Remuneration report

This report is presented by the Company’s Human Resources, Remuneration and Nominations Committee (the Committee), appointed by the Board in respect of the year ended 30 June 2016.

COMPOSITION AND MEETINGS
The Committee consists of four non-executive directors, three of whom are independent. Four Committee meetings were held during the year. The attendance of the Committee meetings was as follows:

Committee member Meeting attendance  
PM Makwana (Chairman) 2/2*  
R Morar 1/4  
L Ralphs 0/2*  
CD Raphiri 4/4*  
MI Sacks 4/4  
Invitees    
AG Hall 2/2*  
KB Wakeford 2/2*  
B Letsoalo (Human Capital Executive) 4/4  
*see changes to the Board

The Chairman of the Board chairs this Committee when constituted as the Nominations Committee.

ROLE AND FUNCTION OF THE COMMITTEE
The role and responsibilities of the Committee are governed by a formal Charter which is reviewed annually and approved by the Board. The following duties are assigned to it by the Board during the year under review:

• Assist the Board in determining remuneration and performance measures of executives and senior management;
• Determine the remuneration policy and appropriate human capital management policies;
• Review the terms and conditions, at least annually, of key executive service agreements;
• Oversee annual performance evaluation of the Board; and
• Assist the Board to ensure that the Board is appropriately constituted for it to execute its role and duties effectively and that directors are appointed through a formal, transparent process and the induction and ongoing training and development of directors takes place.
   

REMUNERATION PHILOSOPHY
Our remuneration philosophy is governed by the principles of equity, fairness and affordability. Its primary objective is to:

• Provide competitive and equitable remuneration based on an employee’s skills, performance and contribution to the group strategy;
• Attract, motivate and retain the talent necessary to attain the group objectives in line with organisational culture and values;
• Develop a sense of ownership and ensure employees’ interests are aligned to the shareholders; and
• Provide opportunities for the potential of greater financial and non-financial rewards to those who achieve excellent performance in their respective roles.

REMUNERATION STRUCTURE
Adcock Ingram has an integrated remuneration and rewards model which includes guaranteed remuneration, short-term incentives and long-term incentives.

All elements of remuneration are subject to periodic evaluation and are reviewed in line with:

• Healthcare industry;
• Market benchmarks and trends;
• Legislative framework; and
• Group performance.
The Remuneration Committee endeavours to ensure that each director and executives are remunerated fairly and responsibly and that the disclosure of a director’s remuneration is accurate, complete and transparent.
 

FOCUS AREA FOR 2015/2016

• The short-term incentives’ performance metrics entrenched across all Business Units ;
• Talent management and succession planning for executive team rolled out;
• Benchmarked remuneration policy against peer group;
• Addressed anomalies in different salary bands; and
• Reviewed long-term incentives as a retention and reward mechanism for key executives and managers.

FOCUS AREA FOR 2016/2017

• Implement development programmes for successors in line with transformation imperatives and business requirements;
• Cascade talent management and succession planning to the level below executives; and
• Review flexibility and relevancy of benefits to remain competitive in the industry.

ELEMENTS OF REMUNERATION
 GUARANTEED REMUNERATION

Remuneration consists of the following guaranteed components and is applicable to all levels in the organisation:

Basic salary
To attract and retain talented employees; reflects the scope and nature of the role; provide competitive pay and reward performance.

Management is given discretion to apply increases within a stipulated range to employees dependent on individual performance. Salaries are benchmarked annually.

The average increases for 2015/2016 were:

  SOUTH AFRICA  
  Bargaining unit 7.5% increase on 1 July 2015.
  All other employees 5.0%, effective 1 December 2015.
  INDIA 5.5%, effective 1 October 2015.
  REST OF AFRICA  
  Kenya No increase was granted.
  Zimbabwe No increase was granted.
  Ghana 10%, effective 1 October 2015.

Provident fund
Provide financial security and dignity to employees and their beneficiaries. The funds also provide death, disability and funeral benefits.

