Remuneration report

1.

REMUNERATION COMMITTEE CHAIRMAN'S REPORT

Dear Shareholder

I am pleased to present the 2020 remuneration report on behalf of the Board. The COVID-19 pandemic has had a severe impact on our employees, our clinical partners, our suppliers, our patients and our financial outcomes. From a people perspective, our primary objectives have been to ensure the safety and wellbeing of our employees, whilst remaining cognisant of the financial sustainability of the Company. The Company has demonstrated resilience, teamwork, innovation and adaptability under these difficult circumstances.

Key developments and highlights for the year include:

• Dr Shrey Viranna stepped down as Chief Executive Officer and as executive director of the Board of the Company and related subsidiaries with effect from 17 January 2020. Shrey emigrated to Australia for personal reasons. Pieter van der Westhuizen, the current Chief Financial Officer, was appointed acting Chief Executive Officer with effect from 18 January 2020. Pieter retained his role as CFO, supported by a highly capable finance function. Shrey remained with the Company as a special adviser until 29 February 2020, to provide continuity and to ensure a smooth and managed transition.
• I wish to acknowledge Pieter for his unwavering commitment and dedication to lead the Company in the absence of the Chief Executive Officer. He also led the way for our executive team, making significant personal financial contributions to the LHC Employee Assistance Fund; details of which are included in the Implementation Report.
• The appointment of a new Chief Executive Officer, Peter Wharton-Hood with effect from 1 September 2020.
• A targeted cyber-attack on our southern African operation during the peak of the pandemic affected all connectivity with IT systems and financial reporting. Manual processes were required, however, quality care and clinical excellence were not compromised during this period. I wish to recognise the contribution of our employees during the recovery period.
• Robust policies and procedures were established timeously to address the unforeseen changes to work protocols.
• Cash preservation measures were established, which included:
  • Our South African and international Group executive colleagues voluntarily contributing a portion of their guaranteed remuneration for three months to the Life Healthcare Employee Assistance Fund and deferring their short-term incentive payment.
  • Our Board forfeiting a portion of their non-executive director fees for a period of three months to contribute to the LHC Employee Assistance Fund.
  • The support of our management teams, both in South African and our international business, in deferring part or all of their H1 performance incentive to November to alleviate cash constraints on the Company due to COVID-19.
  • A hold on recruitment of all non-clinical positions and a review and hold placed on non-essential contractors' working arrangements.
  • Utilising government support schemes in South Africa, the UK, Ireland, Italy, Germany and Poland, where appropriate and in line with published guidelines and regulations.
• An Employee Assistance fund in South Africa was established through the generous donations of the executive team, the Board and donors to ease the financial burden of employees severely affected by the pandemic.
• A proactive and practical support network was established to provide temporary accommodation for front-line staff who would need to treat or be exposed to COVID-19 compromised patients and would temporarily be unable to return to their community during this period.

Impact of COVID-19 on shareholders

Life Healthcare's share price has not been immune to the volatility in equity markets during the 2020 financial year due to COVID-19. We recognise that shareholders have been impacted by the decline in the value of their shares during this period. The share price decline also impacted executives and employees via their individual shareholding or in respect of employees via the impact on the Employee Share Plan. The decline in share price also impacts the underlying value of performance shares in the Long-Term Incentive Plan. The alignment between shareholders and Life Healthcare executive is clearly demonstrated through this reality.

Remuneration outcomes

The Board remains focused on ensuring there is a robust and rigorous process in place whereby significant oversight and prudence are applied to ensure remuneration outcomes are aligned both with individual and company-wide performance, with outcomes delivered to our shareholders. In addition, it aims to retain key critical skills and be market competitive ensuring productivity, performance excellence and Company sustainability.

Certain adaptations to remuneration elements have been required to effect this:

• Short-term incentivisation
  • Group executives delayed their short-term incentive payment due in April 2020 to the end of year.
  • As a once-off dispensation, short-term objectives for H2 were aligned with the challenges that were posed by the COVID-19 pandemic. Details are provided in the remuneration report.
  • With effect from FY2021, the current twice-yearly payment will change to an annual payment to align with the Company's annual budget cycle and market best practice.
• Employee Share Plan (South Africa)
  To demonstrate the Company's value in its employees, the Board has approved the purchase of shares, albeit less than previous years, for the benefit of qualifying employees. Details of this retention measure are specified in the remuneration report.

