Vodacom

Remuneration report

Meetings

The RemCo had four formal meetings during the year. Beside these meetings, there were frequent discussions by conference call. The main agenda items and discussion points at the formal meetings were as follows:

Section 1

Remuneration policy

This section of the report sets out Vodacom’s remuneration policy for non-executive directors, executive directors and prescribed officers. It describes how the policy has been implemented and what we consider when determining our policy, and it provides a description of each of the reward elements we offer to our executives and employees. We also disclose payments made to non-executive and executive directors and prescribed officers during the year under review.

Our overall reward philosophy ensures that executive directors and other executives are fairly rewarded for their individual contribution to the Group’s operating and financial performance. Individual performance is determined through our talent and performance management processes, the outcome of which influences the award of short- and long-term incentives.

Each element of our remuneration structure is aligned to shareholder value and appropriately linked to our business strategy.

Vodacom reward framework

The objective of Vodacom’s reward programme is to support the Group in attracting and retaining high quality talent, while at the same time motivating individual and team performance that drives stakeholder value.

Vodacom’s reward framework comprises financial and non-financial elements and is applied to all employees, including the Group’s executive directors and prescribed officers.

We adopt a holistic approach to reward encompassing the following elements:

• Guaranteed package which includes basic salary and benefits;
• Variable remuneration which includes short- and long-term incentives;
• Various recognition programmes;
• Growth and development opportunities for all our employees;
• Progressive talent management programmes; and
• Well-designed wellness programmes.

Summary of our remuneration structure

The RemCo reviews the total pay mix of executives every year and decides on the proportion of total remuneration paid as part of the guaranteed package, or as short- and long-term incentives. Each element is linked to creating shareholder value and the strategic progress made in the year. The RemCo reviews targets and the on-target values for each element every year to ensure that it remains relevant, drives the right behaviours, and enhances overall shareholder value.

The pay mix for the CEO and prescribed officers is shown below:

Reward benchmarking

Fair and competitive reward is vital to being an employer of choice. Our executive remuneration is benchmarked against data provided by national remuneration surveys, as well as information disclosed in the directors’ remuneration reports. Our RemCo reviews peer group data from the JSE telecommunications, ICT sectors and other listed companies, using a weighted combination of market capitalisation, turnover, capital assets and number of employees, when setting the total remuneration and the guaranteed packages of executives.

Drawing comparisons with these sectors mitigates the risk of losing skilled executives to competitors and is useful in setting the Group’s remuneration strategy.

For benchmarking below Executive levels, Vodacom uses market information from PwC Remchannel for our South African market and Mercer Global Remuneration Solutions for our non-South African operating markets.

Guaranteed package (GP)

Vodacom applies a total cost to company philosophy referred to as the guaranteed package. All employees, including executive directors, receive a GP based on their roles, individual performance and Group performance. Within the context of this GP, Vodacom offers a selection of benefits that are both best practice and compliant with legislative practices. All contributions to retirement, risk and insured benefits and healthcare benefits are included in the GP.

We do our annual pay review on the 1st of July each year taking into account the changes in the economic environment and movements in the external market. Increases in the GP for employees are based on a review of market information, consideration of individual performance and pay levels, and the business priorities of the Group.

All permanent employees, including executive directors and prescribed officers, are required to join the Vodacom Group Pension Fund, a defined contribution pension fund. Executives also participate in the Vodacom Group Executive Provident Fund, which is also a defined contribution fund. Employees have the option to choose their level of contribution to the pension fund, and also have the option to choose where they would like their money to be invested based on their own individual risk profile. Contributions are based on pensionable salary, which is defined as 70% of GP.

Besides the retirement fund contributions, lump sum contributions may also be made as part of the short-term incentive payment.

The normal retirement age for executive directors and other executives is 60 years. For all other employees it is 65 years.

Employees can choose to participate in a nominated medical aid scheme. Although membership of a medical aid scheme is voluntary, we always urge employees to carefully consider the risk of any major medical expense. The nominated schemes available to choose from were chosen for cost effectiveness and to address the needs of the diverse Vodacom workforce. Vodacom does not offer post-retirement medical benefits and has no such liabilities.

