Sasol Limited Integrated Report 2018

Report of the Remuneration Committee

Dear stakeholder

On behalf of the Remuneration Committee (the Committee), I am pleased to present the 2018 remuneration report. It highlights the policy's key components, which are aligned to the Group's strategy, and also illustrates how the policy translated into reward outcomes over the past year.

I would like to start by thanking Mr Henk Dijkgraaf for his immense contribution and dedication as the Committee Chairman over the past 10 years. Under his leadership, the Sasol remuneration policy was completely transformed and is now considered to be market-related as well as balanced with shareholders' interests. Mr Dijkgraaf retired from the Sasol Limited Board (the Board) on 30 April 2018. We wish him well in his retirement.

During April 2018, I had the privilege of meeting our largest institutional investors as part of the orientation into my new role. I would like to thank everyone for the confidence they have placed in me and can assure you that the feedback that we receive not only from our shareholders but all stakeholders, is seriously considered by the Committee. I would also like to thank all Sasol's shareholders for their continued support of our remuneration policy. At the November 2017 Annual General Meeting, 92,96% (2016: 90,93%) of votes cast were in favour of the remuneration policy and 89,84% supported the implementation report.

The Committee is tasked by the Board to independently approve and oversee the implementation of a remuneration policy that will encourage the achievement of the group strategy and grow stakeholder value sustainably. Our remuneration policy is reviewed annually to determine how well it enables the attraction, motivation and retention of skilled resources while maintaining a strong balance with shareholder interests.

Alignment of Non-executive Director fee structures

In line with the Group's pay philosophy the Board has, since 2013, been considering how to ensure pay parity for our Non-executive Directors, and could no longer ignore the fact that we offer different fee structures to our Non-executive Directors on the basis of residence only. After recent meetings with large institutional investors, we refined the fee proposal and you will be requested to support the revised fee structure at our November 2018 Annual General Meeting.

Multi-year increase settlement

The Committee was delighted with the ground-breaking multi-year wage increase settlements that were reached in the Chemicals and the Mining sectors of our operations. These have contributed significantly to a stable and productive working environment for our South African operations. The Committee also reviews the minimum salaries offered to our employees ensuring that they are market-related and evidence of being a responsible, caring employer. In this vein, we have approved an enhancement to the Sasol South Africa share savings plan which will encourage our employees to contribute towards a long-term savings option into Sasol share units. Members of the Group Executive Committee (GEC) are not eligible to participate in this plan.

Aligning incentive targets with revised strategic objectives

The 2018 focus areas and the policy enhancements support the delivery of Sasol's strategic objectives and emphasise our commitment to safety, human capital management and environmental sustainability. The introduction of the Return On Invested Capital (ROIC) target in our LTI plan and the project delivery measure in our short-term incentive (STI) plan were mainly as a result of feedback received from our shareholders.

Pay for performance

Sasol's financial results for 2018 were again impacted by the volatile macroeconomic environment. The stronger rand/US dollar exchange rate impacted significantly on Sasol's ability to meet earnings targets. Despite this challenge and the very unfortunate fatalities, Sasol maintained resilient performance and was able to meet some of the targets set for the STI plan. The group's "total shareholder return" performance was below target which again resulted in a below-target LTI plan vesting percentage. Despite low incentive scores the Committee has however, as in the past, agreed to not apply its discretion in changing the outcome of the formulaic calculations. There were no exceptions to the policy which required the Committee's approval.

We are committed to ensuring that the remuneration policy and practices are fair and responsible and we welcome the opportunity to discuss the policy and its outcomes with our stakeholders.

Mpho Nkeli

Chairman of the Remuneration Committee
16 August 2018

2.1 Key components of our remuneration policy

Our policy is linked to the group strategy and is a key enabler for the achievement of the Group’s key performance indicators.

