Remuneration report

"We pay at or above market levels to make sure that we get the best people, and we then rigorously tie remuneration to performance.

This year we built on the sound remuneration governance platform already established. We implemented international best practices from Vodafone after adapting them for our markets. We also continued to apply the King III governance principles."

Thoko Mokgosi-Mwantembe, Chairman of the Remuneration Committee

Introduction

This report explains Vodacom’s remuneration policy for non-executive directors and executive directors.

The Board recommends the fees for non-executive directors to shareholders for approval at the annual general meeting ('AGM'). The Group's Remuneration Committee ('RemCo') determines the policy for remunerating executive directors on the same basis as other Group executives.

In line with the principles of King III, we have disclosed the individual remuneration of our executive directors and the three most highly paid executives (non-directors) working in South Africa ('disclosed employees') based on their remuneration for the 2011 financial year.

Remuneration Committee

Role of RemCo

Our Board is responsible for the Group’s remuneration policy and applies it with RemCo’s assistance. RemCo operates according to a charter approved by the Board in February 2009. The charter is reviewed regularly.

RemCo's roles and responsibilities include:

•	determine, agree and develop the Group’s remuneration policy;
•	determine and agree the remuneration packages for the Chief Executive Officer, Chief Financial Officer and any other executive director on the Board;
•	ensure competitive reward to facilitate the recruitment, motivation and retention of high performance employees at all levels in support of corporate objectives and to safeguard stakeholder interests;
•	determine and recommend to the Board the level of fees for non-executive directors;
•	review and recommend to the Board the relevant performance measures for executives;
•	consider other special benefits or arrangements of a substantive financial nature;
•	review promotions, transfers and termination of employment policies; and
•	ensure compliance with applicable laws and codes.

The RemCo Chairman reports to the Board after each RemCo meeting and attends the AGM to take questions from shareholders on RemCo’s areas of responsibility.

External advisers

In 2011 PwC advised RemCo on fee levels for non-executive directors and general remuneration.

Key developments

During the year, RemCo completed the following:

•	reviewed developments in local and global best practice;
•	approved increases and adjustments for executives and senior management, as well as all other employees;
•	approved STI;
•	approved LTI award levels and performance target;
•	approved fee levels for non-executive directors; and
•	set performance conditions for STI and LTI for 2012.

Remuneration policy

We aim to attract, retain and motivate executives of the highest calibre, while at the same time aligning their remuneration with shareholder interests and best practice. Our approach to reward is holistic, balanced across the following elements:

•	a guaranteed package;
•	variable pay in the form of short- and long-term incentives;
•	performance management;
•	individual growth and development; and
•	a stimulating work environment.

Our policy is to reward our executives for their contributions to our strategic, operating and financial performance. To thrive in our industry we need to develop and retain top talent, critical skills and intellectual capital.

Our yearly review of director and employee remuneration is benchmarked to the market and then is awarded according to individual performance and potential. This is determined through our talent and performance management processes. The outcome influences the award of short- and long-term incentives.

for more information on talent management.

The short-term incentive, a yearly cash bonus, is linked to achieving financial, operational and strategic objectives. The pool available for short-term incentives is determined by the performance against targets. The proportion paid to individual directors and senior management depends on their performance against the operational and strategic objectives in their performance contract. The individual is also assessed in relation to the principles of the Vodacom Way.

The long-term incentive, a yearly share allocation, helps to retain valued staff. It is designed to align executive performance to shareholders' interests. Participants receive dividends from the award date and the shares can be realised after a three-year vesting period.

Summary of executive remuneration structure

Element	Type	Objective
Guaranteed package (‘GP’)	Fixed	Reflects the scope and nature of the role, experience required and performance expected.
Short-term incentive (‘STI’)	Variable	Motivates and rewards achievement of performance objectives.
Long-term incentive (‘LTI’)	Variable	Helps to retain key skills by linking to long-term value creation.

RemCo reviews the total pay mix of executives every year. It decides on the proportion of total remuneration paid as part of the GP, or as STI and LTI. Each of these elements is linked to creating shareholder value and the strategic progress made in the year.

To make sure we remunerate executives competitively, we use industry and country benchmarks. Fair and competitive reward is vital to being an employer of choice. RemCo sets the total remuneration and the GPs of executives by looking at peer group data from the JSE telecommunications sector and other listed companies of similar market capitalisation and revenue. The peer group excludes financial services and foreign companies, which apply a very different pay mix. The peer group comparison helps to lower the risk of losing skilled executives to competitors in the industry as well as to other large corporates due to uncompetitive remuneration packages.

RemCo's policy is to set GPs for executives at the 60th percentile relative to peer group companies. This has been consistently applied across the Company with key and scarce skills also benchmarked at the 60th percentile, and other staff at the median. The higher level of GP for key employees helps to attract and retain the best available talent in the market. This is most important in South Africa where certain skills are scarce. Attracting and retaining the best available talent helps to create a stable workforce able to deliver long-term shareholder value.

