2019

Remuneration Report

Having regard to the principles of King IV and specifically the practices relating to fair, responsible and transparent remuneration, as well as the JSE Listings Requirements, this report is presented in two parts. Part 1 which contains the Remuneration Policy and provides context on the decisions and considerations taken during the reporting year and Part 2 which reports on the implementation of the Remuneration Policy during the current financial year and forward looking statement.

Our philosophy

EOH's primary remuneration philosophy is to employ and reward high-calibre and high-performing employees who subscribe to the values and culture of EOH. We recognise that people are integral to the achievement of corporate objectives and that they should be remunerated accordingly for their contribution and the value that they deliver. Executive remuneration must be fair and responsible in the context of overall remuneration in the Group.

The following contributing factors were considered when designing the remuneration model:

• Business requirements and skills development.
• Competitive market behaviour.
• Affordability.
• Links between strategy, risk and reward.
• Performance contributions and the quality of delivery.

Remuneration is set at levels that are competitive and appropriate within the specific markets and industries in which the Group operates.

Part 1: Remuneration Policy

Key principles

• A critical success factor for EOH is its ability to attract, retain and motivate the skilled and scarce talent required to achieve positive operational outcomes, strategic objectives and adherence to an ethical culture and good corporate governance. Both short and long-term incentives are used to this end and the key principles of the Remuneration Policy are as follows:
• To provide appropriate remuneration packages to attract, retain and motivate staff, while considering remuneration levels, both within EOH and benchmarks outside EOH.
• To ensure that packages are competitive as talent is mobile, both locally and globally and to take advice from external remuneration specialists from time to time to meet these objectives.
• Guaranteed remuneration is targeted broadly at the median position of the relevant market data. Annual salary adjustments are governed by factors such as the consumer price index ('CPI'), retention strategies, the producer price index ('PPI'), industry performance, contractual arrangements and affordability.
• The guaranteed remuneration package is intended to provide all employees with pay which is satisfactory given their responsibilities.
• The annual package includes the cost to EOH of all forms of remuneration, including basic salary, travel and other allowances and the advice and facilitation of retirement savings, risk insurance, life cover and medical aid scheme.
• Permanent employees are members of a defined contribution provident fund scheme - the assets of the provident funds are managed independently and do not form part of EOH's assets.
• Variable pay is often an important component of remuneration and both short term and long-term performance-based schemes are in place, in support of EOH's business strategy.
• To value and reward individual contributions:
  • the delivery-specific short-term incentives are viewed as strong drivers of performance. A significant portion of senior management's through- the-cycle reward is designed to be variable and aligned with stakeholder interests. This is prescribed by the achievement of realistic profit targets together with, where applicable, the individual's personal contribution to the growth and development of their immediate business, their division or the wider Group; and
  • long-term incentives align the objectives of management and shareholders and other stakeholders for a sustainable period.
• The option to pay a low or 'no performance' bonus should the performance of the Group, division or individual warrant it.
• In applying the above-mentioned principles, remuneration within EOH should remain within the income range associated with the applicable job profile and in accordance with market trends, qualifications, experience, knowledge and performance of the employee.
• In addition to these principles, the following additional principles apply to management and key individuals:
• The Remuneration Committee ('Remco') will approve the remuneration packages of all executive directors.
• The Remco has approved that the Group CEO is empowered to determine the remuneration packages of senior executives based on the guidelines agreed at the Remco meetings.
• Incentive scheme performance measures are assessed by the Remco – these measures include corporate performance, individual performance and financial and non-financial criteria
• Performance measures are taken into account before issuing share options in terms of the long-term share incentive schemes.
• Annual bonuses are based on Group, divisional and individual performance for the financial year.
• A principle underlying variable pay is that senior executives and managers have more influence over the outcome of the overall performance of EOH, its divisions, clusters and/or business units and hence variable pay is linked to the achievement of specified performance criteria and budgets.
• Variable pay is designed to incentivise and reward both team and individual effort and the share retention schemes serve as a tool to retain management and key staff needed to achieve the goals of a business unit and/or division.

Executive reward is by its nature individualistic and performance based. Accordingly, there is a guaranteed component of an executive's remuneration with a variable component specific to each individual's performance.