Remuneration component		Policy principles			Policy application
Total Guaranteed Package (TGP)/Base salary		TGP = Base salary + cost of all employer contributions. Broad pay bands set with reference to location and sector-specific median benchmark points. For GEC, the benchmark is derived from a comparator group resembling a similar geographic footprint, market capitalisation and business model as Sasol’s. The total cost of annual increases is approved by the Committee and set in accordance with market movement, affordability and forecast inflation. Performance-based increases are not applied for the bargaining sector as across-the-board increases are applied with effect from 1 July. For other employees, the effective date is 1 October. The company’s expatriate remuneration policy enables global mobility of key management and specialists.			Employees in countries other than South Africa and employees in the SA collective bargaining sectors, are paid a base salary rather than a TGP. Salaries are paid monthly to all employees except for employees in the United States and Canada who receive salary payments on a bi-weekly basis in line with local market practice. Employees who are promoted are considered for adjustments if justified. Expatriate salaries are adjusted for cost-of-living and location differences and tax equalisation is mostly applied.
Benefits and allowances		Benefits include, but are not limited to, membership of a retirement plan, health insurance and risk cover to which contributions are made by both the company and the employee. Allowances are paid in terms of statutory compliance or as is applicable in a sector / jurisdiction. A number of special allowances including inter alia, housing, cost of living, home leave and child education are included in the group’s expatriate policy.			Benefits are offered on retirement, for reasons of sickness, disability or death. The beneficiaries of employees who pass away while in service receive additional insurance cover of which the quantum depends on the retirement plan of which they were a member during service. Allowances are linked to roles within specific locations and are paid together with salaries. With the exception of expatriates, there are no allowances paid to those in senior management and higher.
Short-term incentive (STI) plan		A single STI structure is applied globally and paid annually in September after Committee approval. Most mining employees earn a production bonus which is paid monthly. Target incentives align with median benchmarks. The STI structure consists of group, entity and individual performance targets set in advance of every financial year. Group, entity and individual performance targets are reviewed annually to ensure relevance, continuous improvement and alignment with the Group’s strategic objectives, which includes safe, sustainable operations.			Group targets for 2018: Growth in headline earnings Growth in production volumes Growth in cash fixed costs Improvement in working capital and gross margin Project delivery B-BBEE targets (for South African entities in respect of preferential procurement and employment equity) Safety and sustainability targets – recordable case rate (RCR), fires, explosions and releases (FERs) and energy efficiency in our South African manufacturing operations Operating Model Entity (OME) incentive targets are set in line with business plans approved by the responsible EVP. Sustainability is a key performance objective and measured at Group and OME levels. In addition to the Group targets, the following objectives are included in operational STI scorecards, as applicable: safe transportation of hazardous chemicals, occupational health measures, carbon emissions and leaks or spills of hazardous materials Individual targets are agreed in the annual performance contract, performance against objectives are assessed bi-annually.
Long-term incentive (LTI) plan		Equity-settled awards linked to the market value of a Sasol ordinary share (or American Depository Receipts (ADR) for international employees), subject to the vesting conditions. The Committee governs LTI awards and considers these in respect of: Internal and external promotions to qualifying roles; Annual awards to eligible employees; and Discretionary awards for purposes of retention. Awards are linked to the role and individual performance, and vesting is subject to service and performance targets. The vesting period is three years for participants in leadership and senior management. A split vesting period of three and five years applies to participants in top management.			Of the total award, the following portion is linked to corporate performance targets (CPTs): Group Executive Committee: 100% Other participants: 60% CPTs include: Total shareholder return vs. two indices, namely the MSCI World Energy Index and the MSCI World Chemicals Index Efficiencies measuring increase in tons produced over staff growth Return on invested capital (ROIC)

2.2 Total remuneration

This section provides detail on the different components of the reward mix offered.

2.2.1 Benchmarking

One of the Committee's key tasks is to preserve the relevance, integrity and consistency of benchmarking. Benchmark data is used for purposes of providing trend lines and for the comparison of practices but is indicative only.

Benchmarking sources:

	Employee group			Data source
	GEC			Executive remuneration comparator group and data in executive surveys
	Rest of employees in Southern Africa			Survey reports from PwC Remchannel and Mercer
	Employees in the international environment			Survey data from the Hay Group, ECA, Mercer and Towers Watson

In the past year, we recognised that some of the companies that had been included in the peer group since 2015, were for various reasons, no longer relevant e.g. British Gas, ABInBev, DowDuPont, Anglogold Ashanti and Gold Fields. To allow for more compatability, we needed to include more chemicals companies from the MSCI World Chemicals Index. We also needed to exclude some of the companies with a market capitalisation much larger than that of Sasol.

