Private and Confidential ENCLOSURE 2 ZCCM Investments Holdings Plc REMUNERATION COMMITTEE REPORT TO THE 68TH BOARD MEETING – FRIDAY, 20 MARCH 2015 20 March 2015 Lusaka REMUNERATION COMMITTEE REPORT TO THE ZCCM-IH BOARD MEETING OF 20 MARCH 2014 The Remuneration Committee of the Board (RC) held its 33rd meeting on 11 March 2015. Present at the meeting were Ms S Mutemba (Chairperson), Dr B Ng’andu, Mr G Ndalama (alternate to Mr P Chanda), Mr C Mwananshiku. In attendance were Dr P Kasolo, Mr C Chabala, Mr K Tito, Ms M Chanda, Mr L Mbalashi, Mr A Syanziba, Mrs L Mukwasa and Mr C Mjumphi (Secretary). The following matters were discussed at the meeting and resolutions made thereof. 1. PROPOSED REVISED ORGANISATIONAL STRUCTURE 1.1 The RC was informed that: The following changes to the structure were proposed: 1.1.1 Executive Chairman’s Office ? Management was proposing that the office of EC be declared redundant in keeping with best practice in corporate governance and in line with the guidelines contained in the Board Charter. Further, employees who were working under the EC’s office were redeployed as follows: Driver; was reassigned as a driver to the CEO; Office Manager, redeployed under the investments directorate while the Executive Assistant was redeployed as Business Development Analyst. ? Once the office of the EC fail vacant, the position of cook and gardener were declared redundant. The RC adopted the proposal to abolish the EC position from the Organisational Structure and now submits to the Board for approval. 1.1.2 Chief Executive Officer’s Office Management was proposing to have a dedicated Public Relations Manager (PRM). The PRM would be responsible for proactively managing the public image of ZCCM-IH. The RC adopted the proposal to introduce the position of Public Relations Manager in the Organisational Structure at Grade ZH3 and now submits to the Board for approval. 1.1.3 Investments Directorate (i) Chief Operating Officer Rename the position of Chief Operating Officer to Chief Investments Officer to depict the roles performed by the head of investments. The RC adopted the proposal and now submits to the Board for approval. (ii) Projects Manager: ? Include the position of Projects Manager whose role would be to manage all projects to be undertaken by ZCCM-IH e.g. the Cement Project. ? The RC was a view that the scope of work to be undertaken by the Projects Manager did not warrant a permanent position. In this regard, the RC directed Management to consider engaging Projects Manager on a need basis on short term contract such as between 6 to 12 months. (iii) Portfolio Analysts Rename Investments Analysts to Portfolio Analysts. In view of the need to improve information collection and analysis on the entire ZCCM-IH portfolio, Management was proposing an additional 2 Portfolio Analysts. Further, Management was working on a proposal to use an automated and integrated information collection system to be used in collecting and analysing information on the performance of the mining companies in the entire portfolio. Following these changes, the position of Venture Capital Analyst be scrapped. The RC adopted the proposal to rename the position of Investments Analysts to Portfolio Analysts and increase the positions from 2 to 4 at Grade ZH4. Further, the existing position of Venture Capital Analyst be scrapped. The RC recommends Board approval. (iv) Property Manager and Real Estate Officer In view of the envisaged diversification into real estates business, Management proposed the inclusion of a Real Estate Portfolio to be populated by a Property Manager and 2 Real Estate Officers (one each in Lusaka and Kitwe). Further, the Real Estate Officers would be required to undertake the tracing exercise for the various properties which were owned by Zambia Consolidated Copper Mines (ZCCM) but were not properly transferred to ZCCM-IH. The RC adopted the proposal to establish one position of Property Manager at ZH3 and two Real Estate Officers at ZH4. The RC recommends Board approval. (v) Business Development Analyst ? In view of the anticipate increase in seeking new opportunities, Management proposed an additional Business Development Analyst to support the 2 existing positions in the approved structure. ? The RC directed that the number of Business Development Analysts be limited to 2 since they would be an analyst to undertake research and development. The Board to note therefore that the establishment for Business Analysts will remain at two. (vi) Research and Development Analyst: Management proposed the inclusion of the Research and Development Analyst (RDA) in the structure. The holder would be expected to conduct in-depth research, analysis and data collection in order to propose new investments in the Company. The RC adopted the proposal to establish the position of Research and Development Analyst at Grade ZH4 and now submits to the Board for approval. 