Integrated Report


 
Corporate governance statement
 
 

REMUNERATION REPORT

 

REMUNERATION PHILOSOPHY AND POLICY

The Group strives to retain its competitive advantage in the global pharmaceutical industry through the attraction and retention of high-calibre individuals, who not only have the required technical qualifications and experience, but who also demonstrate the desired behavioural traits which fit the Group’s entrepreneurial and dynamic culture.

The Group remains cognisant of the importance of finding the proper balance between keeping its employees appropriately rewarded and motivated and balancing the financial considerations of the Group’s shareholders in the medium term. The Group makes reference to independent surveys, publicly available economic data and marketplace intelligence in endeavouring to set remuneration packages that are competitive as well as industry and market related. In awarding annual salary increases to employees, consideration is given to an employee’s performance as well as the economic conditions impacting the industry and the geographical market in which the employee is based.

The Remuneration & Nomination Committee, a sub-committee of the Board, assists the Board, inter alia, in:
  • setting and administering the policies in terms of which the remuneration of executive directors and executive management is determined;
  • setting performance targets for executive directors and, where relevant, other members of executive management;
  • approving grants to executive directors and members of executive management in terms of any of the Group’s incentive schemes;
  • setting the parameters for annual increases for other employees of the Group who are not members of registered bargaining councils; and
  • making recommendations to the Board and shareholders on the fees payable to the Group’s non-executive directors. The Committee does not, however, consider or play any part in recommending its own remuneration – this is determined independently by the Board, following a recommendation by the executive directors.

Executive and management remuneration principles

The remuneration philosophy of the Aspen Group is aimed at driving the Group’s high-performance culture. Remuneration packages are directly linked to individual and Company performance. Executive and management remuneration is formulated in a manner which aligns the rewards of these employees with changes in the value delivered to the Group’s stakeholders and further recognises exceptional individual contributions. The remuneration packages of executives and management are accordingly made up of fixed variable and medium-term incentive elements, as follows:
  • Base salary: This is the fixed portion of the remuneration package which is payable in cash, is reviewed annually and in circumstances where the executive or manager is promoted.
  • Annual incentive: This variable portion of remuneration increases as a proportion of maximum potential earnings as the executive or manager reaches higher levels of seniority. Payable in cash, the entitlement to and the quantum of the annual incentive is determined according to the achievement of predetermined performance targets by the employee and by the Group company in which the executive or manager is employed.

    The annual incentive is capped in value. The cap on the annual incentive for executives and managers varies between countries of employment, but does not in any instance exceed 30% of the total remuneration cost (excluding incentives).

    A further discretionary bonus may be paid in cash to employees who are considered by the Remuneration & Nomination Committee to have rendered exceptional service in any given year. This discretionary bonus has never exceeded 10% of any recipient’s total remuneration.

  • Medium-term incentive: This is applicable to selected employees in Group companies which exceed agreed performance criteria. The medium-term incentive vests three years after award on condition that the executive or manager concerned remains in the employ of the Group. However, should the employee retire within the three-year period, the medium-term incentive will be accelerated to the date of termination of employment. The medium-term incentive scheme thus plays a direct role in facilitating the Group’s retention objectives. The medium-term incentive is determined according to the achievement of predetermined performance targets by the executive or manager and by the Group company in which they are employed. In South Africa the medium-term incentive is payable in cash or shares, at the employee’s election. In all other qualifying territories, the medium-term incentive is payable in cash under the principles of a phantom share scheme.

    The medium-term incentive scheme is capped as to the value of the award. This cap varies according to the level of seniority of the executive or manager and territory of employment. The maximum award does not exceed 30,25% of the total remuneration cost (excluding incentives) in any instance. Incentives are awarded under the following schemes:  
    > The Aspen South African Management Deferred Incentive Bonus Scheme

    The scheme is designed to acknowledge performance and reward individuals for achievement of both the eligible employee’s employer company within the Group and functional individual performance. The eligible employee is given the option at the date of the award to elect to receive the deferred incentive bonus in cash or Aspen shares. An enhancement of 10% is given to employees who elect to receive the award in shares. To the extent that an employee elects to receive shares pursuant to the award, these shares will be awarded in terms of the existing Aspen Share Incentive Scheme. Shares awarded in terms of this scheme vest three years after the date of the award. The rules of the scheme specifically prohibit the re-pricing of awards to cater for unfavourable fluctuations in the share price.