  SOUTH AFRICA  
  Bargaining unit Employee contribution varies from 7.0% to 7.5% of basic salary. The Company contribution varies from 10% to 11% of basic salary.
  All other employees Contributions are 18% of retirement funding income, which is set at not less than 75% of the total remuneration package but employees have a choice to increase the contribution.
  INDIA This is governed by statutory requirements in India. Contributions are currently 12% of basic salary at all levels.
  REST OF SOUTH AFRICA  
  Kenya Company contributions amount to 10% of basic salary. Employees can contribute voluntarily.
  Zimbabwe Company contributions are 15% of basic salary. Employees contribute 7% of basic salary
  Ghana The Company and the employees each contribute 5% of basic salary. There is also a provision for the statutory pension scheme where employees contribute 5.5% and the Company 13% of basic salary.

Medical aid
To cater for ill-health and hospitalisation.

  SOUTH AFRICA  
  Bargaining unit The Company contributes 50% toward the medical aid.
  All other employees The Company offers a range of independent medical aid schemes as choices for employees.
  INDIA Membership is compulsory. Employees are covered under group personal accident and group medi-claim.
  REST OF SOUTH AFRICA  
  Kenya Compulsory contributory medical scheme.
  Zimbabwe Compulsory contributory medical scheme.
  Ghana Employees rely on a statutory scheme (National Health Insurance) which provides cover in government institutions.

13th cheque
In accordance with the relevant settlement agreements, bargaining unit employees in South Africa receive 13th cheques.

VARIABLE (NON-GUARANTEED) REMUNERATION
Variable compensation is offered to attract and retain exceptional talent and to inculcate a culture of superb performance and achievement of strategic objectives.

Non-guaranteed remuneration in South Africa consists of the following:

• Sales commission;
• Short-term incentives; and
• Long-term incentives

  SALES COMMISSION  
  Qualification Sales employees.
  Objective Encourage achievement of sales targets.
  Methodology Sales employees are incentivised for achieving sales which are reviewed quarterly to ensure parity with business unit targets.
  Progress Approximately R30.6 million was paid towards sales incentives during the year.
  SHORT-TERM INCENTIVES  
  Qualification Executives, key management and other critical employees in the Group.
  Objective Motivates and rewards achievement of business and individual performance and keeps employees’ focus on the defined business imperatives whilst driving performance and retaining key talent.
  Methodology

Rewards employees for achieving key performance targets, based on Group and Business Unit metrics criteria, as agreed upon at the beginning of each financial year. These pre-determined performance targets for the 2016 financial year included:

• Return on funds employed;
• Trading profit;
• Service level agreements;
• Order infill rate; and
• Expense management.
  Progress During the year under review targets were achieved and approximately R27 million will be paid to 46 qualifying employees in September 2016.
  LONG-TERM INCENTIVES  
  Qualification Various share options schemes exist in the Group and have been implemented for specific purposes.
  Objective

Drive sustainable longer term performance;

Retention of critical skills by linking performance to long-term value creation;

Instil loyalty and ownership by aligning interest of key employees to those of the Group and shareholder interest; and

Reward participants for medium to longer term Company performance.
  Performance metrics No performance metrics are applicable.
  Methodology This differs from scheme to scheme as detailed below.

Long-term incentives

  EQUITY  
  Qualification Executives, key management and other critical employees in the Group.
  Number of participants 42
  Vesting One-third of the options becoming vested on each of the third, fourth and fifth anniversaries of the relevant grant date.
  Expiry Ten years from the grant date if not exercised.
  PHANTOM  
  Qualification Executives, key management and other critical employees in the Group.
  Number of participants 55
  Vesting One-third of the options becoming vested on each of the third, fourth and fifth anniversaries of the relevant grant date.
  Expiry Six years from the grant date if not exercised.
  TIGER BRANDS BLACK MANAGERS SHARE TRUST
  Qualification In terms of the Tiger Brands Limited BEE transaction implemented in 2005, vested rights were issued to black managers of the Tiger Brands Group (which at that time included the Adcock Ingram Group).
  Number of participants 201 remaining participants with 478 845 Tiger Brands share allocations, and 203 participants with 525 164 Adcock Ingram share allocations.
  Vesting One-third of the options becoming vested on each of the third, fourth and fifth anniversaries of the relevant grant date but are subject to various lock-in periods.
  Expiry September 2027
  MPHO EA BOPHELO
  Qualification In 2011, Adcock Ingram concluded a R1.3 billion BBBEE transaction. All permanent black South African employees were able to participate in the scheme. In July 2015 a revised scheme, was concluded adhering to the same principles and qualification criteria.
  Number of participants Of the initial scheme, 2 001 employees of which 379 forfeited their allocations and 240 employees already benefited. 1 765 employees participate in the modified scheme.
  Vesting Depending on grant date, vesting could be up to four years with a lock-in period of four years.
  Expiry The scheme would end either in 2023 or in 2024 depending on whether the trust takes up option of another year.

