Implementation report

REMUNERATION IMPLEMENTATION REPORT

Introduction

Remuneration offered in year under review

This implementation report discloses the remuneration outcomes for executive directors for the 2019 financial year.

Fair and responsible pay

The board remuneration and HR committee ensures, on an ongoing basis, that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term.
To this end, the Group executive holds management accountable for ensuring that total remuneration is distributed fairly and ensures appropriate oversight; and where differentials exist, that they can be reasonably explained.
The board remuneration and HR committee is committed to ensuring the remuneration of executive management is fair and responsible in the context of overall employee remuneration.
The increases in annual guaranteed packages granted in January 2019 are set out in the table below:

	Guaranteed pay % increase
Group executives	5.2
Senior executives and top management	5.1
Core staff	6.1
Other staff	6.0

The Company performed a thorough benchmarking exercise during May/June 2019 and market realities revealed a lag in the remuneration of the Group CEO and Group CFO. The board remuneration and HR committee agreed to adjust the Group CEO's remuneration to market median and the Group CFO's remuneration to the 75th percentile. The rationale for these increases is explained under 'Guaranteed Package' in our remuneration report.
As advised in the previous year's remuneration report, the CEO invested R3 million in Life Healthcare shares as agreed on appointment. The Company matched the investment with the purchase of shares to the value of R9 million. The matched shares are restricted with vesting occurring over three years, conditional on continued service with the Company. The first vesting of one-third occurred on 1 February 2019. The CSDP sold 337 096 Life Healthcare shares, which were transferred to the Group CEO's personal trading account at an issue price of R26.46. The next vesting will occur on 1 February 2020, and the final vesting on 1 February 2021.
Malus and clawback clauses are to be included in the rules and policies of both the short- and long-term incentive schemes for the Group executive as referred to in the remuneration report, with effect from FY2020.
All individuals are subject to the Company's standard terms and conditions of employment, specifically as they relate to the employment contract and conditions relating to termination.

The implementation report sets out Life Healthcare's reward design, executive targets per performance measure, actual performance outcomes, the corresponding value of the award opportunity, and actual payment of all variable incentives.

REMUNERATION OUTCOMES – TOTAL REMUNERATION

Total remuneration outcomes for the current and prior financial years for the executive directors are tabulated below. Explanatory footnotes are provided where necessary.

As the appointment of the International CEO was effective 1 June 2019, no comparison to the prior year can be made.

GROUP CEO – Dr S Viranna

Commenced employment as Group CEO: 1 February 2018.

FY2018 not full year of assessment.

	Remuneration annualised			Actual remuneration
R'000	Annual TCTC	STI perfor-mance bonus	Total annual compen-sation	Actual TCTC**	Actual STI perfor-mance bonus	Total annual compen-sation	LTIP expected value	One-third Company matched shares vested	Total remune-ration
					90%		90%
Min 2019	6 199		6 199	6 199		6 199			6 199
On-target 2019	6 199	6 043	12 242	6 199	6 043	12 242	5 645		17 887
Max 2019	6 199	12 419	18 618	6 199	12 419	18 618	10 726		29 344
Actual 2018	5 500	5 816	11 316	3 764	3 878	7 642	–		7 642
Actual 2019	6 199	7 087	13 285	6 199	7 087	13 285	–	3 038	16 323
Year-on-year growth	12.7%	21.8%	17.4%	**	83%	74%

TCTC – Total cost to company

Group CEO – Dr S Viranna (R’000)

Interim adjustment was granted in July 2019.

As only eight months actual TCTC was paid for FY2018, the value has been annualised in order to compare year-on-year remuneration. ** The effective increase on annualised CTC is 12.7%. The graph reflects annualised CTC for FY2018.

The Group CEO purchased R3 million worth of Life Healthcare shares after the restrictions of the closed period lifted.

The Company matched with a purchase of R9 million restricted years (337 096 shares @ issue price of R26.46). These will vest to the Group CEO in three tranches over a period of three years. The first vesting occurred on 1 February 2019 – gross value R3 038 050.

Group CFO – P van der Westhuizen

R'000	Annual TCTC	STI perfor-mance bonus	Total annual compen-sation	LTIP expected value	Outperfor-mance bonus	Total remune-ration
		65.0%		80.0%
Min 2019	4 391		4 391			4 391
On-target 2019	4 391	3 024	7 415	4 431		11 846
Max 2019	4 391	6 215	10 606	6 735		17 340
Actual 2018	3 735	2 748	6 483	418		6 901
Actual 2019	4 391	3 564	7 955	459	1 099	9 514
Year-on-year growth	17.6%	30%	23%	10%		38%

Group CFO – P van der Westhuizen (R’000)

Interim adjustment to guaranteed package granted in July 2019.

