Telkom Integrated Annual Report 2020

Our remuneration philosophy, policy and framework FY2020

The remuneration report releases to FY2020. It does not take into account changes after 31 March 2020.

Remuneration philosophy and policy

The Telkom remuneration strategy is designed to attract, motivate and retain high-calibre talent, and supports the delivery of our strategy in a sustainable manner without encouraging undue risks. As the market expands with operators in all spheres of our business, it is increasingly challenging to retain experienced executive leadership, and to attract the necessary talent required for the new and growing areas of our business. Meeting these challenges requires a competitive and attractive remuneration offering. To ensure we remunerate all employees competitively, we use market and industry benchmarks. These benchmarks determine appropriate market-related offerings, and higher than minimum prescribed wages. Telkom recognises “equal pay for work of equal economic value” principles and strives to remunerate employees doing substantially the same work, within the same range under the Labour Relations Act, 66 of 1995 (Labour Relations Act). Telkom recognises that there could be differences which are attributed to the following: Individual’s seniority or length of service Individual’s qualifications, ability, competence, critical skills or potential above required levels of performance for the job Individual performance (all employees are equally subject to Telkom’s performance management system) Demotion due to restructuring without a concomitant reduction in remuneration Individual lack of relevant experience for a job level Any other non-discriminatory differentiator Fair and responsible remuneration Telkom applies the principles of fair remuneration based on job complexities and relative job worth, including similar performance outcomes. Our remuneration policy follows the same fundamental principles across all levels of employees. Remuneration must be externally competitive and internally equitable.

We continuously review our practices to ensure that remuneration levels are appropriate across functional areas of the business and that employees are remunerated fairly. Where any anomalies are identified, these are addressed as part of our annual remuneration review process.

We believe fair and responsible remuneration can be defined as follows:

Remuneration objectives and principles

Telkom recognises that, in its competitive environment, we need to differentiate ourselves based on strategic roles and growing areas of the business to value employees’ contribution.

The remuneration policy is designed to attract talent in a competitive labour market and enable Telkom to achieve the following objectives:

Promote sustainable value creation through transparent alignment with group strategy Ensure proper risk management processes, and that remuneration is aligned with short and long-term performance Ensure all employees are remunerated competitively relative to industry benchmarks, provided with appropriate incentives to encourage performance, and rewarded for their individual contributions to the group’s success Ensure that remuneration is affordable and reasonable in terms of sustainable value creation for shareholders

Our remuneration and reward policies and practices are based on the following principles:

Motivate and reinforce superior performance Encourage the development of organisational, team and individual performance Develop future required competencies and skills Employees should share in the success of the group Aim to get the appropriate remuneration mix to ensure Telkom achieves its strategic objectives Be fair and non-discriminatory

Remuneration structure and risk management

Our remuneration structure aligns with the group strategy and the agreed risk appetite, which seeks to reward success fairly, responsibly and transparently, while avoiding overpaying. Remuneration risk is reviewed to align remuneration decisions with strategic business objectives. Remco ensures that:

• The policy is transparent
• Remuneration incentive plans are reviewed annually
• Executives are not involved in any remuneration policy decisions
• The remuneration policy includes malus and clawback policy provisions which will apply to all future STI amounts paid and vesting of share awards (LTI). Malus and clawback will be triggered in the following events:
  • If there was misconduct or material misstatement of performance, material miscalculation of performance condition outcomes, and/or gross misconduct by a participating employee, or where the actions of an employee resulted in reputational damage to the business
  • If the business suffers a material downturn in financial performance due to irregularities or a material failure of risk management
  • If awards were based on material misstatements of the company’s financial results, or information arises which would have caused benefits to lapse or would have resulted in remco rewarded differently had the information been known at the time
  • If the business suffered a material financial loss as a result of actions or circumstances attributable directly to an employee or which could have been avoided by the reasonable actions an employee
  • If the board or remco, in their discretion, deem it necessary to apply malus or clawback

Remco annually reviews the group’s financial results to determine STI payments before any payments are made to executives and other employees, including performance conditions for shares to vest. They have full discretion to adjust the final payment or vesting downwards if they believe circumstances warrant it.

