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Governance and Remuneration:

Directors’
Remuneration Report

Mr Trevor D Petersen

Chairperson of the Remuneration Committee

LETTER FROM THE CHAIRPERSON

As Chairperson of the Remuneration Committee, it is my pleasure to present the Directors’ Remuneration Report for the year ended 2019.

The Board believes that maintaining the highest standards of corporate governance is essential to protecting shareholder value and central to this is aligning Directors’ remuneration with the strategy of the business. The Company therefore continues to review its strategy in line with the evolving healthcare landscape in which it operates to ensure that the Group’s variable pay schemes remain linked with its long-term success.

At the annual general meeting on 25 July 2017, the Directors’ Remuneration Policy was put to a binding shareholder vote and was approved by 95.9% of the votes cast. The Remuneration Committee intends to commence a thorough review of this policy in the forthcoming year, taking into consideration investors’ feedback. A revised Directors’ Remuneration Policy will be submitted for shareholder approval at the 2020 annual general meeting.

REPORT STRUCTURE

As there are no proposed changes to the Directors’ Remuneration Policy this year, the full policy has not been included in this report. However, as part of our commitment to provide clarity on executive Director remuneration, a Remuneration at a Glance section is included, which summarises key policy features together with how it will be implemented in the 2020 financial year, as well as the pay outcomes for the 2019 financial year.

The Annual Remuneration Report provides a detailed explanation of the remuneration paid to Directors during the 2019 financial year and will be submitted for an advisory shareholder vote at the 2019 AGM.

CHIEF EXECUTIVE OFFICER SUCCESSION

As stated in the 2018 Annual Report and financial statements, Dr Ronnie van der Merwe succeeded Mr Danie Meintjes as CEO on 1 June 2018. Details of Dr Van der Merwe’s remuneration are set out within the Annual Remuneration Report.

Mr Meintjes retired as an executive Director on 31 July 2018 and was appointed as a non-executive Director on 1 August 2018. This appointment is considered to be in the long-term interest of Mediclinic and its stakeholders in view of his wealth of knowledge and experience gained from working for the Group, in different capacities, for over 30 years.

In determining Mr Meintjes’ remuneration arrangements on retirement, the Remuneration Committee considered both UK investors’ expectations and South African labour market requirements. In line with Section 430(2B) of the Act, a notice was published on the Company’s website on 14 August 2018 disclosing the treatment of Mr Meintjes’ remuneration arrangements, the details of which can be found in the Annual Remuneration Report.

PERFORMANCE AND REWARD

As set out earlier in the Annual Report, the Group faced a challenging market and regulatory environment in all three of the operating divisions, particularly in Switzerland through the introduction of TARMED and the outmigration of certain medical treatments from an inpatient to an outpatient tariff, which was reflected in the Group’s overall financial performance. This translated to an increase in Group revenue of 2% to £2 932m (2018: £2 876m), and a decrease in adjusted EBITDA of 4% to £493m (2018: £515m).

From a patient safety and clinical effectiveness perspective, the Group delivered strong performance with the majority of indicators showing improvement. Much of this progress can be attributed to a strong collaborative effort between the clinical services teams of the respective divisions and the corporate centre.

The executive Directors’ short-term incentive (“STI”) was calculated on a Group-achieved EBITDA measure defined as Group-adjusted EBITDA performance, calculated at budgeted exchange rates and further adjusted to remove the impact of employee bonus accruals and to amend for other specific items subject to approval by the Remuneration Committee. This is combined with detailed operating metrics measured at divisional level, which comprise financial and operational objectives, including clinical performance measurement. The bonus framework operates such that the non-achievement of subset performance indicators (i.e. those measured at a divisional level) give rise to a reduction in the bonus that is payable.

Based on performance delivered in the year, the overall bonus for executive Directors was 16.5% of maximum (further details can be found below), which is reflective of the Company’s stringent approach to target setting and its commitment to aligning pay with performance. Following the end of the year, the Remuneration Committee considered the pay-outs in the context of the underlying financial performance of the Group (including the shareholder experience) and determined that the pay-out levels were appropriate as they reflected the progress made by the Group in a very challenging environment.

Long-term incentive awards granted in 2016, which were based on relative total shareholder return and adjusted EPS metrics lapsed based on below threshold performance levels measured over the three-year period ending 31 March 2019. While this outcome was disappointing, the Remuneration Committee approved the lapsing of the awards as it reflected the overall financial performance of the Group which has been materially impacted by significant regulatory changes in Switzerland and the UAE during the three-year period.

