Our remuneration philosophy, policy and framework

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’s performance (all employees are equally subject to Telkom’s performance management system)
• Demotion due to restructuring without a concomitant reduction in remuneration
• Individual’s 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 employee levels. 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:

Fair

• Rational, easy to understand and not subject to emotions
• Free from discrimination, favouritism and self-interest
• Linked to individual and Group performance
• Purposeful to address unfair discrimination

Responsible

• Independent with oversight (approved within the DOA)
• Pay decisions must be equitable
• Sustainable (link to value creation) and output driven

In ensuring fair and responsible remuneration, Telkom focuses on the important issues of employment equity, gender equity and pay differentials. As we continuously review our practices at all levels of remuneration, we ensure that any pay differential based on race or gender is adequately addressed.

The gender wage gap across all grading/complexity levels in Telkom ranges between 0%-3%. The gender gap is within acceptable tolerance levels. A key component that may impact the gender wage gap is gender composition. The gender wage gap was calculated on the actual value of what a woman would earn if she occupied the same position as a man across all levels (job complexity/grade levels).

The Telkom race wage gap ranges between 0%-4%. The race wage gap is calculated on the actual value of what a black employee would earn in comparison to a white employee if they occupied the same position as a white employee across all levels (job complexity/grade levels). The Company has made a concerted effort over a number of years to deal with inequalities, taking into consideration the principle of equal pay for equal work.

Remuneration objectives and principles

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 the Group strategy
• Ensure proper risk management processes, and that remuneration is aligned with both 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 the Group achieves its strategic financial and operational objectives in the short and long term
• Is fair and non-discriminatory

Remuneration structure and risk management

Our remuneration structure aligns with the Group strategy and the agreed risk appetite, which seek 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 remuneration policy is transparent
• Remuneration incentive plans are reviewed annually
• Executives are not involved in any remuneration policy decisions which impact their individual remuneration directly
• The remuneration policy includes malus and clawback policy provisions which apply to all STI amounts paid and vesting of share awards (LTI)

Remco annually reviews the Group’s financial results to determine STI payments before any payments are made to Executives and other employees. Performance conditions for shares to vest as per the rules of the scheme are reviewed prior to vestings being approved. The Remco has full discretion to adjust the final payment or vesting downwards if it believes circumstances warrant it.

 

 

 

 

Performance management

A performance culture and systems are critical strategic enablers that translate business vision into objectives and metrics aimed at achieving high performance with sustainable business results. The business strategy is cascaded through a balanced scorecard approach. Goals are set at Executive management level and filtered down to subsequent levels. As objectives are filtered, they are adapted and translated to suit employees’ specific roles. Cascading objectives allow managers and teams to align their activities with the Group’s strategic objectives.

We focus on defining KPIs for the GCEO, GCFO and business unit CEOs in line with the five areas of our scorecard:

1. Financials: Achieving the business plan targets
2. Customers: Overall customer satisfaction
3. People management: How people are managed
4. Operational management: Operational measures to sustain the business
5. Strategic: Key strategic milestones

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

Telkom introduced a clear performance management cadence throughout the Group (called Drumbeat) to adapt and thrive in the changed world of work. An effective Drumbeat establishes a performance rhythm across Telkom that requires a change in the behaviour and mindset of both managers and employees. It creates an up and down fluid flow of engagement focused on real- time feedback and solution generation. The aim is to have more frequent performance discussions and real-on-time feedback to address potential performance challenges.

We created our performance cadence and drumbeat through:

• A common focus on key business results with aligned and cascaded objective plans
• Weekly check-in sessions with feedback on leading indicators
• Interlinked process – weekly check-ins feeding into monthly and quarterly progress reviews
• All engagements being proactive and specific
• Shared focus on problem resolution
• Coaching approach aimed at creating growth opportunities for individual employees

The Group implemented a “cloud-based” performance management system, which enables and drives our balanced scorecard and continuous performance management approach. The system is well embedded across the business at all levels.

