Remuneration report

REMUNERATION AND NOMINATION COMMITTEE ("REMUNERATION COMMITTEE") 

The Board has delegated responsibility for the remuneration policy to the Remuneration Committee. The role of the Remuneration Committee is to establish the overall principles that determine the remuneration of the Group's executive directors. In compiling this report, the committee has taken into account the provisions and recommendations outlined in the King II report. 

The Remuneration Committee operates in terms of defined terms in the Remuneration Committee Charter, which has been approved by the Board. The composition of the Remuneration Committee during the 2007 financial year was as follows: 

• C S Seabrooke (Chairman) 
• L Boyd 
• S J Davidson (from appointment to the Board on 1 February 2007) 
• N J Temple 

The Chief Executive Officer and the Group Finance Director may be invited to attend meetings of the Remuneration Committee but neither may take part in any discussions regarding their own remuneration. External advisers are used to provide information and advice as required. 

REMUNERATION PHILOSOPHY

The Remuneration Committee operates a framework of policies, within which it has set the remuneration package for each executive director. The overall strategy of the Remuneration Committee is to ensure that executive directors and senior managers are rewarded for their contribution to the Group's operating and financial performance at levels which take account of the international IT industry, market and country benchmarks. In order to promote a common interest with shareholders, performance-linked share-based incentives are considered to be an important element of executive incentive policy. 

The basic objective of the policies is that the executive directors should receive remuneration which is appropriate to their scale of responsibility and performance and which will attract, motivate and retain individuals of the necessary calibre. The underlying philosophy of the Remuneration Committee is to provide base pay at median levels by comparison with relevant comparator companies and to provide the potential for upper quartile earnings when corporate and individual performance justify it. In the application of its policy, the Remuneration Committee has regard to the necessity of being competitive in the different parts of the world in which the Group operates, particularly the US and the UK. 

SUMMARY OF REMUNERATION 

The remuneration of the executive directors currently consists of three main ingredients designed to balance long- and short-term objectives: a base salary, annual bonus plan with performance targets and long-term incentives in the form of sharebased incentive schemes (also with performance targets). The last two elements are designed to encourage and reward superior performance and to align the interests of the executive directors as closely as possible with the interests of the shareholders. In addition to these main ingredients, the executive directors also receive retirement and other benefits as outlined below. 

BASE SALARY

The base salary of the executive directors is subject to annual review and is set with reference to external market data relating to comparable international companies based in the US and the UK. Individual performance is also taken into consideration. 

ANNUAL BONUS PLAN 

All executive directors are eligible to participate in an annual bonus plan based on the achievement of short-term performance targets set for each executive director. These targets include measures of corporate performance (HEPS, PBT and operating cash fl ow), share price performance, divisional objectives (where applicable) and the achievement of individual objectives. These targets are reviewed annually by the Remuneration Committee with the Chief Executive Officer. The bonus will not normally exceed 150% of the base salary. 

OTHER BENEFITS 

Executive directors are entitled to pensions, the provision of car allowances or a fully-maintained car, medical insurance and death and disability insurance. The total value of benefi ts received by each director is shown on page 75. During the financial year under review the Group contributed an amount of 12,5% of the executive directors' base salary for J P Montanana and D B Pfaff towards retirement funding contributions, with the individuals contributing 2,5% of their base salary. With effect from 1 March 2007, the Remuneration and Nomination Committee has approved a retirement funding contribution from the Group for the executive directors of 15% of their base salary, with the individuals contributing 5% of their base salary. 

SHARE-BASED INCENTIVE SCHEMES 

The Group operates the following share-based incentive schemes: 

• Datatec Limited 
• Share Appreciation Right Scheme 
• Long-Term Incentive Plan 
• Datatec Limited Deferred Bonus Plan 
• The Datatec Share Option Scheme 
• Westcon Group, Inc. 
• Share Incentive Plan 
• Logicalis Group 
• Share Appreciation Right Scheme 
• Analysys Mason Group 
• Performance Warrants 
• Shadow Option Schemes 
• Westcon South Africa Limited 
• Share Appreciation Right Scheme 
• OnLine Distribution Limited 
• Share Appreciation Right Scheme 

THE DATATEC LIMITED SHARE APPRECIATION RIGHT SCHEME ("SARS") 

Eligible employees may receive annual grants of Share Appreciation Rights ("SARs"), which are rights to receive shares equal to the value of the difference between the exercise price and the grant price less income tax payable on such difference. 