• Once-off gratuity payment (South Africa)

  To further support our employees during these unprecedented times, the Company decided to allocate R45 million as a once-off gratuity bonus in October 2020 to improve its value proposition to employees and to also support qualifying employees. Directors, prescribed officers and senior management (participants on the Long-term Incentive Scheme) did not receive these gratuity payments.

  Life Healthcare continues to strive towards delivering strong Company performance over the short and long-term. To achieve this objective, we must attract, motivate and retain competent people whilst upholding and aligning their interests with shareholders.

Shareholder engagement

At our January 2020 AGM, we received a vote of 69.9% in favour of our implementation report and 66.5% in favour of our remuneration policy, and hence engaged with various shareholders via a virtual platform on the issues that led to the Company not receiving the requisite percentage of 75% or more.

Supporting me during the engagement was Mustaq Brey, chairman of the Board, Dr Victor Litlhakanyane, the Chairman-designate, Pieter van der Westhuizen, the then-Acting Chief Executive Officer, Avanthi Parboosing, the Group Company Secretary and Chris Gouws, the HR Executive for southern Africa.

Taking their valuable suggestions into account, the following commitments with regards to our remuneration practices have
been made:

• Guaranteed remuneration – the Company continues to be cognisant of and align increases in remuneration with Company growth and overall returns.
• The Company aims to improve disclosure of executive performance against results.
• A number of arrangements with key executives have been established to increase shareholding in the Company.
• Malus and clawback provisions have been included in both the short- and long-term incentives.
• The Company commits to disclose more detail with regards to budgeting, performance conditions and outcomes of incentive schemes in advance.

In the event that this remuneration and implementation report receive less that the required support at the annual general meeting, Life Healthcare will continue to invite dissenting shareholders to provide reasons for such votes in writing, where, after further engagements may be scheduled.

Achievement of Remuneration objectives

One of our primary objectives has been to ensure that the Company's employee value proposition allows the attraction and retention of the human capital required to deliver on the Company's strategic objectives. It is pleasing to note that turnover of employees in South Africa has remained at the low levels experienced during FY2019 (10.8% vs 10.5%). I am therefore satisfied that we have achieved the outcomes we have set notwithstanding the many challenges we have faced during the past year.

Future Focus Areas

Looking forward, Human Resources and Remuneration Committee (Remco) main focus areas will be to ensure:

• A full, holistic review of the Company's reward philosophy is a key consideration for FY2021.
• We will consider the views of our shareholders when planning our reward strategy to ensure a holistic approach to total reward.
• To encourage the Group executive team to hold Company shares to better align the interests of executives with shareholders.
• Ensure continued performance driven reward.
• Global integration will include focus on organisational culture, global mobility, talent management, HR metrics, and reporting on retirement fund matters at a global level.
• There is tremendous uncertainty in the healthcare sector due to the poor economic conditions, the length it may take to control COVID-19 and the SA government's National Health Initiative. Setting long-term incentive awards under these conditions will take careful consideration.
• Diversity will continue to be a strategic objective to ensure equal opportunity and fair representation of the communities we serve.

Yours sincerely

Royden Vice

Chairman: Human Resources and Remuneration Committee

2.

REMUNERATION PHILOSOPHY, POLICY AND FRAMEWORK

2.1

Scope and aims of the Policy

The remuneration policy is approved by the Board and forms part of our operating philosophy, policies and protocols. Our remuneration framework and policies, which are a key component of our broader employee value proposition, aim to:

• attract, motivate, reward and retain our people;
• promote the achievement of strategic objectives within the Group's values and risk appetite;
• promote diversity in our workforce to align with the communities we serve;
• promote an ethical culture and responsible corporate citizenship; and
• provide a balanced remuneration mix within the Group's financial constraints.

Life Healthcare's remuneration philosophy is to make certain that employees are rewarded fairly and appropriately for their contribution to value creation for the Group. Our remuneration philosophy informs our reward framework and guides policy. In a continually evolving context, we continually review our remuneration policies to ensure our approach remains relevant, fair and responsible.