Types of remuneration models implemented

The remuneration types are based on the remuneration model below:

The details of each of the elements of the remuneration types are summarised below:

Type		Description		Components		Purpose		Eligibility		Authority
Guaranteed fixed package		Fixed Structured total cost to Company (benchmarked against independent data)		Basic salary Qualified allowances Retirement-related contributions Medical aid-related contributions Insurance and risk-related contributions Leave enhancement (MEIBC employees only)		Reflects the scope of the role Based on the level of responsibility required and skills and/or experience		All management and staff		CEO where appropriate EXCO Line of Business CEO
		Variable Performance-based criteria		Commission KPIs		Per agreement Agreed KPIs		Management and key individuals		CEO (if executive director) EXCO (where appropriate) Line of Business CEO
Short-term based incentives		Linked to agreed KPIs delivered annually measured against objectives and targets		Bonus schemes		Rewards personal performance		Management and key individuals		CEO (if executive director) EXCO (where appropriate) Line of Business CEO
				Discretionary bonus payments		Rewards individuals for specific performance which impacts Group performance		Management and key individuals		CEO (if executive director) EXCO (where appropriate) Line of Business CEO
Long-term based incentives		Share option retention schemes		The Mthombo trust		Employment equity retention mechanism to promote B-BBEE for top performing individuals		Qualifying previously disadvantaged employees and key employees		Approved by CEO Ratified by trustees
				The EOH share trust		Retention mechanism for top performing individuals		Executives Senior management Key employees		Approved by CEO/Remco Ratified by trustees
				Share Ownership Plan ('SOP')		Attraction and retention mechanism for top performing individuals		Executives Senior management Key employees		Approved by CEO/Remco Endorsed by Remco

Current retention schemes (FY19)

The Group currently has three share schemes, the EOH share trust, the Mthombo trust and the EOH SOP.

The EOH share trust

• Under the terms of the EOH share trust, up to 18 000 000 shares are reserved for share options. The share options are equity settled.
• The scheme is governed by a trust deed approved by shareholders and is a registered Schedule 14 Share Trust approved by the JSE Limited. The primary objective of the share trust is to retain highly skilled and talented individuals.
• Share options are only issued to high-performing individuals based on their contribution to the Group.
• The option strike price is the share price at the date when share options are offered less at a 40% discount.
• Share options vest in four tranches, with the first tranche being 24 months after the initial grant date.
• Vested share options will lapse 10 years after grant date: 25% vest after two years; 25% vest after three years; 25% vest after four years; and 25% vest after five years.
• The last award was made in October 2018 and is expected to vest in 2024.
• Should a person leave, any unvested share options are forfeited.
• The EOH share trust will not form part of the future remuneration structure and will be terminated once the last award vests.

The Mthombo trust

• The scheme is governed by a trust deed approved by shareholders and by the JSE Limited and was specifically introduced to promote black economic transformation. It is a B-BBEE scheme with the only participants being qualifying EOH employees.
• The option strike price is the share price at the date when share options are offered less at a 40% discount.
• Share options vest in three tranches, with the first tranche being 36 months after the initial grant date: 33,33% after three years; 33,33% after four years; and 33,33% after five years.
• Vested share options will lapse eight years after grant date.
• The last active awards are expected to conclude vesting in 2022.
• The Mthombo trust is not expected to form part of the future remuneration structure.

The SOP

• The Company reviewed the aforementioned share option schemes during the 2018 financial year, considering the context of local and global practice, shareholder feedback and the pressing need to attract, retain and engage critical talent.
• The outcome of this process was that a new share plan, the SOP, replaced the existing share option scheme (governed by the EOH share trust) as the Company's primary long-term incentive plan. The key objective of this change was to ensure the attraction and retention of key individuals in the Company, to enable a sustainable succession planning strategy and to foster better alignment between executives, staff and shareholders.
• The SOP provides employees with the opportunity of receiving shares in the Company through the award of conditional rights to shares, which vest over a five-year period, with the first tranche being 24 months after the initial grant date: 25%, after two years; 25% after three years; 25% after four years; and 25% after five years. This is subject to continued employment and the achievement of Company performance conditions, where applicable.
• All awards to executive directors and prescribed officers made in terms of the SOP will be subject to appropriate company performance conditions as determined by the Remco and disclosed annually in the remuneration report.
• Shares to settle SOP awards will be purchased in the market on vesting, and no new shares will be issued in settlement and therefore has no dilutionary impact on shareholders.
• Compared to the previous share option plan, the SOP awards are less volatile, less dilutive, more aligned with the creation of shareholder value (share price growth and dividends) and the performance conditions are linked to critical Company outcomes for which the Group's executives are accountable, including earnings growth, return on capital, cash flow, and key measures of sustainability.

