The Remuneration Committee has been delegated by the board with responsibility for determining the remuneration of the executive directors and senior managers, as well as for approving the allocation of shares under the company’s forfeitable share plan. The Remuneration Committee also acts as the Nomination Committee.

The committee also makes recommendations in respect of the fee structure for nonexecutive directors and the fees for members of the board committees, for approval by the shareholders once approved by the board.

The committee consists of three nonexecutive directors, being Messrs NN Lazarus SC (chairperson), GD Harlow and KM Ellerine. The chief executive officers and the financial director attend certain meetings of the committee by invitation but do not vote on committee decisions.

While the majority of the committee members are not categorised as independent, the board is satisfied that it is made up of the board members most suitably qualified to perform the role and that the committee members act impartially and fairly in that role.

The chairperson reports to the board on the committee’s deliberations and decisions.

The group’s remuneration philosophy strives to reward employees in a fair and responsible way and to ensure a culture of high performance through employees who are motivated, engaged and committed while achieving a balance between shareholder interests and appropriate remuneration packages. The remuneration policy is formulated to attract, retain and motivate top-quality people in the best interests of the group. Remuneration arrangements are designed to support Blue Label’s business strategy, vision and to conform to best practices. Total rewards are set at levels that are competitive in the context of the relevant areas of responsibility and the industry in which the group operates. Total incentivebased rewards are earned through the attainment of demanding targets consistent with shareholder growth expectations.

The key duties of the committee include:

• ensuring that the group upholds its entrenched remuneration philosophy;
• ensuring that the combination of fixed and variable pay is appropriate when benchmarking remuneration levels;
• reviewing the incentive schemes to ensure the continued contribution to growth in shareholder value;
• reviewing incentive schemes to ensure that these are administered and implemented in terms of the rules and performance targets;
• reviewing the remuneration of executive directors and senior management; and
• making recommendations to the board regarding non-executive remuneration for ultimate approval by shareholders.

In the course of its deliberations, the committee considered the view of the chief executives on the remuneration and performance of the other executive directors and members of senior management.

Independent advice on market information and remuneration trends is provided to the committee by external remuneration consultants from time to time. Blue Label’s human resources department also assists the committee by providing supporting information and documentation relating to matters presented to the committee. The company bears all the expenses relating to the appointment of external remuneration consultants and other appropriate independent professional advisers.

Additional governance principles applicable to the composition and principal activities of the committee are more fully set out in the Annual Report.

The remuneration of executive directors and senior management is determined on a total cost-to-company basis and has three components:

• Fixed remuneration – fixed monthly salary and benefits;
• Variable remuneration – a short-term performance-related bonus scheme; and
• Forfeitable share plan – a long-term performance-related incentive scheme.

Fixed remuneration is reviewed annually to ensure that the executives and senior management who contribute to the success of the group remain remunerated at appropriate levels in accordance with the remuneration philosophy.

The variable pay element provided by the short-term bonus scheme is intended to enhance total pay opportunities, should that be merited by corporate and individual performance. The purpose of the annual performance-related bonus scheme is to reward and motivate the achievement of group and subsidiary financial targets, as well as to motivate strategic and personal performance. The joint chief executive officers may earn an annual incentive bonus of up to 120% of fixed remuneration and other executive directors up to 70%. Senior management may earn up to 50% of their annualised salary package.

Long-term incentives, in the form of forfeitable shares awarded under the share plan, are based on a percentage of total annualised salary packages and are intended to reward sustained long-term performance and to align the interests of the executive and senior management with those of shareholders.

Blue Label applies discretion in all remuneration reviews and there is no minimum across-the-board increase to all employees.

Salary increases for the forthcoming financial year range from 0% to 6% in bands of 0%, 2%, 4% and 6%. Management of each operating company was given the discretion to apply the appropriate increase to each staff member falling under their control within the stipulated range.

The annual pay increase of the executive directors for the forthcoming year is 6%.