The Group periodically consults market survey providers for an indication of the guaranteed remuneration and annual cash incentive payments made generally and sectorally. We utilise these inputs, along with guidance from external remuneration experts, to assess our positioning compared to the market in terms of key talent. We then overlay various contextual factors, including industry trends, the Group's financial position and legislative requirements, evaluating our performance in delivering fair and equitable remuneration as part of our employee value proposition.

Ultimately our goal is to design reward for business sustainability, balancing what is required to attract and retain the best talent, with affordability considerations.

2.2

Wage Gap (South Africa)

In this context, the Group applies the 10:10 methodology to gauge the fairness of our wage gap. The 10:10 ratio expresses the sum of the salaries of the highest paid 10% of employees as a ratio of the sum of the salaries earned by the lowest earning 10% of employees. The larger this ratio, the more inequality exists, the ratios based on 2019 South Africa salaries are as follows:

21st Century's salary database (www.21century.co.za) - (Morton & Blair, 2019)

Life Healthcare demonstrates a smaller income gap between the top and lower earners compared to both SOEs and the private sector in general.

In addition, the Company annually reviews and grants higher increases to the lowest earners as it aims to transition from applying a minimum wage to a minimum living wage. This process is supported by a focus on skills development.

2.3

Remuneration Governance

Our Human Resources and Remuneration Committee follows a systematic agenda to review remuneration strategy and overall policy. It oversees, without interfering in areas where management ordinarily have discretion, the implementation of policy over an annual cycle. This verifies that policy enables fair and equitable remuneration, and ensures sound governance. In SA we comply with King IV and draft guidelines and practice notes of the IoDSA. Formal feedback is provided to the Board annually on how the policy objectives are being achieved, and this feedback forms part of the process of obtaining approval of the remuneration report. Life Healthcare's remuneration philosophy and supporting policies are widely shared with employees.

2.4

Performance Management

The aim of our performance management process is to promote alignment of individual and team performance objectives with strategic focus areas, as follows:

• Performance management is consistently applied;
• Objectives feature both financial and non-financial indicators aligned to strategic imperatives;
• Outcomes are appropriately differentiated to reflect the different levels of contributions made by employees and constructive interventions are made to improve poor performance;
• Performance outcomes influence remuneration to ensure appropriate differentiation based on contribution and performance.

2.5

Malus and Clawback

The Company has achieved its objective, as advised in the FY2019 remuneration report, of including malus and clawback provisions in both the short and long-term incentive schemes. The scheme rules and award letters to eligible employees now include policy provisions for both malus and clawback. Funds will be recovered after following due process and will not preclude legal action in instances where actions constitute a criminal act.

In the event that a participant is found guilty following a disciplinary hearing, the payment will be withheld if not yet paid, or will be recovered from the individual with a three-year period after delivery of payment. Where bona fide errors have been made, the monies will be corrected or recovered against the ensuing incentive payment.

2.6

Company-matched shares

The Company offered a once-off opportunity of Company matched shares to the CEO on engagement and extended this opportunity to the CFO. The intention of this offer is to retain the executive as well as to encourage shareholding in the Company thereby aligning to shareholder interests. The condition being that these executives needed to personally acquire Life Healthcare shares and the Company would match the shares with a premium. The matched shares are restricted and held in an escrow account and will vest over five years, provided certain performance conditions (set out below) are met. Forfeiture of the matched Company shares will apply should the performance and employment conditions not be met.

Vesting will occur in three equal tranches, i.e. in December 2023, December 2024 and December 2025.

The total shareholding of the above purchase (personal and matched shares) represented as a percentage of guaranteed package, together with additional LHC shares held in a personal capacity as at 30 September 2020 amounts to:

• CEO 252% of annual guaranteed package
• CFO 194% of annual guaranteed package

2.7

Executive Retention

Retention shares

It was agreed that shares would be purchased for the International CEO and SA CEO to ensure retention and hence operational stability and continuity following the exit of Shrey Viranna as CEO effective 29 February 2020. The number of shares and vesting dates are reflected in the table below:

The shares are restricted and held in an Escrow account with Investec from 1 April 2020 and will vest subject to specified performance conditions being met by both executives.

The performance conditions are as follows:

2.8

Employment Contracts

Executive employment contracts for management have historically been subject to a three-month notice period and a subsequent six-month restraint of trade. These conditions apply to the CFO, however, given the fact that the Company operates globally, the Company's policy position has been changed to:

• A six months' notice period
• A three months' global restraint of trade
• A twelve months' undertaking to refrain from the recruitment of LHC employees.