1.1.4 Corporate Services Directorate (i) Detach Human Resources Function from Corporate Services Management proposed the separation of the Human Resources function from Corporate Services. This was aimed at having a focused and strengthened implementation of the HR strategy in ZCCM-IH and the provision of group HR oversight to the Subsidiaries. The RC adopted the proposal to hive-off HR function from the Corporate Services Directorate and create a separate HR Directorate. The RC now recommends Board approval. (ii) Procurement Officer ? Management proposed an additional post of Procurement Officer intended to ensure operational efficiency in procurement as currently the workload could not be comfortably undertaken by two employees. This had resulted in excessive delays in procurement and underutilisation of budgeted amounts for procurement activities. ? The RC directed Management to carry out a detailed work study of the efficiencies in the Procurement Unit to determine with reasonableness and the need for additional capacity. The RC observed that there was need to find ways of extracting maximum value in employees before a proposal for additional staff could be considered. The RC directed that the proposal to have an additional Procurement Officer be declined. 1.1.5 The RC observed that there was a general tendency to increase staff numbers without due consideration of the performance of the business. The mining sector was facing enormous challenges and that would negatively impact ZCCM-IH’s cashflows as the Company was heavily dependent on dividend payments from mining companies. In this regard, Management needed to demonstrate awareness of this fact whilst making decisions which had financial implications. 1.1.6 The RC directed Management to provide the financial implications of the increases and adjustment in the structure in terms of total number of employees and labour cost. Recommendation: The Proposed revised Organisational Structure is presented to the Board as Appendix 2.1 and the RC now recommends that these be approved. The RC further recommends that vacant positions in the Company be filed on a gradual basis as driven by value adding activities. The Proposed revised Organisational Structure is attached as Appendix 2.1 2. PROPOSED SALARY INCREMENT FOR ZCCM-IH STAFF 2.1 The RC was informed that: a) A survey with comparator companies and some mining houses, showed an average increment of 12 %. However this was mainly in institutions where there was collective bargaining. i.e. Zamtel 15%; ZICTA 7% (yet to be implemented); CEC 10%; Chibuluma Mine 10%; Mopani 8%. Further, most institutions were still negotiating and were unable to share their planned 2015 increment. b) In view of the constrained cash-flow projections, Management proposed and the 2015/16 budget has provided for a 10% increment split as follows: 7% to cover for inflation and 3% as an increment across the board. 2.2 Following the presentation of the Proposed Salary Increment for ZCCM-IH Staff, the following discussions ensued: a) The RC enquired on why the proposed increment was not based on performance appraisals since this was a requirement based on the approved Performance Management and Appraisal System (PMAS). Management reported that there was a delay in the development of the 2014/15 Company Action Plan from where performance targets for each employee were to be derived. b) The RC observed that there was need to consult with GRZ, the majority shareholder, and obtain the views on the proposed salary increment since GRZ had a wage freeze in place for all civil servants’ salaries. c) The RC observed that the proposed increment did not provide sufficient justification and was not in agreement with the requirement of PMAS which required that any salary increment should be based on performance and also sustainability (i.e. corresponding improvement in Company performance). 2.3 Following the deliberations, the RC Resolved that the proposed salary increment be deferred for later review when matters relating to the PMAS were resolved and a corresponding improved company performance for the financial year ending March 2015 was demonstrated. 3. PROPOSED AMENDMENTS TO THE ZCCM-IH’S CEO’S EMPLOYMENT CONTRACT a) The RC considered the following proposed amendments to the CEOs contract: ? That ZCCM-IH will outsource the gardening services to be provided at the CEO’s residence in the place of giving him an allowance to engage a garden boy. This was motivated by the fact that all ZCCM-IH properties are maintained by the Company through outsourced services. It is planned that ZCCM-IH will be purchasing a house to be occupied by the CEO. ? That ZCCM-IH will pay the CEO, a monthly allowance of ZMW1000.00 for the House Maid. It will be the responsibility of the CEO to hire and pay the house maid. ? That these conditions would become applicable once the CEO moved into the ZCCM-IH House. 3.1 Following the Proposed amendments to the ZCCM-IH’s CEO’s Employment Contract, the RC Resolved that the Proposed amendments to the ZCCM-IH’s CEO’s Employment Contract be and are hereby adopted for submission to the Board for approval. 