    > The Aspen International Phantom Share Scheme

    In order to incentivise the management of Aspen’s International businesses in the medium term, a phantom share scheme exists for selected international employees. Awards are linked to performance of the employee, the businesses and growth in the Aspen share price. The scheme has been designed to incentivise managers for the medium term, align their goals with those of the Aspen Group, and allow employees to benefit from the growth in the Aspen share price. Due to regulatory restrictions in respect of transfer and ownership of Aspen shares to offshore employees, the scheme is operated on a phantom basis, which is designed to give an employee the same economic benefit as ownership of shares. The phantom shares entitle eligible employees to receive a bonus based initially on a predetermined value and thereafter on changes in the Aspen share price. As this scheme does not result in the issue of shares, it is not regulated by the JSE and does not require shareholder approval.

    In determining annual incentives, the Remuneration & Nomination Committee has the discretion to exclude factors and extraordinary events which are beyond the control of the Group but which may nevertheless favourably or adversely impact the Group’s performance. Accordingly, extraneous factors may be excluded in the calculation of incentives for the executive directors and other members of executive management at the discretion of the Committee.

  • Legacy share schemes: The following share schemes are still operational in terms of awards which were previously made. No new awards are being made under the schemes other than awards of share appreciation rights to three offshore executives in terms of existing contractual arrangements.

    > Aspen Share Incentive Scheme

    The scheme was adopted by shareholders in January 1999. In terms of the scheme adopted, and subsequent amendments, share options were granted to management and key employees. Participants in the scheme are entitled to take release of the options granted in five equal annual tranches, commencing on the second anniversary of the date granted and expiring on the eighth anniversary of the grant date. To the extent that outstanding share options are exercised on or after vesting date, the appropriate number of shares will be listed and awarded to the participant.

    > Aspen Share Appreciation Plan

    The plan was adopted by shareholders in October 2005. In terms of the plan, share appreciation rights are awarded to key management. Participants are awarded rights to receive shares in the Company equivalent to an amount calculated by reference to the increase in value of the rights between the date of the grant and the date of exercise of the rights. The rights vest on the third anniversary of the award date and expire on the fifth anniversary of that date. To the extent that outstanding share appreciation rights are exercised on or after vesting date, the appropriate number of shares will be listed and awarded to the participant.

    > Aspen South African Workers’ Share Plan

    The Workers’ Share plan was adopted by shareholders in October 2005. In terms of the plan, all South African employees employed by the Company for a full year on a permanent basis were issued shares in the Company to the value of R9 000 each over a period of three years. The shares vested immediately but are subject to a lock-up period of one year. The last tranche of this plan was issued in July 2009.

    The maximum number of shares that can be issued in terms of all the share incentives schemes operated by the Group is limited to 64 741 611, and the maximum number of shares issued to any single employee is limited to 6 474 161 shares. An indication of the maximum number of shares that may result from awards granted in terms of the Share Incentive Scheme is contained in note  15.1 of the Group Annual Financial Statements. The number of shares that may result from awards made under the Share Appreciation Plan can only be determined at the date of exercise. Refer to note 15.2 of the Group Annual Financial Statements.

    The Group’s management incentive schemes are approved by the Remuneration & Nomination Committee.

Benefits: Benefits vary from country to country depending on customs and regulations. Benefits include retirement funding, medical insurance and life and disability insurance. A limited number of employees in South Africa are entitled to post-retirement health benefits (as a consequence of contractual obligations assumed from predecessor companies). Aspen has never offered post-retirement health benefits, but has assumed obligations for retirement health benefits through various acquisitions.

