position appropriate given his extensive commercial and business experience, knowledge and skills. A review has also been conducted based on consultation with external advisors and a detailed review of the composition of Boardcommittees by the Nominations Committee, which confirmed that the composition of the Committee is in accordance with governance principles and represented no material conflict of interest.

The Group Chief Executive Officer (CEO) and the Group Human Resources Director attend Remuneration Committee meetings by invitation and are not present when matters relating to their own remuneration are discussed. The Group Company Secretary or other approved nominee acts as the secretary for the Committee.

The role of the Committee is set out in its terms of reference and includes the following:

•	Developing and implementing a philosophy on remuneration practices within the Company;
•	Making recommendations to the Board in respect of the general remuneration strategy for the Company;
•	Ensuring competitive reward strategies and programmes are in place to facilitate the attraction, retention and motivation of senior executives and managers in support of the Company’s strategic objectives;
•	Approving the criteria for assessing performance of executive directors and executives;
•	Appraising the performance of the Group CEO annually and determining the appropriate level of remuneration in respect of the Group CEO and his direct reports;
•	Monitoring and reporting to the Board in respect of outcomes of the remuneration review for executives;
•	Reviewing and making recommendations to the Board on the level of remuneration for non-executive directors; and
•	Suitable benchmarking of remuneration.

Remuneration Committee members have full access to all financial information contained in the books and records of the Company, including personnel records for those employees for whom the Committee makes remuneration recommendations.

The Committee may appoint external consultants for the purpose of obtaining salary survey information and for assisting in the conduct of any review. The Committee may also consult with the Company’s attorneys and its auditors where necessary. In addition, the Committee is empowered to obtain the assistance of the Group Human Resources Director in obtaining relevant information.

During the year under review the Committee secured the assistance of independent external consultants and advisors from a tax, financial, governance and legal background to review the Forfeitable Share Plan (FSP) in SA to ensure its technical accuracy and reasonableness in respect of performance targets, awards and vesting periods. To ensure that the requisite opinions and feedback was in place with regard to the FSP’s accuracy and efficacy, and more specifically its adherence to governance principles, the implementation of the FSP was delayed to December 2012. This is notwithstanding approval having been procured on 28 January 2012.

It has been confirmed that the awards are reasonable in terms of performance targets and quantum. The detail on the targets and quantum will be provided in the annual integrated report for the year ended 30 September 2013.

It should be noted that the governance of this share scheme is monitored by the Remuneration Committee and any variance or deviation from the remuneration policy and share schemes can only be approved by the Remuneration Committee.

The Remuneration Committee also endeavours to ensure suitable oversight over guidelines underpinning the other share schemes of the Company as and when it is deemed necessary. If further awards are made to executives in terms of the Netcare Share Incentive Scheme, this will also receive the requisite review by the Remuneration Committee.

The remuneration policy is aimed at encouraging sustainable performance based on a values-driven organisational culture and providing incentives for employee attraction, motivation and retention. The demands of the business dictate that Netcare should at all times attract and have in its employ exceptional individuals who perform at the highest level. Remuneration, reward and recognition play a key role in this process and is inculcated in the remuneration policy outlined below.

The remuneration policy has the following main objectives:

•	Recruiting and retaining high quality employees in order to achieve Netcare’s strategic goals;
•	Ensuring that all employees are recognised and rewarded for their performance in a fair, equitable and consistent manner;
•	Adhering to legislative and regulatory requirements relating to remuneration policies in SA and the UK;
•	Ensuring that remuneration and benefits provided to employees are competitive within the healthcare industry;
•	Recognising the basic needs of employees and ensuring that compensation levels consistently address the cost of living and inflation;
•	Rewarding employees for achieving predetermined corporate, business unit and personal performance targets to ensure ongoing alignment with shareholder interests; and
•	Ensuring that employee costs are within budget as determined by the Group Executive Committee and are thus sustainable.

Netcare is committed to creating a strong performance culture which drives performance over and above the expectations of shareholders and the market in an active and responsible manner. Accordingly, incentive programmes are designed to reward individual, team and group performance and ensure the alignment of the efforts and outputs of management with the strategic objectives of the Company. The long-term sustainability of Netcare is an underlying principle in determining remuneration. The Remuneration Committee and Board are satisfied that the financial targets do not encourage an inappropriate level of risk taking to achieve the performance targets set.

The remuneration policy will be subject to a non-binding advisory vote at the annual general meeting of shareholders in February 2013.

Executive remuneration

The table below summarises the different remuneration elements of the executive directors’ and Executive Committee members’ packages.

