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Governance and Remuneration
Remuneration report

Employees are fairly rewarded for their contribution to the Group's operating and financial performance in line with its corporate objectives and strategy

Introduction

The board of Implats, guided by the remuneration committee (Remcom), is ultimately responsible for the Group's remuneration philosophy and the application thereof. The board and Remcom appreciate and promote the importance of our people to the continued sustainability and growth of the Company. This establishes the founding principle of our remuneration policies that are designed to motivate and retain high-performing employees and to reward them for their individual contribution to the Group's overall performance.

Philosophy

The Company's overall remuneration philosophy is designed to ensure that employees are fairly rewarded for their contribution to the Group's operating and financial performance in line with the corporate objectives and strategy. This design ensures internal and external equity through the alignment of conditions of employment and remuneration for all employees across the Group in an evolving regulatory and statutory environment.

The remuneration philosophy, as approved by the Company shareholders, endeavours to match the market median in terms of the broad talent pool, but will lead the market in areas of critical appointments, talented individuals, equity candidates and top performers.

The Company's overall remuneration policy aims are to:

• Implement a remuneration philosophy that is clear and transparent and which reinforces the Group's strategic positioning
• Promote and ensure compliance with an evolving regulatory environment, with a specific emphasis on the long-term sustainability of the Group
• Ensure alignment of the interests of the employees and management with those of our stakeholders
• Attract and retain talent at all levels
• Encourage employee behaviour that is goal-orientated and consistent with the Group's vision and values
• Set reward levels that are consistent with emerging governance frameworks on executive and non-executive compensation, by conducting regular benchmarking exercises against internal and external comparatives.

Remuneration committee

The Remcom chairman reports formally to the board on the proceedings of the Remcom after each meeting and attends the annual general meeting of Implats to respond to any questions from shareholders regarding the Remcom's areas of responsibility.

The committee utilised the services of PricewaterhouseCoopers Inc. and Vasdex Associates (Pty) Limited in different capacities during the past financial year to benchmark guaranteed and variable remuneration against external comparatives and to advise on remuneration policy.

During the year under review, management proposed to forego management increases as a result of cost constraints and to further narrow the wage gap. Remcom approved this proposal and there were also no increases granted to non-executive directors for the third consecutive year.

The package structure of middle and senior management employees was reviewed to allow for some flexibility and choice at these levels.

Remuneration and benefits of lower level employees were closely monitored to advance alignment with our closest competitors in the platinum industry to ensure both internal and external equity. This principle served the Company well during the wage negotiation process involving the three largest platinum producers.

The Company concluded two-year wage agreements with the NUM at the Refineries Operations and Marula Platinum. After the debilitating five-month industrial action in the platinum sector, the Company concluded a three-year wage agreement with the majority union, AMCU. Details of this agreement are included in the sustainable development report.

The Remcom reviewed the wage gap progress of the Company from 2008 to date, as this phenomena is viewed as a long-term intervention monitored by the Company to track progress as opposed to a once-off measurement compared with other companies. The wage gap at Implats is defined as the ratio of the CEO guaranteed pay compared to that of the lowest level underground worker. The progression in reducing the wage gap since 2008 is depicted below:

* Assumes a marginal tax rate of 23% and 40% for the lowest paid underground workers and the CEO respectively.

The chairman of the committee has been empowered to engage directly with stakeholders on all matters affecting remuneration, which will then be taken into account by the committee in the revision and development of the Company's remuneration policy and principles.

Components of remuneration

The following remuneration components for all senior employees have been adopted:

• Fixed remuneration (comprising basic salary, benefits and allowances)
• Variable remuneration (comprising short and long-term incentives).

The reward structure is regulated by the reward mix that prescribes the ratio of guaranteed pay, short-term incentives and long-term incentives to total remuneration at the various levels. In the case of executives the Remcom endeavours to secure that their reward mix secures an appropriate balance between fixed and variable forms of remuneration.

The policies approved in relation to this for the 2014 financial year were as follows:

Guaranteed package includes basic salary, non-pensionable salary, retirement savings, death, disability and healthcare insurance contributions. Short-term incentives describe the employee retention and bonus schemes, with long-term incentives being a combination of the Conditional Share Plan (CSP) and Share Appreciation Rights (SAR) Plan awards.

It is the intention to allow employees the option to phase out the retention component in the coming financial year and incorporate it into the guaranteed packages.

Fixed remuneration

Fixed remuneration is defined in terms of a total guaranteed package, which is negotiated to include a basic salary, accommodation and travel allowance, retirement savings, death, disability and healthcare insurance contributions. Guaranteed packages are market-related and are based on the complexity of the role and the employee's personal performance and contribution to the Group's overall performance. Contributions towards travel, retirement, death, disability and healthcare benefits are included in the total guaranteed package and are applicable to all employees according to the rules of the relevant schemes and Company procedures.