Linking total remuneration to performance

Our remuneration outcomes are determined by on-target performance with three performance drivers:

• Group performance, focusing on Group financial and non- financial targets
• Business unit targets, focusing on business unit financial and non-financial targets
• Individual performance focus on individual KPIs

These drivers aim to achieve a high-performance culture with sustainable business results with a clear line of sight in linking Group, business unit and individual performance.

Executive Directors’ key performance areas

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:

Category and weighting	Key metrics	Measures
Financial (40%)	Defend revenues: Develop financial recovery plan in response to COVID-19 Increase market share Accelerate new revenue streams to offset decline in traditional revenue Increase shareholder returns	% decline in revenue % clawback of loss revenue % growth in gross operating revenues, EBITDA, PAT and HEPS FCF TSR
Executing key strategic milestones (25%)	Respond to COVID-19: Digitisation of value chains Transform operating model to embed agile working practices Develop a framework for remote work and determine the viable degree of remote work realisation that can be adopted	Adherence to government regulations Enhance digital platforms’ ability to provide employees access to digital platforms and network connectivity to increase productivity Approval of framework and acceptance rate of remote work journey
Customer experience (20%)	Telkom reputation: The emotional bond that ensures access to customers, product preference, advocacy, licence to operate and attract top talent	Achievement of target
Group combined assurance framework and people (leadership and employees) (15%)	Implement Group insurance framework Responsible corporate citizenship Culture transformation Inclusive and diverse culture Talent management/succession plans for Executive management Identify top talent and critical skills People development	Compliance with insurance framework Social and relationship capital initiatives Annual culture survey – implement meaningful interventions to support culture transformation Employee engagement Identified successors for each Group Exco position Retention of top talent/critical skills specialists Quality of succession pipeline

 

GCFO

Weighting	Category	Key metrics	Measures
40%	Financial	A strong balance sheet Increase TSR	Maintain a healthy balance sheet geared towards supporting the business strategy Net debt to EBITDA in line with Boardapproved plan and market guidance Achieve TSR target
		EBITDA improvement	Sustainable growth in gross operating revenues, EBITDA, PAT and HEPS (achieve targets)
		FCF	Maintain positive FCF Achieve FCF target in line with Boardapproved plan and market guidance
25%	Executing key strategic milestones	Disciplined capital allocation framework	Optimal capital prioritisation criteria Capital efficiency ratio in line with Boardapproved plan and market guidance Optimise net working capital through cash release initiatives of between R700 million to R1 billion
		Deliver merger and acquisition value-creating strategic opportunities	Execute value-accretive transaction/s Enhance Telkom's investment case to the market
25%	Operational	Group finance	Orange index/customer retention index Composite score improvement % increase in customer base
		Investor relations/stakeholder management	Create an effective investor climate Evidenced external profile visibility
		Treasury and tax	Prudent and optimal tax management structure
		Effective legal services	Peer reviews, litigation success rate and achievement of targets for ad hoc/strategic projects
		Execution of the Telkom Retirement Fund (TRF) investment strategy	Returns in line with benchmark
		Governance, internal audit and risk management	Ensure that effective systems of internal control are operated throughout the Group’s controlled entities Compliance with Group assurance framework
10%	People	Talent management and succession planning	Develop finance team and ensure high employee engagement through diversity and inclusion Number of successors identified up to M3 level – aligned with talent management framework
		Talent management and succession planning	All employees have individual performance plans

Benchmarking

For the Remco to set appropriate remuneration levels and GPs 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. PwC remuneration surveys are used for lower-level employees.

Total remuneration, GPs, STIs and LTIs are set against a market median for targeted performance.

GPs

GPs are aligned throughout the Group with no significant disparities. Benefits and service conditions are similar within the Group.

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.

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 Chief Officers.

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 0% (FY2020: 6%) for Group 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. The current substantive agreement ended on 31 March 2020. Substantive negotiations with organised labour commenced on 16 March 2021. The Company and the alliance concluded a one-year substantive wage collective agreement for the period 01 April 2021 ending on 31 March 2022. Refer to the human capital report.

The average GP increase was 0% (FY2020: 6%) for bargaining unit employees.

STIs

The STI scheme rewards management employees who meet and exceed annual performance targets if the Group meets its 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.