Remuneration review

Introduction and background

We have pleasure in presenting Aspen's remuneration review for 2021 in which the Group's Remuneration Policy ("the Policy"), and the manner in which it was implemented in 2021, are set out.

The Committee had a number of engagements with our investors, which provided us with very helpful insight into investors' views on remuneration at Aspen. We understand from the engagements that investors would like to see executive incentives that are aligned with Aspen's longer-term sustainable value creation. They also told us that the manner in which executives are incentivised needs to be clear, transparent and aligned with our strategy. Based on this feedback we have decided to make certain amendments to our remuneration philosophy and Policy, and to how we measure and disclose. It was also clear to us that we need to improve our disclosure regarding our processes and in particular our governance process, which we aim to achieve in this review.

We believe that the changes we have made to how we incentivise our executives ensures that they are aligned with our longer-term value creation.

We believe that the manner in which executive incentives are explained in this review is clear and transparent and connects them with our strategic objectives.

We are committed to continue improving our communication and disclosure, in particular regarding our governance processes, both through this review and in our future engagement with shareholders. We look forward to receiving feedback on our progress.

During the year under review our Remuneration & Nomination Committee focused on:

• succession and capacity in the senior team, which included embedding the roles of the new senior Group executives;
• considering the appointment of a new financial director to fill the vacancy arising as a consequence of the impending retirement of Gus Attridge, the Deputy Group Chief Executive, from the Board;
• formalising the executive committee and addressing emergency and long-term succession for this committee, as well as the next layer of senior management;
• organisational redesign; and
• aligning our remuneration practices with shareholder expectations and market best practice.

These aspects and some of the other material activities undertaken by the Remuneration & Nomination Committee during the year are more fully dealt with in the Remuneration Committe report under the section titled Governance supporting our strategy.

Our remuneration philosophy

Aspen has a strong philosophy of aligning remuneration and incentives with our strategy.

The Board's annual strategy session, held in December of every year, is dedicated to the review and development of the Group's strategy, looking back at lessons learned - what worked well, what did not and matters requiring attention. Every new calendar year starts with the Group's Strategic Leadership Conference, where we bring together our Board, executives and leaders from our businesses across the globe (the approximately 50 people who constitute the Group's senior leadership team). Having processed and distilled the Board's strategy discussions at the prior year's December strategy session into actions with clearly defined targets and measurements, the Group Chief Executive and Deputy Group Chief Executive convey these strategic plans and targets to the extended leadership team. At this leadership conference, the attendees often provide very useful additional inputs, ideas and actions. The combined agreed actions from this conference form the basis of our strategic targets and how we measure performance against these targets.

In addition to being aligned with our strategy, our remuneration is structured around incentivising a performance culture in the Group. It also addresses the need to retain our competitive advantage in the local and global pharmaceutical industry by attracting and retaining high calibre individuals, who not only have the required technical qualifications and experience, but who also demonstrate the desired ethics and behavioural traits that fit our entrepreneurial and dynamic culture. We recognise that the remuneration of our executive directors, management and our employees is inextricably linked to our ability to attract, develop and retain talent.

We are also conscious of ensuring that our remuneration is competitive and aligned with the latest trends in benchmarks. In this regard, we acknowledge that the current remuneration mix in respect of our executives may require to be transitioned from where it is currently leaning more strongly towards a larger portion of guaranteed pay, towards a greater variable component in our remuneration packages, subject to performance measurement in alignment with corporate performance.

Our remuneration philosophy is also aimed at ensuring that measurements/KPIs applied for incentives are aligned with our strategic objectives, actions and business performance measurements. Our short-term incentives are mostly measured in terms of earnings growth and cash related KPIs and, while these focus on the achievement of the near-term goals we have set ourselves, some of our focus areas and performance measures run over a number of years, as our overall strategy is a journey that runs over time.

Our long-term incentives include measures in respect of some of our longer-term focus areas, which support our strategy. For these, we select suitable long-term KPIs, including return on invested capital and three-year compound annual growth in selected performance measures. In this area, pertinent ESG-related projects will be brought into our KPIs for long-term incentives.

From time to time, these activities involve focused projects where we seek to ensure step changes, such as the recent balance sheet de-gearing and supply chain optimisation initiatives. A great deal of time, effort and measurement goes into such projects. However, it is not always easy to formulate a clear single KPI for each project, especially in the short term. Often the only sensible measures are against a Board-approved plan with project milestones.