In the unfortunate event of an employee’s death, we will make sure that their dependants and beneficiaries are well taken care of. The employee’s beneficiaries will receive a lump sum amount of three times the employee’s annual pensionable salary (core cover). If the employee had a qualifying spouse and/or qualifying children upon death, a spouse’s pension of 40% of monthly pensionable salary and a child’s pension of 10% of monthly pensionable salary becomes payable. The scheme also covers the costs of children’s education.

All employees have the option to select additional death cover of up to seven times their annual pensionable salary, inclusive of the compulsory core cover of three times annual pensionable salary. These additional contributions are calculated as a percentage of pensionable salary.

In the event that an executive or an employee becomes unable to perform their duties as a result of disability, they will receive a monthly income of 75% of their monthly pensionable salary. The disability premiums are also funded from the GP.

All employees, including executive directors and prescribed officers, with the exception of those employees who are on a commission, quarterly or bi-annual bonus structure, participate in an annual short-term incentive plan. Incentive payments are discretionary, and payments made under the plan are dependent on both business and personal performance. Payments are delivered in cash in June each year after finalisation of Vodacom Group’s consolidated annual financial results and no deferral is applied.

Short-term incentives (STI)

Our incentive plans used to reward the performance of our executive directors, prescribed officer and senior managers include measures linked to our key performance indicators. The bonus pay-out for the 2016 financial year was dependent upon performance across three financial measures (service revenue, EBITDA and adjusted free cash flow) and one strategic measure (customer appreciation assessment). The financial measures each have an equal weight of 20% and customer appreciation 40%. The customer appreciation assessment was based on a market-by-market assessment of measures, including NPS performance, relative revenue market share and brand consideration.

The weighting for each measure is detailed below:

As in previous reports, we will disclose the details of our STI targets; however, as these are commercially sensitive, we will only disclose the targets in the report following completion of the financial year.

The on-target and bonus cap percentages are set out below:

Where annual targets are achieved in full, 100% of the on-target bonus will be paid. In instances where target goals are exceeded, more than 100% of the on-target bonus is paid, but in all cases the cash bonus is capped at a percentage of the GP. Where the bonus targets are not achieved in full, a pro rata bonus is paid only if the threshold performance level has been achieved.

The business performance multiplier ranges from 0% to 200%, and the personal multiplier from 0% to 150%. The personal performance multipliers are based on the performance of executives relative to their objectives. For the CEO, only a business multiplier is applied and follows the approach adopted by Vodafone for large market CEOs within the Vodafone Group. The financial and non-financial targets, as set by the RemCo, are used for the calculation of the business performance multiplier.

The Group business performance multiplier is used for the CEO and executive directors. For prescribed officers, the business performance multiplier is based on a weighted average of the multipliers for the relevant operating company and the Group.

STI pay-out

In the table below we disclose our achievement against each of the performance measures for the Group performance multiplier for the financial year ended
31 March 2016.

The comparable performance for the prior financial year that ended 31 March 2015 was 50.9%.

Long-term incentive (LTI)

It is critical for the company to retain skills and to motivate and incentivise executive directors and other employees over the longer term. LTIs support the company to meet these objectives, which are crucial to sustainable performance.

Vodacom Forfeitable Share Plan (FSP)

The FSP was introduced in 2009 and is our main long-term incentive plan. Although it is focused on executives and senior management, other employees may be selected to participate. Non-executive directors are not eligible to participate.

The purpose of the FSP is to provide executives and other selected employees with the opportunity to earn shares in Vodacom Group Limited, by way of a forfeitable share award. This means that participants receive shares (including dividend and voting rights) on the date of the award, but those shares are subject to restrictions and risk of forfeiture during a three-year vesting period. FSP awards are granted annually.

Awards are made to qualifying staff using a combination of Vodacom and Vodafone performance and retention shares.

1. The CEO participates in a co-investment arrangement for Vodafone shares described in more detail on click here.

The portion of the forfeitable award which is subject to meeting performance targets is weighted as follows for the current outstanding awards:

The vesting percentage of the June 2013 allocation for executive directors and prescribed officers is 90.2% of target.

Award levels

For the CEO, executive director and prescribed officers, the standard on-target value of FSP awards (as a percentage of GP at target level) is reflected in the next table. For executive directors and prescribed officers, the standard awards may be multiplied by 0% to 200% to set an annual award, based on the performance and potential of the individual.

Vesting of awards

For executive directors and prescribed officers, the vesting of awards with performance conditions is 20% at threshold, 50% at target, and up to 100% at maximum performance.