These provisions have been applied to the employment contract of the new CEO and will be extended to the rest of the Group executive committee.

2.9

Non-Executive Directors Remuneration

Fees in respect of non-executive directors are reviewed on an annual basis, and a comprehensive benchmarking exercise was conducted by an independent remuneration consultant against other industry sector companies (our peer group, consisting of direct and indirect competitors) and other similar-sized JSE listed companies.

Fees are paid as a combination of a retainer and a fee per meeting to ensure alignment with emerging market practice.

To align with shareholder recommendations, the Human Resources and Remuneration Committee approved an average 5% increase across-the Board to the non-executive fees effective 1 January 2020, however, a few anomalies to market required higher increases to the following committee members' fees, which resulted in an overall increase of 7.5% for FY2020:

• Board members of the main Board, Investment and Risk, Compliance and IT Governance committees
• The Lead Independent Director (based on emerging market practice for this relatively new role)
• The Chairmen of the Audit, Nominations and Governance, Risk, Compliance and IT Governance and Social Ethics and Transformation committees.

2.10

Group Reward Integration

Over the past two years we have continued to integrate remuneration practices across countries to ensure Group alignment and application of best practice.

Alignment of international territories with Life Healthcare in terms of job grading, benchmarking principles and short and long-term incentives is in place.

Our integration efforts in the coming months will focus on organisational culture, global mobility and talent management, HR metrics, and reporting on retirement fund matters at a global level.

2.11

Remuneration Framework

We take a total reward approach to remuneration. Our remuneration framework has been designed to achieve a fair and sustainable balance between annual, short and long-term variable remuneration, where participation in short and long-term incentive schemes depend on an employee's role and level within the Group.

The King IV principles relating to fair and responsible remuneration guide application of our policy. The Remco will continue to monitor our remuneration practices to ensure that any potential for unfair bias is eliminated and fairness prevails in the attraction and retention of top talent.

The remuneration components offered in Life Healthcare include guaranteed package, short- and long-term incentives and share based incentives.

Remuneration mix

The on-target and maximum pay mix apportionment for the Group executive in Life Healthcare is graphically displayed below:

As indicated above, the relationship between the respective reward elements is illustrated on the basis of on-target and maximum potential payment in terms of incentive schemes. The maximum outperformance potential on the VCP scheme (STI) is illustrated in paragraph 2.13 below.

Details of each remuneration element are outlined below:

2.12

Guaranteed remuneration

Life Healthcare has a formal guaranteed pay progression model that rewards employees for their contribution to value creation. As an organisation it is critical that we ensure correct base pay, as guaranteed pay serves as the foundation of our reward design and is hence a crucial determinant of variable pay. Specifically, we will pay up to 75th percentile for exceptional/top performing employees, ensuring that average guaranteed pay for the Group remains anchored at market median via a symmetrical overall pay distribution. We assess three pay progression factors: comparative ratio to market rate for job, individual performance and potential. Poor performers and those whose premium positioning in range is not supported by their performance, potential or criticality of skills, will receive commensurately lower increases.

The Company makes extensive use of survey houses to support its reward benchmarking process. The services of Deloitte, PwC Remchannel and PE Corporate (Willis Towers Watson) are utilised. We typically benchmark against market median, but in respect of top talent and critical skills, our reward philosophy allows payment at the 75th percentile. In respect of the Group executives, a bespoke reward survey is provided by PE Corporate/Willis Towers Watson which takes cognisance of geographic spread, employee levels, complexity of market and the financial accountability. The survey targets companies with similar characteristics.

This pay model is supported by a disciplined and rigorous annual talent review process that focuses on both performance and potential, using best practice tools to interrogate and plot each of these dimensions. This talent process will be refined over time to ensure a robust talent identification and management practice which is shared across the Group, demonstrating factually that we out-reward top talent in a disciplined and rigorous way.

• Retirement funds
  

  South Africa

  The Company operates two defined contribution retirement funds:

  • The Life Healthcare Provident Fund
  • The Life Healthcare DC Pension Fund

  In addition, the Company operates two defined benefit funds that have been closed to new membership since 1996. The Life Healthcare DB Pension Fund provides retirement benefits for 80 active members and 226 pensioners. The Lifecare Group Holdings (LGH) Pension Fund no longer has active members. The fund has purchased an annuity policy which covers the liability to pay pensions.