4. EMERGING RISKS IDENTIFIED IN THE IMPLEMENTATION OF THE 2013 ORGANISATIONAL DESIGN 4.1 The RC was informed that: a) The final organizational structure implemented in 2013 was not discussed with the Heads of the departments so as to appreciate the changes. b) The key variations were as follows: ? Some positions were downgraded. These are the position of the Chief Audit and Risk Executive and the General Counsel from ZH2 to ZH3. ? With the creation of the Corporate Service Directorate which oversees the human resource, the ICT, Administration, Procurement and Company Secretarial, it was initially proposed that the various functions be headed by staff at ZH3, with the except Administration. However, only the Manager Human Resource is ZH3 and the rest are graded at ZH4. The Corporate Officer is responsible for company secretarial duties and also supervises the Administration function but has no subordinates to support him on company secretarial duties. ? Some positions share the same grade with subordinates. For example; the Deputy General Counsel and the Legal Officer are both at ZH4 and; the Senior Procurement Officer and the Procurement Officer are both at ZH4. ? Staff had not yet signed new job descriptions. ? As a result of the organisational design, the company had a salary and grading structure. However, the final numbers, grading and placements were not discussed with the Heads of Departments. c) As a result of these deviations, the intended purpose of improving company efficiencies may not be achieved. 4.2 Following the presentation of the Emerging Risks: a) The RC observed that the matters highlighted needed to be dealt with on a case by case basis and that some of the matters were within Management’s capacity to handle. b) The RC directed Management, through the Company Secretary, to provide a detailed report on the implementation of the OD and submit this to the RC members for guidance. 5. STATUS ON THE PURCHASE OF A HOUSE FOR ZCCM-IH TO BE OCCUPIED BY THE CHIEF EXECUTIVE OFFICER 5.1 The RC was informed that: ? Following the recruitment of the Chief Executive Officer (CEO) in October 2014, the Board revised the conditions of services for the CEO to include the provision of furnished accommodation by the Company. At the Board Meeting held on 9 December 2014, the Board approved Management’s recommendation the Company should buy a house (or a plot and build a house) that will be used to accommodate CEOs of ZCCM-IH ? The Board approved the recommended options save for that of buying a house, demolishing and building a new one. The Board also approved a supplementary budget of US$800,000 for this matter. The Board directed Management to find a house to buy as soon as possible to avoid the company incurring more expenditure in rentals. ? Management undertook a search for an appropriate house for purchase. ? Three houses were identified and valuations conducted. ? The GRZ Valuation Department was also requested to undertake a valuation on the Kudu and Sable Roads properties. GRZ Valuation Department indicated that it does not give valuation figures on such matters (where there is an intention to purchase) but only offers a valuation opinion on the fairness and reasonableness of the offer prices. ? The GRZ Valuation Department has indicated that the offer price for the Kudu house (subdivision 30 of subdividion B of Farm No. 377a, Kudu Road, Kabulonga, Lusaka) is fair and reasonable. They are yet to provide their opinion on the Sable house. ? While the option to purchase a house in Kudu Road, Kabulonga seemed desirable, the additional costs of renovations were unknown and as such services of a quantity surveyor should be sought in this regard. ? Management was of a view that the option to purchase land and build a house be explored and this be compared to outright purchase. In the meantime it was agreed that ZCCM-IH finds a house for rent on a long term lease to be occupied by the CEO while the various options are being explored. ? It was further recommended that the option to find a house ready for occupation be further explored by widening the search to include other locations as recommended by Management and approved by the Board. ? It was reported that following protracted negotiations, the owner of the preferred house had indicated that he would be offering the house to other buyers who were ready and willing to purchase the house immediately. In this regard, ZCCM-IH was given upto 11 March 2015 to decide whether or not to buy the house, failure to which the house would be offered to other willing buyers. 5.2 Following presentation of the update report, the RC directed Management to proceed with the purchase of house no. subdivision 30 of subdivision B of Farm No. 377a, Kudu Road, Kabulonga, Lusaka. Further, the RC observed that there was need for Management to consult the Board if they were meeting challenges in implementing Board decisions. Recommendation: The Board is requested to adopt the RC’s directive in this regard.