Vesting of the SAR is subject to performance conditions. The duration and specifi c nature of the performance conditions and performance period are stated in the letter of grant. The condition that has been imposed for both the initial, 2005, grant of SARs and the 2006 grant of SARs is that HEPS must increase by two per cent per annum above infl ation over a three-year performance period. Retesting of the performance conditions is permitted on the first and second anniversary of the end of the performance period (i.e. years 4 and 5). For the initial 2005 SAR awards, a pro forma HEPS base of 15 US cents was implemented, as opposed to the actual HEPS base of 4 US cents. Therefore HEPS growth of US Dollar CPI plus 6% over a three-year period will be applied to a base HEPS of 15 US cents, before the SARs will vest. For the 2006 SAR awards the actual HEPS base of 26,91 US cents was used. 

After vesting, the SARs will become exercisable. Upon exercise by a participant, the Company will settle the value of the difference between the exercise price and the grant price, less income tax, by delivering shares. SARs not exercised within the period specified in the letter of grant, will lapse. Details of the two issues under the Datatec Limited SARs Scheme made to date are given below: 

Refer to the limits for the SARs below. 

Datatec Limited Share Appreciation Right Scheme	2007	2006
	17 May	16 August
Date of issue	2006	2005
Number of SARs issued	326418	579228
Number of SARs lapsed since issue	(21861)	(75245)
Number of SARs remaining in issue at
28 February 2007	304557	503983
Number of eligible employees to whom
SARs were issued	5	5
Number of lapsed holdings of SARs	(1)	(2)
Number of employees remaining entitled to
SARs at 28 February 2007	4	3
Grant price (Rand)	22,79	13,76
Life	7 years	7 years

THE DATATEC LIMITED LONG-TERM INCENTIVE PLAN ("LTIP") 

Eligible employees receive annual grants of conditional awards. The conditional awards will vest after the performance period if, and to the extent that the performance conditions have been satisfied. The duration and specifics of the performance condition and performance period are stated in the letter of grant. The intended performance period is three years.

The performance condition that is imposed for the first year will be related to the Company Total Shareholder Return ("TSR") over a three-year period, relative to the TSR of an international peer group. No retesting of the performance condition will be allowed. The performance condition will determine if, and to what extent, the conditional award will vest. Upon vesting of the conditional award the Company will procure the delivery of shares to settle the after-tax value of the vested portion of the award. The conditional awards which do not vest at the end of the three-year performance period will lapse.   

The TSR for the purposes of the LTIP is defined to be the compound annual growth rate ("CAGR") on a portfolio of Company ordinary shares purchased on 28 February preceding the issue date, holding the shares, and reinvesting the dividends received from the portfolio in Company shares, until 28 February three years later, and then selling the portfolio on that day. The TSR calculation will be performed using the Company daily ZAR TSR Index, as provided by Datastream (a UKbased information provider), on the nearest trading day following the start and the nearest trading day following the end of the three year period, and computing the CAGR between these values. This TSR will be smoothed by computing the TSR in the same manner for the three-year period following each trading day for the six months preceding 28 February in each year of issue. 

Subject to the participant remaining in the employment of the Group for the LTIP minimum employment period, if the TSR over the LTIP performance period: 

• ranks within the upper quartile of the peer group, then the whole LTIP award, which is subject to the TSR condition will become unconditional and will vest; 
• ranks at the median TSR of the peer group, then 30% of the LTIP award, will become unconditional and will vest. The remainder of the LTIP award subject to the TSR condition will lapse and will be of no further force or effect; 
• ranks less than the upper quartile of the peer group and ranks greater than the median of the peer group, then the percentage of the LTIP award, subject to the TSR condition, which becomes unconditional and will vest, will be linearly apportioned as the ranking of the TSR increases. The remainder of the LTIP award, subject to the TSR condition will lapse and will be of no further force or effect; 
• ranks less than the median TSR of the peer group then the whole of the LTIP award, subject to the TSR condition will lapse and will be of no force or effect whatsoever. 
  

Refer to the limits for the LTIP below.