STI percentage targeted reward increased from 57.5% to 65% with effect from 1 January 2019.

An additional outperformance bonus of R1 099 000 was awarded at the end of February 2019 as detailed below, under 'Other incentive schemes'.

CEO SA – A Pyle

Commenced employment as SA CEO: 1 July 2018.

FY2018 not full year of assessment.

	Remuneration annualised			Actual remuneration
R'000	Annual TCTC	STI perfor-mance bonus	Total annual compen-sation	Actual TCTC**	STI perfor-mance bonus	Total annual compen-sation	LTIP expected value	Total remune-ration
					57.5%		70.0%
Min 2019	3 747		3 747	3 747	–	3 747		3 747
On-target 2019	3 747	2 100	5 847	3 747	2 100	5 847	2 556	8 403
Max 2019	3 747	4 315	8 062	3 747	4 315	8 062	4 857	12 919
Actual 2018	3 250	1 929	5 179	979	482	1 461	–	1 461
Actual 2019	3 747	2 357	6 104	3 747	2 357	6 104	–	6 104
Year-on-year growth	15.3%	22.2%	17.9%	**	389%	318%		318%

**	Only appointed as CEO – SA with effect 1 July 2018, thus Actual FY2018 remuneration and STI is only based on three months' salary. FY2018 has been annualised to compare year-on-year remuneration. The effective increase on annual TCTC is 15.3%.

CEO SA – A Pyle (R’000)

No LTI has been awarded as permanent tenure is too short. A Pyle was in a contract position as investor relations executive, and became permanent on 1 January 2017.

The graph reflects annualised CTC for FY2018.

CEO International – M Chapman

		Actual remuneration
R'000	Annualised TCTC	Actual TCTC	STI perfor-mance bonus	Total annual compen-sation	LTIP expected value	Outperfor-mance bonus	Total remune-ration
	–		57.5%		60.0%
Min 2019	5 777	1 910	–	1 910	–		1 910
On-target 2019	5 777	1 910	967	2 877	3 069		5 946
Max 2019	5 777	1 910	1 987	3 897	5 831		9 728
Actual 2018	–	–	–	–	–		–
Actual 2019	5 777	1 910	1 233	3 143	–	–	3 143

International CEO – M Chapman (R’000)

Appointed as CEO International from 1 June 2019.

Converted to rand applying the average exchange rate for FY2019 of 1GBP = R18.34.

Remuneration (TCTC and STI based on role as CEO – International against targets for same period, ie four months).

REMUNERATION OUTCOMES – SINGLE FIGURE

2018 and 2019 total remuneration outcomes are compared to the 2019 target pay mix and a single figure derivation on a name and role basis for the previous year and the year under review.

All figures in below reflected in R'000

Bonuses are actual bonuses paid in the 2019 financial year, however, portions thereof are attributed to rewards earned in the previous year. Similarly, H2 2019 bonus earnings will reflect as actual bonuses paid in the FY2020 implementation report. Short-term incentives earned in FY2019 versus FY2018 are detailed in the bonus section of this report.

Total earnings – actual paid

Dr Shrey Viranna
Group CEO

Pieter van der Westhuizen
Group CFO

Adam Pyle
CEO SA

Mark Chapman
CEO International

FY 2018

FY 2019

% Increase

FY 2018

FY 2019

% Increase

FY 2018

FY 2019

% Increase

FY 2018

FY 2019

% Increase

Salaries

3 485

5 887

3 486

4 084

2 288

3 374

–

1 910

Other allowances

112

194

–

Med aid contributions

–

Retirement fund contributions

146

247

149

174

142

–

Guaranteed package

3 764

6 199

64.7%

3 735

4 391

17.6%

979

3 747

282.9

1 910

Acting allowance

2 500

Long-service award

Performance bonus

–

6 501

880

5 100

702

1 469

–

Gains on ltip

–

3 038

418

872

–

Total remuneration

3 764

15 738

318.1%

7 532

10 368

37.7%

1 680

5 217

210.5

–

1 910

Notes

FY2018 only comprised eight months as Group CEO only commenced employment: 1 February 2018.