PROPOSED IMPLEMENTATION OF THE DIRECTORS’ REMUNERATION POLICY IN THE 2020 FINANCIAL YEAR

Given that the Remuneration Committee intends to undertake a thorough review of the Directors’ Remuneration Policy over the course of the coming year, the Remuneration Committee only intends to make minor changes to the implementation of the Directors’ Remuneration Policy during the 2020 financial year to ensure it is aligned with the Group’s recent performance and strategic priorities and reflects feedback received from shareholders. These changes are set out below.

  • Short-term incentive: The 2020 Group STI will continue to be based on Group-achieved EBITDA performance and subset performance indicators for the divisions, which include financial and operational objectives. To further support the Group’s clinical focus, additional emphasis has been placed on improving clinical performance by introducing and/or enhancing non-financial performance measures, which include clinical performance, patient experience, employee engagement and patient safety measures. Incentive opportunities will remain in line with last year.
  • Long-term incentive – performance metrics of total shareholder return (“TSR”): Given that the Company is now a constituent of the FTSE 250, the Remuneration Committee is changing the comparator group against which TSR will be measured under the long-term incentive plan (“LTIP”), to a based index comprising constituents of the FTSE 250 (previously the FTSE 100). The peer group will exclude financial services and extraction companies given their exposure to different market influences. TSR will continue to have a weighting of 40% of the overall award.
  • Long-term incentive – performance metrics of earnings per share: The remainder of the award will continue to be based on adjusted EPS and accounts for 60% of the overall award. In light of the Group’s internal business plan over the coming three years and taking into account the market’s performance expectations, the Remuneration Committee has set the target range at 4% p.a. (threshold performance) to 11% p.a. (maximum performance) growth.
  • Long-term incentive – underpin: In light of investor feedback, the Remuneration Committee has introduced a discretionary override if a ROIC underpin is not met.This allows the Remuneration Committee to review the formulaic level of vesting delivered under the adjusted EPS and relative TSR performance conditions based on ROIC performance of the Company over the period.
  • Long-term incentive – award levels: The Remuneration Committee reviewed the long-term incentive award levels given the decline in the share price in 2018 and in the context of investor expectations. Given the increased external focus on the affordability of healthcare delivery, resulting in changing care delivery models and greater regulatory intervention, the Remuneration Committee’s view is that the current share price is reflective of an industry re-rating. In this context, the Remuneration Committee felt it appropriate to maintain the same award levels as for 2019 financial year which will also serve to further align the interests of the executive management with those of investors.

Further details on implementation of the Directors’ Remuneration Policy for the 2020 financial year can be found below.

Base compensation

In line with South African employment practices, the Remuneration Committee reviewed the base compensation for the Company’s executive Directors, Dr Van der Merwe and Mr Jurgens Myburgh, for the coming year and approved a South African rand salary increase of 5.6% for the portion paid in South African rand. No changes were made to the Board fee (which is set in pound sterling) from 1 April 2019.

Using a constant currency exchange rate of £1: R17.22 to eliminate the effect of fluctuating exchange rates, the increases in base compensation for Dr Van der Merwe and Mr Myburgh equate to 4.9% and 4.7% respectively, compared to the average increase of 5.0% for all Mediclinic Southern Africa and Mediclinic Group Services employees.

CORPORATE GOVERNANCE

The Remuneration Committee remained informed of the evolving views of shareholders on pay and, in particular, the new principles and provisions regarding Directors’ remuneration introduced by the 2018 Corporate Governance Code. The Remuneration Committee is already focused on ensuring that its approach to pay is fair and that pay in the wider workforce is continually considered and reflected in its deliberations. It is regularly updated on wider workforce pay and makes its decisions relating to the remuneration of senior executives and key management within the context of the reward practices applied across each of the divisions.

During the 2020 financial year, as part of the review of the Directors’ Remuneration Policy, the Remuneration Committee will continue to review Mediclinic’s compliance with the remuneration aspects of the 2018 Corporate Governance Code and make amendments where necessary. We will continue to monitor any further statutory or corporate governance developments regarding Directors’ remuneration.

SHAREHOLDER ENGAGEMENT

The Chairman of the Board and executive Directors of the Company have engaged with shareholders throughout the period to provide regular updates on the progress and performance of the Company. In addition, the Remuneration Committee conducted a separate consultation with shareholders on the treatment of Mr Meintjes’ remuneration arrangements, upon his retirement as CEO.

I trust the information presented in this report enables stakeholders to understand how the Directors’ Remuneration Policy has been implemented over the reporting period, how it will be implemented in the coming financial year and the rationale behind the Remuneration Committee’s decision-making. We remain committed to open and transparent dialogue with investors and welcome any feedback or comments.

