Key governance developments
During the year under review, the following developments were key to Kelly Group's corporate governance processes:

• Ongoing compliance with the Code and the Listings Requirements.
• Ensuring that the internal audit department is adequately resourced.
• The creation of a separate risk function.
• the creation of a separate risk function; and
• Keeping abreast of all relevant legislation and regulations as well as major developments that could impact on the group and its operations.
• Creation of a legal and compliance function.

Compliance with the Code

• The Listings Requirements require that JSE-listed companies report on the extent to which they comply with The King Code of governance principles for South Africa 2009 (‘King III’). This is the first year that Kelly Group was required to begin implementing King III and significant progress has been made in this regard. Kelly Group complied with most of the items in King III already from the beginning of the year with the balance being complied with during the current year. However this is an ongoing process in which our compliance thereto will be improved upon from year to year. The material areas of non-compliance with King III (as well as the reasons for non-compliance stated in brackets) are set out below:
• All members of the audit committee should be independent non-executive directors. (One of the three members is not defined as an independent non-executive director in accordance with King III. The incumbent member as a former audit partner and chartered accountant possesses invaluable skills and experience for the committee and as such the board supported her appointment. In addition her appointment was approved by shareholders on 16 September 2011.)
• The board should ensure that a legal compliance policy, approved by the board, has been implemented by management. (A legal and compliance officer was appointed during the 2011 year and a policy has been drafted by the officer. This will be presented to the risk committee in February 2012 for review and thereafter presented to the board for approval.)
• The board should receive assurance on the effectiveness of the controls around compliance with laws, rules, codes and standards. (A legal and compliance officer was appointed during the year and this assurance will be presented to the risk committee during 2012 and thereafter to the board.)
• The board should adopt formal dispute resolution processes for internal and external disputes. (The risk committee is to assess this and the group human resources director is developing a policy for this as part of the group’s policies. The development of the policy is to be assisted by the legal officer.)
• The board should select the appropriate individuals to represent the company in ADR. (The risk committee is to assess this after receiving input from the legal and compliance officer and thereafter this will be taken to the board.)
• The board should ensure the integrity of the company’s integrated report as well as the other areas requiring disclosure in the integrated report. (The board and group audit committee have agreed not to do the integrated report for the 2011 year end as discussion papers are still being issued by the International Integrated Reporting Committee (‘IIRC’) and the latest discussion paper is open for comment until 14 December 2011. An integrated report will be completed for the 2012 year end.)
• The board should be responsible for information technology (‘IT’) governance; the board should obtain independent assurance on the IT governance and controls supporting outsourced IT services; the board should ensure that the company complies with IT laws and that IT related rules, codes and standards are considered; the board should approve the information security strategy and delegate and empower management to implement the strategy; the risk committee should ensure that IT risks are adequately addressed and the risk committee should obtain appropriate assurance that controls are in place and effective in addressing IT risks. (The board is currently in the process of sourcing a full time chief information officer as well as the possibility of engaging a non-executive director with the necessary IT skills. Once they are in place IT governance will be looked at more closely to determine where Kelly Group should improve.)

Board of directors and board committees

Board composition
The group is governed by a unitary board of directors, assisted by the following group committees:

• Group remuneration committee
• Group nomination committee
• Group audit committee
• Group risk committee
• Group acquisition committee

Each committee acts within agreed terms of reference and the chairman of each committee reports to the board at its scheduled meetings. Where appropriate, the minutes of the committee are tabled at board meetings. The chairman of the board is a non-executive director. The roles of chairman and chief executive officer are separated, with a clear division of responsibility to ensure a clear distinction of duties and responsibilities between them. The chairman has no executive functions. The role of all directors is to bring independent judgement and experience to the board’s decision making and a clear division of responsibilities are defined to ensure a balance of power and authority with no one individual having unfettered decision making ability. Directors are advised that they may take independent advice, at a cost to the company, in the proper execution of their duties as directors. They have direct and unfettered access to the external auditors, professional advisors and the advice of the company secretary. There are ten directors - three are executive and seven are non-executive, of whom five non-executives are independent.

Board appointments and succession planning
The board as a whole, within its powers, selects and appoints directors, including the chief executive officer and non-executive directors, on the recommendation of the nominations committee. The nominations committee considers non-executive director succession planning and makes appropriate recommendations to the board. This encompasses an evaluation of the skills, knowledge and experience required to add value to the group. All appointments are made in terms of a formal and transparent procedure and are subject to confirmation by the shareholders at the annual general meeting.