Vodafone Performance Share Plan

The CEO and the prescribed officers participate in the Vodafone Performance Share Plan. This plan has two performance conditions: adjusted free cash flow and relative total shareholder return (TSR) against a peer group median. Vesting is based on meeting these conditions after a three-year performance period.

This is to provide alignment and synergy with the Group’s parent company Vodafone Group Plc, which the RemCo believes is also in the interests of the Vodacom Group’s shareholders. The portion of total variable pay (STI and LTI) related to Vodafone performance is not excessive for the prescribed officers and the Group’s own performance remains the critical driver of variable pay.

Shareholding guidelines

The Board wishes to encourage individual shareholding in the Company by executives, as a tangible demonstration of their commitment to the Group and to align with shareholder interests. Executives are thus required to hold the following minimum personal shareholdings:

The CEO is required to make substantial investments in company shares to qualify for his co-investment share awards, as described previously, and as a result he is not covered by these shareholding guidelines.

As an incentive to exceed the minimum requirements, additional awards of FSP performance shares will be made to executives who exceed the minimum requirements over a three-year vesting cycle, being six years. The participants will be granted a performance share for every three additional shares held. This award will be capped so that holdings of no more than double the minimum requirements will be recognised. The time period over which the executives are permitted to build up this shareholding is based on the vesting of three cycles of the annual awards under the FSP plan.

Executive contracts and policies

Executives have permanent employment contracts with six-month notice periods, which came into effect in November 2009. Prior to this, executives had a two-year rolling contract, entitling them to one year’s guaranteed pay for every four years of service up to a maximum of 16 years on termination of employment (conditional benefit). This benefit was subject to a 12-month notice period.

The benefit that accrued up to 26 November 2009 was based on the number of years of service payable on termination of employment. Apart from money market interest, no further termination benefits accrued after this date.

Executives who have a conditional benefit in terms of their previous service contract had the option to convert a portion or all of their benefit to shares for the purpose of meeting the shareholding guidelines. These shares (‘restricted shares’) are subject to the same conditions as those of the underlying conditional benefit. The majority of our executives have converted their benefits.

The YeboYethu Employee Participation Trust (YeboYethu)

In July 2008, YeboYethu acquired 3.44% of Vodacom South Africa in our R7.5 billion BBBEE transaction. All permanent South African employees were able to participate in the Trust. Of the 1.875 billion units available to the Trust, 75% was allocated to employees on 1 September 2008. The remaining 25% was set aside for future employees on a sliding scale over the next five years. On 1 September 2014, the last of the available units were allocated to employees. The allocation is weighted 70/30 in favour of black employees.

The units will be converted into YeboYethu shares in March 2019.

Non-executive directors

Our business benefits from active non-executive directors who do a lot more than attend meetings. Non-executive directors, therefore, receive a yearly fee for their services on the Board and committees rather than a fee for meetings attended.

The Board considered the King III recommendation that fees for non-executive directors comprise a base fee, as well as an attendance fee per meeting. In light of the current non-executives’ attendance record it has been decided not to change the current policy of a set annual fee. This policy will be reviewed annually with due consideration of attendance records.

If non-executive directors are requested to leave there is no contractual compensation for loss of office. Non-executive directors do not receive short- or long-term incentives.

Our memorandum of incorporation states that shareholders must approve these fees at the AGM.

The annual fee paid to the Chairman of the Board includes all committee fees.

Shareholding

Details of the beneficial interests of directors and prescribed officers in the Company’s ordinary shares, excluding interests in the long-term incentive plans, are set out in the directors’ report online on www.vodacom.com.

Funding of share plans and dilution

Details of the shares used for the FSP and the related dilution are set out in the consolidated annual financial statements and the directors’ report, which is available on www.vodacom.com. All awards granted under the FSP are settled through the purchase of treasury shares or shares purchased in the market and not by newly issued shares.

Section 2

2016 Remuneration tables

In this section we summarise the actual remuneration packages paid to our Executive directors and Prescribed officers compared to 2015. The annual guaranteed package for Executive directors and Prescribed Officers are set out in the tables below. These amounts are based on the annualised value of the monthly package in March 2016.

1. Appointed 1 August 2015.
2. Appointed 16 November 2015.

Remuneration tables¹

Long-term incentives and benefits

Details of the conditional benefits and long-term incentives at 31 March 2016 are disclosed below:

Payments to non-executive directors