1. Global and Local Remuneration Trends 13 May 2010

2. 2 Growt_ & P_ofit The world’s most successful companies have this one figured out

3. 3 Top 15 Reward Trends 1. Employee Engagement 2. Total Reward Approach 3. Retention Trends 4. Linking Pay to Performance 5. New Long Term Incentives 6. Non-Financial Rewards 7. Globalisation 8. Governance 9. More Flexibility and Reward preferences 10. Setting Non-Executive Director (NED) Pay 11. Rewards for Creativity 12. Dual Career Paths and Flat Structures (Broadbanding) 13. Media Scrutiny 14. HR, Reward and the Bottom line 15. Branding and EVP

4. 4 1. Employee Engagement... Advocacy Commitment Motivation SatisfactionEngagement

5. 5 Six Categories Drive Employee Engagement People Senior Leadership Manager Coworkers People Focus Customers Total Rewards Pay Benefits Recognition Company Practices People/HR Practices Managing Performance Brand Alignment Organization Reputation Work Tasks Sense of Accomplishment Resources Work Processes Work Opportunities Career Opportunities Learning and Development Quality of Life Work/Life Balance Physical Work Environment

6. 6 Employee Engagement (cont.) The Big 5: Employee Engagement 1. Recognise and reward superior performance 2. Establish a learning environment 3. Create knowledge sharing 4. Manage the culture of change 5. Provide opportunities to grow and develop

7. 7 30% - 150% of annual salary Accountant = R250,000 (median annual salary 2009) =R250,000 x R30% =R75,000 Engagement and the Bottom Line 10 – 6 – 2 10 : 9 Every 10% improvement in commitment can increase an employee’s effort level by 6%, which can improve an employee’s performance by 2% (10-6-2 rule). Every 10% improvement in commitment can decrease an employee’s probability of departure by 9% Source: Corporate Leadership Council, Driving Employee Performance and Retention through Engagement.

8. 8 TOTAL REWARDS STRATEGY Remuneration Benefits Work-Life Performance & Recognition Development & Career Opportunities Attract Motivate Retain Employee Satisfaction & Engagement Business Performance & Results Business Strategy Human Resource Strategy Organisational Culture 2. Total Reward Approach REF: W@W 2008

9. 9 Remuneration Definitions and Terminology Base / Basic Salary + Long-term Incentive + Short-term Incentive Total Earnings / Total Cost to Company + Car Benefit + Other Benefits + Cost of employee benefits Guaranteed Package / Total Guaranteed Package Variable Pay Base / Basic Salary Fixed Pay Total Remuneration / Total Cost of Employment Rolling Incentive

10. 10 Total Packages concept continues to be a trend There are few tax reasons for going this route, but many other advantages of doing so Total Package Approach Main Reason EmployerEmployee Cost containmentFlexibility

11. 11 3. Retention Trends Retention of critical skills and top executives is a top driver of remuneration policy and strategy People join companies and leave bosses It is all about engaging top talent Once all the hygiene factors are sorted out, then one can turn to remuneration Remuneration is 25% of the stay decision BUT, remuneration is the ticket to the game – it has to be right

12. 12 Retention – Remuneration Options Market Stance Restraint of trade payment Sign-on bonuses/Retention bonus Sign-on Loans Rolling or banking of bonus incentives earned Flexibility Post retirement benefits Long-term incentives (LTI) Short-term incentives (STI) Deferred compensation

13. 13 4. Linking Pay to Performance Movement away from discretionary bonus plans (determined by the Board after the fact) to target based plans (where specific performance requirements and contingent reward outcomes are set in advance) Targets are both quantitative and qualitative Not just what was paid – how did you earn it?

14. 14 Short Term Target and Stretch Targets Percentages by Level Short-term incentive payment trends as a % of guaranteed package TitlePerformanceLower quartileMedian quartile Upper quartile 90 th quartile CEOOn target 30%50%70%200% Stretch 50%75%100%500% Top Executive – Reporting level 1 On target 20%35%60%100% Stretch 35%60%80%200% Senior Management – Reporting level 2 On target 15%25%50%75% Stretch 25%50%70%100% Middle Management – Reporting level 3 On target 10%20%35%50% Stretch 17%30%60%75% Advance OperationalOn target 5%10%15%20% Stretch 10%15%25%35% Operational & PrimaryOn target 5%8.3%10%15% Stretch 8.3%10%15%20%

