GOVERNANCE PROFILE

REMUNERATION REPORT

THIS REPORT SUMMARISES THE PHILOSOPHY, PRINCIPLES AND APPROACH TO REMUNERATION AT TFG. IT DETAILS THE PRIMARY COMPONENTS OF REMUNERATION, AND PROVIDES INFORMATION ABOUT CHANGES MADE TO THESE COMPONENTS IN THE PAST YEAR AS PART OF THE CONTINUOUS NEED TO REVISE AND IMPROVE REMUNERATION PRACTICE.

INTRODUCTION

The critical role of the remuneration committee is highlighted, detailing the composition and critical role they play in TFG remuneration decision-making, detailing specific decisions made during the year.

The remuneration and shareholding of directors and, as is required by King III, of the next three highest earners not on our supervisory board, is disclosed.

Non-executive directors' appointment and remuneration is disclosed.

REMUNERATION POLICY

PRINCIPLES

TFG’s remuneration policy aims to attract, motivate and retain the talent that is essential for the implementation of our business strategy and achievement of performance objectives, 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 one another, in recognition of their individual contribution and accountability;
remuneration that rewards both short-term and long-term business performance against defined and challenging objectives, appropriate to the stage of the business cycle and aligned with business strategy, whilst recognising the need for retention and continuity; and
an appropriate mix of remuneration components, each one sized so as to align remuneration with the appropriate short-term and long-term objectives.

The group subscribes to the concept of “total reward”, that recognises, amongst other aspects, that:

The various components of remuneration, such as base pay, long-term and short-term incentives, achieve different objectives as they influence attraction, retention, motivation and business performance to varying degrees. As such, it is an ongoing requirement to optimise the mix of these components.
Whilst remuneration is critical, this must be balanced with attractive benefits, an enjoyable working environment and the opportunity for employees to develop and grow.

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 talent through aspects such as competitive guaranteed pay and retention-based shares, with the need to drive short- and long-term performance through short-term and long-term incentives.

Each component, as well as the mix between components, is benchmarked against the market using external, objective market information.

Base Pay

Base pay is reviewed annually, with reference to the market, and is targeted around the median of aggregate market information.

Executive Roles
Aggregate market information from appropriate and credible 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.

Management and Other Roles
Similar principles regarding survey selection and market matching apply to remuneration benchmarking for all other positions. Remuneration for each employee in the group is benchmarked against a base pay range for their specific position, or in a minority of cases, for their job’s grade. A desired market position is defined for each family of roles, taking into account the value that these groupings of roles add to the retail value chain.

Roles, where applicable, are either compared to survey information that includes most major retailers in South Africa, or where it is believed that the market for these categories of employee is not limited to retail companies, broader South African market.

Job Evaluation

A best-of-breed job evaluation system is an integrated part of our approach to base pay and any remuneration related to the level of the role, to ensure that the market benchmarks that are used in determining remuneration are accurate and valid. This system has been used across all roles up to senior management.

During the year, an additional evaluation method designed specifically for senior roles was introduced. This was implemented using an external job evaluation consultant, in which the top 80 roles in the group were evaluated, as well as other benchmark roles at senior levels. This exercise was performed to ensure that matches to the remuneration market are as accurate as possible, and to ensure that promotion and appointment decisions are made with the clearest possible indication of role size, and therefore in as fair and consistent a way as possible.

This has had a positive impact on the integrity of the biannual talent and succession review meeting, in which the operating board review all senior employees, and has decreased market risk in key roles.

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

Revised during the year in review, the group annual bonus scheme defines three targeted tiers of performance at both divisional and group level, with commensurate bonus payments at each of these levels. Local and international benchmarks were used to determine the most appropriate levels of bonus payment at each organisational level and performance tier.

Minimum performance levels are defined for both the group and all divisions, under which level no bonuses are payable. These targets and potential payments are approved in advance by the remuneration committee and communicated to all participating managers along with scheme rules.

On completion of the financial year, the remuneration committee confirms achievement of targets and recommends payments to the board in terms of scheme rules. Payments, if applicable, are made shortly after publication of our annual financial results.

The annual bonus is determined as a factor of:

each individual’s base pay
their level in the organisation
the extent to which stretch targets have been attained, i.e. at both group and divisional level (where applicable).

The structure of the bonus ensures that in cases where divisions have performed well, but the group has not achieved the required target, payments are substantially reduced. This is in line with the board’s continuing focus on collaboration between divisions, as well as to align the structure of this scheme with shareholder interests.

Group operating board members are measured against group targets only, regardless of whether they are the head of one of the divisions.

The key reason for the revision of the bonus scheme was to improve the link and “line of sight” between reward and key business performance measures, as well as to ensure alignment with business strategy, shareholder interests and governance principles.

Share-based/Long-term Incentives

Long-term incentives are in place to align executives and key management's interests with those of shareholders.

The number of shares awarded to employees and executives at 31 March 2011 was 1 574 750 shares and 11 712 000 share appreciation rights. The highest number held by any individual at 31 March 2011 was 299 999 shares and 1 253 000 share appreciation rights.

In both cases, this is substantially lower than the allowed limits, both at the collective level of 36 000 000 shares, or 7 215 000 shares at an individual level.

Allocations are made using predefined multiples based on organisational level and base pay, 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. The remuneration committee confirms that the agreed principles have been applied in determining each individual’s allocation and also ensures that the overall share capital dilution and cost are within appropriate limits.

Two schemes are currently in place. A third scheme was approved during the year, under which the first allocation will be made in the 2012 financial year.

Foschini 1997 Share Option Scheme
Executives still hold shares 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.

All shares issued under this scheme are subject to group performance criteria.

The minimum period between grant and conversion is three years, and all rights expire after six years.

Foschini 2010 Share Incentive Scheme
The Foschini 2010 Share Incentive Scheme, a forfeitable share scheme, was approved during the year.

Forfeitable shares will comprise a combination of performance and restricted shares.

This scheme will be implemented in combination with the current share appreciation right scheme to create the optimum combination of retention and reward for long-term organisational performance, both in the long-term interests of shareholders.

Executive employees will receive a combination of performance-linked share appreciation rights and forfeitable shares as part of the new scheme. Allocation guidelines detailing the quantum and mix of instruments at each level have been recommended to the board by the remuneration committee. These guidelines were compiled with assistance from an external reward consultancy that has significant experience in share scheme implementations locally and globally.

Performance shares vest after three years, subject to performance criteria. Shares lapse after five years if performance criteria have not been achieved.

Restricted shares are issued with the specific objective of retaining key talent, as well as aligning the interests of recipients with that of shareholders.

Following the implementation of this new scheme, in excess of 75% of shares allocated to senior management will be contingent on the achievement of company performance criteria.

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;
determining remuneration for executive and senior management, including base pay, benefits, short-term incentives and long-term/ share-based incentives; and
making recommendations to the board on generally applied remuneration, such as annual increase parameters, wage negotiation mandates and changes to benefits such as car allowances.

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 2011 financial year.

KEY DECISIONS TAKEN DURING THE YEAR UNDER REVIEW

During the past year, the remuneration committee, amongst other matters, made the following recommendations to the board:

the review and adjustment to the CEO’s, boards’, divisional managing directors’ and general managers’ remuneration, based on extensive market information;
the review and annual adjustment to other senior employee remuneration;
allocation of share appreciation rights;
approval of the group annual bonus scheme rules, divisional and group performance targets and payment factors per organisational level;
a wage mandate for union negotiations;
inflationary adjustments to travel allowances across all qualifying employee categories;
senior management and executive promotions;
confirmation of divisional and group performance, and resultant bonus payments.

As at 31 March 2011, directors had the following interests in the company’s issued shares:

	Non-executive					Executive
									Total
	D M Nurek	M Lewis	D M Polak	E Oblowitz	N V Simamane	A D Murray	R Stein	P S Meiring	shares 000's

Direct beneficial	−	-	1950,0	2,0	1,5	1 050,0	677,9	180,7	3 862,1

Indirect beneficial	10,0	12 816,8	200,0	-	-	265,0	275,7	294,9	13 862,4
	10,0	12 816,8	2 150,0	2,0	1,5	1 315,0	953,6	475,6	17 724,5

As at 31 March 2011, executive directors had exercised the following options for future delivery:

						Executive
Year of delivery					Price per option R	A D Murray	R Stein	P S Meiring	Total Executive options 000's
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
						299,9	76,7	60,0	436,6

As at 31 March 2011, Mr D M Polak (previously an executive of the company) had exercised the following options, which were granted whilst he was still an executive:

	Price per option	Non executive
Year of delivery	R	D M Polak
2013	60,95	150,0

As at 31 March 2011, directors had accepted the following share appreciation rights (SARs):

		Executive
	Price per SAR				Total SARs
Year of earliest delivery	R	A D Murray	R Stein	P S Meiring	000's
2012	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
2014	64,47	173,0	86,0	77,0	336,0
		1 253,0	571,0	517,0	2 341,0

EXECUTIVE SERVICE CONTRACTS

Certain key executives have formal service contracts to ensure stability and continuity, as well as the protection of competitive advantage. These contracts include restraint of trade stipulations. No agreements provide for ex gratia or other lump sum payments on severence or retirement.

EXECUTIVE DIRECTORS' REMUNERATION

	Remuneration	Pension fund	Travel allowance	Bonus	Other benefits*	Total R'000
A D Murray	3 889,7	466,8	305,0	6 281,8	123,4	11 066,7
R Stein	2 260,2	271,2	233,9	2 901,7	79,2	5 746,2
P S Meiring	1 914,7	229,8	233,9	2 430,8	76,2	4 885,4
	8 064,6	967,8	772,8	11 614,3	278,8	21 698,3

* Other benefits include medical aid and group life cover

NON-EXECUTIVE DIRECTORS

Non-executive directors are appointed for a term of three years. The nominations committee recommends candidates for election to the board. In the case of proposed re-election of existing non-executive directors, evaluated performance is taken into consideration by the nominations committee before reappointment is recommended.

Non-executive directors are paid a base fee, plus a committee fee.

Fees for the coming year have been derived on a similar basis.

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 TFG.

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 and subsequently to shareholders at the annual general meeting.

The fees for the past year, as well as the 2012 fees for shareholder approval are presented below:

NON-EXECUTIVE DIRECTORS' FEES

	Fees paid	Fees proposed
	in respect of 2011	in respect of 2012
	R'000	R'000
D M Nurek	1 050,0	1 135,0
F Abrahams	347,6^#	340,0
S E Abrahams	341,0	368,0
W V Cuba	235,0	253,0
K N Dhlomo	255,0^*	253,0
M Lewis	206,0	223,0
E Oblowitz	122,8^{^}	298,0
D M Polak	227,0	245,0
N V Simamane	255,0^*	253,0
	3 039,4	3 368,0

# Includes back pay amount of R32 000
* Includes fees for other services of R20 000
^ Appointed 1 October 2010

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