Mr Trevor D Petersen

Chairperson of the Remuneration Committee

22 May 2019

ANNUAL REPORT
ON REMUNERATION

REMUNERATION AT A GLANCE

The following section provides an overview of the Directors’ Remuneration Policy and how it will be implemented in the 2020 financial year, as well as an overview of remuneration outcomes for the current reporting period. A summary of the Directors’ Remuneration Policy (as approved by shareholders at the 2017 annual general meeting) is available on the Company’s website or, alternatively, a summary can be found in the Directors’ Remuneration Report of the 2018 Annual Report and financial statements.

EXECUTIVE DIRECTORS’ REMUNERATION POLICY AND PROPOSED IMPLEMENTATION IN THE 2020 FINANCIAL YEAR

TABLE 1: OVERVIEW OF EXECUTIVE DIRECTORS’ REMUNERATION POLICY AND IMPLEMENTATION IN THE 2020 FINANCIAL YEAR

Notes
1 Annualised remuneration payable in South African rand translated into pound sterling at a rate of £1: R18.01 at 31 March 2019.
2 Remuneration payable in South African rand was translated into pound sterling at a rate of £1: R18.01 at 31 March 2019.
3 For LTIP awards to vest, the Remuneration Committee must be satisfied that the Company’s ROIC performance is appropriate. The Remuneration Committee will consider outcomes where ROIC performance is not considered acceptable.

Base compensation

Base compensation levels were reviewed in accordance with the Directors’ Remuneration Policy, taking into account Company and individual performance, wider workforce comparisons and market benchmarks of South African pay levels and LSE-listed companies of similar size and international footprint. The executive Directors’ base compensation consists of a portion paid in South African rand and a portion, equal to that of the Board fee, paid in pound sterling.

The Remuneration Committee noted that, as at the end of the 2019 financial year, the consumer price index in South Africa was 4.5%, while average salary increases in South Africa across industries ranged 5.0–7.0%. In this context, the Remuneration Committee approved a South African rand salary increase for Dr Van der Merwe and Mr Myburgh of 5.6%. No changes were made to the Board fee (which is set in pound sterling) from 1 April 2019.

Using a constant currency exchange rate of £1: R17.22 to eliminate the effect of fluctuating exchange rates, the increases in base compensation for Dr Van der Merwe and Mr Myburgh equate to 4.9% and 4.7% respectively, compared to the average increase of 5.0% for all Mediclinic Southern Africa and Mediclinic Group Services employees.

TABLE 2: EXECUTIVE DIRECTORS’ BASE COMPENSATION LEVELS

Notes
1 Dr Van der Merwe was appointed as an executive Director on 1 June 2018, however for comparison his salary from 1 April 2018 has been annualised.
2 South African rand remuneration was translated into pound sterling at a rate of £1: R18.01 at 31 March 2019 and £1: R17.22 at 31 March 2018.

Illustration of executive Directors’ remuneration outcomes in the 2019 financial year

Figure 1 shows the maximum policy levels of remuneration and actual remuneration of the executive Directors for the 2019 financial year (based on the executive Directors’ salaries as at 1 April 2018).

FIGURE 1: EXECUTIVE DIRECTORS’ MAXIMUM POLICY LEVELS OF REMUNERATION AND ACTUAL REMUNERATION FOR THE 2019 FINANCIAL YEAR (£’000)

Note
1 Dr Van der Merwe was appointed as an executive Director on 1 June 2018 and his remuneration in Figure 1 covers the period from appointment date to the end of the reporting period.

Executive Directors’ service agreements and policy on payment for loss of office

A summary of the Company’s policy on payments for loss of office is set out below for shareholders’ reference.

The Remuneration Committee seeks to ensure that contractual terms of the executive Directors’ service agreements reflect best practice. It is the Company’s policy that all executive Directors have rolling contracts that can be terminated by the employee in line with his service agreement. Executive Directors’ service agreements are terminable on six months’ notice. Consistent with the 2016 Corporate Governance Code, all Directors are subject to re-election by shareholders at each annual general meeting.

In circumstances of termination on notice, the Remuneration Committee will determine an equitable compensation package, on a case-by-case basis. It may require notice to be worked or to make payment in lieu of notice or to place the Director on garden leave for the notice period. Such a decision is made to protect the interests of the Company and its stakeholders. In case of payment in lieu of notice or garden leave, the salary, benefits and pension contributions will be paid for the period of notice served on garden leave or paid in lieu of notice. If the Remuneration Committee deems it would be in shareholders’ interests, payments will be made in phased instalments. In the case of payment in lieu of notice, payments will be subject to be offset against earnings elsewhere.

An STI payment may be made in respect of the period of the incentive year worked by the Director. There is no provision for an amount in lieu of bonus to be payable for any part of the notice period not worked. The bonus payment will be scaled back pro rata for the period of the incentive year worked by the Director and would remain payable at the normal payment date.

