Variable remuneration represents the major proportion of the individual’s remuneration package.
For 2010, the variable remuneration of the executive directors comprised:
an annual bonus opportunity; and
participation in the Restricted Share Scheme, measuring performance over the long term.
For 2011, it is proposed that the variable remuneration of the executive directors will comprise:
an annual bonus opportunity;
a deferred bonus;
participation in a Co-Investment Plan rewarding performance over three years; and
performance shares awarded under the Restricted Share Scheme, rewarding performance over 3, 4 and 5 years, with a further one year post-vesting retention requirement.
ANNUAL BONUS
Encourages and rewards superior performance on an annual basis.
Executive directors are eligible to receive an annual bonus, subject to the achievement of stretching performance criteria.
The performance metrics are intended to reward the achievement challenging strategic and financial targets that contribute to the creation of sustainable shareholder value.
The committee may make adjustments to the criteria used for measuring performance on an annual basis taking into account the strategic objectives of the company for the year.
ThE REMUNERATION REPORT
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Annual bonus for the CEO for 2010
Dr DM Bristow’s annual bonus for 2010 was based on the achievement of the following performance criteria:
Performance criteria Measurement Annual group financial EBITDA growth performance
Sustainable growth Replacement or growth in of reserves reserves is calculated on a three
year rolling average in arrears.
Production volume Production volume in ounces measured against budgeted ounces of production
Individual strategic Agreed at annual strategic output performance planning review and approved
targets by the board.
An annual bonus of 150% of base salary was payable for achieving ‘target’ performance. The maximum bonus payable was 300% of base salary for outperformance.
The committee measures performance against each of the metrics in the round including whether one or more are significantly above or below the target level.
Annual bonus for the CFO for 2010
Mr GP Shuttleworth’s annual bonus for 2010 was based on the achievement of the following performance metrics:
Performance criteria Measurement Annual group financial EPS growth performance
Cost control Cash costs per ounce controlled below targeted annual level
Individual strategic Agreed at annual strategic output performance planning review and
targets approved by the board.
An annual bonus of 75% of base salary was payable for achieving ‘target’ performance. The maximum bonus payable was 150% of base salary for outperformance.
The committee measures performance against each of the metrics in the round including whether one or more are significantly above or below the target level.
Bonus payments in respect of 2010
Based on performance achieved against targets during the 2010 financial year, the remuneration committee determined that Dr DM Bristow and Mr GP Shuttleworth should receive bonus payments of US$4 500 000 and US$800 000 respectively.
CEO
The determination of the bonus for the CEO for 2010 took account of the following performance metrics:
EBITDA growth in the year was 34%;
the increase in reserves to depletion was 6.77;
production volume was 440 000 ounces; and
performance against strategic output measures was 83%
of maximum.
CFO
The determination of the bonus for the CFO for 2010 took account of the following performance metrics:
earnings per share rose by 33%;
cost of production was US$699 per ounce; and performance against strategic output measures was 75% of maximum.
Annual bonuses for the executive directors for 2011 The annual bonuses for 2011 will be based on the achievement of the following performance criteria:
Performance criteria Measurement Proportion Annual group financial EPS growth/ 30%
performance cost per ounce
Role specific Operational/ 30%
operational/ financial financial/
performance targets cost control
Role specific strategic Agreed at annual 30%
performance targets strategic planning review and approved salary. The maximum bonus payable to the CFO for achieving outperformance will also remain unchanged at 150% of base salary.
It is proposed that the one third of annual bonuses payable to executive directors will be subject to a mandatory deferral for the first time in 2011, as described below.
Deferred annual bonuses
Encourages and rewards superior performance on a sustained basis.
In 2011, part of any annual bonus earned will be compulsorily deferred and paid in shares after three years. For the CEO and the CFO, one third of any bonus will be deferred.
Deferred bonuses may be matched under the proposed Co-Investment Plan (see section below).
Deferred bonuses will be subject to clawback in the event of a misstatement of the report and accounts on which they were based.
Long term incentives for 2010
The company has incentivised executives over the long term by awarding shares under the Restricted Share Scheme which was approved by shareholders on 28 July 2008.