Board performance assessment
The board annually assesses the contribution of each director up for re-election, using an individual director evaluation process that is conducted by the nominations committee. The board as a whole considers the outcomes of the above processes. This culminates in a determination by the board as to whether the board will endorse a retiring director for re-election. Where a director's performance is not considered satisfactory, the board will not endorse the re-election. Individual director performances are assessed against their required knowledge and skills as well as the execution of their duties. One third of the directors are subject, by rotation, to retirement and re-election at the annual general meeting in terms of the company's memorandum of incorporation. In addition, all directors are subject to election by shareholders at the first annual general meeting after their initial appointment. The board recommends that all the directors up for election at the forthcoming annual general meeting be elected.

Interests in contracts and conflict of interest
During the year ended 30 September 2011, none of the directors had a significant interest in contracts or arrangements entered into by the group or its subsidiaries. Directors are required to inform the board timeously of conflicts or potential conflicts of interest that they may have in relation to particular items of business and are obliged to recuse themselves from discussions or decisions in relation to such matters.

Share dealings by directors
In terms of the group's policy, directors and participants in the share incentive scheme are precluded from dealing in Kelly Group shares from the date the period ends with respect to the group's interim and final results until they are released to the public. Details of directors' dealings in Kelly Group shares are disclosed to the JSE through the Securities Exchange News Service ('SENS') in compliance with the JSE Listings Requirements.

Advice
Directors have unlimited access to the company secretary, who acts as an advisor to the board and its committees on issues including compliance with rules and procedures, statutory regulations and the Code. Furthermore, any director may, in appropriate circumstances and at the expense of the group, obtain independent professional advice. The directors are also entitled, with the prior knowledge of the chief executive officer, to have access to senior management and to all relevant group information.

Insurance
Adequate insurance cover for directors and officers has been taken out by the group. No claims under the relevant policy were lodged during the year under review.

Board charter

Board Composition

The board comprises a balance of executive and non-executive directors, with a majority of non-executive directors. The majority of the non-executive directors are independent.

Directors are appointed through a formal process and the nomination committee assists with the process of identifying suitable candidates to be proposed to the shareholders.

The chief executive officer and the chief finance officer are ex officio members of the board.

A formal induction programme is established for new directors.

Inexperienced directors are developed through mentorship programmes.

Continuing professional development programmes are implemented which ensure that directors receive regular briefings on changes in risks, laws and the environment.

Role and responsibilities

The role and responsibilities of the board are to:

• Act as the focal point for, and custodian of, corporate governance by managing its relationship with management, the shareholders and other stakeholders of the company along sound corporate governance principles.
• Appreciate that strategy, risk, performance and sustainability are inseparable and to give effect to this by:
• Contributing to and approving the strategy.
• Satisfying itself that the strategy and business plans do not give rise to risks that have not been thoroughly assessed by management.
• Identifying key performance and risk areas.
• Ensuring that the strategy will result in sustainable outcomes.
• Considering sustainability as a business opportunity that guides strategy formulation.

• Provide effective leadership on an ethical foundation.
• Ensure that the company is and is seen to be a responsible corporate citizen by having regard for not only the financial aspects of the business but also the impact that business operations have on the environment and the society within which it operates.
• Ensure that the company’s ethics are managed effectively.
• Ensure that the company has an effective and independent audit committee.
• Be responsible for the governance of risk.
• Be responsible for information technology (‘IT’) governance.
• Ensure that the company complies with applicable laws and considers adherence to non-binding rules and standards.
• Ensure that there is an effective risk-based internal audit.
• Appreciate that stakeholder’s perceptions affect the company’s reputation.
• Ensure the integrity of the company’s integrated report.
• Act in the best interests of the company by ensuring that individual directors:
• Adhere to legal standards of conduct.
• Are permitted to take independent advice in connection with their duties following an agreed procedure.
• Disclose real or perceived conflicts to the board and deal with them accordingly.
• Deal in securities only in accordance with the policy adopted by the board.
• Commence business rescue proceedings as soon as the company is financially distressed.
• Elect a chairman of the board that is an independent non-executive director or if the board decides otherwise then the chairman should be non-executive.
• Appoint and evaluate the performance of the chief executive officer.
• Do everything necessary to fulfil its role.

Delegation
The board delegates certain functions to well-structured committees but without abdicating its own responsibilities. Delegation is formal and involves the following:

• Formal terms of reference are established and approved for each committee of the board.
• The committees’ terms of reference are reviewed once a year.
• The committees are appropriately constituted with due regard to the skills required by each committee.
• The board establishes a framework for the delegation of authority to management.

Meeting procedures

Frequency
The board must hold sufficient scheduled meetings to discharge all its duties as set out in this charter but subject to a minimum of four meetings per year.

Meetings in addition to those scheduled may be held at the insistence of a board member.

The chairman of the board may meet with the chief executive officer and the chief financial officer and/or the company secretary prior to a board meeting to discuss important issues and agree on the agenda.

Attendance
Members of senior management, assurance providers and professional advisors may be in attendance at meetings, but by invitation only and they may not vote.

Board members must attend all scheduled meetings of the board, including meetings called on an ad-hoc basis for special matters, unless prior apology, with reasons, has been submitted to the chairman or company secretary.

The company secretary is the secretary to the board.

If the nominated chairman of the board is absent from a meeting, the members present must elect one of the members present to act as chairman.

Agenda and minutes
The board must establish an annual work plan for each year to ensure that all relevant matters are covered by the agendas of the meetings planned for the year. The annual plan must ensure proper coverage of the matters laid out in this charter: the more critical matters will need to be attended to each year while other matters may be dealt with on a rotation basis over a three-year period. The number, timing and length of meetings, and the agendas are to be determined in accordance with the annual plan.

A detailed agenda, together with supporting documentation, must be circulated, at least one week prior to each meeting to the members of the board and other invitees.

Board members must be fully prepared for board meetings to be able to provide appropriate and constructive input on matters for discussion.

The minutes must be completed as soon as possible after the meeting and circulated to the chairman and members of the board for review.

The minutes must be formally approved by the board at its next scheduled meeting.

Quorum
A representative quorum for meetings is as provided for in the company’s memorandum of incorporation.

Individuals in attendance at board meetings by invitation may participate in discussions but do not form part of the quorum for board meetings.

Evaluation
The evaluation of the board, its committees and individual directors, including the chairman, must be performed every year.

Board commitees

A number of board-appointed committees have been established to assist the board in discharging its responsibilities. The membership and principal functions of these committees are set out below.

Group remuneration committee (‘Remco’)

Members
Peet van der Walt (chairman), Mike Ilsley and Yvonne Dladla.

Composition and meeting procedures
Remco comprises non-executive directors of Kelly Group and meetings are held at least three times a year.

Role, purpose and principal functions
Consideration and recommendation to the board on matters such as remuneration and benefits, performance bonuses, executive remuneration, directors’ remuneration and fees, service contracts, the share purchase and option schemes and group retirement funds. In considering executive directors’ emoluments, share and option allocations and other benefits, the committee is cognisant of responsibility, individual performance and Kelly Group’s retention strategies. To this end, the committee relies on external market surveys and industry reward levels as benchmarks. Remuneration packages are structured in such a way that short and long-term incentives are linked to the achievement of business objectives and the delivery of shareholder value. Non-executive directors receive fees for their contribution to the boards and committees on which they serve. Remco recommends proposed fees for approval by the board, after due consideration of comparable fee structures and market practices. This is in turn pre-approved by shareholders.

Abbreviated remuneration policy
Objective
This policy is prepared to assist shareholders in obtaining clarity on the methodology applied when remunerating all qualifying employees of Kelly Group Limited.

Scope
This policy applies to all employees.

Compliance
Awareness and understanding of the policy is the responsibility of each employee.

Waiver of guideline
Unless elsewhere stated, waiver from these guidelines requires signed authorisation in advance from the remuneration committee.

Philosophy
The group complies with the four pillars of decent work as defined by the ILO namely:

• Productive and freely chosen work
• Social protection
• Social dialogue
• Compliant labour practices

As the nature of our business is such that we rely on the intellectual capital of our people to remain competitive it is necessary that we have a three tier structure to lock in the intellectual capital for the short, medium and long-term which is reflected in the structure below.

Short-term remuneration
Total cost to company

• The group remunerates all employees on a total cost to company basis.
• Regardless of the salary structure, all benefits (both employee and employer contributions) are included in this value.
• All remuneration is paid out in compliance with all South African Revenue Service regulations.
• The average increase rate is to be determined with CPIX as the initial reference point. Lesser or no increases will be awarded to those employees who have not performed according to expectation. Any increases over and above the CPIX are at the managers’ recommendation (performance driven), as approved by the CEO. Any increases are however subject to the discretion of the remuneration committee.

Medium-term remuneration (this applies only to qualifying employees)
Incentive compensation is based on qualitative and quantitative criteria.

Incentive package
The base amount of the incentive package is calculated as a percentage of the employee’s annual total cost to company but capped at a 100% of annual cost to company. Should the employees not achieve their quantitative criteria they may still be awarded an incentive payment of up to 20% of their incentive package. This will be based on the achievement of the qualitative criteria and must be approved by the remuneration committee. However, should super profits be achieved additional incentives can be earned that are then deferred for a year.

Quantitative as well as qualitative criteria are set at the beginning of each financial year and are unique to each employee and reflective of the position that the employee will be occupying in the financial year.

Long-term remuneration
The Kelly Group Share Appreciation Scheme
For details pertaining to the Kelly Group Share Appreciation Scheme please refer to the scheme documentation as approved by the shareholders.

Qualitative vesting criteria are applied to all allocations made on or after 1 January 2011.

Basic conditions of payment of incentives within Kelly Group

• Unqualified audit reports of all entities.
• Incentive payments are subject to South African taxes.
• The employee must be employed by Kelly Group at 30 November.
• Payments will only be effected once the packs for the 12 months have been reviewed by the external auditors.
• This policy is subject to cancellation or amendment at the discretion of the remuneration committee at any time.

Group nomination committee (‘Nomco’)

Members
Peet van der Walt (chairman), Malcolm McCulloch and Moss Ngoasheng.

Composition and meeting procedures
Nomco comprises non-executive directors of Kelly Group and meetings are held at least twice a year.

Role, purpose and principal functions
The nominations committee advises the board in ensuring that the board comprises individuals who are best able to discharge the responsibilities of directors, having regard to the highest standards of governance. This committee makes recommendations to the board on the appointment of executive and non-executive directors and the composition of the board generally.

Group audit committee (‘GAC’)
See full group audit committee report elsewhere in Kelly Group’s website.

Group risk committee

Members
Non-executives: Malcolm McCulloch (chairman), Corrie Roodt, Mike Ilsley and Moss Ngoasheng.
Executives: Gareth Tindall, Ferdie Pieterse, Elias Monage, Naren Solanki (acting CIO), Lisa Laporte and Charlene Wilson.

Composition and meeting procedures
The committee consists of at least three directors as well as management from HR, internal audit, risk and IT.  The committee meets at least twice a year.

Role, purpose and principal functions
To review and recommend risk management policies, procedures and profiles pertaining to the group. The committee’s principal responsibilities are:

• Reviewing and recommending to the board for approval the enterprise-wide risk management policy.
• Reviewing and recommending to the board for approval the group’s risk appetite and tolerance.
• Dealing with the risk-reward profiles (including financial, operational, and strategic) and, where necessary, recommending improvement strategies.
• Reviewing and recommending improvements regarding outstanding actions on risk management plans at group and business unit level.
• Evaluating risks identified in those strategic plans of the group that require board approval to determine their impact on the group’s risk-reward profile.
• Evaluating the risk profile and risk management plans drafted for major projects, acquisitions, new ventures and new products or services to determine the impact on the group’s risk-reward profile.
• Making the necessary enquiries to ensure that all risks to which the group is exposed are identified and managed in a well-defined controlled environment.
• Collaborating with and reviewing issues for consideration as identified by the GAC.

Group acquisition committee

Members
Malcolm McCulloch (chairman), Babalwa Ngonyama and Corrie Roodt.

Composition and meeting procedures
Members of the group acquisition committee are non-executive directors. Members of executive management attend by invitation. The committee meets as and when required.

Role, purpose and principal functions
The role of the group acquisition committee is to review all potential acquisitions and make recommendations to the board on the acquisitions.

Ethics
Confidence, trust and integrity are the values that have underpinned the success of Kelly Group over past years. In a world where ethics in business are challenged daily, Kelly Group aspires to be a role model in business that attracts and retains the finest people.