Remco has the discretion to use either malus or clawback as it sees appropriate. In the case of malus, the award may lapse wholly or in part, may vest to a lesser extent than it would otherwise have vested, or vesting may be delayed. In the case of clawback, remco may recover incentive payments that were paid for up to three years after the relevant payment date or recover the vesting value of shares vested for up to three years after the relevant vesting date since introduction thereof.

We follow a holistic, balanced approach across the remuneration elements, as set out below.

Element	GPs	STIs	LTIs
Context	GPs are influenced by the scope of the role and the knowledge, skills and experience required of the position. The packages reflect the market median, which is determined through external market research.	The STI rewards management employees who meet their annual performance targets. The level of achievement determines the payment against each weighted group performance measure. The STI plan is aligned with shareholders’ expectations.	Telkom’s share incentive plans are structured to optimise the group’s overall position, while providing benefits that will assist the group to attract, retain and incentivise executives and top talented employees. The plan is designed to align management’s and shareholders’ interests and grow shareholder value. The objectives are to motivate long-term sustainable performance and retain business-critical and top talented employees.
Type	Fixed	Variable	Variable
Participants and composition of pay	All eligible employees in the group GPs comprise a basic pensionable salary, retirement provision and flexible benefits, which include a nonpensionable allowance and a motor allowance where applicable.	All eligible management employees in the group STIs comprise a cash payment that is payable after finalisation of audited financial results. Bargaining unit employees A 14th cheque is payable if the group meets financial and individual performance targets.	All eligible employees in the group A free transfer of shares is awarded to employees, under the condition of forfeiture in the case of termination of service before the vesting/release date; and achieving the group’s predetermined performance levels. LTIP: senior leadership, M3 to M0 employees Employee Share Ownership Plan (ESOP): middle management and bargaining unit employees, A to M4/S4 BCX share awards are currently issued on a targeted participation basis with the intent to align with Telkom the company based on affordability
Desired outcome	To offer competitive market-related GPs to attract, retain and motivate talented and high-performing employees	Reward employees for achieving annual performance targets	Motivate long-term sustainable growth and align management’s and shareholders’ interests by issuing forfeitable shares
Consequences	No increases are awarded to management employees who do not meet individual performance outputs.	No STI or 14th cheque is payable to employees who do not meet individual performance outputs.	No shares are awarded to employees who do not meet individual performance outputs. No shares will vest if performance conditions are not met. Shareholder requirement: It is expected of employees in M3 and higher levels to purchase a total number of shares equal to 15% of GP over a three-year period. These should be retained for minimum of 24 months. No shares will vest until the minimum requirement has been met.
Policy	Broad band pay structure aligned with market median benchmark. The total cost of annual increases is approved by remco and set in accordance with market movement, affordability and forecast inflation Performance-based increase for management employees Performance-based increases are not applicable to bargaining unit employees, subject to salary negotiation with organised labour	A single STI structure is applied across the group and paid annually in June after remco approval Bargaining unit employees qualify for a 14th cheque payable in June after approval and quarterly performance pay incentives Target incentives align with median benchmarks The STI structure consists of group, business unit and individual performance targets set in advance of every financial year Group, business unit and individual performance targets are reviewed annually to align with the group’s strategic objectives	Forfeitable share awards are subject to vesting conditions Remco approves LTI awards and vesting Annual awards to eligible employees Talent share awards to retain top talent and critical skill specialist Performance conditions for vesting and individual performance targets The vesting period is five years for participants in executive leadership and three years for management and bargaining unit employees
Policy application	Salaries are paid monthly to all employees Employees who are promoted are considered for adjustments if justified	Group targets for FY2020: Business unit performance are measured as follows: Business unit financials (30%) Customer experience (20%) Execution of key strategy milestones including operational measures (30%) People management (20%) Business unit performance are measured as follows: EBITDA PAT Revenue Weightings might differ between business units. Individual targets are included in the performance agreement. These include major project milestones where relevant. Individual targets are agreed in the annual performance contract, and performance against objectives are assessed biannually.	Performance vesting conditions for FY2020: 20% of the 2014 award Total shareholder return (TSR) (20%) HEPS (30%) Return on invested capital (ROIC) (10%) FCF (10%) Customer loyalty (15%) Customer experience (15%) 30% of the 2015 award TSR (20%) HEPS (30%) FCF (10%) Return on invested capital (ROIC) (10%) Customer satisfaction/loyalty (15%) Customer experience (15%) 50% of the 2016 award TSR (50%) HEPS (25%) ROIC (25%)