Awards held under the deferred STI and LTI arrangements are subject to the rules containing discretionary provisions setting out the treatment of awards where a participant leaves and is designated as a good leaver. In these circumstances, a participant’s awards will not be forfeited on cessation of employment and instead will continue to vest on the normal vesting date or earlier at the discretion of the Remuneration Committee, subject to the performance conditions attached to the relevant awards. The awards may be scaled back pro rata for the period of the vesting period worked by the Director.

In addition to the above payments, the Remuneration Committee may make any other payments determined by a court of law in respect of the termination of a Director’s contract or may pay any statutory entitlements or any sums to settle or compromise claims in connection with a termination (including, at the discretion of the Remuneration Committee, reimbursement for legal advice and provision of outplacement services) as necessary.

In the event of a change of control, all unvested awards under the deferred STI and LTIP arrangements will vest, to the extent that any performance conditions attached to the relevant awards have been achieved. The awards will, where the Remuneration Committee dictates, be scaled back pro rata for the period of the performance period worked by the Director.

Executive Directors may, on nomination from Mediclinic, take on outside appointments, however, all fees will be retained by the Company.

Directors’ recruitment and promotions

A summary of the Company’s policy on Directors recruitment and promotions is set out below for shareholders’ reference.

The policy on the recruitment or promotion of an executive Director takes into account the need to attract, retain and motivate the best person for each position, while ensuring close alignment between the interests of shareholders and management:

  • If a new executive Director is appointed, the Remuneration Committee will seek to align the remuneration package with the Remuneration Policy approved by shareholders.
  • New executive Directors will participate in the STI plan and LTIP subject to the same limits as set out in the Remuneration Policy.
  • Depending on the timing of the appointment, the Remuneration Committee may deem it appropriate to set different STI performance conditions to that of the current executive Directors for the first performance year of appointment.
  • An LTIP award can be made following an appointment (assuming the Company is not in a closed period).
  • Flexibility will be retained to set base compensation at the level necessary to facilitate hiring candidates of appropriate calibre in external markets and make awards or payments in respect of deferred remuneration arrangements forfeited on leaving a previous employer. In terms of remuneration to compensate for forfeited awards, the Remuneration Committee will look to replicate the arrangements being forfeited as closely as possible and, in doing so, will take account of relevant factors including: the nature of the deferred remuneration, performance conditions and the time over which they would have vested or been paid. The face and/or expected values of the award(s) offered will not materially exceed the value ascribed to the award(s) foregone.
  • For an internal appointment, any incentive amount awarded in respect of a prior role may be allowed to vest on its original terms or be adjusted as relevant to take into account the appointment. Any other ongoing remuneration obligations existing prior to appointment may continue.

For the appointment of a new Chairman or non-executive Director, the fee arrangement will be set in accordance with the approved Remuneration Policy at that time.

NON-EXECUTIVE DIRECTORS’ REMUNERATION POLICY AND PROPOSED IMPLEMENTATION IN THE 2020 FINANCIAL YEAR

Following a review of the fee levels within the Company against the UK market, no changes are proposed for the 2020 financial year.

TABLE 3: NON-EXECUTIVE DIRECTORs’ FEES IN THE 2020 FINANCIAL YEAR

ANNUAL REMUNERATION REPORT

DIRECTORS’ REMUNERATION

This section sets out the single figure tables showing the remuneration for the executive and non-executive Directors for the 2019 financial year. Further information on these figures is set out in the subsequent sections.

TABLE 4: SINGLE TOTAL FIGURES OF DIRECTORS’ REMUNERATION (AUDITED)

Notes
1 South African rand remuneration was translated into pound sterling at a rate of £1: R18.01 at 31 March 2019 and £1: R17.221 at 31 March 2018.
2 Dr Van der Merwe was appointed as an executive Director on 1 June 2018 and his remuneration for 2018/2019 covers the period from appointment date to the end of the reporting period.
3 Mr Meintjes retired as an executive Director of the Company on 31 July 2018, therefore his remuneration for 2018/2019 in the executive Director section of the table covers the period from the start of the reporting period to his date of retirement. Subsequently, Mr Meintjes was appointed as a non-executive Director on 1 August 2019, therefore his remuneration for 2018/2019 in the non-executive Director section of the table covers the period from 1 August 2018 to the end of the reporting period.
4 Mr Durand’s fees are paid to Remgro and include services rendered by Mr Durand or his alternate, Mr Pieter Uys.
5 Dr Harvey joined the Board on 3 October 2017 and Dr Al Hashimi joined the Board on 1 November 2017. Their remuneration for 2017/2018 covers the period from appointment date to the end of the reporting period.
6 Prof Dr Leu and Ms Mandela retired from the Board on 25 July 2018 and their remuneration for 2018/2019 covers the period from the start of the reporting period to the date of their retirement.
7 Dr Oswald joined the Board on 25 July 2018 and her remuneration for 2018/2019 covers the period from appointment date to the end of the reporting period.