In 2012 we plan to align with the Vodafone policy with respect to pay levels in relation to the market. For executives the proposed pay level is the 66th percentile for GP and the upper quartile for total target cash (GP plus on-target STI). For other employees, the benchmark is the median for GP and 66th percentile for total target cash. The target range for all remuneration is 80% to 120% of the relevant benchmark.

No other material changes to our remuneration policy have been proposed for the 2012 financial year.

Guaranteed package

All employees, including executive directors, receive a GP based on their roles, individual performance and Group performance. Contributions to retirement and insured benefits are included in the GP.

All permanent employees, including executive directors, have to join the Vodacom Group Pension Fund, a defined contribution pension scheme. Executives also participate in the Vodacom Group Executive Provident Fund, a defined contribution provident scheme.

Normal retirement age is 60 for executive directors and other executives. For all other employees it is 65. Employees can choose to participate in a nominated medical aid scheme. We do not offer post-retirement medical benefits and have no such liabilities.

Increases for executive directors and other employees are based on a review of market data, business affordability and consideration of their individual performance and potential. When the package is reviewed it is done so in the context of individual and Company performance, internal relativities, criticality of the individual to the business, experience and the scarcity or otherwise of talent with the relevant skill set. Macroeconomic data, such as current and expected inflation is also considered.

Guaranteed package

	At 31 March		% change
R	2011	2010	10/11
PJ Uys	6 862 500	6 325 000	8.5
MS Aziz Joosub¹	5 800 000	4 900 000	18.5
RA Shuter	4 882 500	4 500 000	8.5

Note:

1.	MS Aziz Joosub received an increase of 8.5% to R5 316 500, in line with the other executive directors. He subsequently received a further increase of 9.1% to R5 800 000, as a result of his appointment as CEO of Vodafone Spain (which will be recovered from Vodafone Spain).

The pay review date for executives was changed from 1 April to 1 July for the 2011 financial year. The average increase in the GPs paid to executives was 8.5%. This was made up of a 7.0% increase in line with the Company average and 1.5% as a result of the later review date.

RemCo approved increases of 4.3% from 1 July 2011 for executives, compared to the average salary increase to be paid to all employees of 5%.

No changes were made to the GP policy in 2011.

Short-term incentives

All employees, including executive directors but excluding employees on a commission or quarterly or bi-annual bonus structure, participate in a yearly STI plan. STI payments are discretionary and depend on financial performance and individual contribution. Payments are made in cash during June each year.

Where annual targets are achieved in full, 100% of the bonus will be paid. In instances where target goals are exceeded, the cash bonus is capped at a percentage of the GP. Where the bonus targets are not achieved in full, a pro rata bonus is paid only if the threshold performance level has been achieved.

Payments to executives at target and stretch levels are as follows:

Position	% of GP at target	% of GP at stretch
Executive directors¹	75	200
Disclosed employees	60	180

Note:

1.	Includes the CEO.

The STI for executives for 2011 was based on financial targets, set by RemCo, of:

	service revenue (30% weighting)
	EBITDA (20% weighting)
	operating free cash flow (20% weighting)
	competitive performance (30% weighting)

The weightings aligned the STI paid to our strategic focus on service revenue growth and market performance. For executives, targets are split between the relevant operating company and the Group.

There is some overlap between financial targets for the STI and LTI incentives. Both include competitive performance, which is critical to our business in the short- and long-term.

Executives' STI are based on business performance and individual targets. Two of the four targets were met, of which one was exceeded and two were missed but still well above threshold.

STI

	Year ended 31 March	% increase	% of GP
R	2011	10/11	2011
PJ Uys	6 445 123	55.2	93.9
MS Aziz Joosub	7 233 817	51.8	124.7
RA Shuter	5 419 282	108.5	111.0
Disclosed employee 1	1 734 000	(41.3)	60.0
Disclosed employee 2	3 474 939	(14.0)	91.9
Disclosed employee 3	3 116 148	4.0	92.6

The same measures will be used in 2012, with a 25% weighting for service revenue and EBITDA, 20% for operating free cash flow and 30% for competitive performance.

Long-term incentives

These incentive plans aim to retain key skills and motivate executives over the long term, which is essential to sustainable performance.

Forfeitable Share Plan (‘FSP’)

The FSP, introduced in 2009, is our main LTI plan. Although it is focused on executives, other employees may be selected to participate. Non-executive directors are not eligible to participate in the FSP.

Shareholders adopted the FSP at the AGM on 31 July 2009. Its purpose is to give executives the opportunity to own shares in Vodacom through yearly grants of forfeitable share awards. This means they receive shares (with dividends and voting rights) on the date of award, subject to restrictions and the risk of forfeiture during a three-year vesting period. For executives, 50% of the award depends on meeting business and individual targets. If the targets are not met, this portion is forfeited.