Group CFO was paid an acting allowance in FY2018 in the absence of the Group CEO and was awarded long-service bonus for 20 years of service as well as an outperformance bonus** of R1 099 000 in FY2019.

Appointed as CEO SA with effect from 1 July 2018. Only salary as CEO SA reflected. Prior to this A Pyle worked permanent part-time as investor relations executive.

Appointed as CEO International from 1 June 2019. Converted to rand – average exchange rate FY2019: 1GBP = R18.34.

** Outperformance bonus paid to the Group CFO is detailed under "Other incentive schemes".

REMUNERATION OUTCOMES – 2018/2019 VARIABLE COMPENSATION PLAN (VCP) OUTCOMES

Financial and non-financial outcomes achieved by Life Healthcare are presented below. VCP outcomes are measured at the end of every six (6) month period in the financial year. For the Company rating, cash flow ratings are capped at a rating of seven during the first six (6) months of the financial year. An adjustment is effected in the second half of the financial year to reflect the final year-end cash flow rating.

Financial outcomes

		H1				H2				Total FY
Measure	% weighting	Target	Actual	% achieved	Score	Target	Actual	% achieved	Score	Target	Actual	% achieved	Score
Group
FY2019
Group EBITA	70	2 158	2 065	96	5.00	2 430	2 325	96	5.00	4 588	4 390	96	5.00
Group working capital management	30	(222)	(232)	96	5.00	22	340	1 545	10.00	(200)	108	154	10.00
Score (adjusted cash flow at year-end)					5.00				6.50				6.50
Target					5.00				5.00
% award					100				135
FY2018
Group operating profit	70	1 863	1 770	95	4.75	2 139	2 084	98	5.25	4 002	3 854	96	5.25
Group working capital management	30	(222)	(232)	96	5.00	23	329	1 430	10.00	(199)	97	205	10.00
Score (adjusted cash flow at year-end)					5.00				6.75				6.75
Target					5.00				5.00
% award					100				100
SA
FY2019
SA operating profit	70	1 855	1 735	94	4.50	2 071	1 984	96	5.00	3 926	3 719	95	4.75
SA working capital generated/(utilised)	30	(218)	(216)	99	5.75	10	341	3 410	10.00	(208)	125	166	10.00
Score (adjusted cash flow at year-end)					5.00				6.50				6.50
Target					5.00				5.00
% award					100				135
FY2018
Operating profit	70	2 137	2 218	104	6.25	2 423	2 299	95	4.75	4 560	4 517	99	5.75
Debtors days	24	41	41	99	5.75	38	42	91	3.75	79	83	105	6.50
Stock	5	1.0	0.9	112	7.00	0.81	0.83	98	5.50	1.82	1.72	106	6.50
Score (adjusted cash flow at year-end)					6.25				4.50				6.00
Target					5.00				5.00
% award					130				85
International
FY2019
International operating profit	70	301	329	109	6.75	367	391	106	6.50	668	719	108	6.75
International working capital	30	(4)	(16)	400	10.00	13	0	95	5.00	9	(16)	(178)	0
Score (adjusted cash flow at year-end)					8.50				6.25				6.75
Target									5.00
% award					185				130

NON-FINANCIAL OUTCOMES

Performance outcomes are reflected for the full year. Life Healthcare sets specific and measurable milestones every six months, designed such that delivery against individual milestones positions the Company for full year delivery against overall objectives. H1 and H2 scores are determined by delivery against these performance milestones.

			FY2019 Non-financial measures
			H1			H2
Performance metric	Weighting	Measure	Target	Score	% award	Score	% award	Performance outcome
Clinical metrics	10%	Continued delivery of quality outcomes per country-level targets Formulation of a global set of quality metrics for Life Healthcare	4.00	4.00	100	4.00	100	Delivery of each country on quality metrics for Life Healthcare Global metrics signed off by board clinical quality committee
Strategic innovation	10%	Progress SA radiology and SA primary care strategies and implementation Progress Group analytics and integration strategies and implementation Develop long-term strategy for Poland	4.00	4.00	100	4.00	100	SA radiology investment strategy approved by board investment committee Standalone primary care pilot launched and commitment from possible scale partner to pilot Group analytics strategy approved by Group executive and use case launched Group integration deliverables completed to plan Poland strategy approved by the board
People	10%	Retention of top and critical talent at Group, SA and International executive level Succession plans developed Diversity objectives achieved	4.00	4.00	100	6.00	140	Executives retained, zero acting/interim executives, and successors identified for each Group executive role per inaugural global talent process SA delivery per diversity deliverables in country-level scorecard; diversity policies developed in all international countries
Total			4.00	4.00	100	5.00	120

