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Section 01
Phumzile LangeniChairman of the Remuneration Committee

Letter from the Chairman of the Remuneration Committee to shareholders

The Remuneration Committee oversees a formal and transparent procedure for developing and implementing a fair and responsible remuneration policy that enables the Group to recruit, retain and motivate high calibre employees. In this way, the Committee assists the Board to promote the achievement of strategic objectives and positive outcomes by the organisation.

I am pleased to present the Massmart Remuneration Report for the year ended December 2018. In this report you will find information applicable to Massmart’s remuneration philosophy and the policy for Executive and non-Executive Directors’ remuneration. The report provides a description of how the policy has been implemented and discloses payments made to Executive Directors, non-Executive Directors and Executive Committee members during the year.

With a rise in the VAT rate, higher fuel prices and low economic growth, the year under review was challenging for the consumer. This resulted in softer than expected sales, particularly over the crucial November and December 2018 period, and slightly lower gross margins which adversely impacted profitability. Massmart’s total sales for the year ended December 2018 were R90.9 billion, a like-on-like increase of 2.9% over the prior year (2017: R88.4 billion, 2016: R87.6 billion and 2015: R81.3 billion). The difficult consumer environment demanded an intense focus on expense management and our efforts resulted in total expense increases being limited to 5.0%. Group profit before tax (PBT) declined by 33.9% to R1.3 billion (2017: R1.9 billion, 2016: R1.9 billion and 2015: R1.7 billion).

Per our remuneration policy, the Group’s Executives, including the Executive Directors, are incentivised based on the achievement of each year’s actual financial performance compared to the annual business plan for that year, approved by the Board in the previous year as well as non-financial metrics for the 2018 financial year. As we detail within the remuneration policy, performance is measured against four dimensions namely: PBT; non-financial metrics; total sales; and return on investment (ROI).

When we finalise the annual business plan for the following financial year, the Board takes into consideration multiple factors including the prevailing and forecast economic conditions in all countries in which we operate, key business objectives, the pursuit of growth, capital investment programmes, the relative business maturity and the appropriate degree of improvement in business performance. As can be seen from the historical targets noted in the implementation report, our previous annual business plans have incorporated real growth in total sales, improved operating performance and improved returns on invested capital. We do not disclose these forecast figures within this report, as this would reveal confidential and commercially sensitive information.

Director changes

In 2018 a number of non-Executive Director changes took place. On 25 May 2018, we announced the appointment of Olufunke (Funke) Ighodaro as an Independent non-Executive Director and a member of the Massmart Risk and Audit Committees.

On 23 August 2018, shareholders were informed that Chris Seabrooke had agreed to continue as Lead Independent non-Executive Director and Deputy Chairman but would cease to be a member of the Board Committees and step down as Chairman of the Remuneration, Audit and Risk Committees. Funke succeeded Chris as the Chairman of the Audit and Risk Committees and I assumed the role of Chairman of the Remuneration Committee.

On 28 February 2019 we announced the appointment of Lindiwe Mthimunye to the Board as an Independent non-Executive Director. Lindiwe was further nominated to serve on the Audit and Risk Committees. We also announced the appointment of JP Suarez as a Walmart-appointed non-Executive Director, in place of Roger Burnley. On the same day we informed shareholders that Chris Seabrooke’s retirement will become effective on 23 May 2019, from which date Chris will step down as the Deputy Chairman and Lead Independent non-Executive Director of the Board. I stepped down as member and Chairman of the Social and Ethics Committee with effect from 28 February 2019 and Lulu Gwagwa was appointed to serve as member and Chairman of the same Committee.

Key remuneration issues deliberated in 2018

In accordance with our drive for continued alignment of our Remuneration Report to the requirements of King IV, in 2018 we proposed various amendments all of which were tabled and approved at Massmart’s AGM held in May 2018. Progress made in 2018:

  • The revised Massmart Group remuneration policy was approved in May 2018.
  • A non-financial metric constituting 20% of the total Annual Incentive Plan (AIP) metric was approved and implemented as proposed. In principle, it was agreed that there would be a maximum of four metrics; the highest of which would support the business objective of improvement against the BBBEE score. Other metrics in this category include; improved customer satisfaction, addressing team or business unit management succession, food safety, completing specific significant projects or interventions, new product category or geographic market developments, etc. For the 2018 reporting period, a decision was taken by the Board to apply the BBBEE metric as the single objective.