Note:

The STI and LTI structures will be phased in to all subsidiaries based on subsidiary’s affordability. The aim is to ensure that all employees are eligible to participate in these schemes based on affordability and sustainability, which are directly linked to overall group performance.

Performance management

Performance culture and systems are critical strategic enablers, by translating business vision into objectives and metrics aiming to achieve a high-performance culture with sustainable business results. The business strategy is cascaded through a balanced scorecard approach. Goals are set at top management level and filtered down to the next level. As objectives are filtered, they are adapted and translated to suit the employee’s specific role. Cascading objectives allows managers and teams to align with the company’s strategic objectives. We focus on defining KPIs for the GCEO, GCFO and business unit CEOs in line with the five areas on our scorecard:

The balanced scorecard aids in ensuring that there is alignment between the day-to-day operational work of all employees with that of the business strategy, while measuring and monitoring progress towards the strategic targets.

A key component to drive the high-performance culture in Telkom is the continuous performance approach. Once employees’ goals are aligned to the business strategy, managers provide ongoing dialogue through real-time coaching and feedback, with biannual formal performance evaluation metrics. This forms an integrated part of our overall talent and performance management framework and cycle, shaping people development to build capability for current and future business focus.

The group implemented a “cloud-based” success factors performance management system, which enables and drives our balanced scorecard and continuous performance management approach:

• Cascading of output plans: system driven
• Employee to submit output plan: create ownership
• Continuous/real-time coaching and feedback: system enabled
• The alignment of performance and talent discussion: coaching for growth

The success factors performance management system is well embedded across the business at management levels and will be rolled out to bargaining unit employees in the company during FY2021.

Guaranteed packages

GPs are aligned throughout the group with no significant disparities. Benefits and service conditions are similar within the group. Therefore, there is no immediate need to align benefits. The GPs consist of a basic pensionable salary, retirement provision and flexible benefits.

Guaranteed packages include the following:

• Basic pensionable salary
• Company contributions to retirement

Other flexible benefits include:

• Travel/motor allowance
• Non-pensionable allowance
• Company contributions to medical aid
• Management provident fund

Employees are not entitled to annual GP increases. Annual increases are subject to industry market conditions, employee performance, internal equity, strategic investments and the group’s overall financial position, financial performance and affordability. GPs are reviewed against individual performance, set against a market median, and determined on a total cost-to-company basis.

Employees can structure their packages within the framework of the applicable policies, practices and regulations. Remuneration adjustments outside the annual remuneration review process may be considered in exceptional circumstances and will be subject to approval by the GCEO and recommended by business unit CEOs and CEOs.

All positions are evaluated to determine their relative value and contribution in terms of complexity and required outcomes. Positions are evaluated using the group’s job evaluation system, which correlates with the Paterson job grading system.

GPs are in line with similar roles in the comparable market analysis according to organisational size, profitability and complexity. They are influenced by the scope of the role and knowledge, skills and experience required of the employee. GPs are reviewed and set against market median.

Executive and management employees

GPs for management levels are reviewed annually as part of the group’s overall remuneration review process and are assessed against individual performance. The average GP increase was 6% (FY2019: 3%) for exco, and executive and management employees.

Bargaining unit employees

Telkom follows a balanced approach in granting annual salary increases for bargaining unit employees with due consideration of the consumer price index, market movements and affordability.