Of course, not all activities and projects find their way into the overall Group KPIs for incentive purposes, but may be included in personal key performance areas ("KPAs") or business unit KPIs, as appropriate. We have set an annual universal (Group) measurement, which carries a sizeable weighting in the performance measurement of every one of our executives. In addition, they have a portion of business unit measures and personal KPAs. Executive directors, of course, do not have business unit measures. The Committee carefully considers the input from our executive directors, investors and other stakeholders when identifying the key themes and KPIs and recommending to the Board those deemed to be most appropriate to drive the right behaviour by incentivising our executives to create sustainable value for investors and material stakeholders.

Another concept we are in the process of exploring in updating our remuneration philosophy is that of executives committing a greater portion of their annual guaranteed package to mandatory shareholding in Aspen. This concept is not only important for our investors, but is also aimed at ensuring that our executives have "skin in the game" and are therefore aligned at a very personal level with the strategy of the Group. We have already made some changes to our long-term incentive ("LTI") schemes, including the removal of the cash settlement option for South African executives and extending LTI award retention requirements for both South African and offshore executives.

Remuneration objectives

Establishing an appropriate balance between fair and competitive remuneration and reward with the aim of attracting and retaining the right employees, but which at the same time addresses affordability, is an important element of sustainable value creation.

The Group's remuneration objectives are to:

• drive a high-performance culture through remuneration packages directly linked to individual and business performance and the achievement of predetermined targets in respect of each of these performance measures;
• align the rewards of employees with the value delivered to the Group;
• provide fair, responsible and competitive remuneration packages, which enable Aspen to attract and retain employees of the highest quality;
• recognise and reward exceptional individual contributions to the achievement of the Group's strategic objectives; and
• disclose our remuneration philosophy, policy and practices in order to provide stakeholders with an informed view of these aspects.

In endeavouring to set our remuneration packages at levels which are fair to all our employees, competitive and market-related, we refer to independent surveys, benchmarks, publicly available economic data and local and international marketplace intelligence. The ongoing review and adoption of remuneration guidelines in respect of levels and mix of remuneration and measurement of performance are informed by best practice, as well as the inputs received from shareholders following our engagements with them.

Employee wage rates across the Group comply with legislated wage rates in the jurisdictions in which we operate and, where applicable, employees are paid in accordance with rates agreed upon with trade unions and/or collective bargaining councils.

We continue to adopt guidelines, both in respect of the determination of base pay and our universal incentive structure, to ensure general alignment across the Aspen businesses, including the achievement of an overall Group performance objective.

When awarding annual salary increases, primary consideration is given to an employee's performance and achievement of his or her predetermined individual KPAs, with some consideration also being given to aspects such as:

• predetermined performance measures adopted in respect of the Aspen business unit where the employee is employed; and
• predetermined universal global performance measures for Group performance.

Remuneration structure and design

Remuneration package design and application consist of the following components:

¹ Employee benefits vary from region to region and are dependent on in-country customs, tax regulations and labour legislation.

² These KPIs do not apply to executive directors – please refer to Remuneration implementation report where these KPIs for executive directors are detailed.

Definitions and formulas for purposes of calculating of Group KPIs

• Organic growth: organic growth achieved in normalised EBITDA from continuing operations measured in CER - excludes EBITDA from disposed products, businesses disclosed as discontinued operations and any product acquisitions with pre-existing revenue in the country concerned.
• Free cash flow per share ("FCFPS"): measured free cash flow, appropriately adjusted for disposals and acquisitions approved by the Board, where free cash flow = (Cash generated from operating activities – Capex)/average number of shares in issue over the measurement period and where Capex = PPE capex + computer software capex + development costs of other intangible assets.
• ROIC: Return/Invested capital and where: Return = Operating profit x (1 – effective tax rate) on the basis that operating profit includes profits/losses on disposal of assets.
• Invested capital: total shareholders' equity – accumulated currency translation gains/(losses) + total interest-bearing-debt – capital work in progress + deferred acquisition payables – cash and cash equivalents – deferred disposal proceeds; calculated as invested capital being the average of the opening invested capital and the closing invested capital for the period of the return being measured.
• CAGR in NHEPS (CER): Three-year CAGR in CER NHEPS from continuing operations.

Executive director remuneration

Our executive directors are contracted as full-time, permanent employees and receive no additional remuneration as directors of the Company. Restraint of trade provisions are included in our service agreements with these directors, while notice periods are six months' written notice. Shorter notice periods may apply in the event of termination due to disciplinary procedures being instituted.

Bonus payments and the vesting of long-term incentives that are in place at the time of an individual's termination of service are subject to the rules of the relevant scheme. These contracts do not commit the Company to:

• pay additional remuneration on termination arising from the director's failure to perform agreed duties;
• make any form of balloon payments; or
• make payments to executive directors in the event of a change of control of the Company.