The following 27 companies have now been included in the new peer group, to be used from 2019 for executive remuneration benchmarking as well as the setting of Non-executive Director fees:

	Previous comparator group			New comparator group
	South African listed companies: Anglo American, AngloGold Ashanti, BHP Billiton, Gold Fields, Mondi, MTN Group, SAB Miller International listed companies: BASF, BG Group, BP, Dow Chemical, ENI, Hess, Imperial Oil, Lyondellbasell, Marathon Petroleum, Occidental Petroleum, Phillips 66			South African listed companies: Anglo American, BHP Billiton, Kumba Iron Ore, Mondi, MTN Group International listed companies: Air Products and Chemicals, Akzo Nobel N.V., Albemarle, Anadarko Petroleum, Apache Corp, BASF, Continental Resources, Covestro AG, Devon Energy, Eastman Chemical, Evonik Industries AG, Hess, Imperial Oil, Linde AG, Lyondellbasell, Noble Energy, Origin Energy, Pioneer Natural Resources, Phillips 66, Solvay SA, Suncor Energy, and Williams.

The Committee is comfortable that the new comparator group is more representative of our business model, product range and market capitalisation.

We do not follow benchmarks slavishly, but use the information as an indicator when we design our plans and pay lines.

2.2.2 Total guaranteed package (TGP)

South African employees who are not covered by collective bargaining agreements receive a TGP which includes employer contributions towards retirement, risk and healthcare benefits. In terms of this model, all changes to benefit contribution levels are cost neutral to the employer and increases in the benefit pricing of employee and employer contributions reduce the net cash salary of employees. All other employees receive a basic salary. In some jurisdictions, a 13th cheque is payable.

Performance based increases are not applied for the South African bargaining sectors as across-the-board increases are applied with effect from 1 July each year. In all other jurisdictions, annual increases are distributed with reference to merit and the positioning in the pay range. Increases are also negotiated with trade unions and works councils in the USA, Germany and Italy. The following graph, shows the compound effect of higher increases that have been awarded to employees in the South African bargaining sectors, compared to the increases granted to employees who fall outside of the bargaining sectors including management.

In addition to higher increases in the Mining sector specifically, Sasol also offered an enhanced housing allowance benefit to our mining employees over the past year, at an annual cost of R19 million as well as a significant increase in the minimum salary offered. The revised minimum monthly salary of R8 800 per month, effective 1 July 2017, translates to an annual minimum total guaranteed package excluding incentives and overtime, of R173 840 or R14 487 per month. We are aware that our employees are highly indebted and therefore implemented two programmes over the past year to assist employees in the process of legally challenging garnishee orders, to restructure debt and to educate our employees on financial management.

In addition, we issued a 'Quality of Life' survey to all our South African employees to inter alia assess their living standards which includes the form of housing they use, understand more about the extent to which they have to support extended families, and which benefits they value most and least. This information is in the process of being analysed and will greatly inform future interventions to enhance the different components of our employee value proposition and re-inforce the feeling of care for our employees. Similar interventions will, as appropriate and required, be implemented in the different locations where we operate in, around the globe.

2.2.3 Short-term incentive plan

The configuration and weightings attached to the different parts of the STI formula differ to the extent that employees can influence the achievement of performance objectives either directly or indirectly.

Measurement of Executive Directors' performance

Measurement of Prescribed Officers (GEC) performance

The Joint CEOs table the performance outcomes of all Prescribed Officers to the Committee which is required to approve all incentive payouts and vesting of awards.

STI - Members of the GEC

The following formula is used to calculate the STI amounts payable to the GEC:

The Committee and the Board has discretion to alter the outcome of the calculation and will disclose any changes made.

The following chart sets out the targets and weightings approved for the 2018 STI. The changes from 2017 are the inclusion of a project delivery measure and a focus on highseverity safety incidents.

2018 Group STI targets for GEC

30% of the group scorecard applicable to members of the GEC is now made up of environmental, social and governance (ESG) measures.

STI - Below the GEC

The individual performance factor ranges from 0% to 100% but must balance at 100% across the Group.