A final wage offer was given to organised labour during the FY2018 substantive negotiation process. Highlights of this offer, which was implemented effective 1 April 2018, are reflected below:

Period of the agreement		1 April 2018 to 31 March 2020
General salary increases		3% based on the market 50th percentile of the employee’s functional area per job grade, for the period 1 April 2018 to 31 March 2019 For 1 April 2019 to 31 March 2020, a 6% general increase based on the market 50th percentile of employee’s functional area
Job security		During the period 1 April 2018 to 31 March 2019: A moratorium on section 189 processes as contemplated by the provisions of the Labour Relations Act Telkom did not transfer employees falling within the recognised bargaining unit levels, in line with the provisions of section 197 of the Labour Relations Act. However, outsourcing within the group is allowed Telkom will engage organised labour at an appropriate forum if there is a need to open VSPs and/or VERPs at any time during the duration of this agreement

The current substantive agreement ended 31 March 2020. Substantive negotiations with organised labour did not commence because of the current section 189 process. It is envisaged that negotiations with organised labour will commence after the conclusion of the section 189 consultation process.

Performance Pays

The Performance Pays scheme ensures that bargaining unit employees are incentivised for their collective contribution towards the entire value chain and that payments are based on additional value creation. The salient points are as follows:

• Payments are based on additional value created towards the group achieving its revenue and business objectives/targets
• Trigger of payment
  • Achieving the quarterly net operating revenue target at business level
  • Hurdle rate of 95% of net operating revenue
  • Individual employees must at least meet individual performance targets of a “3” performance rating to qualify for any payment
• Performance Pays targets/efficiency measures are weighted per business unit and Corporate Centre measures
• The amount available per quarter is determined based on achieving the metrics
• All support employees/non-field employees not based in regions are measured against a national composite score
• All regional support non-field employees are measured against region (based on average of regions)
• All Corporate Centre employees are measured against the overall composite score of the group
• Performance differentiation will depend on individual performance ratings and distributed based on individual performance assessment categories

Benchmarking

For the remco to set appropriate remuneration levels and guaranteed packages for directors and senior executives, remuneration is benchmarked by independent remuneration consultants, data is provided in national executive remuneration surveys, and information is disclosed in the integrated reports of industry-specific and JSE-listed companies. Companies with similar market capitalisation and size are used in the benchmarking process.

Remco ensures an appropriate peer group review is conducted to retain the integrity and appropriateness of the benchmark data. Executive pay is benchmarked annually.

Executive directors’ and senior management’s remuneration is benchmarked against executive remuneration surveys provided by Remuneration Consulting, Korn Ferry and 21st Pay Solutions. PricewaterhouseCoopers Inc. (PwC) remuneration surveys are used for lower-level employees.

Total remuneration, GP, STI and LTI are set against a market median for targeted performance.

Executive directors

GCEO

The GCEO is rewarded based on the delivery of the strategic and operational objectives in line with shareholder expectations and business strategy. The remuneration strategy for the GCEO is designed to align remuneration with long-term shareholder growth and sustainable profitability. The reward should demonstrate the critical and pivotal role he plays in the achievement of the group’s strategic objectives and operational goals.

The following key performance areas were contracted with the GCEO:

Financial 40%

KPI Strong focus on defending and growing revenue Accelerating new revenue streams to offset the decline in traditional revenue Preserving and improving margins to grow sustainably Funding framework that supports investment thesis Increase shareholder returns

Measures % growth in gross operating revenues, EBITDA, PAT and HEPS Improve TSR

 

Executing key strategic milestones 25%

KPI Expand and improve enabling infrastructure Migration from legacy/network modernisation Masts and towers Scale in mobile Launch of SMB Sustainable value improvement

Measures % customers migrated to new technologies to protect current revenue streams % increase in revenue Market share Maximise revenue from multi-tenancy on masts and towers SMB business growth and profit margins % improvement in network efficiency Effectively manage and contain cost escalation through a sustainable value improvement programme

 

Customer experience 20%

KPI Retention of existing customers and customer satisfaction

Measures Orange Index Customer retention index Composite score improvement % increase in customer base

 

Group combined assurance framework and people (leadership and employees) 5%

KPI Combine assurance framework Talent management/succession plans for executive management Identify top talent and critical skills People development

Measures Compliance with framework Identified successors for each exco position Retention of top talent/critical skill specialists Quality of succession pipeline

 

GCFO

The following key performance areas were contracted with the GCFO:

Financial 40%

KPI A strong balance sheet EBITDA improvement through cost reduction Maintain positive FCF to reinvest in our business and provide a buffer to mitigate against adverse market conditions

Measures % growth in FCF, net debt to EBITDA, capex intensity and ROIC Maintain a healthy balance sheet geared towards supporting the business strategy

 

Executing key strategic milestones 25%

KPI Sustainable cost management Disciplined capital allocation framework Optimise net working capital through cash release initiatives		Measures Consolidate spend to reduce the growth in external spend through strategic sourcing, leveraging on our purchasing power Optimal capital prioritisation criteria Focus on reducing cost to serve using various methodologies, implementation of digital channels and back office automation
Governance and control – a compliant and appropriate risk control environment Investor relations Treasury and tax		Risk compliance/appropriate levels and structures are in place Create an effective investor climate Mitigation of exchange movements and effective tax structure

 

Customer experience 20%

KPI Orange Index

Measures Composite score improvement

 

Group combined assurance framework and people goals (leadership and employees) 15%

KPI Combine assurance framework Talent management/succession plans Performance management Acquire and inspire employees to reach their full potential

Measures Compliance with group assurance frameworkk Number of successors identified aligned with talent management framework All employees have individual performance plans Identify group financial KPIs to be cascaded

Short-term incentives

The STI scheme rewards management employees who meet and exceed annual performance targets if group meets it financial threshold targets. The level of achievement determines payment against each weighted group performance measure. The STI plan is designed and aligned with shareholder expectations.

STI plan changes The board approved the following changes to the FY2020 STI plan for eligible management employees: Introduced FCF as a financial measure to determine the allocation of the STI pool Malus and clawback provision for any STI payments for gross misconduct or negligence on the part of the employee leading to dismissal, or if employees resign during a formal disciplinary enquiry/hearing The FY2020 plan was approved with the following clearly defined principles:

The STI payout mechanism is based on actual achievement of financial targets. Target     Achievement (%)     Payout of STI pool (%) Less than hurdle rate     <95     0 Hurdle rate     95     95 Target     100     100 Stretch     100     100 Maximum cap     120     120 The remco annually recommends the STI plan’s rules, targets and measurements to the board for approval, subject to the final audited actual group performance. Eligible bargaining unit employees participate in Performance Pays and 14th cheque payment instead of an STI plan. Employees who perform at or above a score “3” performance rating each year, will each receive a 14th cheque. This is calculated based on the individual GP value, subject to the group meeting its financial performance targets. An individual must be in the employ of the group on payment date to qualify for the STI payment and/or 14th cheque payment.

 

STI plan awarded for FY2020

In accordance with the approved group STI plan, STIs were allocated to business units based on their actual achievement and divisional performance. Individual performance is recognised in the respective business units based on the achievement of individual performance contracts. FY2020 group STI targets and achievements are shown below.

Performance criteria	Weighting %	Baseline FY2019 Rm		Target FY2020 Rm		Actual achievement Rm	Achievement %	Achieved
Group EBITDA before STI	25	10 889		11 379		9 144	80.4	✕
Group PAT before STI	25	3 053		2 457		1 230	50.1	✕
Revenue	25	41 774		44 698		43 043	96.3	✓
FCF	25	(32)		292		1 709	585.3	✓

LTIP

The plan is designed to align management’s and shareholders’ interests and grow shareholder value. The objectives are to motivate long-term sustainable performance and retain business-critical and top talented employees.

Termination of employment

The following conditions will apply when an employee’s employment is terminated:

• Resignation, dismissal and/or abscondment: If a participant ceases to be employed by the group before the vesting date, by reason of their resignation, dismissal or abscondment, they shall cease to be entitled to any rights associated with the award. The forfeitable shares that are the subject of the award shall be forfeited
• Death, redundancy, medical disability and retirement: If a participant ceases to be employed by the group before the vesting date for these reasons, a portion of the awards shall vest on the date of cessation of employment. The portion that vests shall be pro-rated to reflect the number of full months that have lapsed at the date of cessation of employment relative to the total months of the performance period (with any remaining balance not vesting being forfeited). The performance condition shall not apply to the vesting of the awards

Vesting of awards

The performance conditions are measured after three years, and the number of shares to vest is based on the extent to which the performance conditions are met.