  The Company-supported retirement funds offer Group life cover and disability benefits to members. Permanent disability and death are covered by lump sum payments that are underwritten by an insurer. The standard cover for new employees is three times annual salary for death and disability cover. Some historical anomalies to this standard cover exist.

  International

  Our international businesses operate a range of retirement funds in line with legal requirements and local market practice. Defined contribution pension schemes are in operation in the UK, Ireland, Germany and Holland, all of which are provided by third party pension providers, with other regions contributing to government social security plans as required by regional legislation.

• Medical aid
  

  South Africa

  It is a condition of SA employment for permanent employees earning above R10,000 per month (with effect from 1 January 2020) to belong to a Company-supported medical aid, unless membership of a spouse's medical aid can be proven. Membership of a principal member, spouse and up to two children is subsidised by the Company.

  The Company participates in the open medical scheme market and offers Medshield and Discovery Health as options to employees. In addition, medical aid membership is voluntary for employees who earn below the threshold level. However, the Company has procured a primary health benefit for employees earning below this threshold who opt not to join a medical aid. This benefit covers, via a bespoke network, doctors' consultations, medication and a certain number of prescribed minimum benefits.

  International

  Our international businesses operate a range of healthcare benefits in line with local market practice. All such schemes are provided by third party healthcare insurance providers and cover a range of benefits including private medical insurance, life assurance and permanent illness or injury insurance.

• Benefits
  

  Benefits are industry benchmarked, priced and reviewed as part of the annual salary review process. They are integrated towards wellness to drive employee effectiveness and engagement and comply with relevant legislation. In South Africa, additional specialist and market retention allowances are paid to recognise skills and to incentivise and retain employees. Other variable allowances are paid for additional services rendered.

2.13

Variable compensation plan (VCP)

• Policy
  

  The short-term incentive bonus is discretionary. Our executives and senior management receive short-term rewards aligned to our standard remuneration policy.

Measures, threshold and maximum rewards as a percentage of 'on-target' performance for all employees are as follows:

We continue to set challenging stretch targets during our budget process, where budgeted target is only achieved if executives deliver fully to plan. Thus, 95% achievement of financial targets attracts 100% of on-target reward and 100% achievement attracts 125% of on-target reward, where we benchmark our STI reward levels at 'on-target' level and thus demand excellent performance before benchmarked reward is earned.

Maximum reward is earned as follows in respect of the different measurement categories:

Maximum reward is influenced the weighting of each reward key performance area (KPA) and in respect of the Group executive, this translates to the following:

In setting targets, we are mindful that external factors, some of which are unpredictable, can influence performance. That said, we strongly believe overall sustainable performance should be evaluated and targeted, using a mix of financial and non-financial measures that are directly controllable, but equally affordable and aligned with shareholder outcomes.

The Board may apply its discretion on all payments, to mitigate the impact of unintended consequences, but this discretion is reluctantly applied and used only in exceptional circumstances. Such discretion for executives is fully disclosed in the implementation report. We apply a balanced scorecard approach which rewards achievement of short-term strategic, financial and non-financial objectives aligned to our one-year business plan.

Balanced scorecard measures are weighted differently at each level of the organisation in line with the accountability of employees and the behaviour that needs to be encouraged; and both modifiers and gatekeepers are applicable where appropriate. The introduction of the concept of the gatekeeper ensures that the scheme does not reward participants if overall performance does not justify payment. In respect of individual performance, the gatekeeper ensures that poor performers do not qualify for any payment.

• Group executive's scorecard – FY2020
  

  The Board agrees a set of objectives with the CEO and CFO at the beginning of each financial period, which includes a balance of financial and non-financial measures. In respect of H2 FY2020 the Board took cognisance of the impact of the COVID-19 pandemic and set measures appropriate to market and operational conditions.

  The detailed measures in respect of FY2020 are outlined below:

  • CEO and CFO

The outcomes for FY2020 against measures are specified in the Implementation Report.

