BACKGROUND AND COMPOSITION

The SE&HR committee was established in 2012. Prior to the establishment of the nomination committee in February 2015, the committee attended to the board’s nomination and succession plans in addition to the social, ethics and human resources obligations.

The members of the committee are Ms TE Kgosi (chairperson), Messrs. M E Beckett and R Havenstein, all of whom are independent non-executive directors. Subsequent to year-end Mr Havenstein resigned as a member of the committee and Messrs Chabedi and Mosehla were appointed.

SE&HR COMMITTEE TERMS OF REFERENCE

The committee’s terms of reference is available on the Northam website.

SOCIAL AND ETHICS STATUTORY OBLIGATIONS

The main functions of the committee are to oversee the group’s compliance with the social and ethics statutory requirements, to manage the group’s compliance with transformation matters and its impact on employees, communities, the environment and society as a whole.

The committee has oversight of the group’s compliance with the Labour Relations Act (LRA), the basic Conditions of Employment Act (BCEA) and implementation of various forms of remuneration.

For the financial year 2015, the committee performed its duties in terms of these obligations and confirms that:

1. the company complies with labour and employment legislation in South Africa, and as far as possible with the ILO’s protocol on decent work. The committee takes into account the Organisation for Economic Co-operation and Development’s (OECD) recommendations against corruption and ensures that management has adequate internal controls to counter corrupt conduct. The company complies with the social and economic development goals in terms of the 10 principles set out in the UN Global Compact;
2. sound good corporate citizenship principles are pursued in the promotion of equality, the prevention of discrimination and the development of surrounding communities;
3. the company has taken appropriate measures to minimise the impact of its activities and products on health, public safety and the environment;
4. Northam seeks to promote cordial relationships with all its stakeholders; and
5. generally accepted norms on the environment, labour and human rights have been adhered to. Northam is not aware of, nor is it complicit in any labour or human rights abuses or environmental damage.

EMPLOYMENT AND REMUNERATION OBLIGATIONS

The committee has oversight of the group’s compliance with the LRA, the BCEA and implementation of various forms of remuneration; it also ensures that the group applies fair labour practices while providing equitable and transparent remuneration packages that serve to reward individuals for their contributions to the company’s defined performance targets. Activities in this set of obligations include:

• statutory legislative and administrative duties;
• Oversight of the reports on the Social and Labour Plans (SLP) which continue to be submitted to the Department of Mineral Resources (DMR) annually;
• Monitoring the human resource development pillars at both Booysendal and Zondereinde mines;
• progress in the transformation of the group’s workforce profile especially at senior levels; and
• the home ownership initiative which is progressing with the assistance of the recognised union overseeing the various pillars of this project.

The committee is also responsible for the remuneration philosophy within the Northam group in terms of its mandate from the board.

Remuneration issues dealt with by the committee during the year:

• engagement with shareholders to discuss their concerns with regard to the group’s remuneration policies/ practice/disclosure:
  • reviewing a number of these (see below) and addressing them;
  • consulting third party advisers to improve the disclosure;
• formulation and formalisation of a succession and transformation plan; and
• formulation and formalisation of a housing plan for mine employees.

REMUNERATION REPORT

The SE&HR committee is ultimately responsible for establishing a remuneration policy and for its implementation, to ensure that competent individuals are appointed as senior managers, and to ensure that the group’s leadership is adequately rewarded for delivering on the group’s strategic targets and for their positive impact on the group’s results and performance. In addition the committee is responsible for mandating management on appropriate wage increase thresholds for union negotiations and advises on the scale of fees to be paid to non-executive directors, which are submitted to shareholders for approval.

Employees represented in terms of collective bargaining arrangements

The majority of the group’s employees at Zondereinde are contributing members of the National Union of Mineworkers (NUM - primarily in the category 2 to 10 bargaining units). Therefore, their salary levels, annual increases, allowances and benefit packages are negotiated on a collective basis. Northam also engages with other unions representing smaller groups of employees. The group’s labour relations policies provide for organisational rights to any union which can meet a 15% representation threshold within a bargaining unit. When a registered union reaches a representative threshold of 33.3% within a bargaining unit, it acquires the right to bargain for that particular unit. Northam’s objective is to engage in good faith in order to reach agreement on matters such as wages, substantive conditions of service and other matters of mutual interest. See material issue 3 for further information or go to www.northam.co.za

At Booysendal a total of 32% of the workforce is covered by collective bargaining agreements through the contractor companies used at the operation.

In addition to their wages employees also earn various forms of bonuses to incentivise performance.