Summary of executive remuneration structure

Element	Type	Objective	Basis for determination	Delivery method
Guaranteed package	Fixed	Reflects individual contribution and market value relative to role.	Based on the complexity of the role, market value, the employee’s personal performance and contribution to Netcare’s overall performance.	Monthly payments in cash after deducting contributions to retirement funding and medical aid.
Short-term incentives	Variable	Individual and Company performance related.	Combination of Company-specific financial targets, operational and strategic objectives, as well as individual performance targets.	Annual payment in cash subsequent to annual review.
Medium-term incentives	Variable	Alignment of shareholder interests with that of executives and retention of executives.	Linked to the Netcare share price and takes into account a minimum return over and above inflation and accordingly includes a suitable stretch target for executives.	Biannual payments if minimum future Netcare share price (strike price) has been reached.
Long-term incentives	Variable	Attracting and retaining executives.	Netcare Share Incentive Scheme Equity share-based scheme with share options vesting in equal amounts over five years commencing on the second anniversary of the grant date.	Delivered in Netcare shares over vesting period.
	Variable based on performance and retention	Attracting and retaining executives.	FSP Combination of performance-based share awards which are fixed to clearly defined performance targets which, if not met, result in the forfeiture of shares, and a retention-based award which serves to incentivise the executive to remain in the employ of the Company. Consistent with the rules of the scheme and the decision of the Remuneration Committee, the split in shares is awarded in favour of the performance-based targets as opposed to the retention-based awards.	Delivered in Netcare shares over vesting period with dividends being earned over the period.

Fixed remuneration

Guaranteed package

Netcare aims to remunerate its employees at the market median while taking into account individual responsibilities and performance. Guaranteed remuneration packages are benchmarked against the market every three to four years. Guaranteed pay includes salary, employee benefits (such as retirement funding and medical aid contributions), Group life cover, funeral cover and disability insurance.

Guaranteed remuneration is reviewed annually and increases take effect in March. Annual increases are performance and market related, taking into account factors such as the prevailing economic conditions, inflation, Company performance and affordability. Details of the executive directors and prescribed officers’ guaranteed package can be found in note 37 of the Group annual financial statements.

Variable pay

Short-term incentives

Executives and senior management participate in an annual short-term incentive plan which delivers a cash bonus based on Netcare’s achievement of financial targets and on strategic and personal performance objectives set annually. The Remuneration Committee approves the incentive targets annually, which are based on a combination of the following broad Company measurements combined with specific strategic objectives in SA:

•	A “gateway” to participation for all participants of an improvement to SA headline earnings per share of a minimum of 12.5% on the previous year;
•	Earnings before interest, tax, depreciation and amortisation (EBITDA);
•	Cash conversion and other financial and efficiency parameters;
•	Patient care feedback;
•	Staff satisfaction feedback;
•	Sustainability initiatives; and
•	Transformation targets.

The maximum bonuses that may be earned by executives and senior management as a percentage of total annual guaranteed package (excluding company contributions to retirement funding and medical aid as well as cellular phone allowances) are as follows:

•	Group CEO – 75%
•	Executive Committee members – 60%
•	Other executives/senior management – 50%

Medium-term incentives

The Executive Leveraged Bonus Scheme is a core element of the retention strategy of executives as it aligns executives’ interests with those of shareholders. The Remuneration Committee has, from time to time, approved awards under this scheme. The current scheme ran until 30 November 2012 and is not envisaged to be repeated.

Details of this scheme can be found in note 38 to the Group annual financial statements.

Details of the executive directors’ and prescribed officers’ phantom shares, vesting dates and strike prices are presented in note 37 to the Group annual financial statements.

Long-term incentives

Netcare Share Incentive Scheme

Long-term incentives are offered through participation in the Netcare Share Incentive Scheme, intended to reward improved, sustainable business performance and create alignment with shareholder interest over the longer term. Executives and senior management are given the opportunity to own shares in Netcare. Share options granted vest in equal amounts over five years commencing on the second anniversary of the grant date. Share options are granted at the discretion of the Remuneration Committee taking into account management’s recommendations.

Details of the Netcare Share Incentive Scheme can be found in note 38 to the Group annual financial statements. Details of the executive directors’ and prescribed officers’ share options in terms of the Netcare Share Incentive Scheme are presented in note 36 to the Group annual financial statements.

Forfeitable Share Plan (FSP)

The FSP provides greater benefits that are commensurate with recommended governance practice, when compared to the current schemes in place. The most significant benefit is the ability to derive dividends, which addresses immediate retention risk. The scheme is also characterised by strictly monitored performance targets. The FSP has been introduced as a long-term incentive for selected employees (participants) of the Company and remains subject to a maximum aggregate number of shares which may be allocated to designated participants.

Excepting the applicable securities transfer tax, and any associated tax and/or administrative costs payable, the participant will not be liable for any costs associated with shares awarded under the FSP.

The number of forfeitable shares subject to an FSP award made to an employee, and the mix between performance shares and retention shares, will primarily be based on the employee’s total cost to company, grade, performance, retention requirements and market benchmarks as determined by the Remuneration Committee.