• Chief Executive Officer’s scorecard – FY2021
  

  The CEO scorecard as approved at the Board Human Resources and Remuneration Committee for 2021 includes:

  Measure		Weighting		Performance
  Financial stability		60%		Group EBITDA	(80%)
  				Gross cash %	(10%)
  				Capex % of EBITDA	(10%)
  Clinical metrics		15%		Improve SA acute composite quality score and international clinical metrics and deploy an integrated global clinical governance structure
  Other People   Stakeholder management IT delivery Operational delivery   Strategic delivery Leadership, values, culture and teamwork		25%		Progress diversity quotient of senior management and establish clear succession plans for Group Exco Clear and constructive engagement with stakeholders Stabilise SA technology platform and monitor budget and established timelines of IT systems Ensure best practice protocols, drive nursing excellence programme and improve AMG key performance metrics Effective and precise programme oversight of key strategic imperatives Clear evidence of teamwork and removal of cultural obstacles throughout the Group

   

  Short-term incentive on target and maximum potential reward percentage of guaranteed package (%)

  The on-target and maximum** opportunity is graphically displayed below:

  

  **	To calculate the maximum percentage reward as a percentage of guaranteed remuneration, the targeted reward in terms of the STI is multiplied by the blended maximum reward, i.e. in respect of the CEO, 80% multiplied by 205.5% amounts to 164%.

• FY2020 H2 COVID-19 adjusted measures:

  The disruption to the delivery of healthcare services and the current economic climate as a result of the COVID-19 pandemic has had a significant impact on Life Healthcare. The Company obtained approval from the Human Resources and Remuneration Committee to introduce a once-off VCP dispensation for FY2020 H2 due to this disruption.

  The following changes have been applied to FY2020 H2:

  • The stated Company financial budget targets in respect of Operating Profit and Working Capital Management would remain unchanged, however the achievement of 75% of budget to qualify for payment would be waived for H2. This would acknowledge the substantial personal contributions made by management and employees over this unprecedented period.
  • Due to the COVID-19 surge impacting business units at different times, it was deemed potentially unfair to penalise managers for conditions out of their control. All scheme participants would therefore be measured on exactly the same measures and the same weightings in respect of FY2020 H2, with the exception of the personal rating.
  • The Group executive also agreed to defer their FY2020 H1 bonus to the end of the year.

• Changes in the VCP scheme for FY2021:

  The past months and the impact on COVID-19 on our business has revealed that the current reward policy is not sufficiently flexible to respond to shifting market conditions. The Company will change its current practice of two half-yearly payments to a one-year/single assessment period and this will be effective from the beginning of the new financial year, i.e. 1 October 2020. This will reduce the extent and impact of unforeseen market influences (e.g. COVID-19 pandemic) on the financial budgeting processes. Importantly, this also aligns with best market practice.

  All other financial measures will remain unchanged.

  With effect from the new financial year, the Group team performance targets will cease, and personal performance measures per executive will apply, focusing on strategic focus areas that are non-financial in nature. This will reinforce personal accountability for outputs.

2.14

Long-term incentive plan (LTIP)

• Current LTIP scheme

  The long-term incentive scheme is a notional performance share scheme with a three-year vesting period. The notional value of the performance shares is determined by the price of Life Healthcare shares on the JSE using a 30-day VWAP preceding the date of allocation.

  • The first allocation on this scheme was made on 1 January 2019 and a further allocation was made on 1 January 2020.
  • The allocation value is influenced by expected salary increases, LHC share price growth, tier and individual performance. The scheme continues to allow for enhanced allocation of performance units at allocation based on personal performance and additionally for key talent retention, via a strategic modifier. The methodology to enhance allocations are applied as follows:
    • Individual performance level prior to allocation - the Company assesses individual performance on an annual basis and applies a methodology to the allocation where on target performance results in 100% of targeted reward allocation, poor performance disqualifies from allocation and exceptional performance results in 160% of targeted allocation – this is however rarely applied. In exceptional instances, scheme rules allow for up to 2 times normal allocation. This is done typically when retention of key individuals is essential to the sustainability of the Company.

Weightings and performance conditions for our CEO and CFO for the 2020 allocation are as follows:

• Vesting

  All performance shares vest at the end of the third year (subject to performance related vesting criteria being met) and proceeds after tax will be delivered as follows:

  • South Africa: LHC shares to be purchased on the open market and transferred to participants.
  • International: The cash value will be paid to participants.