EMPLOYEE TYPES

PERMANENT EMPLOYEES   BARGAINING UNIT EMPLOYEES
Permanent employees receive a total remuneration package which is reviewed annually.
Pay increases are determined according to:
• relevant experience and expertise
• market benchmarks
• Company performance
• CPI; and
• affordability
  51% of employees in South Africa belong to bargaining units. Remuneration is based on annual negotiations between the companies in the Group and the respective unions. A 7.5% increase, effective 1 July 2016, was agreed in South Africa
     
FIXED TERM CONTRACT EMPLOYEES   TEMPORARY WORKERS
Employees on fixed term contracts receive a total remuneration package which is similar to permanent employees at the same level   These individuals are occasionally required by certain business units in order to cope with supply demands during peak periods and are remunerated on an hourly basis

REMUNERATION
 TOP THREE EARNERS

The following resolution has been taken by the Board:

“The Company will comply with the requirement of section 30(4) of the Companies Act to disclose remuneration of directors (non-executive and executive) in its annual financial statements and in the manner set out in sections 30(4)(b) to (e) of the Companies Act and with King III to the extent that it requires disclosure of the remuneration for the three most highly paid employees, who are not directors of the Company”.

In light of the individual remuneration information that is reported and the cost of revealing competitive information, the Board has resolved that it will report on the remuneration of the three highest earning persons (excluding the executive directors), collectively, rather than individually.

Remuneration

  2016
R’000		   2015
R’000		  
Salary 7 907   7 606  
Contributions to defined contribution plan 1 234   1 187  
Gross remuneration 9 141   8 793  

Short-term incentives
Based on the current year’s performance, the top three earners qualify for short-term incentives in the amount of R3 025 000. Full provision has been made for this amount in the current year although payment will only be effected in September 2016. An incentive of R2 750 000 was paid in September 2015, relating to the prior year’s performance, which was fully provided for at 30 June 2015.

KEY MANAGEMENT
Key management comprises the Executive Committee of the Group including the executive directors. As the executive directors’ details have been disclosed separately, these are excluded from the figures below. The details show the apportioned annual remuneration of key management, including the top three earners disclosed above, for the period the incumbents held the position during the year.

Remuneration

  2016
R’000		   2015
R’000		  
Salary 25 185   23 455  
Contributions to defined contribution plan 3 830   3 689  
Gross remuneration 29 015   27 144  

Short-term incentives
Based on the current year’s performance, key management qualifies for short-term incentives in the amount of R9 105 000. Full provision has been made for this amount in the current year although payment will only be effected in September 2016. An incentive of R8 650 000 was paid in September 2015, relating to the prior year’s performance, which was fully provided for at 30 June 2015.

Long-term incentives
Details of share options in Adcock Ingram granted to key management are as follows:

  Offer date   Offer
price
R		   Balance at the
beginning
of the year		   Issued
during
the year		   Change in
Executive
Committee
composition		   Balance
at the end
of the year		  
Equity 17/06/2014   52,20   636 000       (60 000)   576 000  
  03/11/2014   52,20   84 000   –   –   84 000  
  26/08/2015   41,94   –   654 000   (90 000)   564 000  
          720 000   654 000   (150 000)   1 224 000  
  Offer date   Offer
price
R		   Balance at the
beginning
of the year		   Exercised/
forfeited
during the year		   Change in
Executive
Committee
composition		   Balance
at the end
of the year		  
                         
Phantom 04/01/2010   51,12   71 524   (66 214)   (5 310)   –  
  03/01/2011   62,29   96 291   –   (14 773)   81 518  
  26/09/2011   60,38   29 811   –   –   29 811  
  03/01/2012   60,15   144 233   –   (19 000)   125 233  
  09/01/2012   60,15   14 963   –   –   14 963  
  01/05/2012   60,70   42 834   –   –   42 834  
  01/10/2012   59,56   26 666   –   –   26 666  
  02/01/2013   53,52   267 439   –   (31 177)   236 262  
  02/05/2013   60,55   79 273   –   –   79 273  
          773 034   (66 214)   (70 260)   636 560  