All scores are audited by Sasol Assurance Services and payment is approved by the Committee.

2.2.4 Long-term incentive plans

Equity-settled plan

To align the interest of executives with the interest of shareholders, Sasol provides qualifying employees with the opportunity to participate in the LTI-plan.

The equity-settled LTI gives participating employees the opportunity, subject to the vesting conditions, to receive Sasol ordinary shares or ADR. Participants have the option to sell or retain the shares after the vesting period.

A split vesting period applies to top management, where 50% of the award vests subject to the achievement of CPTs after three years from the date of grant (performance period). The balance is released to the participant after a five-year period subject to the vesting conditions. Accelerated vesting principles in cases of termination for 'good leavers' do not apply to top management. A service penalty is applied for all participants whose services are terminated under 'good leaver' conditions before the end of the performance period.

In line with the practice of our peer companies, the growth in attributable earnings target was replaced with a Return On Invested Capital (ROIC) target, thereby incentivising effective capital allocations.

The following table summarises the weightings and CPTs under which the 2018 LTI awards were granted.

Measures1	Weighting (of the portion linked to the CPTs)		Threshold		Target (at which 100% of the awards vest)			Stretch (at which 200% of the awards vest)
Increase in tons produced per head	25%		0% improvement on base		1% improvement on base			2% improvement on base
Return on invested capital (ROIC)2	25%		3-year average ROIC (excluding AUC4) at 1 x times WACC5		3-year average ROIC (excluding AUC4) at 1,3 times WACC5			3-year average ROIC (excluding AUC4) at 1,5 times WACC5
TSR3 - MSCI World Energy Index	25%		40th percentile of the index		60th percentile of the index			75th percentile of the index
TSR3 - MSCI World Chemicals Index	25%		40th percentile of the index		60th percentile of the index			75th percentile of the index

• Vesting on a straight-line basis between threshold and target and between target and maximum.
• ROIC replaced compound growth in attributable earnings in 2017.
• TSR = Total shareholders’ return measured separately against the two indices; vests on a ranked relative basis between threshold and target and between target and maximum.
• AUC = Assets under construction.
• WACC = Weighted average cost of capital.

The threshold, target and maximum reward outcomes that could be derived under the terms of the policy are indicated in the following graph:

• Joint Presidents and CEOs, Executive Directors and GEC members at threshold performance will only receive TGP.

The graphs indicate a balanced portfolio of rewards allocated in terms of base salary/TGP, short-term and longterm incentives, tied to the achievement of group and individual targets set over the short and long term to ensure sustainable focus on the Group's strategic objectives. The pay mix is annually reviewed.

2.3 Clawback policy

Clawbacks may be implemented by the Board for material misstatements of financial statements or errors in calculations that led to the overpayment of incentives to executives and gross misconduct on the part of the employee leading to dismissal. Clawbacks may be implemented from all gains derived from any short-term or long-term incentive award in the form of a reduction in the value of these awards in future years, or (other than for executive directors) in the form of a repayment plan over a period of up to 12 months. Executive directors are required to repay the amount in full. In the event that an employee has left the services of the company, or there is limited possibility of recovering amounts from future incentive awards, the company may institute proceedings to recover such amounts.

2.4 Share ownership by executive directors

The share ownership guideline effective 1 July 2016 requires the following holdings:

• Joint Presidents and Chief Executive Officers: 300% of annual pensionable remuneration
• Chief Financial Officer and other executive directors: 200% of annual pensionable remuneration

The requirement must be fully achieved within five years from the date of appointment.

Executive Directors	Date of appointment		Annual pensionable remuneration on date of appointment		Required value of share ownership		Value of direct beneficial Sasol ordinary share1			Year-end value of unvested LTIs
SR Cornell	1 July 2016		$900 000		$2 700 000		–			$4 581 000
B Nqwababa	1 July 2016		R6 580 000		R19 740 000		R6 538 689			R61 517 000
P Victor	1 July 2016		R4 340 000		R8 680 000		–			R38 420 000

• 13 003 Sasol ordinary Shares valued at the closing share price of R502,86 on 30 June 2018.