REMUNERATION OUTCOMES – 2018/2019 VARIABLE COMPENSATION PLAN (VCP) OUTCOMES IN DETAIL

The results of performance against measures in each executive's scorecard are disclosed below in such a way that the stakeholder can reasonably assess whether the incentive is in line with performance outcomes as well as the remuneration policy.

Although measured and paid bi-annually, annual VCP payments per executive are summarised below. The percentage achievement reflected is the total percentage of on-target performance achieved. Executives are measured proportionate to the period in their roles.

	Shrey Viranna On-target STI bonus at 90% of TCTC FY2019					Pieter van der Westhuizen On-target STI bonus at 65% of TCTC FY2019
Performance metric	Weighting %	Reward % H1	Reward % H2	Weighted rewards %	VCP payment R'000	Weighting %	Reward % H1	Reward % H2	Weighted rewards %	VCP payment R'000
Financial performance
Group	70%	100%	135%	120%	5 068	70%	100%	135%	120%	2 551
SA
International
Non-financial performance	30%	100%	120%	111%	2 018	30%	100%	120%	112%	1 014
Total					7 087					3 564

	FY2018 (Only eight months in role as Group CEO)					FY2018 (Measured and paid based on full year results)
Financial performance
Group	50%			115%	1 898	70%			115%	1 517
SA
International
Non-financial performance	50%			120%	1 980	30%			140%	1 231
Total					3 878					2 748

	Adam Pyle On-target STI bonus at 57.5% of TCTC FY2019					Mark Chapman On-target STI bonus at 57.5% of TCTC FY2019
Performance metric	Weighting %	Reward % H1	Reward % H2	Weighted rewards %	VCP payment R'000	Weighting %	Reward % H1	Reward % H2	Weighted rewards %	VCP payment R'000
						(Only four months in role as CEO International reflected)
Financial performance
Group	10%	100%	135%	117%	247	10%		135%	135%	131
SA	60%	90%	135%	112%	1 417
International						60%		130%	130%	754
Non-financial performance	30%	100%	120%	110%	693	30%		120%	120%	348
Total					2 357					1 233

	FY2018 (Only three months in role as CEO SA reflected)
Financial performance
Group	15%		115%	115%	81
SA	60%		85%	85%	238
International
Non-financial performance	25%		140%	140%	164
Total					482

REMUNERATION OUTCOMES – HISTORY OF RECENTLY VESTED AND UNVESTED SHARES

The LTI details regarding 2014 to 2016 allocations pertain to the Group CFO only. The CEO SA received his first LTI allocation in January 2017 when he was made permanent. Based on tenure in role, the other executives only qualify for the LTI once-off restricted cash offer and the LTI 2019 allocation.

The legacy Life Healthcare 2013 long-term incentive plan allowed individuals to elect, at the time of the 2013 and 2014 allocations, to defer the vesting of their shares for a further two years (from three to five) and have those shares matched with additional restricted shares. The final 2014 co-investment and matched shares vested at the end of January 2019. This allocation is now closed with no further payments due.
Life Healthcare acquired the Alliance Medical Group in 2016 and financed the acquisition via a rights issue offer. LTIP participants were offered the opportunity to follow their rights on co-invested shares held in the LTIP trust and where participants elected to follow rights and paid for these additional shares, the Company followed the rights on matched shares held in the trust. Shares so acquired were subject to the same restrictions that were applicable to the matched and co-invested shares held in the trust.
The Life Healthcare 2015 long-term incentive plan offered notional performance shares in 2015, 2016 and 2017.
- As advised in last years' implementation report, the three-year vesting period resulted in no payment in respect of the vesting of the 2015 allocation.
- The vesting of the 2016 allocation occurred at the end of January 2019. Performance against both TSR and EBIT measures for the period 1 January 2016 to 31 December 2018 did not meet threshold levels and thus yielded no payment to participants; details of which are set out below.
- The next vesting of the 2017 allocation occurs at the end of December 2019 and will be reported in the 2020 implementation report.

