Target Setting and Cascading

Target Setting and Cascading Leadership

TSC and the 2017 Annual Bonus calculation: •  Eligibility

•  Setting targets for the Total Achievement score

•  Measuring targets for the Total Achievement score

•  Making it real – a worked example

Contents

Overview of Target Setting and Cascading and the role that it plays in the business

The annual Target Setting and Cascading cycle

1 2 3

TSC and the 2017 Annual Bonus calculation:

•  Eligibility

•  Setting targets for the

Total Achievement score

•  Measuring targets for

the Total Achievement

score

•  Making it real – a

worked example

•  In alignment with the 10 Principles, Target Setting & Cascading is a committed and concrete method for driving the Company forward

•  A key differentiator at ABI is the focus and resources (time) dedicated to target setting at the highest levels in the organization

•  Target setting and cascading translates our business strategy and priorities into actionable targets, both on a team and individual level

What is target setting and cascading?

Strategy

Global Chief KPI

Zone VP KPI

Zone Management Team KPI

BU Management Team KPI

Execution Team KPI

Company Goal and Strategy is aligned (3YP)

CEO assigning targets to the chiefs and Zone presidents

Global Chief align KPIs for Zone Vice Presidents

Zone Management Team KPIs are aligned both vertically & horizontally through Catch Ball Process

Zone Objectives are cascaded to BU management team and ensure the right direction

Management team KPIs are further cascaded to all employees to ensure all of us work for the same goal

TSC binds company strategy to target

5

TSC forms part of the annual People Cycle

The right people

In the right place

At the right time

With the right engagement

Developing the right capabilities

To achieve the right results

Earning the right rewards

AB InBev People Cycle includes the main people activities and processes within a year. Target Setting and Cascading is a key element of this.


•  Eligibility





score


worked example




1 2 3

The Target Setting and Cascading Cycle

Target Setting

Target Cascading

Target Planning

Target Monitoring

Target Appraisal

Rewards

Dec



Targets finalised for EBM, EBM-1 and EBM -2 (not values)

The Target Setting and Cascading Cycle Targets finalised below EBM-2 & values defined for all targets




Achievementscoreresults.


•  Eligibility






1 2 3

Gold Zone Multiplier

STI Participation

%

Total Package / Base Pay /

Net Base Pay

Total Achievement

Score Pro Rata time

in job

No change New calculation Additional incentive for’17

Note: This is the standard calculation methodology for 2017 for ex-SABMiller employees in the Africa Zone. Additional multipliers may be relevant to specific groups - these have been communicated to the relevant individuals.

•  The annual bonus plan incentivizes and rewards employees for their contribution to the success of the business

•  The annual bonus period is from 1 January to 31 December 2017 •  The bonus formula is shown below:

2017 Annual bonus plan for Gold Zones

Total Achievement

Score

New calculation

Size of Pie

Entity Performance

Individual Performance

2 Note: This is the standard calculation methodology for 2017 for ex-SABMiller employees in the Africa Zone. Additional multipliers may be relevant to specific groups - these have been communicated to the relevant individuals.

2017 Annual bonus plan for Gold Zones


•  ELIGIBILITY




1 2 3

Eligibility

What does this mean for you? •  If you received an STI under SABMiller, you will be eligible for an Annual Bonus in 2017 •  Your STI Participation % will remain unchanged •  The achievement score calculation will be adjusted to the ABI methodology

•  As per the agreement between AB Inbev and SABMiller at change of control, all employees that were eligible for STIs under

SABMiller will still continue to participate at the same participation level for 2017

•  All permanent employees at SABM Grades H+ (INJEP Grades J+) are eligible for an Annual Bonus for 2017 as per

the previous SABMiller STI rules. No new groups should be added.

