LENMED AIR 2019.pdf

Remuneration package formulation Packages for all key staff (executives, directors and Hospital Managers) are apportioned as between a “guaranteed portion”, being the annual package, and the “risk portion”, being the bonus incentives, through which key members of staff are appropriately incentivised to maximise shareholder returns. Guaranteed portion of package The increase in remuneration packages of Lenmed executives was considered at the 25 February 2019 Remco meeting for implementation on 1 March 2019. In considering the new remuneration packages, Remco took the tough trading conditions into account, together with the need for cost containment. It noted that an average increase across the Group was 6% and so a similar increase was applied to management. Risk portion of package — short-term and long-term benefits Lenmed executives and other key staff are incentivised by way of a short-term bonus scheme. On an annual basis, it is the responsibility of Remco to review and approve the Executive Annual Bonus Scheme. Remco also notes the principles behind the Hospital Managers’ and Group functional heads’ Annual Bonus Scheme. The key performance areas in both these schemes measure specific individual targets, align shareholder and individual goals based on a Headline Earnings per Share target and also include a measure of the performance of the Group as a whole. If the key performance areas are achieved, identified staff could earn bonuses ranging between a maximum of 25% and 100% of their individual packages, where the maximum thresholds are determined by job levels. Remco has also had oversight of the implementation of the Long- Term Incentive Scheme (LTIS) which is now in its sixth year of operation. The scheme is based on a Share Appreciation Rights Scheme (SARS) and a Performance Share Scheme. Guidelines or practice notes are recorded as amendments are made to the scheme. These notes then form an annexure to the original policy. The SARS rules were adjusted in the previous year and for the reporting period no further adjustments were affected. The scheme is based on a Share Appreciation Rights Scheme (SARs) and a Performance Share Scheme. The following are the salient features of the LTIS: Scheme concept: + Up to 10% of Lenmed’s issued share capital will be set aside for purposes of the scheme. + Based on the liquidity and the price of the shares on the OTC market, Remco will have the right to use the OTC price or to determine a price itself. + The allocation of LTIS shares will be considered by Remco annually as part of its forward plan. + The LTIS will apply to the following levels, with the corresponding band of share allocations: – Category 1 — CEO and Deputy CEO 1.5m to 2.5m shares – Category 2 — Direct reports to category 1 750 000 to 1.5m shares – Category 3 — Direct reports to category 2 250 000 to 1m shares. Scheme rules, in addition to the above: + The performance criteria for the SARS is a minimum 50% average achievement of the participant’s short-term incentive bonus over the three years prior to vesting. + Settlement is in cash or shares, at the discretion of Remco. + Participants are not entitled to any dividends and have no voting rights. + The strike price as agreed by Remco annually will remain static for the period of the share. + The following performance measures apply: If performance achieved is CPI and 2% or less, then only 50% of the shares will vest; if CPI + 3%-6% is achieved, then 100% of the shares will vest and if CPI + 6% and above is achieved, then 125% of the shares will vest. + 100% of the shares will vest at the end of year three. + Tranche 3 of the 2015 LTIS allocation and the entire 2014 and 2015 LTIS vested on 1 August 2018. At Remco’s discretion, these were done at a valuation of R3.56 per share, and were cash- settled. + For the financial year ended February 2018, the fifth set of SARS were also issued at R3.56, per Remco’s discretion not to apply the average OTC price for this period, due to the shares being illiquid. In both instances above, Remco applied its discretion to a price of R3.56 per share based on a presentation from our financial advisors who conducted a high-level indicative valuation of Lenmed using different valuation methodologies. The internal valuation methodologies included forward PE, discounted cash flow and forward EBITDA multiples. + The following SARS awards were made to executive management for the financial year ended February 2019: – Prakash Devchand 2 500 000 – Amil Devchand 2 000 000 – Vaughan Firman 1 000 000 – Nilesh Patel 1 000 000 Long service award scheme: Remco continued the oversight of the implementation of a long service award scheme for all staff. The scheme comprises two parts, namely: + A cash award payable six monthly, to staff who have worked for longer than 10 years. + A share award, to staff who have worked longer than 15 years. Under this scheme, employees are entitled to receive, on a once-off basis, R50 000 (pre-tax), either in cash or shares, once they have attained a service record of 15 years as at December 2018. For the current year, only the cash settled option was offered, considering the lower share price. This benefit is in addition to the cash award referred to above. Remuneration and Nominations Committee report continued 78 ENSURING AND PROTECTING VALUE