Executive directors

The principles in terms of which the remuneration packages of the Group’s executive directors are determined mirror those applicable to other executives and management. Executive directors accordingly receive a base salary, an annual incentive and a medium-term incentive which are determined in accordance with the principles applicable to executives and management and are calculated as set out below. In the case of the executive directors, the maximum annual incentive is 100% of their total remuneration cost (excluding incentives).

In terms of their service contracts, executive directors receive no additional remuneration on account of their being directors of the Group. Executive directors’ incentive bonuses are approved by the Remuneration & Nomination Committee based on the following predetermined targets:
  • the three-year compound growth of the Group’s headline earnings per share. The maximum target is the South African Consumer Price Index +8% and the minimum threshold for achievement of the incentive is Consumer Price Index +5%. The weighting of this portion of the incentive is 70% of the total incentive;
  • a weighting of 15% on their key performance indicators; and
  • a weighting of 15% at the discretion of the Remuneration & Nomination Committee based upon their evaluation of the executive director’s contribution to the achievement of the Group’s strategic objectives.

In addition to the annual incentive, executive directors are awarded a deferred incentive bonus under the terms and conditions of the South African Management Deferred Incentive Bonus Scheme referred to above, capped at a maximum of 37,5% of their total remuneration cost (excluding incentives). Neither of the executive directors has a long-term service contract with the Group and, in both instances, the service contracts of the executive directors are terminable on six months’ written notice.

Retirement fund contributions – South African operations

The Group’s policy is to contribute to retirement funds by payment to separate funds which are statutorily independent from the Group.

In South Africa, employees, other than those required by legislation to be members of various industry-related funds, are covered by way of defined contribution provident funds governed by the Pension Funds Act, 1956, with varying contributions. Benefits are determined in proportion to each member’s equitable share of the total assets of the funds on termination of membership.

Retirement fund contributions – International businesses

Australian law controls the requirements for Aspen Australia to contribute a minimum payment to superannuation funds of the employee’s choice. Aspen Australia complies with its legal obligations in this regard.

In Mauritius, it is a prerequisite of an employee’s employment contract that the employee independently procures adequate retirement assurance. The employee must cover the costs and expenses in relation to his/her retirement requirements.

In Brazil, employees are covered by the Brazilian Social Security Scheme whereby they receive a retirement, retrenchment or disability benefit depending on their age and period of contribution. Aspen Brazil contributes 27,8% of the employee’s salary while the employee will contribute between 8% and 11% of his/her salary depending on their remuneration level.

In Uganda, there is a statutory requirement that all permanent employees must belong to a provident fund. The employee contributes 5% and the employer 10% of the employee’s gross salary.

In Tanzania, retirement benefits are generally covered by the Employment and Labour Relations Act, 2004. Contribution to a selection fund is 20% of either basic or gross salary depending on the Pension Funds Act. Employers are obliged to register their employees with a pension fund. Further, legislation allows additional, separate industrial arrangements between employers and employees, provided such arrangements do not contravene the governing laws.

In Mexico, the Salary and Labour Benefit Scheme in place does not yet include a private pension plan or retirement funding. However, companies are subject to the mandatory occupational pension programme (“Sistema de Ahorro para el Retiro“) for which the employer absorbs 100% of the contribution, calculated on 2% of each employee’s salary.

In Venezuela, the Salary and Labour Benefit Scheme in place does not yet include a private pension plan or retirement funding. However, companies are subject to a mandatory contribution to a social security plan which includes an employee contribution of 2% of the employee’s salary. When employees attain 55 years of age in the case of female and 60 years of age in the case of male employees they receive a monthly pension that is currently equal to the statutory minimum salary. To be eligible for this benefit, employees must have completed 650 weeks of combined employment.

In Germany, a compulsory state pension fund affords the employee a pension equivalent to approximately 80% of the employees’ last salary prior to retirement. The Company pension fund serves as a top-up for the shortfall in earnings after retirement. As part of existing terms of employment, Aspen Bad Oldesloe contributes an average of 2,5% of the income of the employee with a corresponding contribution by the employee not being required. The return on the fund is based on the AAA Euro Bonds yield. In terms of the scheme rules, surpluses are reviewed every 10 years and credited to the employee’s pension fund.