Massmart’s guaranteed remuneration was benchmarked using data from the PwC Remchannel, Mercer and the Korn Ferry Hay Group salary surveys, as well as specific benchmarking to other similar sized JSE-listed companies. We are satisfied that the surveys used are independent and objective.

Remuneration in 2019

Looking forward, the Remuneration Committee’s main focus areas and priorities include:

  • Ensure the continued relevance of the remuneration policy;
  • Ensure that remuneration is implemented in accordance with the remuneration policy;
  • Ensure that employees are remunerated fairly, responsibly and transparently; and
  • Continued entrenchment of our commitment to remunerate employees fairly, responsibly and transparently. In order to achieve this the Remuneration Committee is committed to the ongoing review of remuneration as explained here. Furthermore, the Remuneration Committee undertakes to support the Group in enhancing its Employee Value Proposition to retain key talent as well as to attract critical skills as may be required to meet strategic objectives.

Stakeholder engagement

At the AGM held on 25 May 2018, in accordance with King IV, the Group remuneration policy and implementation report were put to a separate non-binding advisory vote, allowing shareholders to express their views on the policy adopted. We received a 92.4% (2017: 95.8%) vote in favour of the policy and 92.8% supported the implementation report.

We value the opinion of our stakeholders and believe that strong stakeholder engagement strengthens the relationship between our stakeholders and our Board, helping to ensure the effectiveness of our Board and its alignment to all stakeholder interests. Prior to voting at the AGM, Massmart Executives engage with shareholders and institutional investors regarding components of the remuneration policy.

We proactively engaged with our key shareholders on this policy in 2018, and the request for more in-depth communication around fair and responsible pay and the disclosure of specific non-financial metrics have been addressed in the 2018 Remuneration Report. Additional information on the non-financial metrics is noted here, while commentary around the management of fair and responsible pay has been included here.

In line with the principles set out in King IV, Massmart will table its remuneration policy and implementation report for two separate non-binding advisory votes at its 2019 AGM. Should 25% or more of the shareholders vote against either resolution at the AGM, the Board will invite dissenting shareholders to engage with the Remuneration Committee on their concerns.

The Remuneration Committee is confident that the remuneration policy promotes the achievement of strategic objectives and that the levels of remuneration are fair and equitable to support the attraction, motivation, reward and retention of human capital. We confirm that both the remuneration policy and implementation thereof will be subject to ongoing review.

Executive Directors’ single total figure remuneration

King IV prescribes that companies must provide a single total figure of remuneration, received and receivable, for the reporting period and all the remuneration elements that it comprises, each disclosed at fair value.
The following table provides an overview of the Executive Directors’ remuneration for 2018, explained in detail in Section 03 of this report.

  • The ‘guaranteed package’ and ‘other benefits’ reflect actual payments made in the reporting period;
  • In order to match incentive awards with the performance to which they relate, the ‘short-term incentives’ and the ‘long-term incentive performance shares vested’ reflect the amounts accrued in respect of the year and not amounts paid in that year; and
  • As per guidance received in terms of the single total figure remuneration definition, the ‘long-term incentive restricted shares’ number represents restricted shares granted in the financial year, valued at the closing share price for the financial year.

 

 

The information provided in this report has been approved by the Board on the recommendation of the Remuneration Committee.

I would like to thank Chris Seabrooke for his immense contribution and dedication as the Committee Chairman over the past five years. Under his leadership Massmart’s remuneration policy was improved and balanced against shareholder’s interests.

I would also like to take this opportunity to express my appreciation to the members of the Committee for their support and efforts during the past year.

Phumzile Langeni
Chairman of the Remuneration Committee
4 April 2019

A copy of Massmart’s full Remuneration Policy is available here