The SOP was used as follows:

• Once-off awards of conditional shares to employees with unvested options under the EOH share trust to address immediate retention risks. The purpose was to replace the employees' unvested options on a fair value exchange basis. Top-up awards were also granted to selected employees on a once-off basis.
• To make annual awards to employees in line with market benchmarks.

Non-executive director remuneration

• Non-executive directors sign engagement letters with the Company which set out their duties and remuneration terms.
• The term of office of non-executive directors is governed by the memorandum of incorporation ('MoI'), which provides that directors who have served for three years will retire by rotation.
• The remuneration of non-executive directors is based on proposals from the Remco, which are submitted to the Board for approval.
• The remuneration of non-executive directors who serve on the Board and its committees is reviewed by the Remco on an annual basis and recommended to the Board for approval.
• Remuneration is compared with that of selected peer companies and is a market-related. A review of current market practice in terms of the remuneration philosophy and remuneration payable to non-executive directors was undertaken during the year under review and was based on an appropriate comparator group of similar sized organisations within the information technology ('IT') industry.
• Non-executive remuneration is paid monthly, based on an annual retainer fee and a fee paid per meeting. Fees are typically approved annually on this basis at the Annual General Meeting ('AGM').

Part 2: Implementation of Remuneration Policy

Remuneration implementation report

The purpose of the implementation report is to show how the Remuneration Policy has been applied during the year under review.

The EOH remuneration model structures remuneration in a fair and responsible manner between executives and employees. It is furthermore cognisant of the responsibility, accountability, competencies, institutional IP, performance and scarcity of skills.

The Remuneration Policy has been implemented across the Group at all levels. Excellent performance was rewarded, which ensured the retention of key talent and high performers. Conversely, poor performance was managed appropriately.

At the AGM held on 20 February 2019, EOH's Remuneration Policy and the implementation report were voted against by more than 25% of shareholders. The results of the voting were as follows:

• Remuneration Policy
  74,79% were in favour
• Remuneration implementation report 65,25% were in favour

Other than shareholder engagement at the AGM, no further shareholder concerns were received by the Remco subsequent to the meeting notwithstanding an invitation by EOH to those shareholders who voted against the aforementioned resolutions, to engage with EOH in writing.

Remuneration reviews and increases

The salaries of employees are reviewed each year. Employees' salaries are recommended by the business unit leaders and are approved by the Line of Business CEO, with line of sight provided to the Group CEO. Various macro factors are taken into account including CPI, market and trading conditions, skills shortages in specific areas and salary surveys/benchmarks. Increases are considered based on market information, organisational performance and affordability. Changes in the scope and roles of individuals are specifically considered.

The Group CEO, Group Financial Director and Group Risk Officer are employed in terms of executive employment contracts with a notice period of six months. Other executive directors and senior management are employed in terms of standard employment contracts with a notice period of three months. All directors sign restraints of trade agreements for a minimum period of 12 months following their resignations as directors.

Bonuses are paid to certain employees based on them meeting pre-determined performance criteria.

In addition to basic remuneration, long-term incentive benefits are allocated to management and key individuals who have met their key performance criteria and whom EOH wishes to retain over the long term.

Measuring performance

Performance criteria for senior management and executives were set for 2019. Criteria are set for short-term incentives based on Line of Business and Group performance. Profit before tax ('PBT') calculated net of 'working capital-related interest' targets are set and an achievement is calculated pro rata between 50% and 100%, thereafter, linear, and capped at 150%. Additional debtors days (including work in progress and revenue accruals) incentives are set and measured. The achievement excludes acquisitions and acquisition-related costs.

Target setting and weighting of bonuses for FY19	Percentage of bonus (weighting) %		Maximum payment %%
Targets are set and bonuses weighted based on certain criteria
Achievement of divisional/Group PBT after 'working capital-related interest'	70		150
Realisation of debtors' days and cash conversion	30		150

The newly appointed executive team, having joined at various points during the financial year were subject to the following criteria:

Stephen van Coller, having been bought out of an existing contract joined with guaranteed payment of R10 million, paid in two equal tranches in October 2018, and October 2019. Mr Van Coller was awarded 1 million share options on joining EOH.

Megan Pydigadu was awarded 62 020 shares upon joining EOH with a guaranteed FY2019 bonus of R2 million.

Fatima Newman, having been bought out of an existing contract joined with a guaranteed payment of R3 million and a guaranteed FY2019 bonus of R4 million.

From FY2020, all executive directors bonus payments will be based on individual and company performance.