 

Vesting period: LTIP (%)	Vesting period: ESOP plan (%)

The following table indicates the percentage target achievement to determine the number of shares to vest.

	Target achievement %		Share vesting %
Target	100		100
Hurdle	90		50
Less than hurdle rate	<90		0

The tables below sets out the threshold sliding scale:

Talent share awards (previously named additional share awards)

Telkom’s talent management aims to identify, develop, refresh and retain highly talented and diverse individuals to ensure a continuous supply of candidates and successors in leadership and critical positions. Telkom aims to reposition itself as a leading professional community with a talented and skilled workforce, which will provide a competitive edge.

The purpose of the additional talent share awards is to provide a reward mechanism that motivates and retains key critical and core talented individuals to meet business requirements. Talent shares are awarded for top talent and critical skill specialists based on the talent mapping process and business requirements. A total of 27 employees participated in the scheme (FY2019: 29 employees).

Vesting conditions of the talent share awards:

• Vesting is based on achieving the TSR over the three-year vesting period
• The employee must remain in the service of the group for the full three-year vesting period
• In accepting the shares, the employee further agrees to a restraint period of six months, It is required that the employee signs a restraint of trade agreement. On resignation, the employee forfeits all shares

Summary of 2019 vesting (shares awarded in 2014, 2015 and 2016)

The following shares vested on 3 June 2019 at a price of R93.82 per share:

Award date	Scheme	% of performance conditions achieved	Potential vesting % age	Actual vesting % age	Total number of shares vested	Total shares forfeited	Total shares awarded
2014	LTIP	90	20	10	81 397	81 374	162 771
2015	LTIP	87.4	30	–	–	180 488	180 488
2016	LTIP	100	50	50	429 192	–	429 192
2016	ESOP	91.2	100	55	1 313 933	1 074311	2 388 244
Total					1 824 522	1 336 173	3 160 695

LTIP – 20% vesting of the 2014 share award – Achievement

Performance condition

Weight (%)

Target – rand value

Category

FY2015

FY2016

FY2017

FY2018

FY2019

Achievement (%)

Financial 70%

TSR

20

Risk free + 4% (R19.91)

Risk free + 4% (R21.88)

Risk free + 4% (R24.0)

Risk free + 4% (R26.67)

Risk free + 4% (R29.63)

20

Overall achievement

R79.2 (396%)

R57.57 (263%)

R75.03 (312%)

R52.94 (198.5%)

R72.92 (246%)

HEPS

30

419 cps

333 cps

526 cps

616 cps

536 cps

30

Overall achievement

607 cps (144%)

330 cps (100%)

730 cps (138%)

598 cps (97%)

591 cps (110%)

FCF

10

R901m

R2 958m

R4 021m

R996m

R764m

2

Overall achievement

R1 332m (140%) (2.5

R1 332m (140%) (2.5

(R862m) (0%) (0) Remco discretion 2.5%

R501m (50%) (0)

R32m (4%) (0)

ROIC

10

8.30%

9.80%

12.10%

14.90%

9%

10

Overall achievement

12.2% (146%)

9.6% (98%)

9.6% (98%)

10.7% (71.8%)

11.2% (124%)

Operational 30%

Customer first Customer loyalty measure (CLM) – Telkom overall quality (Revenue weighted composite score) Baseline 58.6 (FY2015)

15

59.9 Actual: 58.7 Achievement: 98%

61.7 Actual: 55.5 Achievement: 89.95%

63.4 Actual: 56.7 Achievement: 89.43%

65.79 Actual: 63.72 Achievement: 96.85%

67.99 Actual: 55.29 Achievement: 81%

13.7

Overall achievement

91%

Customer experience

15

Composite score: 1

Composite score: 1

Composite score: 1

Composite score: 1

Composite score: 1

14.3

- TSA 100 Index

Threshold: 0.90

Threshold: 0.90

Threshold: 0.90

Threshold: 0.90

Threshold: 0.90

Composite score: 0.98

Composite score: 0.99

Composite score: 0.96

Composite score: 0.87

Composite score: 0.97

- Assurance index

Actual: 0.96

Actual: 0.93

Actual: 0.87

Actual: 0.81

Actual: 1.01

- Fulfilment index

Actual: 0.99

Actual: 1.05

Actual: 1.05

Actual: 0.93

Actual: 0.92

Overall achievement

95%

Total vesting

100%

90%

LTIP – 30% vesting of the 2015 share award – Achievement

Performance condition

Weight (%)