15. 15 5. New Long Term Incentives With the introduction of AC 139/IFRS2, companies need to evaluate different share valuation models and select one that is most appropriate to their circumstances Although AC139/IFRS2 does not prescribe share valuation models (nor offer more than cursory guidelines as to their application), the onus regarding fair valuation rests squarely on the shoulders of the external auditor as part of the fiduciary responsibility to certify the fairness of the company’s financial statements Section 8C of the Income Tax Act

16. 16 Allocation Multiples for Employee Share Participation Schemes Decision making level Paterson Grade RolesOptions as a multiple of guaranteed package Lower quartileMedianUpper quartile Strategic Intent F UpperGroup CEO4X6X8X F LowerTop Executive – Reporting level 1 2X4X7X Strategic Execution E UpperGeneral Manager – Reporting level 2 1.5X3X5X E LowerSenior Management – Reporting level 3 1X2X3X Middle Management E UpperReporting level 40.5X1X2X

17. 17 Options/Share as a Percentage of Package Decision makingEligibilityPaterson Grade RolesOptions as a multiple guaranteed package Lower quartile Median quartile Upper quartile Top Management, Strategic Intent 90%F UpperGroup CEO56%83%111% 85%F LowerTop Executive - Reporting level 1 28%56%97% General Management, Strategic Execution 80%E UpperGeneral Management – Reporting level 2 21%42%69% Senior Management, Strategic Execution 70%E LowerSenior Management – Reporting level 3 14%28%42% Middle Management, professionally qualified and experience specialists 40%D UpperReporting level 4 7%14%28%

18. 18 6. Non-Financial Rewards Recognition Clearer career paths Development opportunities Job enrichment Tuition of choice Mentoring and coaching Internships Rotation and Learning

19. 19 lternatives to cash

20. 20 Your Total Rewards Inventory Work-Life Workplace FlexibilityPaid and Unpaid Time off Community Involvement  Flex-Time  Maternity/Paternity Leave  Community Volunteer Programmes  Telecommuting  Adoption Leave  Matching Gift Programmes  Alternative Work Sites  Sabbaticals  Shared Leave Programmes  Compressed Work Week  Disaster Relief Plans  Job Sharing  Sponsorship Grants  Part-Time Employment  In-Kind Donations  Seasonable Schedules

21. 21 Your Total Reward Inventory Work-Life (cont) Caring for dependents  Dependent Care Reimbursement Accounts  Dependent Care Reimbursement Travel- Related Expense  Dependent Care Referral and Resources Services  Dependent Care Discount Programmes or Vouchers  Emergency Dependent Care Services  Childcare Subsidies  On-Site Caregiver Support Groups  On-Site Dependent Care  Adoption Assistance Service  After-School Care Programmes  Scholarship Information  Scholarships  Privacy Rooms  Holiday Camps & Activities  Special Needs Childcare  Disabled Adult Care  Geriatric Counselling  In-Home Assessments for Eldercare

22. 22 Your Total Reward Inventory Work-Life (cont.) Health and Wellness  Employee Assistance Programmes  Onsite-Fitness Facilities  Discounted Fitness Club Rates  Weight Management Programmes  Smoking Cessation Assistance  On-Site Massages  Stress Management Programmes  Voluntary Immunisation Clinics  Health Screenings  Nutritional Counselling  On-Site Nurse  Business Travel Health Services  Disability Management  Return to Work Programmes  Reproductive Health/Pregnancy Programmes  24-Hour Nurse Line  On-Site Work-Life Seminars  e.g. Stress-Reduction, Parenting, etc.  Health Advocate

23. 23 Your Total Reward Inventory Work-Life (cont.) Financial SupportVoluntary BenefitsCulture Change Initiatives  Financial Planning  Long Term Care  Work Redesign  Adoption Reimbursement  Auto/Home Insurance  Team Effectiveness  Transit Subsidies  Pet Insurance  Diversity/Inclusion Initiatives  Legal Insurance  Woman’s Advancement Initiatives  Identity Theft Insurance  Work Environment Initiatives  Employee Discounts  Multigenerational Initiatives  Concierge Services