Awards have been made periodically, generally not every year, at the discretion of the committee. Shares awarded have been expressed as a specific number of shares, rather than a percentage of salary. Shares awarded under the scheme vest in equal tranches as specified at the date of award.
The vesting profile for executive directors is in line with the policy for senior executives below the main board. It reflects the fact that awards are not necessarily made on an annual basis, and therefore staggered vesting supports the phasing of payments.
Awards outstanding are detailed in the table on page 91.
Performance measures for awards made under the Restricted Share Scheme
The gold mining industry is capital intensive, cyclical and long term. Outstanding performance comes from finding and accessing high quality resources, successfully developing new projects and maintaining efficient and safe operations.
The committee believes that, against that background, success may be measured by the company’s total shareholder return performance against the HSBC Index. The HSBC Index is a capitalisation-weighted index calculated in US Dollars, representing mining companies in 21 countries.
Performance is measured against the HSBC Index for each tranche of restricted share awards. Awards to executive directors vest in full provided the company’s performance is better than that of the index over the performance period.
No vesting occurs where the company’s performance falls below that of the index. The committee considers this target to be challenging in the context of the company’s historical sustained out-performance of the market.
The company’s performance compared with the performance of this index over the past five years is shown in the graph on the previous page.
In addition, the vesting of any restricted share award is subject to the employee being employed and achieving a satisfactory individual performance rating for the year preceding the vesting date.
No vesting occurred on 1 January 2011 in respect of Dr Bristow’s shares over the past 12 month period, as the company’s performance fell below that of the HSBC Index over the performance period.
Long term incentives from 2011
From 2011 it is proposed that long term incentives for executive directors will comprise:
participation in a Co-Investment Plan rewarding performance over three years; and
performance shares awarded under the Restricted Share Scheme, rewarding performance over 3, 4 and 5 years, with a further one year post-vesting retention requirement.
Proposed new Co-Investment Plan
Rewards sustained performance relative to global peers over a three year period
Following consultation with shareholders, a new Co-Investment Plan will be put to shareholders for approval in 2011.
Each year, one third of any annual bonus earned will be compulsorily deferred and an executive director may also choose to commit further shares to a Co-Investment Plan.
The maximum commitment which may be made in the Co-Investment Plan will be 200% of base salary by the CEO and 100% of base salary by the CFO. Committed shares must be retained for three years and may be matched, depending
ThE REMUNERATION REPORT
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on relative TSR performance over three years against the HSBC Index. Both the CEO and the CFO will be given the opportunity to make the maximum commitment for 2011 if shareholder approval is received.
If after three years the TSR performance of the company equals the performance of the HSBC Index, then the committed shares may be matched on a stepped scale, as shown in the table below. The maximum level of matching is 1 for 1.
Three year TSR Level of matching
performance on committed shares
Below the Index Nil Proposed new awards under the Restricted Share Scheme
Rewards sustained long term performance over a five year period.
Each year, awards of shares are to be made under the Restricted Share Scheme, determined as a percentage of base salary. The maximum annual award will be 200% of base salary for the CEO and 100% of base salary by the CFO. There will also be a maximum number of shares which may be awarded in any one year.
The awards will be made under the terms of the existing Restricted Share Scheme, approved by shareholders on 28 July 2008.
Compulsory deferral Part of annual bonus earned is automatically
After the end of three years relative TSR performance is measured
Shares matched
If the performance target is met shares may be matched, ranging from 0.5 for 1 up to 1 for 1
Awards will vest after three, four and five years subject to the achievement of stretching operational and financial targets.
Four separate measures of business growth will be used:
Additional reserves in ounces, weighted 25%
Absolute reserve growth in ounces, weighted 25%
Absolute TSR, weighted 25%
EPS growth, weighted 25%.
Level of vesting Year 3 Year 4 Year 5
The committee believes that the performance necessary for awards to vest towards the upper end of these ranges is stretching. They should not, therefore, be interpreted as providing guidance on the group’s expected performance over the relevant periods.
EPS growth will be measured on an average annualised growth basis. TSR will be measured over the three months before the start and before the end of each performance period. Awards will vest on a straight-line sliding scale for performance between these points.
A post-vesting retention period will require that at least 50%
of the after tax value of any part of an award vesting must be held for a minimum period of one year.