Remuneration of directors and executives

Following the Walmart transaction, the Remuneration and Nominations Committee now comprises Messrs Mark Lamberti (Chairman), Doug McMillon and Chris Seabrooke. With the exception of Doug McMillon, all Committee members are independent non-executive directors. The CEO attends all Committee meetings by invitation.

Massmart, through the Remuneration and Nominations Committee, implements remuneration policies that enable it to recruit, retain and motivate the executive talent needed to achieve superior performance. The Committee, with periodic advice from external executive remuneration consultants, ensures the provision of executive remuneration packages that are competitive with reference to other major South African retail companies, as well as other companies similar to Massmart in their size, spread and complexity.

Our executive remuneration policy has three components, being:

• The fixed portion, specifically the monthly basic cash salary, and benefits including motor vehicles, retirement funding and medical aid;
  
• The short-term or performance incentives, represented as multiples of basic monthly salary, and linked to the achievement of profit growth and/or personal performance. If achieved, these incentives are paid annually; and
  
• Long-term equity incentives under the Massmart Holdings Limited Employee Share Trust.
  

The Committee considers and recommends to the trustees of the Massmart Holdings Limited Employee Share Trust any proposed shares or options that are granted in terms of the Share Trust rules. Annually the Committee reviews the Group's employee benefit funds, specifically the in-house medical scheme and the provident and pension funds, considering their performance, financial stability and the general principles governing the benefit levels being applied.

The Massmart remuneration policy strives for fixed remuneration at the median to upper quartile of comparable positions. At least every two years the Committee receives a report prepared by independent remuneration consultants on the recent trends in, and the current levels of, short- and long-term executive remuneration in South Africa. In May 2011 the Committee received such a report prepared by 21st Century Business & Pay Solutions, an independent remuneration consultancy. As a result of this report, the remuneration of several executives and senior managers were adjusted.

With regard to short-term or performance incentives, Massmart places particular emphasis on generous annual incentives for high performance for both executive directors and executive management. This policy, communicated to and understood by the Group's executives, codifies a range of performance incentives linked to annual headline earnings per share growth for the Group in excess of average CPI (as reported by StatsSA) plus 5%, or growth in profit before tax for each Division, as appropriate. Executives can earn an increasing multiple of their monthly basic salary depending upon the earnings growth exceeding CPI plus 5% or higher percentage increments. With effect from 2006, an element of the annual incentive bonus was linked to corporate accountability performance, specifically the achievement of BBBEE transformation targets approved by the Remuneration and Nominations Committee. This incentive can amount to an additional one to three months' salary. The Committee also has the discretion to reward superior individual performance.

Long-term equity incentive plans ensure the alignment of executive reward with shareholders' interests, in particular the sustained creation of shareholder value. New issues of annual allocations of shares or options are only allowed when Massmart's growth in headline earnings per share in the prior year exceeds average CPI plus 5%, consequently there was no annual issue during the 2011 financial year. The amount allocated is based upon a factor of the executive's total prior-year remuneration including incentive bonus.

The Committee believes that participants in the employee share scheme should, on average, hold unvested shares or options representing value equivalent to approximately three times their annual remuneration.

With effect from 2002, only members of the Executive Committee can elect to receive scheme shares, while all other participants receive options.

Non-executive directors receive fees in the top quartile for their role as directors and for their roles on Board Committees.

Non-executive directors' fees paid in the current financial year are detailed below:

	2011	2012
Chairman of the Board	R725 000	R775 000
Deputy Chairman	R520 000	R555 000
Directors	R215 000	R230 000
Committee Chairmen	R210 000	R225 000
Committee members	R100 000	R107 000
Audit Committee (additional to above). For the additional meetings and responsibilities arising from the Companies Act relative to subsidiaries	R25 000
The fees paid to the trustees of the Massmart Holdings Limited Employee Share Trust are R40 000 each and R50 000 for the Chairperson.

Directors' emoluments
 

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The comments on this page provide further background and context to the figures disclosed in this note, Directors' emoluments and Interests of directors in the Company's Share Scheme. These notes can also be found in the Group financial statements note 35 and note 36.

GM Pattison

Following a third party executive remuneration analysis which assessed positions of similar stature and complexity, the Remuneration and Nominations Committee awarded Grant a 23.8% increase to his salary and allowances for the 2011 financial year, from R3.02 million to R3.74 million. In line with the Group's Short-term Executive Incentive Scheme which rewards executives based on growth in HEPS, he received six months' salary as a bonus. In addition, the Committee awarded him a qualitative bonus of six months in recognition of his exceptional effort, leadership and effective communication with all aspects of the Walmart transaction. These bonuses totalled R3.67 million.

During the 2011 financial year, but before the commencement of the Closed Period caused by the Walmart transaction, Grant converted and sold 85,919 Massmart shares and options, realising a gain on exercise of share options of R5.5 million. Furthermore, as a result of Walmart acquiring 51% of the Massmart vested and unvested share options held by beneficiaries of the Massmart Employee Share Trusts, Grant necessarily had to convert and sell 752,961 shares and options, realising a gain on exercise of share options of R72.4 million.

Through the Share Scheme, Grant holds 723,418 Massmart shares and options of which 42,202 shares are held in the Pattison Family Trust, of which Grant is a beneficiary. The average length of time that he has held these is 5.4 years and the average strike price is R51.84 per share. The Pattison Family Trust also directly owns 218,055 Massmart shares.