•  For countries where STI was cascaded lower down in to the organization, TSC and the Annual Bonus calculation referred

to in this deck is not applicable for SABM Grades below H (INJEP Grades below

Total Achieveme

nt Score

New calculation

Size of Pie

Entity Performance


2

Setting Targets for the Total Achievement Score

Based on this calculation method, each employee needs to be assigned:

•  Size of Pie Targets,

•  Entity Targets, and

•  Individual Targets

•  The KPI measured for SOP is Organic EBITDA Growth

•  Hurdle (40%), Target (100%) and Over performance (160%) targets

are set globally

•  Final score calculated with 70% Africa Zone Performance, 30%

combined “Gold Co” Performance Africa, COPEC, APAC –S,

Integration team)

•  If Hurdle is not achieved (40%), KPI score = 0 (no annual bonus)

Size of the pie (SOP) determines the amount of funds available for bonus payments Size of Pie

Setting Targets for the Total Achievement Score Size of Pie

•  For 2017, each entity will be measured by the SAME 3 KPIs, namely:

•  Your entity = the entity that you support (Zone, BU or country):

•  If you are in a Zone based role and support across the BUs, your entity will be the Zone •  If you are in a BU based role and support across countries in a BU, your entity will be the BU •  If you are in a country based role and only support that country, your entity will be the country (for those positions that are NOT BU positions, but support across more than one country, a weighted average of the countries will be used)

•  Entity targets can change in weight and type from year to year, reflecting the needs of the business

•  The maximum score for each KPI is 100%

Nominal EBITDA (40%)

Nominal Cash Flow (30%)

Organic Net Revenue (30%)

Actual vs Budget Actual vs Budget Actual Growth vs Budgeted Growth

Entity Performance measures the contribution of an entity to the performance of the company. All individuals within an entity share the same entity targets

Entity Performance

Setting Targets for the Total Achievement Score Entity Performance

•  There are normally 3 – 5 KPIs assigned to each employee. However, for 2017, this has been

limited to only 3

•  The maximum score for each KPI is 100%

•  If individual performance is lower than 35%, there will be no Annual Bonus payout

Rewards individual achievement of targets set during target setting and cascading process


Individual targets for 2017: •  3 targets per person, cascaded directly from EBM-2

Setting Targets for the Total Achievement Score Individual Performance

•  KPIs are chosen off a standard global catalogue. This ensures that all individuals with the same target (across

countries, Bus and Zones) are measured in the same way – resulting in a fair and transparent process

•  Where the EBM-2 proposed target is zone specific, custom targets have been created and added to the catalogue

Setting Targets for the Total Achievement Score Individual Performance KPI Selection


•  SETTING TARGETS

FOR THE TOTAL

ACHIEVEMENT

SCORE




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•  Organic EBITDA Growth

•  Hurdle (40%), Target (100%) and Over performance (160%) targets are set

globally

•  Final score calculated with 70% Africa Zone Performance, 30% combined

“Gold Co” Performance (Africa, COPEC, APAC –S, Integration

team)


As we are a public listed company, the value of organic EBITDA growth

targets are commercially sensitive and therefore cannot be not shared.

The Finance VP will however provide updates on performance (RAG status)

on a routine basis throughout the year.

100%

40%

0%Hurdle Midpoint Over

Achievement

SIZE OF PIE

Overperformance

160%

Target

Hurdle

Measuring the Total Achievement Score Size of Pie

•  Achievement at 100% or 0%

•  No partial achievement allowed

Value Setting principles:

•  100% = budget

•  PA values set according to PA rule – either ORGANIC or NOMINAL


•  100% = budget

•  No Partial Achievement applicable


•  Deliverables for each milestone finalised

•  PA values based on number of milestones delivered

•  Project Targets are defined according to specific rules

•  Partial Achievement allowed (depending on type of project)

Measuring the Total Achievement Score | Entity and Individual KPIs

•  Mathematical calculation

•  Partial Achievement allowed

Quantitative KPIs

Nominal PA rule: Relevant to EBITDA and Cash Flow for Entity KPIs, and Cash Flow for individual KPIs ONLY •  Target is set at Budget (100%) •  Hurdle Achievement is set at 95% of budget •  Target achievement is measured on a linear curve between these values

100%

80%

60%

0% 80% 90% 100%

ORGANIC PA TARGETS

Achievement %

KP

I Sco

re

Achievement % Target Achievement KPI Score

≥ 99.95% 100% 100%

89.95% ≤ % ≤ 99.94% 90% 80%

79.95% ≤ % ≤ 89.94% 80% 60%

≤ 79.94% 0% 0%

•  Target is set at Budget (100%) •  90% and 80% vales are set according to the improvement from the previous year •  Target achievement is either 0%, 80%, 90% or 100%

Organic PA rule: 100%

80%

60%

100%

NOMINAL PA TARGETS

Achievement %

KP

I Sco

re

0% 95%


Quantitative KPIs

Example:

2016 actual 2017 budget

10 000 11 000

Based on this, the values for 2017 would be:

100% value = 11 000 (2017 budget)

90% PA value = 10 900 (2016 actual) + 90% x (1000 increase from 2016)

80% PA value = 10 800 (2016 actual) + 80% x (1000 increase from 2016)

KPI name = Volume

PA rule = Organic

+1000

The possible scores for this KPI would therefore be:

Target Value Actual Achievement value Actual achievement score

11 000 Volume ≥ 11 000 100%

10 900 11 000 > Volume ≥ 10 900 80%

10 800 10 900 > Volume ≥ 10 800 60%

Volume < 10 800 0%

Measuring the Total Achievement score | Entity and Individual KPIs

Project KPIs Type of Project Milestones Target Value PA Rule

Projects without Milestones

Strategic Project NA Completion NA

OTIF Project NA Due Date

100% <= due date 90% = 2 week delay 80% = 1 month delay 0% > 1 month delay

Projects with Milestones

Milestone Project 3, 4, 5+ a)  3 or less b)  4 milestones c)  5 or more

a)  No PA b)  100% = no missed, 80% = 1 missed, 0% = >1 missed c)  100% = no missed, 90% = 1 missed, 80% = 2 missed, 0% > 2 missed

Multiple Innovation Projects (OTIF)

3, 4, 5+

a)  3 or less b)  4 projects c)  5 or more

a)  No PA b)  100% = no missed, 80% = 1 missed, 0% = >1 missed c)  100% = no missed, 90% = 1 missed, 80% = 2 missed, 0% > 2 missed

100%

80%

60%

0%80% 90% 100%

PROJECT TARGETS

Achievement%

KPIScore

PROJECT TARGETS


Yes / No KPIs •  No PA rule – 100% value set at budget

•  KPI score is either 100% (if budget achieved or exceeded) or 0% (if budget is not achieved)

100%

80%

60%

0%100%

YES / NO TARGETS

Achievement%

KPIScore

0%


Our target achievement against the values set impacts our total achievement score:

•  For Size of Pie:

•  KPI score measured on a linear curve between 40% and 160% (max)


100%

80%

60%

0% 80% 90% 100%

PROJECT & ORGANIC PA TARGETS

Achievement %

KP

I Sco

re

100%

80%

60%

100%

NOMINAL PA TARGETS

Achievement %

KP

I Sco

re

0% 95%

100%

80%

60%

0% 100%

YES / NO TARGETS

Achievement %

KP

I Sco

re

0%

100%

40%

0% Hurdle Midpoint Over

Achievement

SIZE OF PIE

Over performance

160%

Target

Hurdle

•  Quantitative KPIs with Nominal PA rules:

•  Achievement of the 100% value or more will give a 100% score

•  KPI scope measured on a linear curve between 60% (set and 95% of the budgeted value) and 100% (budget)

•  For Entity Performance and Individual Performance:

•  Quantitative KPIs with Organic PA rules and Project Targets:

•  Achievement % of 100% or more will give a 100% KPI score

•  Achievement of between 89.95% and 99.95% will give an 80% KPI score

•  Achievement of between 79.95% and 89.95% will give a 60% KPI score

•  Achievement of less than 80% will give a 0% score

•  Yes / No Targets:

•  Achievement of the 100% value or more will give a 100% score

•  Achievement of less than the 100% value will give a 0% score

Measuring the Total Achievement Score Recap






score


worked example

Contents



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EBITDA (40%)

Quantitative Target

Calculation Method:

Normalized EBITDA Performance, better or equal than Budget. In comparable

scope, excluding working money savings in Sales and Marketing Packages not justified by procurement savings, all

measured at budget rate, plus full BU other performance variance. Standard PA

rules apply.

Scope: South Africa Source: Cognos

Value (Nominal PA rule):

These values are an example 100% value = 25%

95% value = 23.75%

Cash Flow (30%)

Quantitative Target

Calculation Method:

Operational Cash Flow, as per Cognos OCF1799RD line, better than budget in

comp arable scope.