Executive directors and prescribed officers' remuneration

Figures in rand thousand	Remuneration##		Bonuses		Total		Share-based payments charge
Executive directors/prescribed officers
Stephen van Coller (appointed 1 September 2018)	5 026		14 000#		19 026		5 490
Megan Pydigadu (appointed 15 January 2019)	2 201		2 000		4 201		307
Fatima Newman (appointed 31 July 2019)*	1 334		7 000#		8 334		–
Lufuno Nevhutalu*	1 994		2 000		3 994
John King (resigned 3 October 2018)	5 849		1 785		7 634		1 272
Zunaid Mayet (resigned 12 July 2019)	3 875		2 520		6 395		1 144
Tebogo Maenetja (resigned 31 March 2019)	2 380		800		3 180		–

#	Includes previous employer buy-out of bonus contract of R10 million and R3 million in relation to Stephen van Coller and Fatima Newman respectively.
*	Prescribed officers.
##	Includes medical aid, death and disability insurance, unemployment insurance fund (‘UIF’) and any amounts paid on resignation.

Share-based payments

	Outstanding at 31 July 2018 or date of appointment	Weighted average strike price (Rand)	Forfeited	Shares granted during the period		Weighted average strike price/share price (Rand)	At 31 July 2019
Executive directors
Stephen van Coller	–	–	–	1 000 000		21,08	1 000 000
Currently exercisable	–		–			–	–
Exercisable in one year	–	–	–			–	–
Exercisable between two and five years	–	–	–	1 000 000		21,08	1 000 000
Megan Pydigadu	–	–	–	62 020		32,98	62 020
Currently exercisable	–	–	–			–	–
Exercisable in one year	–	–	–			–	–
Exercisable between two and five years	–	–	–	62 020		32,98	62 020

Non-executive director fee adjustments

Following the extensive Group-wide strategic review initiated by EOH which necessitated numerous additional Board and committee meetings and several additional hours of time spent on EOH matters since March 2019 by non-executive directors, the non-executive director fees were reviewed by the Remco and the Board and subsequent to the financial year end being reported on amendments were proposed to shareholders. In addition, fees payable to the independent non-executive Chairperson and the lead independent non-executive director were proposed in order to ensure that these non-executive directors are remunerated appropriately for their services. A general meeting is due to be held to approve these amendments to non-executive directors' remuneration.

Details of the actual fees paid during the year are as follows:

Non-executive directors' fees

Figures in rand thousand	For services as Director		Total		Share-based payments charge
Non-executive directors
Xolani Mkhwanazi (appointed 5 June 2019)	134		134
Jesmane Boggenpoel	775		775
Ismail Mamoojee	797		797
Moretlo Molefi	494		494
Anushka Bogdanov (appointed 20 June 2019)	166		166
Andrew Mthembu (appointed 20 June 2019)	131		131
Mike Bosman (appointed 20 June 2019)	156		156
Asher Bohbot (resigned 28 February 2019)	485		485		887
Pumeza Bam (resigned 12 July 2019)	526		526		81
Tshilidzi Marwala (resigned 28 February 2019)	157		157
Rob Sporen (resigned 28 February 2019)	193		193

Forward looking statement

The Group went through a significant business transformation process during 2018 and 2019, resulting in a new business operating model and strategy going forward. In addition, there were significant changes to the leadership of the organisation, both at Board level and the executive management level. These changes impacted the composition of the Remco during the year under review and an enhanced focus on remuneration will be prioritised during the upcoming financial year.

Against the backdrop of the organisational changes and taking into consideration the feedback received from shareholders in the previous AGM which took place on 20 February 2019, where the Remuneration Policy was voted against by more than 25% of EOH's shareholders, the Board committed to review the Remuneration Policy including employee retention schemes. EOH retained Vasdex Remuneration Specialists ('Vasdex') to review executive and senior management incentives, both short and long term and redesign the incentive schemes as necessary. Several shortcomings were identified in the existing schemes including that the focus was based purely on share price growth, which lost its relevance in terms of connection to individual performance and therefore had limited ability as a retention tool. Alongside this, the remuneration schemes were not consistently and transparently performance based.

The work undertaken by Vasdex has resulted in the formulation of a new approach to STI and LTI which will be implemented at the end of the financial year 2020 with awards under the new share plan commencing from August 2020.

A primary area of focus for the Remco for the upcoming financial year is to revise the current Remuneration Policy to ensure Group-wide fair, responsible and transparent remuneration in line with best practice.