Employees – mineworkers*

ANALYSIS OF AVERAGE PAY FOR NORTHAM EMPLOYEES 1 JULY 2015

	% of total monthly average	Entry level Cat 02-08 employee
Basic monthly wage	55.0	7 370
Employer provident / retirement fund	6.9	921
Medical benefit	6.4	860
Housing benefit / allowance	20.7	2 771
Holiday leave allowance	4.6	614
Average overtime	1.9	254
Average bonus	4.5	618
Total monthly average (underground employee)	100.0	13 408
Per annum (underground employee)		160 894

^* See Material issue 4 for more on employee remuneration.

Executive directors, management and non-union staff

Executive directors, corporate and operational management members are treated individually in accordance with their contracts of employment and the remuneration and benefit schemes and practices applicable to their job grades. Salaries are reviewed annually, effective 1 July. Salary increases are determined individually, according to individual performance, retention and market-matching criteria.

All non-union staff, managers and executives have detailed job profiles which stipulate the key performance areas of their positions. These serve as the basis for performance management and measurement and performance-linked salary increases and bonuses.

Remuneration takes the form of:

• appropriate salary packages, including those of the executive directors which incorporate basic remuneration pay (BRP) including death, disability, medical aid and pension contribution benefits;
• various allowances;
• various short term incentive bonus schemes depending on the grade of the employee; and
• a long term incentive scheme launched in 2011 which replaced the share option scheme (see below).

REMUNERATION POLICY

The group’s remuneration policy is designed to support its strategic goals in a way that aligns the interests of employees, managers, executives and directors with those of shareholders. Through fixed and variable remuneration, the group aims to attract, retain, incentivise and reward top quality staff at all levels, particular where scarce or critical skills are involved.

The remuneration policy is not intended to be a ‘one size fits all’ statement of rules and procedures, but rather to serve as the basis for a flexible approach to the variable and changing needs of the dynamic and competitive mining employment environment. The policy is underpinned by the following key principles:

• attracting and retaining core skills, such as artisans, engineers and management;
• harmonising working conditions, salaries and wages throughout the group;
• compliance with all statutory and regulatory requirements and a commitment to applying best practice guidelines in all aspects of remuneration and benefits, and
• offering remuneration packages that are competitive, fair, and reasonable in all respects and at all levels.

Features of the remuneration practices

As a general principle, employment contracts are concluded on a permanent basis (i.e. for an indefinite period), except where fixed-term or short term temporary contracts are required for specific projects. The notice period for the termination of employment contracts is typically one month, but for critical positions this can be extended by mutual agreement to a maximum of one year.

Northam’s objective is to provide a market-competitive basic salary plus compulsory medical aid and retirement fund membership. Various fixed and variable allowances are paid at certain job/grade levels or to certain job categories. The job grading system follows the Paterson model. Remuneration experts are consulted as circumstances dictate.

Job grades, salary scales and employee benefits are benchmarked against mining industry standards and are reviewed annually. The midpoints of the group’s salary scales are compared with industry percentiles and adjusted annually, in line with the changing size, structure, financial performance and general circumstances of the group over time.

The group’s salary scales have a range of between 12.5% and 80% which allow an overlap on scales which have steps of 15% between grade ranges to allow for the appropriate positioning of individuals according to qualifications, experience, performance, growth, development and market imperatives. However, in a competitive market where skills are scarce, market comparisons at the top global the range must be considered and paid.

The committee approves salary increases for all categories of staff in advance each year. Any material changes to allowances, benefits, bonus schemes, or any other aspect of remuneration policy are approved by the committee prior to implementation.

Severance payments upon termination of service are governed by legislation, agreements with unions, individual contract and/or group policy and practice. In the case of retrenchment, the group’s most common policy at all job levels is to pay the contractual notice period (if not worked) and severance pay in line with legislation, which is the Basic Conditions of Employment Act, being one week’s remuneration per completed year of service with the group.

Group employees are not provided with any special retirement benefits other than the standard benefits in terms of one of the group’s recognised retirement funds, with the exception of employees in Category 9 and above who were in service with the group on 31 December 1998. In respect of these employees, a contribution is made to a post-retirement healthcare fund. These contributions cease when the employee leaves the service of the group for any reason. All components of the group’s remuneration system are subject to regular internal and external audits, as well as routine monitoring by the South African Revenue Services. The committee is satisfied that the group is compliant with all pertinent regulations.

Executive directors’ service contracts

The chief executive Mr PA Dunne has a service contract with the company which is subject to a notice period of one year. The chief financial officer, Mr AZ Khumalo has a service contract with the company which is subject to a notice period of three months. Severance pay is governed by employment (labour) legislation and there are no special severance package arrangements in terms of these contracts except that they are governed by legislation. The executive directors’ remuneration is determined on an annual basis by the committee.