Datatec Limited Long Term Incentive Plan	2007	2006
	17 May	16 August
Date of issue	2006	2005
Number of conditional awards issued	292338	518310
Number of conditional awards lapsed since
issue	(17176)	(56190)
Number of conditional awards remaining in
issue at 28 February 2007	275162	462120
Number of eligible employees to whom
conditional awards were issued	5	5
Number of lapsed holdings of conditional
awards	(1)	(2)
Number of employees remaining entitled to
conditional awards at 28 February 2007	4	3

THE DATATEC LIMITED DEFERRED BONUS PLAN ("DBP") 

Eligible employees will be permitted to use a portion of the after-tax component of their annual bonus to acquire shares (pledged shares). A matching award will be made to the participant after a three-year pledge period on the condition that the participant remains in the employ of the Company and retains the pledged shares over the period. 

The participant remains the full owner of the pledged shares for the duration of the pledge period and will enjoy all shareholder rights in respect of the pledged shares. Pledged shares can be withdrawn from the pledge at any stage, but the matching award is forfeited in this case. 70 600 pledged shares were acquired by two eligible employees on 18 May 2006 and 135 300 pledged shares were acquired by two eligible employees on 18 August 2005. 

Refer to the limits for the DBP below. 

LIMITS TO THE SARS, LTIP AND DBP 

The aggregate number of shares which may be allocated under the SARS, the LTIP and the DBP will be limited to 5% of Datatec's ordinary shares in issue from time to time. This limit of 5% would apply to the SARS, the LTIP and the DBP only and not to options historically issued under the Datatec Share Option Scheme. The face value of the grants made to an employee in any financial year under the SARS should not exceed 80% of his/her base salary at the date of the offer. 

The face value of the grants made to an employee in any fi nancial year under the LTIP should not exceed 80% of his/ her base salary at the date of the offer. The face value of the matching shares in any financial year made under an award to an employee under the DBP may not exceed 30% of his/her base salary at the date of the offer. 

THE DATATEC SHARE OPTION SCHEME ("THE DATATEC SCHEME") 

Since the implementation of the SARS, LTIP and DBP on 16 August 2005, no new options have been granted under the Datatec Scheme. Under the terms of the Datatec Scheme options could be granted up to a maximum of 15% of the issued share capital with a maximum number of options available to any one participant being limited to 1,5% of the issued share capital. Options previously granted under the Datatec Scheme will run their course in terms of the rules of the scheme. 

Options were granted to employees and directors of Group companies at a price equal to the 30-day average closing market price prior to the date of such grant (always subject to a minimum price of 2,00 ZAR). Options vest over a period of four years from the date on which the option was granted at the rate of 25% per annum at each anniversary of the date of grant. Options are eligible to be exercised within 10 years of being granted, unless such option lapses through the death or termination of employment of the option holder. 

As at 28 February 2007, 8 321 878 (2006: 7 465 983) share options had been exercised since the original grants and 6 187 158 (2006: 7 722 245) share options had been granted but not yet exercised as follows: 

	Number of	Options price
Number of holders	options	per share
154	2775132	R5 - R10
291	2352359	R10 - R20
24	112400	R20 - R30
103	450644	R30 - R40
100	443073	R40 - R50
5	15500	R50 - R60
3	2700	R60 - R70
7	4700	R70 - R80
12	30650	R80 - R90
699	6187158

WESTCON GROUP, INC. SHARE INCENTIVE PLAN ("THE WESTCON PLAN"), 

The Westcon Plan was adopted by the Westcon board of directors on 10 January 2001 and approved by Westcon's shareholders on 31 January 2001. The Westcon Plan, as amended and restated in July 2002 and July 2005, provides for grants of incentive share options, non-qualified share options and share appreciation rights for the purchase of up to 23 300 Westcon common shares to employees, directors (other than directors who serve on the compensation committee), consultants and other advisers to Westcon. Grants of share appreciation rights allow the holder to receive a payment based on the appreciation of Westcon's common stock. 

Westcon's board of directors has authorised the Westcon compensation committee to administer the Westcon Plan. The compensation committee determines the exercise price, the vesting period, and the period in which to exercise the share options or share appreciation rights. The expiration date of grants cannot exceed 10 years from the date of grant. The exercise price of a share option is equal to at least the fair market value of a Westcon ordinary share on the date of grant. Share options and share appreciation rights granted under the Westcon Plan are generally exercisable for 12 months after termination of employment due to death or total disability, and for three months after other terminations of employment other than just cause. 