BASE COMPENSATION (AUDITED)

Base salaries and Board fees are reviewed annually in March, with any changes effective in April.

The executive Directors’ base compensation consists of a portion paid in South African rand and a portion, equal to that of the Board fee, paid in pounds sterling. The following base compensation was paid during the reporting period:

TABLE 5: BASE COMPENSATION FOR THE 2019 FINANCIAL YEAR

Notes
1 Figures converted to pound sterling at a rate of £1: R18.01 at 31 March 2019.
2 Dr Van der Merwe’s remuneration covers the period from appointment date, 1 June 2019, to the end of the reporting period.
3 Mr Meintjes’ remuneration covers the period from the start of the reporting period to 31 July 2018, when he retired as an executive Director of the Company.

BENEFITS AND PENSION (AUDITED)

The benefits of Dr Van der Merwe, Mr Meintjes and Mr Myburgh include private medical insurance, life insurance and reimbursements for reasonable business-related expenses (e.g. travel, accommodation and subsistence). In some instances, the associated tax was borne by the Company.

The executive Directors participated in the Mediclinic Southern Africa-defined contribution fund and received a company pension contribution equal to 9.0% of their salary in line with the Directors’ Remuneration Policy and the rate allocated to all Mediclinic Southern Africa and Mediclinic Group Services employees. No element of any executive Director’s remuneration other than base salary is pensionable.

None of the executive Directors have rights to a defined benefit pension. Details of executive Directors’ pension-related entitlements in the event of loss of office are set out above.

Non-executive Directors were reimbursed for reasonable business-related expenses (e.g. travel, accommodation and subsistence) and, in some instances, the associated tax was borne by the Company. They receive no pension contribution or other benefits and do not participate in short-term or long-term1 reward schemes.

1 LTIP awards granted to Mr Meintjes relate to the period served as an executive Director. Outstanding LTIP awards, in accordance with the plan rules and South African employment practices, will continue on the same terms, reflecting Mr Meintjes’ continued service to the Company. Mr Meintjes will not receive further awards in his role as non-executive Director (detail set out below).

SHORT-TERM INCENTIVE (AUDITED)

Achieved bonuses were determined based on the Group achieved EBITDA performance and subset performance indicators for each of the three divisions, which comprise financial and operational objectives, including measures of clinical performance. 

Group achieved EBITDA for the purposes of the executive Directors’ STI comprises Group-adjusted EBITDA calculated based on budgeted foreign exchange rates (£5.1m) excluding the impact of STI bonus accruals for the Group’s key management and employees (£6.8m) and subject to further amendment by approval of the Remuneration Committee (-£8.4m). In 2019, these further amendments included adjustments for factors not incorporated into the budget at the start of the year, including the acquisition of Clinique des Grangettes in Hirslanden.

The Group EBITDA target is based on the sum of Corporate and each division’s approved budgeted adjusted EBITDA. The Group’s actual adjusted EBITDA performance sets the initial bonus outcome percentage. The non-achievement of subset performance indicators then gives rise to a reduction in the initial bonus outcome percentage. The subset performance indicators are weighted relative to each division’s respective contribution to the Group’s adjusted EBITDA.

The performance indicators, targets and performance against the targets are set out in Figure 2 below.

FIGURE 2: SUMMARY OF THE PERFORMANCE CONDITIONS AND ACHIEVEMENT AGAINST TARGETS

Note
The foreign exchange rate used for budget purposes was £1: R17.25; £1: CHF1.30 and £1: AED5.10.

The STI achieved was 16.5% of the maximum bonus. The amounts awarded to the executive Directors are set out below:

TABLE 6: STI AWARDS FOR THE 2019 FINANCIAL YEAR

Notes
1 Figures converted to pound sterling at a rate of £1: R18.01 at 31 March 2019.
2 Dr Van der Merwe’s actual bonus from appointment date 1 June 2019 to the end of the reporting period.

The STI bonus payable for the 2019 financial year will be paid in cash. 50% of the award will be deferred in shares for a period of two years. Deferred shares will be settled in cash, subject to continued employment. This deferral is not subject to any further conditions.