LTIP 2016 Allocation – Outcome of performance against vesting criteria

PERFORMANCE MEASURE

WEIGHTING

OUTCOME

THRESHOLD

RESULT

Actual TSR compared to a comparator group of companies

50%

Life Healthcare ranked at 42nd percentile

50th percentile

No payment

Actual EBIT growth compared to a composite inflation rate (taking into account all countries)

50%

Average composite inflation:	5.2%
Compound annual growth EBIT:	1.1%
% over/(under) composite CPI:	-4.2%

CPI + 1%

No payment

As a result of the rights offer in March 2017 and according to the rules of the LTIP scheme, an adjustment was made to the LTIP 2015, 2016 and 2017 scheme allocations to ensure that participants were in the same economic position that they were in prior to the occurrence of the event. This change was effected in terms of the rules of the LTIP scheme. Adjustment is reflected in the summary of holdings in the table below.
Life Healthcare could not make the 2018 offer in terms of the 2015 long-term incentive plan allocation, as the Company entered an extended closed period in November 2017. Accordingly, the Company made an alternative once-off long-term restricted cash offer, the details of which were described in the 2018 remuneration report. Payment of the scheme will only be made in January 2021.
The 2019 LTIP allocation was made with effect 1 January 2019 and notional performance shares were granted to the executive.

Summary of total performance shares per executive

	Share allocation						Rights issue
LTIP scheme	LTIP scheme	Share allocation	Offer price R	Co- invest- ment shares	Matched shares	Performance shares	Offer price R	Investment shares purchased by executive
LTIP 2009 Scheme	P van der Westhuizen	01 Jan 14	35.05	7 381	12 509		24.50	2 526
	SB Viranna	01 Jan 19	25.86			235 992
LTIP 2015 Scheme	P van der Westhuizen	01 Jan 16	34.58			40 620
		01 Jan 17	31.59			65 380
		01 Jan 19	25.86			220 803
	A Pyle	01 Jan 17	31.59			34 126
		01 Jan 19	25.86			114 969
	M Chapman	01 Jan 19	25.86			127 191

	Rights issue				Vested 1 February 2019		Balance as at 30 September 2019
LTIP scheme		Adjust- ment co-matched shares	Adjust- ment to performance shares	Vesting date	Number of shares	Price at exercise date R	Number of shares	Allocation value R	Value based on 30 September 2019 share price
LTIP 2009 Scheme	P van der Westhuizen	4 280		01 Feb 19	26 696	R27.24
	SB Viranna			31 Dec 21			235 992	6 103 300	5 352 299
LTIP 2015 Scheme	P van der Westhuizen		8 679	31 Dec 18	49 299	R0.00
			13 970	31 Dec 19			79 350	2 506 667	1 799 658
				31 Dec 21			220 803	5 710 477	5 007 812
	A Pyle		7 292	31 Dec 19			41 418	1 308 395	939 360
				31 Dec 21			114 969	2 973 365	2 607 497
	M Chapman			31 Dec 21			127 191	3 289 454	2 884 692

REMUNERATION OUTCOMES – OTHER INCENTIVE SCHEMES

As detailed in our 2018 remuneration report, the outperformance incentive scheme was introduced in FY2018 to secure the Company's key talent by incentivising superior business and personal performance. The scheme runs annually for two years, and the first payment was made at the end of February 2019.

This scheme is performance-based on the outcomes of the short-term incentive scheme as well as an assessment of a scorecard of critical sustainability measures. Specifically: actual bonuses generated as outcomes in the short-term incentive plan (VCP) are matched with a further 40% component, which matching component is subject to a modifier between 50% and 150%, based on an assessment of the following (equally weighted) critical sustainability measures:

Personal performance rating
Demonstrated innovation
Talent retention index
Values promotion

The Group CEO and International CEO were excluded from participation in this scheme as senior management needed to be in service from 1 January 2016 to be eligible for participation. The Group CFO scored 4.24 on assessment of these measures by the Group CEO. This resulted in 100% payment of on-target reward of R1 099 236 earned in FY2018. The threshold and maximum potential award table as well as the respective payment made to the Group CFO at the end of February 2019 are indicated below:

	Score	% award
Threshold	2	50
On-target	4	100
Outperformance	7	150

		Score	% award	Outperfor-mance bonus
P van der Westhuizen	Group CFO	4.24	100	1 099 236

The CEO-SA will be eligible for participation (pending performance outcomes) for the FY2020 payment.