The Westcon Plan provides that in the event of a merger, consolidation, or sale of, all or substantially all of the assets of Westcon, or upon a dividend or other distribution, recapitalisation, share split or other similar corporate transaction, as more fully described in the Westcon Plan, the compensation committee may adjust: the number and type of shares (or other securities) that may be issued upon the exercise of share options and share appreciation rights yet to be granted; the exercise price per share to be paid for each outstanding grant; and the number and type of shares (or other securities) covered by each outstanding grant. The Westcon board of directors may suspend, amend or terminate the Westcon Plan at any time. However, unless approved by a majority of Westcon shareholders, no amendment will increase the total number of shares. In addition, no termination of the Westcon Plan or action by the Westcon board of directors in amending or suspending the Westcon Plan will affect or impair the rights of an option holder under any share option or share appreciation right previously granted. 

All share options expire 10 years from the date of grant. Share appreciation rights issued in the year ended 28 February 2006 vest in equal instalments over three years from the date of grant, are mandatorily redeemable in cash in equal instalments over three years from the date of each vesting period, and expire on the last redemption date, which is six years from the date of grant. Share appreciation rights issued in the year ended 28 February 2007 vest in equal instalments over three years from the date of grant, are voluntarily redeemable in cash in equal instalments over three years beginning with the date of each vesting period, and expire on the last redemption date, which is five years from the date of grant. 

As of 28 February 2007, share options to purchase an aggregate of 7 805 ordinary shares and share appreciation rights of 8 534 shares were outstanding. 6 501 shares were available for future grants. Of the share options outstanding as of 28 February 2007, 4 534 are exercisable only upon the completion of an initial public offering of the company's common shares. Additionally, if there is a change in control prior to an initial public offering of the company's common shares, the vested share options and share appreciation rights, as well as one half of the unvested share appreciation rights, will be redeemed and paid based on the appreciation, if any, of the company's common shares. 

THE LOGICALIS GROUP SHARE APPRECIATION RIGHT SCHEME ("THE LOGICALIS SAR SCHEME") 

Under the terms of the Logicalis SAR Scheme, SARs are issued annually to senior managers. The scheme is cash-settled which requires an annual valuation of Logicalis to mark the liability to the valuation share price and to establish both a grant price for new awards and the exercise price for vested SARs. 50% of the SARs vest after 24 months and the remainder after 36 months. All rights lapse if not exercised by the end of the fifth year after issue. There are certain headline earnings performance conditions which govern the vesting of each award. 

Details of the second annual grant of SARs under the Logicalis SAR Scheme made in the year ended 28 February 2007, and the first issue in the previous year, are given in the table below: 

Logicalis Group Share Appreciation Right
Scheme	2007	2006
Date of issue	1 July 2006	1 July 2005
Number of SARs issued	1100000	1250000
Number of SARs lapsed since issue	(20000)	(65000)
Number of SARs remaining in issue at
28 February 2007	1080000	1185000
Number of eligible employees to whom SARs
were issued	43	21
Number of lapsed holdings of SARs	(1)	(3)
Number of employees remaining entitled to
SARs at 28 February 2007	42	18
Grant price (US$)	3,00	2,095
Life	5 years	5 years

THE ANALYSYS MASON GROUP PERFORMANCE WARRANTS SCHEME 

A performance warrant scheme is in place which after a vesting period of four years will pay a cash bonus based on the growth in the Analysys Mason share price during this period. Warrants amounting to an equivalent value of a maximum of 1,25% of Analysys Mason's equity could be issued annually. 

During the year ended 28 February 2007 no performance warrants were issued. In the previous year ended 28 February 2006, 25 000 performance warrants were issued (equivalent to 1,25% of equity) at a price of £18,00 per share. These warrants were issued to 28 management shareholders. Of those, five have left, and as a result 3 740 performance warrants have lapsed leaving 21 260 in issue. It is envisaged that these performance warrants will be cash-settled and not converted to ordinary shares. 

THE ANALYSYS MASON GROUP SHADOW OPTION SCHEME 

A shadow option scheme is in place which, after a vesting period of four years, will pay a cash bonus based on the growth in the Analysys Mason share price during this period. Options amounting to an equivalent value of a maximum of 1,25% of Analysys Mason's equity could be issued annually. 

During the year ended 28 February 2007, 25 900 (2006: 12 500) shadow options were issued (equivalent to 1,29% (2006: 0,625%) of equity) to 35 (2006: 30) senior employees at a price of £22,45 (2006: £18,00) per share, bringing the total number of shadow option issued to 50 896 issued to 53 employees. Of these, 23 employees have subsequently left and 16 066 shadow options originally issued to them have lapsed, leaving 34 830 in issue held by 30 employees. It is envisaged that these shadow options will be cash-settled and not converted to ordinary shares. 