LTIP AWARDS VESTED TO EXECUTIVE DIRECTORS (AUDITED)

In August 2016, an LTIP award equal to 150% of base compensation was granted to Mr Myburgh, based on adjusted EPS growth and relative TSR performance versus the FTSE 100 over the three financial years to 31 March 2019. In view of the actual performance compared to the threshold targets, set out in Table 7 below, no LTIP awards vested to Mr Myburgh during the 2019 financial period.

TABLE 7: LTIP PERFORMANCE TARGETS AND ACTUAL PERFORMANCE

No awards were due to vest to Dr Van der Merwe during the 2019 financial period.

LTIP AWARDS GRANTED TO EXECUTIVE DIRECTORS (AUDITED)

2018 LTIP

Tables 8 and 9 below set out the LTIP awards granted to the executive Directors in June 2018, together the corresponding performance conditions.

TABLE 8: 2018 LTIP AWARDS GRANTED TO EXECUTIVE DIRECTORS

Note
1 Number of shares granted based on the five-day average middle market quotation prior to grant of an LSE share (£5.58).

TABLE 9: 2018 LTIP PERFORMANCE CONDITIONS

The awards are subject to clawback and malus provisions.

Awards are denominated in shares with vesting dependent on the achievement of performance conditions over a three-year period. Awards are subject to a two-year deferral period after vesting, meaning they are settled only at the end of a five-year period from the date of grant. After this time, the value of the awards will be calculated by alignment to share price movement but settled in cash given the difficulty in settling awards in shares for executive Directors who are South African residents. Where a Director has not yet met the share ownership guidelines, these funds must be used to purchase shares in the Company.

TREATMENT OF REMUNERATION ARRANGEMENTS FOR MR MEINTJES UPON RETIREMENT

Mr Meintjes retired as an executive Director on 31 July 2018 and became a non-executive Director with effect from 1 August 2018. In determining Mr Meintjes’ remuneration arrangements upon retirement, the Remuneration Committee considered both UK investors’ expectations and South African labour market requirements, given that South Africa was Mr Meintjes’ country of residence and employment.

In accordance with his Service Agreement and the shareholder-approved Directors’ Remuneration Policy, with respect to his remuneration arrangements up to and after retirement, Mr Meintjes:

  • received his normal base compensation, pension and benefits up to 31 July 2018;
  • received a payment in respect of accrued, but not taken, leave of R319 105;
  • remained eligible to receive a STI award in June 2019 in respect of the period of the 2019 financial year when he served as an executive Director, to be pro-rated accordingly (details of payments under the STI in respect of 2019 financial year can be found above); and
  • was granted an LTIP award in June 2018, in line with the normal grant cycle. The award was structured as a conditional award over 209 998 ordinary shares in the Company and will be subject to performance, vesting and deferral conditions in line with other participants (as set out above).

Treatment of incentive awards outstanding on retirement

  • With respect to outstanding deferred STI awards, these will continue to vest on the normal vesting date, subject to the normal deferral period of two years:
    • 2017 award: 27 187 ordinary shares due to vest on 1 June 2019.
    • 2018 award: 45 811 ordinary shares due to vest on 15 June 2020.
  • With respect to outstanding LTIP awards, in accordance with the plan rules, awards will continue on the same terms, reflecting Mr Meintjes’ continued services to the Company. Awards will therefore continue and vest, subject to performance achieved over the original performance period, at the normal time. Awards remain subject to a service condition and may therefore be pro-rated if Mr Meintjes were to step down from the Board.
    • 2016 award: As set out above, the 2016 LTIP performance targets were not met, therefore the 2016 LTIP lapsed in full.
    • 2017 award: 129 626 ordinary shares due to vest on 1 June 2020, subject to performance to 31 March 2020. Awards are subject to a further two-year deferral period and therefore will not be released until 1 June 2022.
    • 2018 award: 209 998 ordinary shares due to vest on 15 June 2021, subject to performance to 31 March 2020. Awards are subject to a further two-year deferral period and therefore will not be released until 15 June 2023.

The Remuneration Committee has not exercised any discretion in allowing Mr Meintjes’ outstanding deferred STI and LTIP share awards to continue on the same terms.

DIRECTORS’ SHAREHOLDING AND SHARE INTERESTS (AUDITED)

Table 10 sets out the Directors’ shareholdings, including shareholdings by persons connected to them, and share interests. There were no changes in the Directors’ shareholdings between the financial year end and the Last Practicable Date. Full details of the Directors’ shareholdings and share allocations are given in the Company’s Register of Directors’ Interests, which is open for inspection at the Company’s registered office during business hours.

The executive Directors are required to build and maintain a minimum shareholding in Mediclinic, linked to their base compensation. Shares are valued for these purposes at the year-end price, which was £3.05 per share as at 31 March 2019.