Target – rand value

Category

FY2016

FY2017

FY2018

FY2019

Achievement (%)

Financial 70%

TSR

20

Risk free* + 4% (R21.88)

Risk free* + 4% (R24.0)

Risk free* 4% (R26.67)

Risk free* 4% (R29.63)

20

Overall achievement

R57.57 (263%)

R75.03 (312%)

R52.94 (198.5%)

R72.92 (246%)

HEPS

30

333 cps

526 cps

616 cps

536 cps

30

Overall achievement

330 cps (100%)

729.8 cps (138%)

598.0 cps (97%)

591 cps (110%)

FCF

10

R2 958m

R4 021m

R996m

R764m

0

Overall achievement

R2 212m 0 (74.7%) (0)

(R862m) (0%) (0) Remco Discretion 3.3%

R501m (50%) (0)

R32m (4%) (0)

ROIC

10

9.80%

12.10%

14.90%

9%

10

Overall achievement

9.6% (98%)

14.5% (119%)

10.7% (71.8%)

11.2% (124%)

Operational 30%

Customer first CLM – Telkom overall quality (Revenue weighted composite score) Baseline 58.6 (FY2015)

15

61.7 Actual: 55.5 Achievement: 89.95%

63.4 Actual: 56.7 Achievement: 89.43%

65.79 Actual: 63.72 Achievement: 96.85%

67.99 Actual: 55.29 Achievement: 81%

13.4

Overall achievement

89.3%

Customer experience

15

Composite score: 1

Composite score: 1

Composite score: 1

Composite score: 1

14.3

- TSA 100 Index

Threshold: 0.90

Threshold: 0.90

Threshold: 0.90

Threshold: 0.90

Composite score: 0.99

Composite score: 0.96

Composite score: 0.87

Composite score: 0.97

- Assurance index

Actual: 0.93

Actual: 0.87

Actual: 0.81

Actual: 1.01

- Fulfilment index

Actual: 1.05

Actual: 1.05

Actual: 0.93

Actual: 0.92

Overall achievement

95%

Total vesting

100%

87.4%

Note: 87.4% achievement equates to 0% vesting.

LTIP – 50% vesting of the 2016 share award – Achievement

Performance condition

Weight (%)

Target – rand value

Category

FY2016

FY2017

FY2018

FY2019

Achievement (%)

Financial 100%

TSR

50

Risk free* + 4% (R21.88)

Risk free* + 4% (R24.0)

Risk free* 4% (R26.67)

Risk free* 4% (R29.63)

50

Overall achievement

R57.57 (263%)

R75.03 (312%)

R52.94 (198.5%)

R72.92 (246%)

HEPS

25

333 cps

526 cps

616 cps

536 cps

25

Overall achievement

330 cps (100%)

729.8 cps (138%)

598.0 cps (97%)

591 cps (110%)

ROIC

25

9.80%

12.10%

14.90%

9%

25

Overall achievement

9.6% (98%)

14.5% (119%)

10.7% (71.8%)

11.2% (124%)

Total vesting

100%

100%

Note: 100% achievement equates to 100% vesting.