Non-executive directors

Non-executive directors do not receive any bonuses, share options, incentives or other payments in addition to their directors’ fees. Following research into trends in non-executive director remuneration among companies of a similar size and complexity to the Group and the duties performed, non-executive directors’ fees are proposed by management to the Remuneration & Nomination Committee. After review of such proposals, the Remuneration & Nomination Committee makes appropriate recommendations, other than for fees for services rendered to the Remuneration & Nomination Committee, to the Board. The proposal endorsed by the Board is tabled for approval by shareholders at the annual general meeting. As required by the Companies Act, at the 2011 annual general meeting, the Group will seek retrospective approval, by special resolution, of its non-executive directors’ remuneration for the period from 1 July 2011 to 30 June 2012.

Non-executive directors’ fees are fixed for the year. A base fee is payable to each non-executive director annually, in addition to a fee per meeting attended. The Chairman of the Board receives a flat annual fee for her role as Chairman. Further fees will be paid for attendance at unscheduled meetings dependent on the number of hours spent at the meeting, up to a maximum of the set fee per meeting. In the instance of non-attendance, non-executive directors are obliged to continue to participate in meetings by providing the Chairman or the committee Chairman with detailed inputs for all agenda items. The Remuneration & Nomination Committee has discretion to approve payment of such fees to a non-executive director notwithstanding his/her absence from a meeting in special circumstances.

Consistency of application and approval

The remuneration philosophy is consistently applied across all companies forming part of the Group. In line with the recommendation of King III, the Group will table this Remuneration Policy at its 2011 annual general meeting for a non-binding advisory vote by shareholders.

Directors’ remuneration and shareholding

The tables below set out the remuneration paid to the directors, prescribed officers and highest paid executives, as well as the details of directors’ shareholdings in the Group.

 Non-executive directors   2011  
R’000  
  2010  
R’000  
Archie Aaron#   73     190  
Roy Andersen   345     250  
Rafique Bagus   361     240  
John Buchanan   509     443  
Judy Dlamini   716     623  
Abbas Hussain   165     110  
Chris Mortimer   185     290  
David Nurek   255     190  
Sindi Zilwa   319     341  
  2 928     2 677  
# Archie Aaron retired as a non-executive director of the Group on 26 November 2010. The payment reflected above includes payments made until this date.  

 

 Executive directors 2011   Remuneration  
R’000  
Retirement  
and medical  
aid benefits  
R’000  
Performance  
bonus  
R’000  
Share  
expenses*
R'000  
Total  
R’000  
Gus Attridge   3 870   491   4 321   2 139   10 821  
Stephen Saad   4 687   584   5 254   2 623   13 148  
  8 557   1 075   9 575   4 762   23 969  

Refer to note 26 of the Group Annual Financial Statements for prior year emoluments paid to directors.

* This included both IFRS 2 share-based payment expense as well as the exercise of share options and/or share appreciation rights.

 Prescribed officers 2011   Remuneration  
R’000  
Retirement  
and medical  
aid benefits  
R’000  
Performance  
bonus  
R’000  
Share  
expenses*
R'000  
Total  
R’000  
Morné Geyser   1 768   253   477   3 641   6 139  
Noel Guliwe   2 543   403   695   785   4 426  
  4 311   656   1 172   4 426   10 565  

Refer to note 26 of the Group Annual Financial Statements emoluments paid to prescribed officers in the prior year.

*This includes both the IFRS 2 share-based payment expense as well as gains made on the exercise of share options and/or share appreciation rights.

Highest paid executives of the Group, who are not directors, are as follows:

 2011   Remuneration  
R’000  
Retirement  
and medical  
aid benefits  
R’000  
Performance  
bonus  
R’000  
Share  
expenses*
R'000  
Total  
R’000  
Executive 1   4 104   –   1 474   1 066   6 644  
Executive 2   3 999   –   1 438   1 066   6 503  
Executive 3   3 200   277   –   –   3 477  
  11 303   277   2 912   2 132   16 224  

None of the executives above are employed in South Africa. Their identities have not been disclosed for reasons of confidentiality.