The principles in terms of which the remuneration packages of the executive directors are determined are similar to those applicable to the Group's management as a whole.

The financial and non-financial performance measures in respect of the executive directors' incentive bonuses are considered and approved by the Committee on an annual basis. The achievement of the 2021 performance measures and an explanation of the effect this achievement had on the incentive bonuses paid to executive directors for 2021 are dealt with in this table.

Non-executive directors' fees

The fees paid to these directors have been designed to ensure that Aspen can attract, retain and fairly reward capable and skilled non-executive directors. This is done by a regular benchmarking of directors' fees against peers.

The Chairman of the Board receives a fixed annual fee for his role as Chairman. Other non-executive directors' fees are fixed for the year and include a quarterly base fee, payable to each non-executive director, in addition to a fee per meeting attended. Further fees are paid for attendance at unscheduled meetings depending on the number of hours spent at the meeting, up to a maximum of the set fee per meeting. In the instance of non-attendance, non-executive directors are obliged to continue to participate in meetings by providing the Chairman of the Board (in case of Board meetings) or the relevant Committee Chair with detailed inputs for all agenda items. The proposed fees payable to these directors for the 2022 financial year have been recommended for shareholder approval and will be submitted for approval at Aspen's annual general meeting ("AGM") to be held on 9 December 2021 (see the AGM notice which provides the detailed proposals to shareholders in this regard).

Shareholder voting on remuneration matters

Our Remuneration Policy and Implementation Report are subject to two separate non-binding advisory votes by shareholders at Aspen's AGM, while a special resolution approving the fees of the non-executive directors is also submitted for approval at this meeting of shareholders.

The results of the voting in respect of the non-binding advisory votes were as follows:

Remuneration Policy	For	Against	Abstain	Total
2020	73,92%	26,08%	0,12%	100%
2019	78,98%	21,02%	0,05%	100%
Remuneration Implementation Report	For	Against	Abstain	Total
2020	59,75%	40,25%	0,15%	100%
2019	92,98%	7,02%	0,15%	100%

The current Remuneration Policy and Implementation Report will be tabled for separate non-binding advisory votes at the Company's 2021 AGM, scheduled for 9 December 2021. Any material shareholder concerns about either of these two documents specifically in instances where these are voted against by 25% or more of the voting rights exercised, will be considered and addressed by means of constructive engagement with the relevant shareholder or shareholders. The nature and outcomes of these engagements will be reported on in our Integrated Report of the following financial year.

Following a number of constructive engagements held with shareholders in respect of remuneration since the 2020 AGM, the following enhancements to the Group's approach to remuneration and its disclosures have been made:

• a clear distinction has been drawn between measures for assessing short-term performance and measures for assessing long-term performance, with organic growth achieved in normalised EBITDA from continuing operations and free cash flow per share being set as the Group's short-term KPI measures, while ROIC relative to WACC, the three-year CAGR of 5% in CER NEHPS from continuing operations and a Board approved ESG measure have been introduced for purposes of determining awards to be made in terms of the second layer of forfeitable LTI awards as explained in this table;
• the Group's LTI schemes have been redesigned to introduce forfeitable components, as explained here;
• changes have been made to our LTI schemes to ensure a level of enduring executive shareholding:
  • removal of the cash settlement option for South African executives; and
  • introduction of measures which will result in 50% of conditional LTI shares, which vest in year 3 only being released for trade in year 4 (25%) and year 5 (25%), to support the achievement of this objective;
• the Implementation Report discloses the specific performance achieved against targets set in respect of each of the KPIs for STIs and LTIs, with a range disclosed in respect of each of these KPIs;
• KPIs such as ROIC, CAGR in NHEPS (CER) and what constitutes organic growth for purposes of measuring short-term and long-term incentives have been defined in detail here;
• the senior executive retention components of the LTI schemes have been explained here and here as components that allow for additional share settled awards over a five-, seven- and ten-year period. Awards in terms of these components have been made to a limited number of key South African and offshore employees on an ad hoc basis, with no new awards being made in terms of these components since the 2019 financial year;
• detailed reporting has been provided on our remuneration philosophy and how that is aligned with our core business strategy, including the processes followed in setting performance targets through our annual strategy session of the Board, followed by the Group's Strategic Leadership Conference where the combined efforts of these processes form the basis of our strategic targets and how we measure performance against these targets; and
• the reporting structure in respect of the Remuneration review and the narrative contained in it has undergone extensive redrafting in order to be more focused, concise and clear.