* The risk free rate is a benchmark yield on government risk ‘default free’ bonds. The risk free rate refers to the current yield on the SA government ten-year bond, the R2030. The rate is currently at 9.14%

ESOP – 100% vesting of the 2016 share award – Achievement

Performance condition

Weight (%)

Target – rand value

Category

FY2017

FY2018

FY2019

Achievement (%)

Operational 30%

Customer first CLM – Telkom overall quality (Revenue weighted composite score) Baseline 58.6 (FY2015)

50

63.4 Actual: 56.7 Achievement: 89.43%

65.79 Actual: 63.72 Achievement: 96.85%

67.99 Actual: 55.29 Achievement: 81%

44.5

Overall achievement

89%

Customer experience

50

Composite score: 1

Composite score: 1

Composite score: 1

46.7

- TSA 100 Index

Threshold: 0.90

Threshold: 0.90

Threshold: 0.90

Composite score: 0.96

Composite score: 0.87

Composite score: 0.97

- Assurance index

Actual: 0.87

Actual: 0.81

Actual: 1.01

- Fulfilment index

Actual: 1.05

Actual: 0.93

Actual: 0.97

Overall achievement

93%

Total vesting

100%

91.2%

FY2020 share award

Based on the share allocation policy, 3 507 227 forfeitable shares were awarded to permanent employees who were in the service of the group on the award date, 3 June 2019 at a share price of R80.85 each. The following vesting conditions were approved:

Performance condition

Weight (%)

Target

Category

FY2020

FY2021

FY2022

FY2023

FY2024

Financial

TSR

50

Risk free + 4%

Risk free + 4%

Risk free + 4%

Risk free + 4%

Risk free + 4%

HEPS

25

As per the business plan

ROIC

25

As per the business plan

• TSR: This combines share price appreciation and dividends paid to show the total return to the shareholder expressed as an annualised percentage
• ROIC: Invested capital is the book value of fixed assets plus current assets fewer current liabilities less cash
• HEPS: The weighted average number of shares outstanding excludes treasury shares

Total number of shares issued up to 31 March 2020

Year awarded	FY2014	FY2015	FY2016	FY2017	FY2018	FY2019		FY2020
Date awarded	November 2013	April 2015	June 2015	June 2016	June 2017	June 2018		June 2019
Total number of shares available	26 039 195	23 614 292	21 033 323	22 562 861	19 861 706	16 686 501		13 600 730
Total number of shares awarded:
Telkom	(6 559 290)	(4 685 734)	(4 733 159)	(4 886 209)	(5 444 803)	(4 690 718)		(3 507 227)
Gyro								(129 830)
BCX								(1 404 181)
Subtotal	19 479 905	18 928 558	16 300 164	17 676 652	14 416 903	11 995 783		8 559 492
Total number of forfeited shares:
Telkom	4 134 387	2 104 765	2 552 571	2 185 054	969 037	703 879		472 314
Gyro								6 341
BCX								85 400
Shares purchased:
Telkom			3 710 126		1 300 561	901 068		1 688 016
Gyro								–
BCX								1 060 000
Remaining shares available	21 033 323	21 033 323	22 562 861	19 861 706	16 686 501	13 600 730		11 871 563

Employment contracts

GCEO

Sipho Maseko was appointed on 1 April 2013. He is a full-time employee with a three-month notice of termination period. He may be required to work notice, be placed on garden leave or, if not required to work, full notice may be paid in lieu of notice period on duty. Remco completed detailed succession planning for senior executive management, including for the GCEO.

There are no other obligations in executive employment contracts that could give rise to payments on termination of employment or office. Refer to our GCEO’s other directorships.

External directorships

Executive directors can hold one external directorship in any company following board approval. All compensation earned from external directorships will accrue to Telkom. The board may decline executive directors’ external directorships as it sees fit. Refer to our external directorships. The treatment/approval thereof varies according to the applicant level.

Other prescribed officers

All prescribed officers are employed on a full-time employment contract. Employment contracts require three months’ notice of termination by the employee or the company. Employees may be required to work notice, be placed on garden leave or, if not required to work, full notice may be paid in lieu of notice period on duty.

Employees must be in service on payment date to qualify for STI payments, subject to individual and group performance. No STI is payable in cases of dismissals. Pro rata payments only apply to new appointees for the number of months in service during the financial year. Employees must be in service on the vesting date of shares to qualify for any vesting.

There are no other obligations in executive employment contracts which could give rise to payments on termination of employment or office.

The retirement age for executive directors is 65 years. A standard restraint of trade clause is incorporated into the employment contract for a maximum of three months without reward.