THE WESTCON SA SHARE APPRECIATION RIGHT SCHEME ("THE WESTCON SA SAR SCHEME") 

Under the terms of the Westcon SA SAR Scheme, SARs are issued annually to senior managers. The scheme is cash-settled which requires valuation of Westcon SA (and agreed other entities under management's control) to mark the liability to the valuation share price and to establish both a grant price for new awards and the exercise price for vested SARs. The SARs vest three years after the grant date. All rights lapse if not exercised by the end of the fifth year after issue. There are certain headline earnings performance conditions which govern the vesting of each award. 

During the year the first annual grant of SARs under the Westcon SA SAR Scheme was made with an effective grant date of 1 July 2006. 25 000 SARs were granted to four senior employees at a grant price of R39,73 per SAR. 

THE ONLINE DISTRIBUTION SHARE APPRECIATION RIGHT SCHEME ("THE ONLINE SAR SCHEME") 

Under the terms of the OnLine SAR Scheme, SARs are issued annually to senior managers. The scheme is cash-settled which requires valuation of OnLine to mark the liability to the valuation share price and to establish both a grant price for new awards and the exercise price for vested SARs. The SARs vest three years after the grant date. All rights lapse if not exercised by the end of the fifth year after issue. There are certain headline earnings performance conditions which govern the vesting of each award. During the year the fi rst annual grant of SARs under the OnLine SAR Scheme was made with an effective grant date of 17 May 2006. 20 000 SARs were granted to seven senior employees at a grant price of $16,18 per SAR.  

NON-EXECUTIVE DIRECTORS' REMUNERATION 

During the year ended 28 February 2007, non-executive directors received fees as approved by the 2006 AGM as follows: 

• Chairman of the Board - $90 000 
• Non-executive director's fee - $45 000 
• Chairman of the Audit, Compliance and Risk Committee - $25 000 
• Chairman of the Remuneration Committee - $12 500 
• Members of the Audit, Compliance and Risk Committee - $12 500 
• Members of the Remuneration Committee - $10 000 
• Trustees of Datatec trusts - $5 000. 
  
  Details of the fees of individual directors are given in the directors' emoluments section below. 

The Board is recommending an increase in non-executive directors' annual remuneration to apply for the two years ending 28 February 2009: 

• Chairman of the Board - $120 000 
• Deputy Chairman - $75 000 
• Lead non-executive director - $65 000 
• Non-executive director - $55 000 
• Chairman of the Audit, Compliance and Risk Committee - $30 000 
• Chairman of the Remuneration Committee - $15 000 
• Members of the Audit, Compliance and Risk Committee - $15 000 
• Members of the Remuneration Committee - $12 500 
• Trustees of Datatec trusts - $5 000 Please refer to the notice of the annual general meeting.

EXTERNAL APPOINTMENTS 

Subject to the approval of the Board, executive directors are permitted to hold a directorship in one non-Group listed company and to retain the fees payable from this appointment. 

J P Montanana is a non-executive director and member of the Audit Committee of Versatile Systems, Inc. a oronto (TSX: V V) and London (AIM: V VS) listed Canadian company which provides hardware and software technology to enable transaction-based business solutions based on its series of proprietary software products "Mobiquity^TM Suite" in various industry verticals. J P Montanana has held this directorship since 1998 and does not receive any remuneration for his services. He holds 2 578 571 shares and 125 000 share options in Versatile Systems, Inc. 

DIRECTORS' SERVICE CONTRACTS 

In order to properly reflect their spread of responsibilities, executive directors have employment contracts as follows: J P Montanana has contracts with Datatec International Holdings Limited and Datatec Limited and D B Pfaff has contracts with Datatec International Holdings Limited and Logicalis Group Services Limited. The employment contracts of all executive directors are terminable on six months' notice by either party. All the non-executive directors have letters of appointment with Datatec Limited and/or Datatec International Holdings Limited. Under these contracts, non-executive directors retire in accordance with the articles of association of the Company. Retiring directors may offer themselves for re-election. 

DIRECTORS' EMOLUMENTS 

The following tables set out an analysis of the pre-tax remuneration, including bonuses, for individual directors who held office during the financial years ended 28 February 2007 and 28 February 2006. The Remuneration Committee has approved the executive directors' emoluments. The external auditors have independently confirmed the emoluments disclosed below. Please refer to details of directors' share-based incentive awards.