TABLE 10: DIRECTORS’ SHAREHOLDINGS AND SHARE INTERESTS

Notes
1 Awards will be settled in cash and therefore are not taken into consideration as part of determining whether shareholding requirements have been met.
2 Percentage of annualised base compensation.
3 Shareholdings as at date of retirement on 31 July 2018.

Dr Van der Merwe and Mr Myburgh will use any cash-settled awards paid to them under the LTIP to purchase shares in the Company until they meet their shareholding guideline.

The shareholding in Mediclinic by non-executive Directors, including shareholdings by persons connected to them, is shown below. There are no requirements for non-executive Directors to hold shares, nor for any former Director to hold shares once they have left the Company.

TABLE 11: NON-EXECUTIVE DIRECTORS’ SHAREHOLDINGS

Notes
1 Mr Uys is the alternate to Mr Durand.
2 Prof Dr Leu and Ms Mandela served as non-executive Directors of the Company until 25 July 2018.

SHARE DILUTION LIMITS

The Company remains committed to protecting shareholders’ interests and ensuring that the dilution of shares remains within a reasonable limit. In line with the Investment Association guidelines the Company limits equity-based awards under its employee share plans to 10% of the Company’s issued share capital over a 10-year calendar period and equity-based awards under executive share plans to 5% of issued share capital over the same period.

SERVICE AGREEMENTS AND LETTERS OF APPOINTMENT

The commencement dates of the executive Directors’ service agreements are:

TABLE 12: EXECUTIVE DIRECTORS SERVICE CONTRACT COMMENCEMENT DATES

Further details of the executive Directors’ service agreements are provided above.

Non-executive Directors do not have service agreements but instead have letters of appointment setting out the terms under which they provide their services to the Company. The dates of their original appointment are shown in Table 13. Non-executive Directors are normally appointed for an initial period of three years that, subject to review, may be subsequently extended for further such terms. Non-executive Directors’ appointments are terminable by three months’ notice on either side. In accordance with the 2016 Corporate Governance Code, all Directors are subject to annual election or re-election by shareholders at the Company’s annual general meeting.

TABLE 13: NON-EXECUTIVE DIRECTORS’ APPOINTMENT DATE AND EXPIRY OF CURRENT TERM

The service agreements and letters of appointment are available for inspection during normal business hours at the Company’s registered office and at the upcoming AGM.

CHANGE IN REMUNERATION LEVELS

Table 14 shows how the percentage change in the CEO’s salary, benefits and bonus in the reporting period compared with the percentage change in the average of each of those components of pay for Mediclinic Southern Africa in local currency. The Remuneration Committee selected employees in South Africa as the most appropriate comparator since they are subject to the same inflationary conditions.

TABLE 14: COMPARATIVE PERCENTAGE CHANGE IN REMUNERATION CEO AND EMPLOYEES

Note
1 Table 14 shows the percentage change between the CEO’s annualised local salary for the 2018 financial year, paid in South African rand and his local salary, benefits and bonus for the 2019 financial year, paid in South African rand.
2 Percentage change of actual bonus as a percentage of annualised base compensation for Mr Meintjes over this tenure as CEO.

PERFORMANCE AND PAY PERFORMANCE

Figure 3 shows the value at 31 March 2019 of £100 invested in the Company upon inception on 21 June 2013, compared with the value of £100 invested in the FTSE 100 Index and FTSE 250 Index on the same date. The intervening points are the financial year-ends prior to the date of the combination with Al Noor Hospitals Group plc on 15 February 2016 and the financial year-ends since.

The FTSE 100 and FTSE 250 were used as comparators as the Company has been a member of each of these indices.

FIGURE 3: MEDICLINIC TOTAL SHAREHOLDER RETURN COMPARED TO FTSE250

Table 15 shows the total CEO remuneration over the period since inception. Consistent with the calculation methodology for the single figure for total remuneration, the total remuneration figure includes the total STI award based on that year’s performance and the LTIP award based on the three-year performance period ending in the relevant year.

TABLE 15: TOTAL CEO REMUNERATION

Notes
1 Mr Meintjes retired as CEO on 31 May 2018, therefore his remuneration for 2018/2019 covers the period from the start of the reporting period to his date of retirement as CEO. Subsequently, Mr Meintjes was appointed as an executive Director on 1 June 2019.
2 Dr Van der Merwe was appointed as a Director on 1 June 2018 and his remuneration for 2018/2019 covers the period from appointment date to the end of the reporting period.