Scope: South Africa Source: Cognos

Value (Nominal PA rule):

These values are an example 100% value = 15%

95% value = 14.25%

Top Line (Net Rev) (30%)

Quantitative Target

Calculation Method:

Absolute Net Revenue better or equal than budget, in comparable scope,

excluding commercial products, private labels and subcontracting (organic values). Own Product. Budget and

calculation might be adjusted for scope changes during the year if necessary.

Standard PA rules apply vs. previous year baseline.

Scope: South Africa

Source: Cognos

Value (Organic PA rule): These values are an example

100% value = 13% 90% value = 12.8% 80% value = 12.6%

Entity Targets | Setting Entity KPIs

EBITDA (40%)

Quantitative Target

Scope: South Africa

Source: Cognos

Value (Nominal PA rule): 100% value = 25%

95% value = 23.75%

Actual performance: 27.2%

Performance Score:

100%

Cash Flow (30%)

Quantitative Target

Scope: South Africa

Source: Cognos

Value (Nominal PA rule): 100% value = 15%

95% value = 14.25%


Performance Score:

0%

Top Line (Net Rev) (30%)

Quantitative Target

Scope: South Africa

Source: Cognos

Value (Organic PA rule): 100% value = 13% 90% value = 12.8% 80% value = 12.6%


Performance Score:

80%

100%

80%

60%

100%

NOMINAL PA TARGETS

KP

I Sco

re

0% 95%

100%

80%

60%

100%

NOMINAL PA TARGETS K

PI S

core

0% 95%

100%

80%

60%

0% 80% 90% 100%


KP

I Sco

re

Total Entity Performance Score = (40% x 100%) + (30% x 0%) + (30% x 80%) = 64%

Entity Targets | Measuring Entity KPIs

Synergies + ZBB (40%)

Yes / No Target

Calculation Method:

Deliver synergy mapped for 2017. Yes / No target. (value at FX 2016).

Noiseless TSA with no issue in Public Interest qualifiers

Scope: Africa

Source: Cognos

Value: 100% value = $31.7m

($25m people sensitive + $6.7m people non sensitive)

Total Turnover (30%)

Quantitative Target

Calculation Method:

# of total departures / average # of FTE. Standard PA rules apply vs.

previous year baseline

Scope: Africa Source: People Systems

Value (organic PA rule) - EXAMPLE: 100% value = 15% 90% value = 18% 80% value = 20%

People Cycle (30%)

Project Target (Milestone)

Calculation Method:

5 Milestones

Milestone 1 – 30 Jan Milestone 2 – 15 March Milestone 2 – 15 March Milestone 2 – 15 March Milestone 2 – 15 March

Scope: South Africa

Source: Functional + People VP validation

Value:

100% = 5/5 90% = 4/5 80% = 3/5

Individual Targets | Setting Individual KPIs

Synergies + ZBB (40%)

Yes / No Target

Scope: Africa

Source: Cognos

Value: 100% value = $31.7m

32.1m

Performance Score: 100%

Total Turnover (30%)

Quantitative Target

Scope: Africa

Source: People Systems

Value (organic PA rule): 100% value = 15% 90% value = 18% 80% value = 20%


Performance Score:

80%

People Cycle (30%)

Project Target

Scope: South Africa

Source: Functional + People VP validation

Value:

100% = 5/5

90% = 4/5

80% = 3/5

Actual performance: 4/5 achieved

Performance Score:

80%

Total Individual Performance Score = (40% x 100%) + (30% x 80%) + (30% x 80%) = 88%

100%

80%

60%

0% 80% 90% 100%


KP

I Sco

re

100%

80%

60%

0% 80% 90% 100%


KP

I Sco

re

100%

80%

60%

0% 100%

YES / NO TARGETS

KP

I Sco

re

0%

Individual Targets | Measuring Individual KPIs

Annual Bonus Calculation

Total Achievement Score

Size of Pie

2

Entity Performance


107% (as advised by global finance)

2

64% 88%

81% Gold Zone Multiplier

(Africa Zone EBITDA growth ≥ target)

STI Participation

%

Total Package / Base Pay / Net Base

Pay

Total Achievemen

t Score Pro Rata

time in job GROSS BONUS

120% 20% R 800 000 12/12 81%

R 155 520

Assuming that this employee (1) is ex-SABM, (2) has an STI participation % of 20% and (3) has a bonusable pay of R 800 000

Target Setting and Cascading

Documents

Target Setting and Cascading