In the event of termination or resignation of an employee, the FSP awards will be forfeited in its entirety and all rights will lapse immediately. However, the Remuneration Committee is entitled, in its sole and absolute discretion, to determine in writing that all or any part of the FSP awards is not forfeited. All FSP awards not subsequently issued to participants will revert to the FSP.

Dilution

The potential dilution that could occur if all the share options are implemented under the Netcare Share Incentive Scheme is addressed in note 30 to the Group annual financial statements.

Service contracts

Executive directors are not employed on fixed-term contracts and have standard employment service agreements with current notice periods of three months. RH Friedland is restrained from competing with Netcare for a six-month period should he terminate his employment with the Company.

Executive directors’ remuneration

The remuneration relating to the Company’s prescribed officers is in terms of the requirements of the Companies Act No 71 of 2008.

Summarised details of the executive directors’ and prescribed officers’ remuneration can be found in the table on the below.

Further details of the executive directors’ and prescribed officers’ remuneration can be found in note 37 to the Group annual financial statements.

Executive and prescribed officers’ remuneration
R000	Guaranteed package		Short and mediumterm incentives1		Total 2012		Total 2011
Executive directors
RH Friedland2	6 798		5 000		11 798		11 686
KN Gibson3	2 836		1 250		4 086
Prescribed officers
Prescribed officer A	2 631		1 400		4 031		3 669
Prescribed officer B	2 861		1 500		4 361		4 151
Prescribed officer C	2 631		1 300		3 931		3 899
Prescribed officer D4	202				202		326

Non-executive directors’ remuneration

Non-executive directors receive a fixed level of remuneration for their services based on their participation in Board meetings and other committees. King III requires non-executive directors to be paid an attendance fee and a base fee. Netcare has elected to pay the non-executive directors a fixed fee for services rendered, on the basis that the services of directors extend beyond the boardroom and are therefore not confined to attendance at meetings.

Non-executive directors do not qualify for participation in any share or incentive schemes.

The remuneration of non-executive directors is reviewed annually by the Remuneration Committee and recommendations for increases are made to shareholders at the annual general meeting for consideration and approval.

The non-executive directors’ fees for the year ended 30 September 2012 are shown in the table on the right, together with the fees for the year ended 30 September 2011, and the proposed fees for the year ending 30 September 2013. The average increase is approximately 6% which is consistent with the increasing demands faced by non-executive directors in respect of personal liability and ongoing regulatory demands.

Further details of payments made to non-executive directors for the years ended 30 September 2012 and 2011 can be found in note 37 to the Group annual financial statements.

Non-executive directors’ remuneration
Board/Committee position	2013 R000		2012 R000		2011 R000
Payable per annum
Board
Chairman	955		900		850
Member	490		460		430
Audit Committee
Chairman	160		150		140
Member	128		120		110
Remuneration Committee
Chairman	128		120		110
Member	90		85		80
Risk Committee
Chairman	128		120		110
Member	90		85		80
Nominations Committee
Chairman	128		120		110
Member	90		85		80
Social and Ethics Committee5
Chairman	128		120		110
Member	90		85		80
Quality Leadership Committee
Chairman	159		150		140
Member	127		120		110
Payable per meeting
Ad hoc committees	32		30		27

1 The short-term incentives include the amounts approved in respect of the 2011 financial year
which are payable in the following year.
2 RH Friedland has contributed in excess of 20% of his post-tax remuneration for the year
to a variety of charitable organisations and causes or to individuals in need of assistance.
3 Appointed 10 November 2011.
4 Effective 1 August 2011 and became executive director with effect 10 November 2011.
5 Previously Transformation Committee.

Summary of UK remuneration structure

The Remuneration Committee is currently chaired by Peter Warrener. The Committee reviews and sets General Healthcare Group’s (GHG) remuneration strategy, salary and benefit levels across GHG, to ensure competitiveness of remuneration. It also monitors the management of equity arrangements in place. The remuneration elements in the UK consist of the following:

Guaranteed package

The guaranteed package is similar to that of SA. The guaranteed remuneration is reviewed annually and increases take effect in October.

Short-term incentives

The short-term incentives are similar to that of SA.

The Committee approves the incentive targets annually, which are based on a combination of the following four key UK measurements combined with specific strategic objectives:

•	Revenue;
•	Earnings before interest, tax, depreciation and amortisation (EBITDA);
•	Cash; and
•	Patient satisfaction scores.

The maximum bonuses that can be earned by executives and management as a percentage of total guaranteed package excluding company contributions to retirement funding and medical insurance is as follows:

•	CEO – 75%
•	Executive Committee members – 50%
•	Cash; and
•	Senior management – 50%

Long-term incentives

Two equity-based long-term incentive programmes were in place for senior executives, both of which are now fully vested. A new cash-based long-term incentive scheme to cover the senior leadership in the UK has recently been approved by the Remuneration Committee.