RELATIVE IMPORTANCE OF SPEND ON PAY

Table 16 compares the spend on employee costs for the reporting period to the spend in the previous reporting period, as disclosed in last year’s Directors’ Remuneration Report of the 2018 annual report, and returns to shareholders over the same period:

TABLE 16: COMPARISONS SPEND ON EMPLOYEE COSTS

Note
1 Figures converted to pound sterling at a rate of £1: R18.01, £1: AED4.82 and £1: CHF1.30 at 31 March 2019.

SHAREHOLDER VOTING ON REMUNERATION MATTERS

The Directors’ Remuneration Report for the 2018 financial year was approved by shareholders at the Company’s 2018 annual general meeting with 93.5% of votes cast in its favour. The current Directors’ Remuneration Policy was approved at the Company’s 2017 annual general meeting with 95.9% votes cast in its favour.

TABLE 17: SHAREHOLDER VOTING ON REMUNERATION MATTERS

REMUNERATION COMMITTEE COMPOSITION AND MEETINGS  

The Remuneration Committee is governed by formal terms of reference available in the governance section of the Company’s website and summarised in the Corporate Governance Statement.

The current composition of the Remuneration Committee meets the requirements of the 2016 Corporate Governance Code, with at least three members being independent non-executive Directors. Biographies of members are included in Board of Directors. The Remuneration Committee composition and meeting attendance during the period under review are set out in Table 18.  

Mr Petersen (Remuneration Committee Chairperson), Mr Keating, Prof Dr Leu and Dr Oswald held office during the year. Following Prof Dr Leu’s retirement from the Board and the Remuneration Committee, Dr Oswald was appointed to the Board and replaced Prof Dr Leu as a member of the Remuneration Committee on 25 July 2018.

Mr Meintjes, Mr Durand and/or his alternate Mr Uys attend meetings by invitation but are not voting members. Other attendees, by invitation only, include the CEO, the Chief Human Resources Officer, the Group Executive: Reward and representatives from Deloitte LLP, all of whom provide material assistance to the Remuneration Committee. None of the aforementioned attend as a right, nor do they attend when their own remuneration is being discussed.

None of the Remuneration Committee members are involved with the Company at an operational level, nor do they have any personal financial interest in the matters considered at meetings. The Remuneration Committee recommends the compensation of the Chairman of the Board, but the Chairman of the Board, in consultation with the executive Directors, determines non-executive Director fees.

TABLE 18: COMMITTEE COMPOSITION AND MEETING ATTENDANCE

Notes
1 The composition of the Remuneration Committee is shown as at 31 March 2019.
2 The attendance reflects the number of scheduled meetings held during the financial year. Two additional ad hoc meetings were held during the financial year to deal with urgent matters and all of the members made themselves available at short notice for these meetings. One Remuneration Committee meeting was held between the Company’s financial year-end and the Last Practicable Date, which was attended by all Remuneration Committee members.
3 Mr Keating was unable to attend one Remuneration Committee meeting due to another commitment which could not be changed. Mr Keating provided comments on the items being discussed to the Remuneration Committee Chairperson ahead of this meeting.
4 Prof Dr Robert Leu retired as a non-executive Director of the Company and the Remuneration Committee on 25 July 2018. Upon his retirement, Dr Oswald was appointed as a member and attended all subsequent meetings.

Including routine monitoring and approval activities, the material issues discussed by the Remuneration Committee during the financial year under review and between the financial year-end and the Last Practicable Date are summarised below:

TABLE 19: MATERIAL ISSUES DISCUSSED BY THE REMUNERATION COMMITTEE

The Remuneration Committee Chairperson presents a summary of material matters to the Board and meeting minutes are circulated to all Directors. The Remuneration Committee reports to shareholders annually in this report and the Chairperson attends the annual general meeting to address any questions that arise.

ADVISOR TO THE COMMITTEE

During the year, the Remuneration Committee and the Company retained an independent external advisor to assist with various aspects of the Company’s remuneration as set out in Table 20 below.

TABLE 20: ADVISORS TO THE REMUNERATION COMMITTEE

The Remuneration Committee reviewed the independence and objectivity of Deloitte LLP, taking into consideration its experience and management’s feedback, together with the assurances provided by Deloitte LLP that it has effective internal processes to ensure it is able to provide remuneration consultancy services that meet these two critical requirements. Following this review, the Remuneration Committee is satisfied that Deloitte LLP has maintained independence and objectivity and has no conflicts of interest with the Company that may impact on such.

This Directors’ Remuneration Report has been prepared on behalf of the Board by the Remuneration Committee, in accordance with the 2016 Corporate Governance Code, the Listings Rules, the Act and the Large- and Medium-sized Companies and Groups (Accounts and Reports) (Amendments) Regulations 2013.

Signed on behalf of the Remuneration Committee.

Mr Trevor D Petersen
Chairperson of the Remuneration Committee
22 May 2019

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