FSP awards were granted on 1 July 2010, 8 November 2010 and 11 March 2011. A portion of these shares depend on meeting targets for EBITDA less capital expenditure and South African revenue market share from 1 April 2010 to 31 March 2013. Equal weighting is applied to these targets. For executives, 50% of the awards granted in the prior year is subject to similar performance conditions for the prior three-year period.

RemCo considers the targets to be in line with Group strategy and market conditions.

The vesting of awards with performance conditions is on a sliding scale of 20% vesting at threshold performance, 60% at target and up to 100% at maximum performance.

The standard expected value of FSP awards, as a percentage of the GP at target level is shown below.

Individual	Expected value as % of GP
CEO	90
Other executive directors	48
Disclosed employees	31 – 33

The standard awards are multiplied by 0% to 200% according to individual performance and potential. Executive participation in the FSP is shown below.

	Awarded in 2011		Balance at 31 March 2011
	Number	Value % of GP	Number
PJ Uys	138 822	90	337 823
MS Aziz Joosub	101 508	94	269 200
RA Shuter	107 570	112	230 524
Disclosed employee 1	40 287	78	108 366
Disclosed employee 2	22 551	34	76 423
Disclosed employee 3	38 412	36	117 310

Awards higher than the policy level include instances where share awards were made due to the conversion of the termination benefit discussed in 'Executive contracts and policies: Service contracts'.

Only one performance target will be used in our 2012 financial year, which is cumulative operating free cash flow over the three year performance period. Awards are expected to be made in June 2011.

Deferred bonus incentive scheme (‘the scheme’)

All permanent employees were eligible for the scheme prior to 1 April 2009. The allocations were subject to a three-year vesting period with a further three years in which to exercise them. The exercise price was based on the Group’s consolidated operating profit after adjusting for certain items.

No share allocations have been granted under the scheme since 1 April 2009. Unvested and unexercised allocations remain in effect and will be settled in cash by 2014.

The YeboYethu Employee Participation Trust (‘the trust’)

In July 2008 YeboYethu acquired 3.44% of Vodacom SA in our R7.5 billion BBBEE transaction. All permanent South African employees were able to participate in the trust. Some 75% of the 1.875 billion units available to the trust were allocated to employees in September 2008. The remaining 25% was set aside for future employees on a sliding scale over the next six years. The allocation is weighted 70/30 in favour of black employees. The trust’s seven-year maturity period ends in August 2015. In March 2016 the allocated units will be converted into YeboYethu shares after taking into account the notional vendor financing provided by Vodacom SA. We aim to then facilitate the sale of these shares to members of the black public.

Executive contracts and policies

Service contracts

Prior to November 2009 executives had two-year rolling contracts entitling them to one year’s GP for every four years of service up to a maximum of 16 years on termination of employment. This benefit was subject to a 12-month notice period.

The benefits accrued up to 26 November 2009 and were based on the number of years of service payable on termination of employment. Apart from money market interest, no further termination benefits accrued after this date. In consideration of this amendment, executives were granted an additional number of shares under the FSP (with no Company performance conditions) in November 2009 and July 2010.

Executives now have contracts of permanent employment with six-month notice periods.

Restraint of trade agreements

A restraint of trade and sign-on bonus was paid to Rob Shuter on his appointment in July 2009. He was required to remain in the employment of the Group for two years following the payment, and would be required to repay a pro rata portion of the payment if he does not serve the full period.

Non-executive directors

Our business benefits from active non-executive directors who do a lot more than attend meetings.

Non-executive directors therefore get a yearly fee for their services on the Board and committees rather than a fee for meetings attended.

The Board considered the King III recommendation that fees for non-executive directors consist of a base fee as well as a fee per meeting. In light of the attendance record of our current non-executive directors, it was decided not to change the policy of a set annual fee. This policy will be reviewed yearly with due consideration of attendance records.

In the case that non-executive directors are requested to resign there is no contractual compensation for loss of office. Non-executive directors do not receive STI or LTI. RemCo reviews their fees in line with market benchmarks and recommends fee levels to the Board. Our articles of association state that shareholders must approve these fees at the AGM. The current fee level was approved on 30 July 2010.

Two separate sub-committees of the Nomination Committee reviewed non-executive director fees to make sure no one reviewed their own remuneration. With the Board fully constituted for a full financial year as a listed company, the committee requested a detailed benchmarking exercise against an appropriate peer group in setting the fee level for the 2012 financial year.

PwC conducted the benchmarking study early in 2011. The peer group included companies with a market capitalisation and revenue similar to ours. The mid to 66th percentile was set as the target range for fees.

for fees proposed for approval at the AGM.

The annual fee paid to the Chairman of the Board includes all committee fees. No additional fees are paid for any special Board meetings held.

Shareholdings

for details of the beneficial interests of directors and disclosed employees in Vodacom ordinary shares.

Funding of share plans and dilution

All awards granted under the FSP are settled through the purchase of treasury shares or shares purchased in the market and not by newly issued shares.

for details of the shares used for the FSP and the related dilution.

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Remuneration report