GRC Hayward

Following a third party executive remuneration analysis which assessed positions of similar stature and complexity, the Remuneration and Nominations Committee awarded Guy a 13.7% increase to his salary and allowances for the 2011 financial year, from R2.42 million to R2.75 million. In line with the Group's Short-term Executive Incentive Scheme which rewards executives based on growth in HEPS, he received six months' salary as a bonus. In addition, the Committee awarded a qualitative bonus of three months in recognition of his exceptional effort with regard to the Walmart transaction. These bonuses totalled R2.06 million.

During the 2011 financial year, but before the commencement of the Closed Period caused by the Walmart transaction, Guy converted and sold 175,000 Massmart shares and options, realising a gain on exercise of share options of R19.3 million. Furthermore, as a result of Walmart acquiring 51% of the Massmart vested and unvested share options held by beneficiaries of the Massmart Employee Share Trusts, Guy necessarily had to convert and sell 410,747 shares and options, realising a gain on exercise of share options of R36.9 million.

Through the Share Scheme, Guy holds 394,627 Massmart shares and options of which 19,912 shares are held in the Bluett-Hayward Trust, of which Guy is a beneficiary. The average length of time that he has held these is 4.7 years and the average strike price is R58.20 per share. Guy also owns 36,517 Massmart shares directly.

Top three executives’ salaries

King III recommends that the salaries of the top three executives, excluding executive directors, should be disclosed. Due to their specialised retail skills, the highly competitive South African retail environment and the employees' value to Massmart, the Board does not wish to disclose this information for each of the individuals but has instead disclosed the total salaries of the three employees concerned. None of the employees earns a higher salary than either of the executive directors.

In the 2011 financial year, the top three executives' combined salaries (comprising basic salary, motor vehicles, medical aid and retirement benefits) were R9.6 million (2010: R8.8 million).

Non-executive directors’ fees

The Board's policy is to pay non-executive directors' fees that are competitive but not in the top quartile. As noted at the beginning of this Corporate Governance section, attendance fees are not paid. Directors' fees were not increased for the 2010 financial year. The following fees and fee increases, for the 2012 financial year were approved at a general meeting in September 2011:

	Chairman	R775,000
	Deputy chairman	R555,000
	Non-executive directors	R230,000
	Committee chairpersons	R225,000
	Committee members	R107,000

 

Interests of directors in the Company's share scheme

Details of directors' shares and share options per director:
	Relevant date	Subscription price (R)	Market price (R)	Number of shares/share options	Gain on sale/exercise (R 000's)	Expiry date
Pattison, GM
Balance at the beginning of the previous year
				1,562,298
No shares were traded, exercised or granted in the prior period
				-
Balance at the beginning of the year				1,562,298
Shares traded	26 May 2004	29,87	121,93	(35,919)
Shares traded	23 May 2006	54,13	148,00	(382,500)	35,904
Shares traded	24 May 2007	94,25	148,00	(28,052)	1,508
Shares traded	26 May 2008	72,86	148,00	(43,480)	3,264
Shares traded	27 May 2009	77,56	148,00	(43,929)	3,092
Options exercised	27 August 2001	10,95	121,93	(50,000)	5,549
Options exercised	27 August 2001	10,95	148,00	(51,000)	6,990
Options exercised	1 April 2005	41,91	148,00	(204,000)	21,640
New shares/options granted				-
Balance at the end of the year				723,418	77,947
Comprising:	27 August 2001	10,95		49,000		26 August 2011
	1 April 2005	41,91		196,000		31 March 2015
	23 May 2006	54,13		367,500		22 May 2016
	24 May 2007	94,25		26,948		23 May 2017
	26 May 2008	72,86		41,768		25 May 2018
	27 May 2009	77,56		42,202		26 May 2019
Hayward, GRC
Balance at the beginning of the previous year
				1,032,898
No shares were traded, exercised or granted in the current period
				-
Balance at the beginning of the year				1,032,898
Shares traded	10 March 2000	14,61		(8,643)	-
Shares traded	26 May 2004	29,87		(43,881)	-
Shares traded	1 April 2005	41,91	148	(102,000)	10,820
Shares traded	23 May 2006	54,13	148	(76,500)	7,180
Shares traded	24 May 2007	94,25	148	(25,445)	1,362
Shares traded	1 April 2008	66,91	148	(20,729)	1,680
Shares traded	26 May 2008	72,86	148	(38,070)	2,860
Shares traded	27 May 2009	77,56	148	(109,753)	7,728
Options exercised	13 November 2000	12,25	121,93	(100,000)	10,968
Options exercised	27 August 2001	10,95	121,93	(75,000)	8,324
Options exercised	27 August 2001	10,95	148	(38,250)	5,242
New shares/options granted				-
Balance at the end of the year				394,627	56,164
	27 August 2001	10,95		36,750		26 August 2011
	1 April 2005	41,91		98,000		31 March 2015
	23 May 2006	54,13		73,500		22 May 2016
	24 May 2007	94,25		24,444		23 May 2017
	1 April 2008	66,91		19,912		1 April 2018
	26 May 2008	72,86		36,573		25 May 2018
	27 May 2009	77,56		105,448		26 May 2019