24. 24 Your Total Reward Inventory Performance and Recognition PerformanceRecognition  1 on 1 Meetings  Service Awards  Performance Reviews  Retirement Awards  Project Completion/Team Evaluations  Peer Recognition Rewards  Performance Planning/Goal Setting  Spot Awards  Managerial Recognition Programmes  Organisation-wide Recognition Rewards  Exceeding Performance Rewards  Employee of the month/year Rewards  Appreciation Luncheons, Outings, Formal Events  Goal-Specific Awards i.e. quality, cost- saving  Employee Suggestion Programmes

25. 25 Your Total Reward Inventory Development and Career Opportunities Learning OpportunitiesCoaching/MentoringAdvancement Opportunities  Tuition Reimbursement  Leadership Training  Internships  Tuition Discounts  Exposure to Resident Experts  Apprenticeships  Corporate Universities  Access to Information Networks  Overseas Assignments  New Technology Training  Formal/Informal Mentoring Programmes  Job Advancement/Promotion  On-the-Job Training  Internal Job Postings  Seminars and Conferences  Career Ladders and Pathways  Virtual learning  Succession Planning  On/Off Ramps through Career Lifecycles  Job Rotations

26. 26 Remuneration Trends 7. Globalisation Act local Think Global

27. 27 Glopats want to know that: Their pay is competitive They will not be worse off (and that hardship is taken into account) Living standards are upheld Their purchasing power parity (PPP) index is upheld Sufficient and adequate pension arrangements are made

28. 28 8. Governance More focus on independence of NED’s Learning to strike the balance between good governance and being too transparent The question being asked is: “If we disclose all our remuneration data, schemes and how they operate, we are giving our competitive advantage away” King III implemented

29. 29 9. More Flexibility and Reward Preferences More flexible working arrangements for employees and the organisation Five year contracts with handsome “completion” bonuses are increasingly popular in South Africa, and this approach serves several goals Reward preferences by Life Cycle, MBTI

30. 30 Generations, now life cycle and Reward GenerationsVeterans (born before 1940 Baby Boomers (1940-1960) Generation X (1960-1980) Generation Y (1980-2000) Reward practice – what each generation values from an organisation Extra days leave Sponsor education programs Recognition schemes Services for staff Challenging projects Flexibility Fun Workplaces Good Guaranteed packages and short-term incentives Non-financial incentives Reward Meaningful work “Grand Celebrations”

31. 31 Why do we call the last long generation Y. I did not know, but a caricaturist explains it eloquently below... Learned something new!

32. 32 Personality type and reward preference Nienaber & Bussin, 2009

33. 33 Reward categories influencing attraction, motivation and retention of employees AttractRetainMotivate Monthly Salary/guaranteed remuneration 73.5% 19.7%9.8% Variable Pay5.4%22.1%29.7% Benefits3.1%7.0%1.8% Performance & career management 8.9% 27.0%34.3% Quality of work environment1.8%3.3%6.2% Work/home integration7.3%20.9%18.1% 100% Nienaber & Bussin, 2009

34. 34 10. Setting Non Executive Director (NED) Pay Should they all earn the same Should they get shares to align with agency theory? Should they get an incentive bonus to reward great decisions? The trend will be to differentiate NED pay

35. 35 A typical NED Pay Model Organisation size, complexity, impact, strategic level Lower quartile/P25 Median quartile/P50 Upper quartile/P75 90 th quartile/P90 AR 900 000R 1000 000R 1100 000R1200 000 BR 700 000R 800 000R 900 000R 1000 000 CR 500 000R 600 000R 700 000R 800 000 DR 300 000R 400 000R 500 000R 600 000 ER 100 000R 200 000R300 000R 400 000 KnowledgeExperienceTrack RecordReputation Executive Factors

36. 36

37. 37 11. Rewards for Creativity If people bother to put forward suggestions, they should be recognised for this effort If everyone gets into the habit of making a creative effort then, there will be valuable ideas It is at least as important to motivate people who do not see themselves as creative to become creative, as it is just to choose already creative people

38. 38 Paying for This There is a wide range of payment plans ranging from: A pharmaceutical company is paying a maximum of R 10 000 per idea An FMCG pays R 500 000 for the best idea of the year A consultancy lets you choose your own reward A bank pays R1m for the best idea

39. 39 12. Dual Career Paths and Flat Structures (Broadbanding) Broadbanding is hugely seductive to organisations who want to become HPO’s (High performing organisations). The reason is that the million of hours spent doing job grading and fighting about miniscule changes in the job description leading to non-value-add- upgrades can now be spent on performance.