2.5 Retention and sign-on payments

The sign-on payment and retention policy may be used in the recruitment of candidates in highly specialised or scarce skill positions, mostly in senior levels, or to retain critical skills. These payments are linked to retention periods of at least two years.

2.6 Executive service contracts

The term of office of the Joint Presidents and CEOs is not specified in the company's memorandum of incorporation. Members of the GEC have permanent employment contracts with notice periods of three to six months. The contracts provide for salary and benefits to be offered to them as well as participation in incentive plans on the basis of group and individual performance and as approved by the Board. EVPs who are members of the South African Sasol Pension Fund are required to retire from the Group and as directors from the Board at the age of 60, unless requested by the Board to extend their term. Apart from security benefits, there are no other special perquisites for members of the GEC.

Termination arrangements applicable to GEC policy

REMUNERATION POLICY COMPONENT		VOLUNTARY TERMINATION i.e. resignation		INVOLUNTARY TERMINATION (i.e. retrenchment, redundancy, retirement or other reasons included under the definition of ‘good leaver’)
Base salary		Payable up to the last date of service including the notice period either in exchange for service or in lieu of the notice period.		Payable up to the last date of service including a four-month notice period.
Health insurance		Benefit continues up to the last date of service.		Benefit continues up to last date of service; employees who qualify for the post-retirement plan continue to receive the employer’s contribution.
Retirement and risk plans		Employer contributions are paid up to the last date of service. The employee is entitled to the full value of the investment fund credit and any returns thereon.
Other benefits		Not applicable.		A severance package equal to three weeks’ salary per completed year of service is offered which may be increased for voluntary retrenchments or mutually agreed terminations.
Short-term incentive		If the executive resigns on or after 30 June, there is an entitlement to the STI which may be applicable for the past financial year, subject to the achievement of performance targets. No pro-rata incentive is due if the executive leaves prior to the end of the financial year for reasons of dismissal or resignation.		A pro rata incentive is payable for the period in service during the financial year.
Long-term incentive		All vested Share Appreciation Rights (SARs) to be exercised by the last date of service. All unvested SARs and LTIs are forfeited.		The original SAR vesting period remains unchanged up to the normal date of retirement and then vests subject to the achievement of CPTs as well as an application of a service penalty for the period not worked during the vesting period. No accelerated vesting applies to long-term incentives but service penalty will be applied at the end of the vesting period.

2.7 Non-binding advisory votes on the remuneration policy and implementation report

In the event that less than 75% support for these reports is achieved at the AGM, Sasol will invite dissenting shareholders to submit reasons for such votes in writing, whereafter further engagements may be scheduled.

2.8 Non-executive Director (NED) fees

NEDs are appointed to the Sasol Limited Board based on their ability to contribute competence, insight and experience appropriate to assisting the Group to set and achieve its objectives. Consequently, fees are set at levels to attract and retain the calibre of director necessary to contribute to a highly effective board. They do not receive short-term incentives, nor do they participate in LTI plans. No arrangement exists for compensation in respect of loss of office.

NEDs are paid a fixed annual fee in respect of their board membership, as well as supplementary fees for committee membership and an additional committee fee for formally scheduled board and committee meetings that do not form part of the annual calendar of meetings. Actual fees and the fee structure are reviewed annually.

Six years ago, the Board agreed that the ever-widening gap in the fees earned by resident and non-resident directors needed to be closed. Although approval was received for several higher-than-inflation increases to the resident NED fees, the volatility of the rand/US dollar currency negated any progress made in this regard. Also, over the past few years, the continued low Brent crude oil price and balance sheet constraints due to the advancement of our growth project in the US did not create an opportune time for any big changes in the NED fee structuring approach. Sasol is a global company and needs to attract and retain a diverse mix of South African and global directors to its board. Our remuneration policy allows for justified discrimination in remuneration. The Board does not believe that different fee structures for resident and non-resident directors is justifiable. Therefore, we have recently held consultations with our large institutional investors on a proposal for a single currency fee structure. We have considered all the feedback received and will request shareholders to vote on the new NED fee structure at the November 2018 Annual General Meeting. We anticipate phasing in the new structure over time.

Details of annual Non-executive Directors’ fees on page 32 of the Annual Financial Statements.