On behalf of the Remuneration Committee, I am pleased to present the Massmart Remuneration Report for the year ended December 2019. The report highlights the key components of Massmart’s remuneration philosophy and describes the way in which it underpins the business strategic objectives. Also contained in this report is the policy for Executive and Non-Executive Directors’ remuneration. The report also provides a description of how the policy has been implemented and discloses the payments made to Executive Directors, Non-Executive Directors and Executive Committee members during the year.

The Remuneration Committee is committed to providing consistent and regular oversight of 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 associates, whilst ensuring alignment with stakeholder interests. In this way, the Committee supports the Board in driving the achievement of strategic objectives and positive reward outcomes.

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 as approved by the Board in the previous year as well as non-financial metrics specific to the 2019 financial year. As detailed in the remuneration policy, performance is measured against four dimensions namely: profit before tax (PBT); non-financial metrics; total sales; and return on investment (ROI).

The Group experienced another challenging trading year. This resulted in softer than expected sales, particularly over the crucial festive period, and lower gross margins, which adversely impacted profitability.

Our performance

2019 saw a detailed review of the Group strategic direction and focus by a revitalised Executive team under the guidance and facilitation of external consultants. As we implement our turnaround plan, the Board considered multiple factors including a review of our operating model, prevailing and forecast economic conditions in all countries in which we operate, key business objectives, the pursuit of growth, cost containment, capital investment programmes 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

The following Director changes took place during the year:
In February 2019, CFO Hans van Lierop indicated that he was not available to extend his tenure with Massmart for personal reasons after the formal conclusion of his South African work visa in February 2020. On 30 April 2019, shareholders were informed that Mohammed Abdool-Samad would succeed Hans as Chief Financial Officer and Executive Director effective 1 August 2019.

On 6 May 2019, the Board announced that after almost twenty years in the business, the past five of which have been as Chief Executive Officer, Guy Hayward had informed the Board of his decision to step down from his role before the end of 2019.

On 23 May 2019, Mitch Slape’s appointment as Chief Executive Officer was announced, effective 1 September 2020.

On 27 May 2019 the appointment of Phumzile Langeni as Lead Independent Director was announced, with effect from 23 May 2019.

On 5 September 2019 it was announced that Mohammed Abdool-Samad was appointed a member of the Risk Committee, effective 1 August 2019, and Mitch Slape a member of the Risk and Social and Ethics Committees, effective 1 September 2019. The Board further announced the resignation of the Group’s General Counsel and Company secretary Joseph Ralebepa, effective 31 December 2019.

On 30 December 2019, the appointment of Nicole Morgan as the Interim Company Secretary, effective 1 January 2020, was announced.

On 25 February 2020, the following changes were announced: Enrique Ostalé resigned from the Board, Remuneration and Nominations Committee; JP Suarez was appointed to the Remuneration and Nominations Committees; and Charles Redfield was nominated for appointment as a Non-Executive Director of the Board, effective 25 February 2020.

On 6 March 2020, Phumzile Langeni’s resignation from the Risk and Audit Committees to focus on her other Massmart Board and Committee duties was announced, with effect from 21 May 2020.

The year in review

• The Massmart Group remuneration policy remained a key focus area
• Continued focus on ensuring that remuneration is managed and implemented in accordance with the remuneration policy
• Extensive stakeholder engagement
• Continued focus on our commitment to remunerate associates fairly, responsibly and transparently. In order to achieve this, the Remuneration Committee has committed to the ongoing review of remuneration
• The Remuneration Committee has also undertaken 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.

Remuneration in 2020

2020 will see the launch of a revised operating model and strategic intent. In line with this change, we expect that components of the remuneration policy may change to support the realigned business focus.

In 2020, the Remuneration Committee’s main focus areas and priorities will include:

• Full review of the remuneration policy to ensure alignment with the business approach in the management of reward and to ensure relevance and continued alignment with good corporate governance
• Review and potential re-alignment of short- and long-term incentive targets and metrics to support revised business objectives
• Implementation of a malus and clawback clause within the remuneration policy
• Increased focus on non-financial metrics within a robust governance process to support our turnaround plan
  • Agreed non-financial metrics:
    • BBBEE – Retain Level 4 BBBEE score
    • Employment Equity – Set annual targets to deliver against Employment Equity goals over a three-year period
    • Diversity and Inclusion – Drive diversity and inclusion through active sponsorship of associates from diverse backgrounds
    • Sustainability – Increase our total on-site renewable energy generating capacity by 50% in 2020
• Ensure that remuneration is implemented in accordance with the remuneration policy
• Ensure that associates continue to be remunerated fairly, responsibly and transparently
• 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 new strategic objectives.

Stakeholder engagement

At the Annual General Meeting (AGM) held on 23 May 2019, 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 93.2% (2018: 92.4%) vote in favour of the policy and 93.3% 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 our AGM, Massmart’s Executives engage with shareholders and institutional investors to ensure there is clarity regarding components of the remuneration policy.

The Remuneration Committee is confident that the revised remuneration policy promotes the achievement of strategic objectives within good corporate governance guidelines and is aligned to the principles of King IV. We further confirm that the levels of remuneration are fair and equitable and support the attraction, motivation, reward and retention of our associates. We confirm that both the remuneration policy and its implementation will be subject to ongoing review and will be a standing item on the Remuneration Committee agenda going forward.

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 2020 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.

Executive Directors’ single total figure remuneration overview

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 2019, 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
• 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 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
2 April 2020

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