Remuneration report

Introduction

This report has been prepared by the remuneration and nomination committee (RNC) to provide stakeholders with an overview of the remuneration policy and practices applicable to executive directors and nonexecutive directors of the company.

Remuneration philosophy

Blue Label Telecoms’ remuneration philosophy promotes remuneration at market related levels to attract, retain and motivate the talent required by the company to achieve its strategic and operational objectives. The philosophy seeks to achieve an optimum balance between the interests of shareholders and providing attractive and competitive remuneration packages.

Governance

The board remains ultimately responsible for the remuneration policy and the RNC operates under approved terms of reference.
The focus of its activities is on the group’s remuneration framework, the determination of levels of remuneration for executive and non-executive directors, annual salary adjustments and bonuses and the determination of awards to be made in terms of the company’s Forfeitable Share Plan (share plan). The chairman of the RNC reports to the board at quarterly board meetings and submits recommendations made by the RNC to the board for consideration. The board accepted the recommendations made by the RNC during the year.

Composition and role of the RNC

The composition, meeting procedure, role and functions of the RNC as well as the attendance of the RNC meetings, are reflected in the governance review on page 55 of this report. All the members of the RNC have the relevant skills and experience to perform their duties.

The key activities of the RNC during the period under review included:

• the introduction and design of a balanced scorecard for executive directors and senior management;
• the determination of the remuneration of executive directors and subject to shareholder approval, the remuneration of the group chairman and non-executive directors;
• the determination of increases in the fixed remuneration of executive directors and senior management across the group;
• the confirmation of bonus structures in the group with reference to the achievement of stipulated performance criteria;
• the determination of awards to be made to executive directors and senior management in accordance with the rules of the share plan.

Advisors

In determining the remuneration of executive and nonexecutive directors and certain senior executives the RNC obtains information on remuneration trends and seeks advice from external independent remuneration consultants.

Remuneration policy

The group’s remuneration structure for executive and senior management has three components:

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

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. For the year ended 31 May 2009 the joint chief executive officers and the chief operating officer elected not to take up their bonus allocations in view of the current economic climate.

Details of the directors’ emoluments for the period ended 31 May 2009 appear on pages 140 - 141 of this report.

Service contracts

The company concluded three-year employment contracts with the executive directors in November 2007. The contracts provide for an option to renew (by mutual agreement) upon the expiry of the initial term.

Non-executive directorS’ remuneration

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 share plan of the company. The fees payable to the chairman and non-executive directors are recommended by the RNC to the board, which in turn proposes the fees for approval by the shareholders at the annual general meeting. Details of the fees paid to the respective non-executive directors during the period under review are reflected on pages 140 - 141 of this report.

The proposed fees payable to the non-executive directors for the period 1 June 2009 to 31 May 2010 are as follows:

* In the event that there are fewer meetings than envisaged, the member shall receive the fee in respect of the number of meetings attended.
** In the event that there are more meetings per year than initially planned, directors’ fees will be paid only up to the cap.
¹ The annual fee paid to the chairman in respect of the year ended 31 May 2009 amounted to R600 000.

Forfeitable Share Plan

The group implemented the share plan as approved by shareholders at the annual general meeting held on 12 November 2008. During the year forfeitable shares were granted to executive directors and qualifying employees. Particulars relating to the share plan are set out in note 30 to the financial statements.

Forfeitable shares held by executive directors of Blue Label Telecoms