Details of options exercised are as follows:

  Offer date   Offer
price
R		   Weighted
average
exercise price
R		   Number
of
options		   Gain realised
on exercising
of options
R		 (1)


  
2016                      
Phantom 04/01/2010   51,12   53,67   13 855   35 283    
2015                      
Phantom 22/01/2008   34,69   70,67   20 329   731 437    
  01/10/2008   34,78   58,18   88 771   2 077 268    
  02/01/2009   33,38   58,18   104 801   2 598 701    
  04/01/2010   51,12   58,56   45 481   338 155    
              259 382   5 745 561    

(1) Amounts shown before taxation

The following charges were expensed in the statement of comprehensive income during the year under review, in terms of IFRS 2(2):

  2016
R’000		   2015
R’000		  
Total 4 066   2 955  

(2) The value of options granted is the annual expense in accordance with IFRS 2, and is presented for information purposes only, as it is not regarded as constituting remuneration, given that the value is neither received by nor accrued to the employee.

DIRECTORS’ REMUNERATION
EXECUTIVE DIRECTORS

The executive directors are currently regarded as the only prescribed officers of the Group.

Shareholding and other fees
 No shares were held in the Company in the current year. No fees for services as director, consulting or other fees were paid in the current or prior year. No profit-sharing agreements are in place.

AG Hall
Remuneration

  2016
R’000		   2015
R’000		  
Salary 3 608   3 134  
Contributions to defined contribution plan 644   680  
Gross remuneration 4 253   3 814  

Short-term incentives
Based on the current year’s performance, AG Hall qualifies for a short-term incentive in the amount of R2 300 000. Full provision has been made for this amount in the current year although payment will only be effected in September 2016. An incentive of R1 713 650 was paid in September 2015, relating to the prior year’s performance, which was fully provided for at 30 June 2015.

Long-term incentives
Details of share options granted in Adcock Ingram are as follows:

  Offer date   Offer
price
R		   Balance at the
beginning
of the year		   Issued/
Forfeited/
Exercised
during the year		   Balance
at the end
of the year		  
Equity 17/06/2014   52,20   175 000   –   175 000  
  26/08/2015   41,94   –   175 000   175 000  
          175 000   175 000   350 000  
Phantom 04/01/2010   51,12   76 744   (76 744)   –  
  03/01/2011   62,29   72 429   –   72 429  
  03/01/2012   60,15   79 507   –   79 507  
  01/05/2012   60,70   78 786   –   78 786  
  02/01/2013   53,52   96 057   –   96 057  
          403 523   (76 744)   326 779  

Details of options exercised are as follows:

  Offer date   Offer
price
R		   Exercise
price
R		   Number
of
options		   Gain realised
on exercising
of options
R		 (1)


  
2016                      
Phantom 04/01/2010   51,12   52,60   76 744   113 581    
2015 01/10/2008   34,78   57,40   33 572   759 399    
Phantom 02/01/2009   33,38   57,40   34 980   840 200    
              68 552   1 599 599    

The following charges were expensed in the statement of comprehensive income during the year under review, in terms IFRS 2(2):

  2016
R’000		   2015
R’000		  
Total 1 052   2 955  

(2) The value of options granted is the annual expense in accordance with IFRS 2, and is presented for information purposes only, as it is not regarded as constituting remuneration, given that the value is neither received by nor accrued to the director.

D Neethling
Remuneration

  2016
4 months
R’000		 (1)


  
Salary 865    
Contributions to defined contribution plan 135    
Gross remuneration 1 000    

(1) Appointed 23 February 2016

Short-term incentives
Based on the current year’s performance, D Neethling qualifies for a short-term incentive in the amount of R1 200 000. Full provision has been made for this amount in the current year although payment will only be effected in September 2016.

Long-term incentives
Details of share options granted in Adcock Ingram are as follows:

  Offer date   Offer
price
R		   Balance at the
end of the year		  
Equity 17/06/2014   51,20   60 000  
  26/08/2015   41,94   90 000  
          150 000  
Phantom 03/01/2011   62,29   14 773  
  03/01/2012   60,15   19 000  
  02/01/2013   53,52   31 177  
          64 950  

The following income was recognised in the statement of comprehensive income during the period under review, in terms of IFRS 2(2):

  4 months
2016
R’000		  
Total 140  

(2)The value of options granted is the annual expense in accordance with IFRS 2, and is presented for information purposes only, as it is not regarded as constituting remuneration, given that the value is neither received by nor accrued to the director.

KB Wakeford
Remuneration

  2016
6 months
R’000 		(1)


   2015
12 months
R’000		  
Salary 1 788     3 492  
Contributions to defined contribution plan 279     545  
Gross remuneration 2 067     4 037  

(1)Resigned 1 December 2015

Short-term incentives
Based on the prior year’s performance, KB Wakeford qualified for a short-term incentive in the amount of R2 000 000 which was paid in September 2015. Full provision was made for this in the prior year.

Long-term incentives
Details of share options granted in Adcock Ingram are as follows:

  Offer date   Offer
price
R		   Balance at the
beginning
of the year		   Issued
during
the year		   Forfeited
during
the year		   Balance
at the end
of the year		  
Equity 17/06/2014   52,20   200 000   –   (200 000)   –  
  26/08/2015   41,94   –   200 000   (200 000)   –  
          200 000   200 000   (400 000)   –  

The following (income)/charges were (recognised)/expensed in the statement of comprehensive income during the year under review, in terms of IFRS 2(2):

  2016
R’000 		  2015
R’000		  
Total (939)   939  

(2)The value of options granted is the annual expense in accordance with IFRS 2, and is presented for information purposes only, as it is not regarded as constituting remuneration, given that the value is neither received by nor accrued to the director.

NON-EXECUTIVE DIRECTORS

Board fees paid to non-executive directors are based on various market surveys conducted by Adcock Ingram to ensure that they are market related, based amongst others on the director’s skills and years of experience. The surveys are conducted on an annual basis and reviewed by the Remuneration Committee.

The recommendation of the Remuneration Committee on the proposed fees is submitted to the Board for consideration before being proposed to shareholders for consideration and approval at the Annual General Meeting (AGM). If approved, the fees become effective in the month following the AGM.

The following fixed fees are in place since 1 December 2015.

  Chairman
R		   Member
R		  
Board 1 022 570   233 965  
Audit 222 045   111 020  
Risk and Sustainability 222 045   111 020  
Human Resources, Remuneration and Nominations 91 155   57 850  
Social, Ethics and Transformation 85 545   46 280  

A fee of R13 000 is paid for special meetings exceeding three hours in duration.

Remuneration paid
Non-executive directors receive no other benefits, do not participate in the short-term or long-term incentive schemes and do not receive any performance related pay from the Group other than the following fees, for services as directors:

  2016
R’000 		  2015
R’000		  
Joffe(1) 503   974  
Haus 447   434  
Lesoli 275   267  
Makwana 414   410  
Mokgokong 275   267  
Morar 395   384  
Raphiri 760   310  
Ralphs(2) 101   278  
Sacks 613   595  
Stewart 555   540  
Cleasby(3) 179   –  
  4 517   4 459  
(1) Paid to Bidvest Corporate Services Proprietary Limited until May 2016
(2)Paid to Bidvest Corporate Services Proprietary Limited. Resigned 11 November 2015
(3) Paid to Bidvest Corporate Services Proprietary Limited. Resigned 15 June 2016


Shareholdings
The following non-executive directors held shares in the Company.

  2016
R’000 		  2015
R’000		  
Joffe 19 200   19 200  
Morar 1 500   1 500  
Total direct and indirect shareholding 20 700   20 700  

Terms for non-executive directors
All non-executive directors have been elected or appointed on fixed terms of three years, subject to at least 1⁄3 (one-third) of the directors retiring by rotation at the AGM held in each year and being eligible for re-election at the same meeting. Between AGM’s, the Board may make interim appointments either to fill a casual vacancy or to appoint additional members to the Board. Any person so appointed shall retain office only until the next AGM of the Company and shall then retire and be eligible for re-election. There is no limitation on the number of times a non-executive director may stand for re-election. Proposals for the re-elections are based on individual performance and contribution.