Remuneration report
ROLE OF THE REMUNERATION COMMITTEE
The remuneration committee is a committee of the board of directors and is responsible for:
- making recommendations to the board of directors on executive remuneration practice and policy, across all remuneration components; and
- determining remuneration for executive and senior management, including base pay, benefits, short-term incentives and long-term/ share-based incentives.
Remuneration committee membership
The remuneration committee consists of two members:
- Prof. F Abrahams (chairperson)
- D M Nurek
An independent adviser attends meetings by invitation, as does the CEO although he is not present when his remuneration is discussed.
The committee met three times during the 2010 financial year.
In line with King III corporate governance principles, in March 2010 Mr D M Nurek stepped down as chair of the remuneration committee, and this role is now fulfilled by Prof. F Abrahams.
Remuneration committee advice and education
An additional independent remuneration consultant with extensive experience in executive remuneration has been retained to advise the new chair and members of the remuneration committee, as well as provide formal training where required.
REMUNERATION POLICY
Principles
The group’s remuneration approach seeks to attract, motivate and retain the executive talent that is essential for the implementation of our business strategy, towards sustained and long-term returns for shareholders.
Remuneration of executives seeks to achieve the following principal objectives:
- external equity, ensuring executives are rewarded in line with the market, taking all relevant and appropriate factors into account;
- internal equity, ensuring that executives are remunerated correctly relative to each other, in recognition of their individual contribution and accountability;
- remuneration that rewards performance against defined and challenging objectives, appropriate to the stage of the business cycle, whilst recognising the need for retention; and
- an appropriate mix of remuneration components, each one sized so as to align remuneration with the appropriate short-term and long-term objectives.
Components of remuneration
Components of remuneration and the applicable policy are detailed below. In determining the mix and structure of these components, a balance is sought between the retention of key executive talent through competitive guaranteed pay, with the need to drive short- and long-term performance through variable pay and share-based incentives.
Each component, as well as the mix between components, is benchmarked against the market.
BASE PAY
Base pay is reviewed annually, with reference to the market, and is targeted around the median of aggregate market information.
Aggregate market information from at least two appropriate and credible executive remuneration survey providers is obtained for each executive director role. Each role, in terms of our base pay policy, must be deemed to be a 70% match with the survey role in order for survey information to be utilised. Market information sourced is not limited to retail companies, to ensure that the true market for executive talent in an environment of our size and complexity is considered when setting pay.
Each role is benchmarked against the market taking accepted operating and demographic measures into account such as market capitalisation, turnover, employees, payroll size and profit measures.
Individual, divisional and group contribution are taken into account, as well as any changes in accountability and structure in the past year.
BENEFITS
The remuneration committee reviews executive benefits annually against market benchmarks. Medical aid and pension benefits are provided in proportion to the base salary of each executive, as is the case for all group employees, defined in medical aid and retirement fund rules. Vehicle benefits are provided linked to organisational level, as defined by our car allowance and fleet policies. Dread disease cover is also in place.
SHORT-TERM INCENTIVES
An annual bonus is payable to all executives, subject to the performance of their division and/or the group against a stretch target set above budgeted performance. These targets are defined at the start of the financial year and the remuneration committee recommends payments once they have verified achievement of the relevant targets.
The annual bonus is determined as a factor of each individual’s base pay and the extent to which stretch targets have been attained, i.e. at divisional or group level. The bonus multiple applicable for group achievement of stretch targets is in excess of any bonus payable for achievement at divisional level, in line with the board’s focus on collaboration between divisions.
Group operating board members are measured against group stretch targets only, regardless of whether they are a head of a division that has achieved the divisional stretch target.
Our group bonus scheme will be re-examined in the coming year to ensure that there is the greatest potential alignment with our business strategy, key business measures, shareholder interests and governance principles.
SHARE-BASED/LONG-TERM INCENTIVES
Long-term incentives are in place to align executive and key management interests with those of shareholders.
The value of shares awarded does not exceed the required percentage limits, i.e. total awards under all share incentive schemes does not exceed 31,4 million shares, nor does the amount awarded to any one individual exceed 6,3 million shares.
Allocations are made using predefined factors based on organisational level and guaranteed remuneration, in line with market guidelines and benchmarks. Benchmarks used define both an appropriate face value per allocation, as well as an expected value to be held by each executive.
Newly appointed executives and managers may have their allocations gradually increased in cases where the guideline required holding for their role has not yet been reached.
All allocations are recommended to the board by the remuneration committee.
Two schemes are currently in place, with a third proposed for introduction during the 2011 financial year.
FOSCHINI 1997 SHARE OPTION SCHEME
Executives still hold share options granted under the group’s share option scheme, introduced in 1997. This scheme entitles participants to take delivery of share options on dates defined for each grant date. Delivery takes place in thirds in two-year intervals from the grant date. No delivery may take place after six years.
The final grant made as part of this scheme was during the 2008 financial year. No further allocations will take place and thus all options will have been delivered by 2014.
FOSCHINI 2007 SHARE INCENTIVE SCHEME
A share appreciation right scheme was implemented, after shareholder approval, in 2008. Participants are entitled to receive shares in value equal to the growth in the share price on a defined number of shares between the date of grant and the date of conversion.
The entitlement to these shares is subject to group performance criteria, linked to inflation.
The minimum period between grant and conversion is three years, and all rights expire after six years.
FORFEITABLE SHARE SCHEME
A further share incentive scheme is proposed for introduction during the coming year, a forfeitable share scheme.
This share scheme will also have performance criteria in place for executive staff.
This scheme will be used in tandem with the share appreciation right scheme, to create the optimum combination of retention and alignment with organisational performance, both in the long-term interests of shareholders.
Key talent at senior and middle management levels will also be considered for allocations for this plan as part of the group’s retention strategy.
As at 31 March 2010, directors had the following interests in the company’s issued shares:
| Non-executive | Executive | Total Shares 000's |
|||||
| D M Nurek | M Lewis | D M Polak | A D Murray | R Stein | P S Meiring | ||
| Beneficial | 257,1 | 1950,0 | 1050,0 | 666,8 | 150,3 | 4 074,2 | |
| Non-beneficial | 10,0 | 12 559,7 | 200,0 | 250,0 | 275,7 | 294,9 | 13 590,3 |
| 10,0 | 12 816,8 | 2 150,0 | 1 300,0 | 942,5 | 445,2 | 17 664,5 | |
As at 31 March 2010, executive directors had exercised the following options:
| Executive | Total R 000's |
||||
| Year of delivery | Price Per Option (R) |
A D Murray | R Stein | P S Meiring | |
| 2011 | 60,95 | 133,3 | 76,7 | 60,0 | 270,0 |
| 2011 | 36,00 | 116,7 | 90,0 | 66,7 | 273,4 |
| 2012 | 60,55 | 83,3 | 83,3 | ||
| 2013 | 60,95 | 133,3 | 76,7 | 60,0 | 270,0 |
| 2014 | 60,55 | 83,3 | 83,3 | ||
| 549,9 | 243,4 | 186,7 | 980,0 | ||
As at 31 March 2010, Mr D M Polak (previously an executive of the company) had exercised the following options, which were granted whilst he was still an executive:
|
Non- Executive |
||
| Year of delivery | Price per option |
D M Polak 000's |
| 2011 | 60,95 | 150,0 |
| 2011 | 36,00 | 200,0 |
| 2013 | 60,95 | 150,0 |
| 500,0 | ||
As at 31 March 2010, directors had accepted the following share appreciation rights (SARs):
| Executive | Total SARS 000's |
||||
| Year of earliest delivery | Price per SAR(R) |
AD Murray | R Stein | P S Meiring | |
| 2011 | 41,87 | 555,0 | 225,0 | 180,0 | 960,0 |
| 2012 | 40,00 | 250,0 | 130,0 | 130,0 | 510,0 |
| 2012 | 42,28 | 275,0 | 130,0 | 130,0 | 535,0 |
| 1080,0 | 485,0 | 440,0 | 2 005,0 | ||
EXECUTIVE SERVICE CONTRACTS
Certain key executives have formal service contracts to ensure stability and continuity. These contracts include restraint of trade stipulations. No agreements provide for ex gratia or other lump sum payments on severance or retirement.
EXECUTIVE DIRECTOR REMUNERATION
| Remuneration | Pension fund |
Travel allowance | Bonus# | Other benefits* | Total R'000 | |
| A D Murray | 3 543,0 | 425,2 | 297,6 | 1 500,0 | 119,8 | 5 558,6 |
| R Stein | 2 075,0 | 249,0 | 228,1 | 600,0 | 74,7 | 3 226,8 |
| P S Meiring | 1 801,0 | 216,1 | 228,1 | 800,0 | 76,2 | 3 121,4 |
| 7 419,0 | 890,3 | 753,8 | 2 900,0 | 270,7 | 12 233,8 | |
|
# Relates to performance in the prior year
* Other benefits include medical aid and group life cover |
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NON-EXECUTIVE DIRECTORS
Non-executive directors are paid a base fee, plus a committee fee. Fees for the coming year have been derived on a similar basis, but a per-meeting fee has also been calculated for instances where the anticipated number of meetings is exceeded.
Aggregate market information and benchmarks derived from all JSE listed companies are used to determine non-executive director fees. This takes industry and organisation size into account. Moderate fee increases are proposed for 2011, in order to ensure that non-executive director remuneration is commensurate with this responsibility in an organisation the size and complexity of Foschini.
Non-executive directors do not receive any payments linked to organisational performance, nor are they entitled to take part in any long-term incentive/share schemes, with the exception of Mr D M Polak who obtained options whilst still an executive of the company.
Non-executive directors’ fees are recommended to the board by the remuneration committee.
The fees for the past year, as well as the 2011 fees for shareholder approval, are presented below.
|
Fees paid in respect of 2010 R’000 |
Fees proposed in respect of 2011 R’000 |
|
|
D M Nurek Prof. F Abrahams S E Abrahams W V Cuba K N Dhlomo M Lewis D M Polak N V Simamane |
800,0 250,0 300,0 220,0 192,2 175,0 257,5 192,2 |
850,0 269,0 341,0 235,0 235,0 206,0 227,0 235,0 |
| 2 386,9 | 2 598,0 |