ELEMENTS OF REMUNERATION FOR EXECUTIVE DIRECTORS AND SENIOR OFFICIALS

Fixed remuneration: cost to company

Executive directors are paid market-related salary packages on a cost to company basis which represents their guaranteed pay. Increases are generally offered and determined annually by the committee in July. Increases take account of the prevailing inflation rate and include a merit component of no more than 2% in addition to the inflation rate.

Mr PA Dunne was not offered a salary increase in July 2014 since his contract with Northam started in March 2014. Mr AZ Khumalo received a 13.2% increase to make up for the lack of an increase (unrelated to personal performance) between F2013 and F2014.

EXECUTIVE DIRECTORS - TOTAL REMUNERATION OUTCOMES AND REMUNERATION MIX F2015

	Basic Remuneration	Bonus	Retention shares	Performance shares	*Total
Executive director	%	%	%	%	%
P A Dunne	75	25	0	0	100
AZ Khumalo	32	18	35	15	100

^* Refer to directors’ report for directors’ remuneration in rand terms.

Mr Dunne did not have any retention or performance shares vesting as his tenure at the company remains below the three-year vesting period. On a relative basis Mr Khumalo’s retention share percentage is high on account of closed periods in place in F2014 when the retention shares could not be paid. These were therefore paid in F2015.

VARIABLE REMUNERATION: SHORT TERM INCENTIVES

Employee bonuses

The group has a variety of bonus schemes for employees. Bonuses are not guaranteed and are based on agreed formulae. Executive directors and senior management may earn a bonus based on the extent to which they have achieved the targets and objectives set for them by the committee and/or the board of directors. Bonuses are payable half-yearly.

Short term incentive – executive directors, senior officials’ bonus scheme

The board of directors, through the committee, determines the performance targets and objectives of the chief executive and the chief financial officer, conducts their performance assessments and decides the quantum of their performance bonuses. The chief executive also has input into the evaluation of the chief financial officer.

The chief executive and the committee determine the performance targets and objectives of senior managers, conduct their performance assessments and determine the quantum of performance bonuses for approval by the board of directors.

Bonuses are paid subject to the achievement/meeting of targets, and an individual performance rating. Variability of the bonus amounts per grade is based on the relative BRPs of executive directors and senior officials.

Annual bonuses actually paid as a percentage of basic remuneration in F2015 were as follows:

Executive director	*2015 bonus as % of pay
PA Dunne	33.8
AZ Khumalo	55.2

^* Refer to directors’ report for directors’ remuneration in rand terms.

Mr PA Dunne only earned the senior officials’ bonus and no retention bonus as he has not been with the company for more than two years whilst Mr AZ Khumalo earned both bonuses. Both bonuses are described below.

Typically, the bonus scheme is based on a weighted combination of targets which are largely under the control of management. The committee intends for bonuses to incentivise management in areas/targets that they are able to influence so they are incentivised to manage the group for best performance for the benefit of shareholders. These targets are usually a weighted combination of safety performance, linear metres achieved, square metres achieved, total tonnes milled, recoverable metals produced, cash or total operating costs, personal performance which includes transformation (referring to social employment quotas/criteria that must be met in terms of employment legislation in South Africa).

Based on the cost to company, being the basic remuneration package plus pension contribution, the average group bonus paid under this scheme was 50.4% of group cost to company remuneration in F2015.

From F2015, executive directors and corporate office staff bonuses have been paid on a weighted basis based on the two mines’ Zondereinde and Booysendal’s performance.

SHORT TERM INCENTIVES – DETAILS OF THE EXECUTIVE DIRECTORS’ AND SENIOR OFFICIALS’ BONUS SCHEME

Committee approved formula	Achievement (excess or shortfall of actual over target), rated in terms of achievement factors (i.e. below 90% achievement = zero achievement factor and above 110% = 125% achievement factor) by (x) weighting of key performance area (scoring) x BRP x weighting of the two mines (on production) – this is calculated half yearly and per annum – all annualised = bonus of executive directors and senior management. See table below.
Payment frequency	Bonuses are paid twice annually based on the actual results achieved for each of six months endingDecember and June. 75% of the calculated bonus is paid for each six-month period with the final 25% being calculated on the results for the full year.
Performance conditions	Set during the financial year by the committee and the board. Corporate office bonuses are paid on a weighted basis based on the two mines’ Zondereinde and Booysendal’s performance. Performance criteria and weightings for F2015 and F2016 – see table below.
Minimum and maximum possible bonus opportunity	Minimum can be zero and maximum 125% of BRP.
Proposed changes for 2016	Only on the Booysendal weighting of targets as indicated in the table below. This change in certain targets reflects the anticipated steady-state production levels in F2016.
Remuneration committee discretion	In consultation with chief executive, the committee may vary both the formula, targets and or the amounts payable.