40. 40 SST - Dual Career Path Approach PATERSONSSTLINE Specialist F5 E4 D3 C Upper2 C Lower1 B1 A1 TOP MANAGEMENT SNR. MNGT GROUP / FUNCTIONAL / ADVISOR MIDDLE MNGTPROFESSIONALS / SPECIALIST FIRST LINE SUPERVISORS TECHNICIAN / PRACTITIONER ADVANCED OPERATIONAL OPERATIONAL SKILLS PRIMARY SKILLS DESCRIPTIONS SI - Corporate strategic direction and policy sign- off SE - Translation of corporate direction into organisation planning & management MP - Translation of organisation plans into functional plans and best practice systems SP - Optimizing a given system to achieve plans AO - Solving a range of technical problems within a recognized technical discipline through the appropriate use of tools O - Routine application of industry specific tools and equipment which require training but not discipline apprenticeship P - Routine task orientation using simple tools and equipment normally of a manual nature

41. 41 Retention - Skill Categories Critical Skills: Skills critical to sustain its business objectives. It is essential that these skills are in place to ensure business continuity Scarce Skills: Determined by the demand and supply of a particular skill in the market. The situation changes over time when the skill pipeline facilitates more people acquiring this level of skill High Fliers: Consistently high performers as per performance standards Core Staff: Employees who work in the operational areas Support Staff: Employees who work in non-core or support areas

42. 42 PATERSON BAND DESCRIPTER F Top management EU General Management EL Senior management / Specialist DU Middle management / Senior Professional DL Management / Professional CU Supervisory / Advanced Operational CL Technical / operational BU Administrators/ Operational BL Clerical A Basic skills General/ Manager Specialists Professional “ Phd” Engineer Principal Engineer Senior Engineer Engineer Graduate Engineer (Trainee) Resource/Technical Management Engineering Management Traditional Management Critical Skills

43. 43 P50 MAX MID MIN Scarce Skills cont... Employee A Employee B Employee C 10% Scarce Skills Allowance Employees A, B and C all get an allowance calculated from the MIDPOINT of the salary scale irrespective of where they are paid relative to their peers

44. 44 Executive Pay – too much or too little? 13. Media Scrutiny

45. 45 Most Common Determinants of Pay Organisation Size - turnover, number of employees, value of assets Organisation Performance - profitability, return on investment, value added Executive Specific Factors - Age, experience, tenure, career path Organisation Structure - Holding, subsidiary or single unit company, capital or labour intensive Job or Position Specific Factors - level of decision making, consequence of error, organisation level Job Complexity

46. 46 Considerations when choosing market comparators: Holding, subsidiary or single unit organisation Private, public or state owned enterprise Monopoly or many competitors Complexity of industry or market Listed or not Local listing only (JSE) or overseas listing e.g. LSE, NYSE or both Organisation size in terms of turnover, budget, profit, assets, market cap, number of employees

47. 47 Considerations when choosing market comparators (cont.): Job content, not just position title Job size – not all CEO job sizes are the same Performance of organization in terms of financials, shareholder return, strategic vision, people management practices Geographic footprint Ownership structure Extent of regulation

48. 48 14. HR, Reward and the Bottom line Ref: Watson Wyatt

49. 49 The higher the company’s HCI score, the higher the TSR

50. 50 The Watson Wyatt HCI “Global Truths” Companies with superior human capital practices can create more than double the shareholder value than companies with average human capital practices Companies have better TSR if they have:  Clear Rewards and Accountability – delivering a 16.5 to 21.5%  Excellence in Recruitment and Retention – delivering a 5.4 to 14.6%  A Collegial, Flexible Workplace – delivering a 9.0 to 21.5%

51. 51 The Watson Wyatt HCI “Global Truths” (cont.)  Communication Integrity – delivering a 2.6 to 7.1%  Focused HR Technology – delivering a 4.2 to 6.5%  Prudent Use of Resources – potentially draining shareholder value by as much as 14.5 to 33.9% The Bottom line: Great people management equals great shareholder value Great people management is universal Great HR can be a true source of competitive advantage

52. 52 15. Branding / EVP Branding Is there a remuneration discount when you work here? How much?

53. THANK YOU THANK YOU for this opportunity to be with you