Directors’ interests in Aspen shares

Shares under option offered to and accepted by executive directors and prescribed officers in terms of the Aspen Share Incentive Scheme totalled 1 200 000 shares (2010: 1 212 200 shares) as follows:

  Grant price  
(R) 
Expiry date   Options  
outstanding  
on 30 June  
2010  
(’000) 
Options  
exercised  
(’000) 
Options  
outstanding  
on 30 June  
2011  
(’000) 
Vested  
(’000) 
  Gus Attridge   9,20   Aug 2011   400   –   400   400  
  Stephen Saad   9,20   Aug 2011   800   –   800   800  
  Morné Geyser   6,50   Feb 2011   3   3   –   –  
  11,20   Apr 2012   3   3   –   –  
  12,67   July 2012   6   6   –   –  
      12   12   –   –  
      1 212   12   1 200   1 200  

No share options lapsed or were cancelled during the year.

Share appreciation rights offered to and accepted by executive directors and prescribed officers in terms of the Aspen Share Appreciation Plan totalled 1 152 063 rights (2010: 1 190 636 rights) as follows:
  Grant  
price  
(R) 
Expiry date  
 
Rights  
outstanding  
on 30 June  
2010  
(’000) 
Exercised  
(’000) 
Rights  
outstanding  
on 30 June  
2011  
(’000) 
Vested  
(’000) 
Non-vested  
(’000) 
  Gus Attridge   32,82   Sept 2011   159   –   159   159   –  
  35,53   Sept 2012   157   –   157   157   –  
  41,03   Sept 2013   150   –   150   –   150  
      466   –   466   316   150  
  Stephen Saad   32,82   Sept 2011   193   –   193   193   –  
  35,53   Sept 2012   190   –   190   190   –  
  41,03   Sept 2013   181   –   181   –   181  
      564   –   564   383   181  
  Morné Geyser   32,82   Sept 2011   5   5   –   –   –  
  35,53   Sept 2012   34   34   –   –   –  
  41,03   Sept 2013   53   –   53   –   53  
      92   39   53   –   53  
  Noel Guliwe   36,03   Jan 2014   69   –   69   –   69  
      1 191   39   1 152   699   453  

No share appreciation rights lapsed or were cancelled during the year.

Shares offered to and accepted by executive directors and prescribed officers in terms of the South African Management Deferred Incentive Bonus Scheme totalled 118 320 shares (2010: 58 568) as follows:
  Price  
(R) 
Maturity date  
 
Shares  
outstanding  
on 30 June  
2010  
(’000) 
Issued  
during  
the year  
  
(’000) 
Shares  
outstanding  
on 30 June  
2011  
(’000) 
  Gus Attridge   64,70   Oct 2012   24   –   24  
  86,88   Nov 2013   –   19   19  
      24   19   43  
  Stephen Saad   64,70   Oct 2012   29   –   29  
  86,88   Nov 2013   –   24   24  
      29   24   53  
  Morné Geyser   86,88   Nov 2013   –   6   6  
      –   6   6  
  Noel Guliwe   64,70   Oct 2012   6   –   6  
  86,88   Nov 2013   –   10   10  
      6   10   16  
      59   59   118  

The deferred incentive bonus shares have a maturity date of three years on acceptance of the bonus.

The direct and indirect beneficial interests of the directors in the shares of the Company were:

  Direct (’000) Indirect (’000)
  Director   2011     2010   2011     2010  
Roy Andersen   40     40   –     –  
Gus Attridge   3 154     3 154   15 169     15 169  
Rafique Bagus   –     –   –     –  
John Buchanan   –     –   30     30  
Judy Dlamini   –     –   1 316     1 316  
Abbas Hussain   –     –   –     –  
Chris Mortimer   78     58   –     –  
David Nurek   –     –   19     19  
Stephen Saad   2 747     2 747   51 303     51 303  
Sindi Zilwa   –     –   –     –  
  6 019     5 999   67 837     67 837  

None of the directors held any non-beneficial shares in the Company at 30 June 2011.

Roy Andersen
Remuneration & Nomination Committee Chairman

21 October 2011