• Executive: On-target and maximum potential

  In the case of the CEO and CFO, the opportunity and maximum limit on the LTIP scheme based on an on-target allocation are as follows (see explanation below**):

  

Once an allocation is made, the performance of the Company has a significant impact on the extent to which vesting occurs. The weighted impact of maximum outperformance in all KPAs is illustrated below.

• Focus areas for future allocation
  • SA – a single composite quality score is being considered for the Life Core Purpose outcomes.
  • International – change from settlement in cash to delivery in Life Healthcare shares for future allocations
• Historical LTI scheme (introduced from 2015 to 2017)

  The historical LTI scheme was a notional performance share scheme for all senior managers and executives. Allocations were made annually and the last allocation was made in January 2017.

  The final vesting of this scheme occurred at the end of December 2019. The notional performance shares were linked to the Company's share price and the performance shares were equally split between two performance measures, namely:

The outcome of performance against vesting criteria shows that the LTIP 2017 allocation yielded only a partial vesting (80%) of the TSR component.

In South Africa, the after-tax value generated from the scheme was utilised to purchase Life Healthcare shares in the open market which is then delivered to recipients' personal trading accounts.

The details in respect of the Group executive are disclosed in the FY2020 Implementation report.

Historical LTI 2018 allocation

Once-off alternative LTI scheme 2018

As detailed in our 2018 remuneration report, the 2018 offer in terms of the 2015 LTIP scheme was not made as a result of the Company being in an extended closed period since November 2017. In order to provide a consistent pattern of long-term incentive awards, an alternative once-off long-term bonus scheme was approved by the Board to cover this period. One of the major limitations in scheme selection was the fact that we could not use any scheme that utilises the Life Healthcare share as a building block to determine the number of units awarded to participants (as a consequence of operating under a cautionary).

The once-off alternative offering is based on an additional third of the FY2018, FY2019 and FY2020 short-term bonus outcomes which will be banked and payment will be made in January 2021 to coincide with the date when the normal LTIP 2018 allocation would have vested.

The details will be provided in the 2021 remuneration report. This will be the final payment in respect of this allocation.

2.15

Other incentive schemes

• Outperformance Incentive Scheme

  The details of this scheme were fully reported in both the 2018 and 2019 remuneration reports. The final payment in terms of this scheme occurred in February 2020 and details of payment in respect of the CFO are outlined in the Implementation Report.

2.16

Share-based awards

Employee share plan (southern Africa)

Policy

The Remcom agreed to a further purchase of Life Healthcare shares to the value of R20 million for the benefit of qualifying employees this year. Despite the reduced purchase, the decrease in the share price will result in the acquisition of more shares per employee and creates a greater upside potential for participants. These shares will be held in a Trust until years 5, 6 and 7, where vesting will occur as follows, provided participants are still in the employ of the Company:

• Year 5:    25% of rights to shares
• Year 6:   25% of rights to shares
• Year 7:   50% of rights to shares

The shares, or the after tax equivalent in cash, are transferred from the Trust to the employee at vesting.

Employees who resign or are dismissed during the duration of the scheme will lose their rights to all allocations made, and their rights will be distributed equally among the remaining employees. Thus, the number of rights will increase by the time of transfer of shares to remaining employees. Good leavers, for example those who are retrenched or retire, will have the proportionate number of shares they hold at the time of termination paid out to them, less tax and costs. They will no longer participate in the employee share plan.

The scheme is fully ramped up to provide 100% vesting to each employee who have been employed since inception of the scheme.

Vesting

The vesting of 50% of the 2013 grant and 25% of the 2014 and 2015 ESP grants occurred at the end of June 2020. The majority of participants (95%) opted to sell their shares.

2.17

Once-off gratuity payment (southern Africa)

The COVID-19 pandemic caused a number of operational challenges. The State launched a major recruitment campaign for critical nursing skills and the Company lost a number of key resources, especially in the Eastern Cape region. Concurrently, whilst the Company paid all employees in full at all times, many employee households came under severe financial pressure as a result of job losses of partners or close family members. To stem the outflow of key clinical skills and assist our employees during this difficult time, the Company decided to pay a once-off gratuity bonus to all permanent employees, who do not participate in the long-term incentive scheme. This payment also served as recognition for the incredible efforts, bravery and commitment of employees during the COVID-19 surge. The value of the total payment made amounted to R45 million and was distributed equally to approximately 15 000 SA employees.