All permanent employees, including executive directors, are required to join one of the approved retirement funds.

The Company offers participation in several nominated medical aid schemes where the choice of scheme resides with the employee. Death benefit insurance is provided for all employees and personal accident insurance is provided for D-upper and E-level employees who are expected to travel regularly in line with their specific role and deployment in the Group. As a result of past practice, the Company has a limited liability in terms of post-retirement medical benefits. This practice was ceased from 2006 onwards and the employees entitled to this benefit were ring-fenced.

Salary increases for management employees (D-level and above) are effected on 1 October annually, and are determined by increases in general cost of living (inflation), individual performance, market conditions, Company performance and collective wage settlements. Salary increases for A-, B- and C-level employees are effected annually in line with collective agreements concluded with recognised trade unions.

Variable remuneration

The variable pay dispensation varies between employees in different roles and positions in the organisation. This differentiation is based on the principle that higher levels of variable pay will be awarded to employees who are required to put a greater proportion of pay at risk, and to assume greater levels of responsibility in relation to the achievement of organisational goals.

Short-term incentives

Production bonus for operational A-, B-, C- and D-level employees vary based on their roles and positions, but generally constitute a combination of production, mining quality, cost and safety elements. This bonus was reviewed during the first part of the year to address specific performance and market-related issues. The frequency of these bonus payments range from monthly to quarterly.

The new executive short-term incentive scheme for 2014 included a drive towards safety, health, environment and communities (SHEC) performance, and the drive for delivery on volume, value, quality, cost, capital and cash flow (VVQ3C) targets set in the business plan. The new scheme implemented for 2014 addressed the need to implement leading safety indicators, reinforce the performance management culture and alignment with strategic plans and risk registers and improved governance and consistency of approach throughout the Group. The weighting of the key performance indicators applied per employee grouping are as follows:

In terms of the executive short-term incentive scheme, the bonus structure differs at different grade levels where measurement of each criteria weighted per table above will result in the following ranges of bonuses being payable per employee category (the target position is derived from the reward mix defined earlier):

As indicated in the table above bonuses are capped at 150% on the on-target bonus for all individual elements.

The performance targets are derived from the business plan and set annually by the Remcom for all executive directors, who in turn will set the performance targets for their subordinates and ensure the cascading of target setting for performance to senior managers.

In order to support the business plan objectives through sustained and focused performance metrics, the time frame and thus the frequency of incentive payment for certain “core production” roles have been shortened to continually motivate some managers on specific targets. The assessment of all targets for all executives is done on a quarterly basis.

Long-term incentives

It is essential for the Group to retain critical skills over the longer term and to motivate and incentivise employees in a way that also aligns the interest of senior managers with those of shareholders. This is principally done through long-term incentive plans.

Implats Share Incentive Scheme (ISIS)

The final award made in 2004 in terms of ISIS lapses in 2014.

Implats Share Appreciation Bonus Plan (ISABP)

Adopted in 2005, the ISABP is a cash-settled share appreciation rights plan. Participants received once-off allocations under the ISABP, expressed as a multiple of their salary which was topped up as awards vest. The rights vest in equal tranches from year two through year five and lapse 10 years after the grant date. This scheme was discontinued in 2012 with the introduction of the new LTIP in November 2012.

Long-term Incentive Plan (LTIP)

The LTIP comprises both a Conditional Share Plan (CSP) and a Share Appreciation Rights Plan (SAR). In terms of the SAR, conditional rights are awarded to participants to receive shares in Implats calculated with reference to the increase in the share price from the award date until the date on which the SAR is exercised by the participants. A three-year vesting period applies, during which time the participants have no rights in respect of the underlying shares. Vesting is conditional on continued employment and a prescribed level of corporate performance. The participants are only entitled to exercise the SARs subsequent to and to the extent that vesting has taken place. Participants only become shareholders following the exercise of the SARs.

In terms of the CSP, full shares are awarded free of charge to the participants at the end of a three-year vesting period. On the date of award, participants are only granted conditional rights to acquire these shares at a future date, and only become shareholders with dividend and voting rights from vesting onwards. For the shares to vest participants must remain employed by a company in the Group and vesting of the shares is subject to the achievement of closely defined performance vesting conditions over the performance period.

The plan is designed such that the number of awards in the 2014 financial year and those made annually thereafter are determined on the basis that the expected value thereof at the award date, using an approved share option pricing formula, will ensure an appropriate balance in accordance with the reward mix between the different components of the total remuneration package. The performance conditions and annual allocation are set by the Remcom in accordance with the rules of the scheme.