Details of the directors’ remuneration for the year ended 31 May 2012 appear in the Annual Report 2012 . The emoluments paid to the three most senior members of management are set out on page 54. The company has decided not to disclose the identity of the three most senior members of management, due to the competitive nature of their positions in the market, their specialised skills and value to Blue Label, and because the committee is of the opinion that such information is private to the individuals concerned and the disclosure of their identities does not add value to stakeholders.

Emoluments of the three most senior members of management are:

The executive directors and senior management participate in an annual incentive bonus plan, which is based on the achievement of short-term performance targets. These targets comprise financial and non-financial components. The financial performance component is based on growth in profits, as measured by headline earnings per share. The non-financial elements include the achievement of agreed transformation targets, progress in the company’s growth strategy in the countries in which it operates, the rollout of the group’s transactional footprint and the level of progress made in respect of organisational development issues and succession planning.

The group’s performance for the 2012 financial year achieved the levels required in terms of the group’s predetermined target for growth in headline earnings per share. In addition, the non-financial targets set for the executive directors and senior management were also met. The achievement of these targets resulted in the joint chief executive directors being paid a bonus of 120% of their annual salaries and the financial director and chief operating officer being paid a bonus of 70% of their annual salaries.

After taking external advice and due consideration, the bonus parameters for executive directors and senior management for the 2013 financial year have been determined as follows:

The forfeitable share scheme vesting criteria for the 2012 financial year was 25% for retention, 25% for the achievement of non-financial indicators and 50% determined with reference to growth in CPI plus 15% over the three-year vesting period.

Vesting of the 2009 share scheme allocations fell due in September 2012. The shortfall between CPI plus 15% and the growth in core headline earnings per share over this period was 6.77%. The company determined that 11.37% of the shares allocated in 2009 should be forfeited to accord with the shortfall between the target set and the target achieved.

After taking external advice and due consideration, the vesting criteria for the forfeitable shares allocated in September 2012 for vesting over the next three years is as follows:

• 40% for retention (three years from date of award), and
• 60% financial (50% for growth in core headline earnings per share and 10% based on total shareholder return).

The 50% for growth in core headline earnings per share will be based on the following criteria:

• If growth is 5% above CPI over three years, then 20% of the 50% will vest.
• If growth is 10% above CPI over three years, then an additional 50% of the 50% will vest.
• If growth is 25% above CPI over three years, then a further 30% of the 50% will vest.

The 10% for total shareholder return will be based on a 10% compound growth in the share price over the three-year vesting period measured with reference to the weighted average price per share during the month of the commencement of the allocation and the weighted average share price for the month during which the vesting takes place, plus dividends over the three-year period.

The three-year service contracts of the executive directors were renewed in November 2010 for a further three-year period. These contracts include a restraint of trade undertaking applicable for a period of 12 months from the day that the executive leaves the employ of the company of his own accord. The restraint of trade is not enforceable in the event of the employment contract not being renewed by the company or if the executive’s employment is terminated by the company.

Non-executive directors receive fees for service on the board and board committees, dependent on attendance. Non-executive directors do not receive short-term incentives nor do they participate in the forfeitable share plan of the company. The fees payable to the chairman and non-executive directors are recommended by the Remuneration and Nomination Committee to the board, which in turn proposes the fees for approval by the shareholders at the annual general meeting.

Non-executive directors may be contracted to render services to the group in addition to the aforegoing services from time to time. The remuneration for such additional services is considered by executive management and approved by the chairman of the board and thereafter submitted to the board for its approval. Details of the fees paid to each of the non-executive directors during the year are reflected on pages 184 and 185.

The group intends to continue to use the services of Messrs GD Harlow and NN Lazarus SC during the forthcoming 2013 financial year for the provision of legal, corporate, financial and strategic advice, and they shall continue to render those services for market-related fees. The fees shall continue to be considered by executive management, approved by the chairman of the board, who will, in turn, submit the fees to the board from time to time for approval.

The board resolved at its meeting held on 20 August 2012 that non-executive directors’ remuneration be increased for the 2013 financial year by 6% subject to the approval of shareholders.

The proposed fees payable to non-executive directors are set out below: