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Remuneration report
Section 03
Implementation of the remuneration policy during the year ended December 2017
+ Total guaranteed package

The Committee remains alert to the concentrated and highly competitive nature of the South African retail market, as well as a shortage of retail-specific skills, and sets remuneration levels accordingly.

Fair and responsible remuneration
King IV emphasises fair and responsible Executive remuneration in the context of overall employee remuneration and how companies are addressing this gap. In 2017 increases awarded to Massmart’s Executive Directors, the Executive Committee and Divisional management teams averaged 6.2%, in line with the average percentage of increases to salaries across the Group.

Commencing in 2014, with the assistance of an external party, Massmart formally and extensively reviewed remuneration within and across the Group, with specific emphasis on an analysis of fairness across race and gender. Although no evidence of intentional discrimination was found, there are outliers and these are being addressed. Most disparities could be justified by qualification, years of experience and tenure differences. The process of managing and addressing existing outliers is ongoing.

+ Annual Incentive Plan

As disclosed in Section 2, the AIP for 2017 is linked to approved annual PBT targets for both the Massmart Group and its Divisions. The following illustration shows the achievement to plan and actual pay-outs received by the Executive Directors.

2017 performance measures:
As noted, the financial performance measure of the AIP has been changed to 100% PBT from 2017 onwards.

The Board supports the transparent reporting of Executive remuneration but they believe that disclosing the prospective PBT target, which forms the basis for the AIP achievement and pay-out calculation, is commercially sensitive information and this has therefore not been disclosed.

Performance measure = achievement of approved PBT

As mentioned in the Chairman’s letter, in 2017 the Remuneration Committee agreed to utilise the discretionary 25% cap as a non-financial AIP to drive the achievement of an improved BBBEE score. Based on timing of these results, the actual payments will only be able to be reported in the 2018 report.

+ Share Incentive Plan

The SIP was established in September 2013 and is linked to approved ROI and sales targets (refer to Section 2 for more information). The first vesting of this new plan took place in September 2016.

The next vesting of performance share awards will take place in March 2018 (for performance in years 2015/6/7).

This vesting of awards issued in 2015, will be as a result of the following performance achievements to target in the subsequent three years: 100.1% for 2015, 104.4% for 2016 and 72.3% for 2017.

The next vesting of restricted share grants will take place in September 2018.

 

The illustration below shows previous performances against approved annual nominal sales and ROI targets.

 

Definition of SIP performance measures:
Nominal sales: total sales of the Massmart Group for a financial year.

Return on investment (%): adjusted operating profit/average invested capital. Adjusted operating profit includes finance income and adds back depreciation, amortisation and rentals. Average invested capital is average total assets of continuing operations plus average accumulated depreciation and amortisation less average accounts payable less average accrued liabilities plus occupancy costs x8.

Directors’ contracts and earnings

The comments below provide further background and context to the figures disclosed in the tables which follow and the composition of remuneration outcomes in 2017 for the CEO and CFO are represented graphically below.

+ Guy Hayward

Guy was awarded an 8.9% annual guaranteed package increase in July 2017. In terms of Massmart’s AIP, Guy received an incentive payment of R3.1 million (equivalent to 6.1 months of salary) based solely on the Group’s actual operating income performance against the 2017 plan. During the year ended December 2017, the Bluett-Hayward Trust, of which Guy is a discretionary beneficiary, sold 19,912 shares and recognised a R1.4 million gain. Through the Employee Share Trust, Guy holds 436,994 Massmart shares and options.

The average length of time that he has held these is 7.1 years and the average strike price is R127.30 per share. Guy also owns 69,306 Massmart shares directly.

Through the SIP, Guy was awarded 39,431 performance share awards on 18 April 2017 and 16,038 restricted share grants on 15 September 2017.

Whilst Guy does not have a fixed-term contract, he is contractually bound by a notice period of twelve months.

Details shares and share options:

                     
    Award /grant dates   Subscription price (R)   Number of shares/share options   Gain on sale/exercise (R 000’s)   Expiry date
Employee Share Option Scheme                    
Balance at December 2016           456,906        
Options exercised/ shares sold*     66.91   (19,912)   1,703    
Balance at December 2017           436,994        
Comprising:                    
Shares   26 May 08   72.86   36,573    
Shares   5 Nov 08   94.25   24,444    
Shares   27 May 09   77.56   105,448    
Options   1 Sep 11   153.84   120,987     1 Sep 21
Options   16 May 12   159.62   149,542     16 May 22
* Options exercised/shares sold at market price of R152.44
                     
Employee Share Incentive Plan                    
Balance at December 2016           143,748        
Performance share award top-ups*   17 Mar 14     160     17 Mar 17
Performance shares vested   17 Mar 14     (34,339)     17 Mar 17
Restricted shares vested   16 Sep 13     (2,316)     16 Sep 17
Restricted shares vested   15 Sep 14     (3,834)     15 Sep 17
Performance share award top-ups*   16 Mar 15     415     16 Mar 18
Performance share award top-ups*   18 Mar 16     556     18 Mar 19
Performance share awards   18 Apr 17     39,431     18 Apr 20
Restricted share grants   15 Sep 17     5,345     15 Sep 20
Restricted share grants   15 Sep 17     5,345     15 Sep 21
Restricted share grants   15 Sep 17     5,348     15 Sep 22
                     
Balance at December 2017           159,859        
Comprising:                    
Restricted share grants   16 Sep 13     2,318     15 Sep 18
Restricted share grants   15 Sep 14     3,834     15 Sep 18
Restricted share grants   15 Sep 14     3,838     15 Sep 19
Performance share awards   16 Mar 15     27,974     16 Mar 18
Restricted share grants   15 Sep 15     4,732     15 Sep 18
Restricted share grants   15 Sep 15     4,732     15 Sep 19
Restricted share grants   15 Sep 15     4,734     15 Sep 20
Performance share awards   18 Mar 16     38,275     18 Mar 19
Restricted share grants   16 Sep 16     4,650     16 Sep 19
Restricted share grants   16 Sep 16     4,650     16 Sep 20
Restricted share grants   16 Sep 16     4,653     16 Sep 21
Performance share awards   18 Apr 17     39,431     18 Apr 20
Restricted share grants   15 Sep 17     5,345     15 Sep 20
Restricted share grants   15 Sep 17     5,345     15 Sep 21
Restricted share grants   15 Sep 17     5,348     15 Sep 22
* Due to performance conditions
+ Johannes (Hans) van Lierop

Hans was awarded a 6.9% annual salary increase on his US-dollar denominated basic salary in July 2017. In terms of Massmart’s AIP, Hans received an incentive payment of R2.4 million (equivalent to 6.1 months of salary) based solely on the Group’s actual operating income performance against the 2017 plan.

During the year to December 2017 Hans did not sell any Massmart shares.

Through the SIP, Hans was awarded 30,760 performance share awards on 18 April 2017 and 12,086 restricted share grants on 15 September 2017.

Whilst Hans does not have a fixed-term contract, he is contractually bound by a notice period of twelve months.

Details of shares:

                     
    Award /grant dates   Subscription price (R)   Number of shares/share options   Gain on sale/exercise (R 000’s)   Expiry date
Employee Share Incentive Plan                    
Balance at December 2016           156,477        
Performance share award top-ups*   16 Mar 15     1,053     16 Mar 18
Performance share award top-ups*   18 Mar 16     548     18 Mar 19
Performance share awards   18 Apr 17     30,760     18 Apr 20
Restricted share grants   15 Sep 17     4,028     15 Sep 20
Restricted share grants   15 Sep 17     4,028     15 Sep 21
Restricted share grants   15 Sep 17     4,030     15 Sep 22
Balance at December 2017           200,924        
Performance share awards   16 Mar 15     72,570     16 Mar 18
Restricted share grants   16 Mar 15     7,943     16 Mar 18
Restricted share grants   16 Mar 15     7,943     16 Mar 19
Restricted share grants   16 Mar 15     7,946     16 Mar 20
Restricted share grants   15 Sep 17     4,116     15 Sep 18
Restricted share grants   15 Sep 17     4,116     15 Sep 19
Restricted share grants   15 Sep 17     4,119     15 Sep 20
Performance share awards   18 Mar 16     37,747     18 Mar 19
Restricted share grants   16 Sep 16     3,858     16 Sep 19
Restricted share grants   16 Sep 16     3,858     16 Sep 20
Restricted share grants   16 Sep 16     3,862     16 Sep 21
Performance share awards   18 Apr 17     30,760     18 Apr 20
Restricted share grants   15 Sep 17     4,028     15 Sep 20
Restricted share grants   15 Sep 17     4,028     15 Sep 21
Restricted share grants   15 Sep 17     4,030     15 Sep 22
* Due to performance conditions

 

Non-Executive Directors’ remuneration summary

As approved by the shareholders at Massmart’s May 2017 AGM, the following fees were paid to non-Executive Directors in the financial year ending December 2017:

    2017 Fee
Role   (R’000)
Chairman of the Board   1,500.0
Deputy Chairman of the Board   800.0
Independent non-Executive Directors   400.0
Audit Committee Chairman   350.0
Risk Committee Chairman   275.0
Remuneration Committee Chairman   275.0
Nominations and Social and Ethics Committee Chairmen   275.0
Audit Committee member   175.0
Other Board Committee members   140.0
* Walmart-appointed Directors are not remunerated for their services

 

Executive Committee members

for the year ended 31 December 2017

R’000   Dec 17   Dec 16   1 Appointed with effect from August 2016
2 Appointed with effect from May 2017
3 Appointed with effect from November 2016
4 Appointed with effect from November 2016
5 Resigned with effect from November 2017
6 Resigned with effect from September 2017
7 Retired with effect from April 2017
8 Appointed with effect from January 2017
9 Retired with effect from August 2016
Executive manager A1   12,775   3,454
Executive manager B   5,161   5,917
Executive manager C2   2,904  
Executive manager D   12,267   8,556
Executive manager E3   6,384   429
Executive manager F   4,593   4,836
Executive manager G4   5,339   4,393
Executive manager H   13,151   17,424
Executive manager I   5,812   5,676
Executive manager J   11,554   8,964
Executive manager K5     6,768
Executive manager L6   10,670   10,199
Executive manager M7   7,328   6,224
Executive manager N8   10,974  
Executive manager O9     7,191
Total   108,912   90,031
 
+ Directors’ emoluments

for the year ended 31 December 2017

December 2017                                    
                                     
R’000   Services as Directors of Massmart Holdings Limited   Salary and allowances   Bonuses and performance related payments1   Other benefits   Retirement and related benefits   Subtotal   Fringe benefit of interest-free loans used to finance shares2   Gains on exercise of share options and on shares purchased by Directors   Total
                                     
Executive Directors                                    
GRC Hayward     5,909   3,149   163   620   9,841   341   4,333   14,515
JJM van Lierop     5,250   2,384   3,749     11,383       11,383
      11,159   5,533   3,912   620   21,224   341   4,333   25,899
                                     
Non-Executive Directors                                    
KD Dlamini   1,961           1,961       1,961
CS Seabrooke   1,419           1,419       1,419
R Burnley3                  
A Clarke4                  
NN Gwagwa   738           738       738
RM Kgosana5   768           768       768
P Langeni   1,106           1,106       1,106
S Muigai6                  
E Ostalé                  
JP Suarez7                  
    5,992           5,992       5,992
                                     
Total   5,992   11,159   5,533   3,912   620   27,216   341   4,333   31,890
                                     
                                     
                                     
December 2016                                    
R000   Services as Directors of Massmart Holdings Limited   Salary and allowances   Bonuses and performance related payments1   Other benefits   Retirement and related benefits   Subtotal   Fringe benefit of interest-free loans used to finance shares2   Gains on exercise of share options and on shares purchased by Directors   Total
                                     
Executive Directors                                    
GRC Hayward     5,551   6,124   757   578   13,010   829     13,839
JJM van Lierop     5,660   4,913   2,666     13,239       13,239
      11,211   11,037   3,423   578   26,249   829     27,078
                                     
Non-Executive Directors                                    
KD Dlamini   1,621           1,621       1,621
Seabrooke, CS   1,432           1,432       1,432
A Clarke4                  
NN Gwagwa   600           600       600
RM Kgosana5   700           700       700
P Langeni   852           852       852
E Ostalé                  
JP Suarez7                  
    5,205           5,205       5,205
                                     
Total   5,205   11,211   11,037   3,423   578   31,454   829     32,283
                                     
1 In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not amounts paid in that year
2Held in terms of the rules of the Company’s share scheme
3Appointed with effect from May 2017
4Resigned with effect from February 2017
5Resigned with effect from September 2017
6Appointed with effect from May 2017
7Resigned with effect from May 2017