Remuneration

committee report

The Remuneration Committee report comprises three sections:

Section A Report from the Chairman of the Remuneration Committee, summarising key remuneration considerations and decisions as well as highlighting internal and external factors influencing remuneration during the year under review.
Section B The remuneration philosophy, policy and framework.
Section C The application of the remuneration policy during the year under review.

SECTION A: REPORT FROM THE CHAIRMAN OF THE REMUNERATION COMMITTEE

I am pleased to present the Remuneration Committee report for the 2017 financial year on behalf of the Remuneration Committee (Remco). This report summarises the philosophy and principles of and approaches to remuneration at TFG as it applies to executive directors, non-executive directors and other employees. It details the policy and principles set by the Remco for each of the primary components of the remuneration policy. The structure and content of the Remuneration Committee report also take into account best practice requirements of corporate governance as set out in the King Code of Governance for South Africa 2009 and are aligned with the Johannesburg Stock Exchange (JSE) Listings Requirements.

TFG complies with the requirement of “equal pay for work of equal value” in line with the Employment Equity Act, No. 55 of 1998, as amended (the EEA) by recognising and addressing pay inequities between gender and race groups within the Group with specific focus on customer-facing employees.

Remuneration arising from short-term incentives (STI) and long-term incentives (LTI) is linked to the Group’s financial performance.

For the year ended 31 March 2017, the Group did not achieve the required STI target but did achieve the
three-year LTI target.

For the three years ended 31 March 2017, the Group achieved the long-term incentive target (LTI) headline earnings per share (HEPS) growth of CPI plus 2%, which resulted in full vesting of the forfeitable performance shares (FSP) and share appreciation rights (SARs). Further details on STI payouts and LTI vesting outcomes are disclosed in section C.

For the year ended 31 March 2017, the Group did not achieve the short-term incentive target (STI) earnings before interest and tax (EBIT). Although EBIT was not at target at Group level, a number of retail brands attained or exceeded their specific targets. Bonuses were paid to eligible employees of these specific retail brands for achieving their STI targets as per the rules of the STI scheme. This arrangement is key to ensuring TFG’s variable pay model remains fit for purpose and competitive in the market.

At Group level, after taking into consideration that actual EBIT was only marginally below threshold target, and that the CEO and CFO made significant strategic contributions to the Group’s international expansion plans, the Remco exercised its discretion and declared a discretionary bonus pool that was lower than the threshold bonus pool.

Executive performance for purposes of STI payments is reviewed by the Remco and measured against predetermined performance measures that are set in advance on an annual basis.

In section C, the remuneration and shareholdings of the directors and prescribed officers of TFG Limited are disclosed, as are the fees paid to non‑executive directors. The remuneration packages for directors and senior executives are determined after due consideration of their specific performance, experience and responsibilities. This determination also includes engaging external remuneration consultants as well as performing extensive independent benchmarking exercises of similar roles in companies directly comparable to TFG’s size, industry, complexity and risk profile. During the year, PricewaterhouseCoopers (PwC) gave advice on the latest remuneration trends, specifically on executive and non-executive remuneration, as well as guidance on the application of King IV principles.

Key decisions and remuneration policy changes approved by the Remco

The Remco has reviewed and addressed a number of policy aspects for organisation-wide employees. These include:

  • Successfully concluded a two-year wage agreement with SACCAWU for all unionised employees, effective 1 September 2016
  • Dedicated focus on and review of customer-facing employees’ remuneration components, specifically base pay alignment with the market
  • Introduction of three separate employee categories, namely executive employees, middle management and the bargaining unit for annual increase reviews for further alignment with the market
  • Further enhanced the “pay for performance” culture in the Group by linking all performance objectives to the Group’s business strategy and by adjusting the bonus payment modifiers and increasing the potential payout gap between acceptable and exceptional performance classifications
  • Reviewed and increased the STI on-target multiples for Peromnes Grading System Grades 6 and 7 employees (middle management employees) to ensure competitiveness and alignment with the market, effective 1 April 2017
  • Three-year (FY 2017 to FY 2020) return on capital employed (ROCE) targets were proposed by executive management and approved by the Remco during the first half of the year. However, in the latter half of the year, it became apparent that a significant international acquisition such as the recently announced post-year-end acquisition of the Retail Apparel Group (RAG) of Australia would have a material impact on the determination and setting of long-term ROCE targets. Taking into account that TFG is introducing ROCE as a LTI performance secondary metric for the first time and taking note of the complexity of the various considerations impacting the measurement of ROCE in a large multi-national retailer such as TFG, executive management requested that the original basis of setting ROCE targets be revised. The Remco approved this proposal and requested executive management to present revised ROCE targets for the FY 2016 and FY 2017 share awards during the first half of FY 2018. These targets will be predicated on the fundamental objective of attaining long-term incremental improvement in ROCE and will be reported in the Remuneration Committee report for FY 2018.

Shareholder advisory services and investor engagement

We actively engage with investors on at least an annual basis and this process forms an integral part of reviewing our remuneration policy. We took note of the engagement feedback received from shareholder advisors and our investors that arose from the shareholder approval of the Remuneration Committee report for the 2016 financial year at last year’s annual general meeting (AGM).

The key engagement points raised by shareholder advisors and our investors, and our response to each, are set out in the table below.

SHAREHOLDER ADVISOR/
INVESTOR COMMENT
RESPONSE FROM TFG REMCO/ACTIONS TAKEN
Good level of disclosure in the report. We will continue to enhance and improve the report to ensure international best practices while taking into account specific disclosure items as required by King IV and the JSE Listings Requirements.
Disclosure of ROCE targets as a secondary measure with a 20% weighting, but no actual targets were provided. As reported above, ROCE targets will be set on the fundamental objective of attaining long-term incremental improvement in ROCE and will be reported in the Remuneration Committee report for FY 2018.
Adequate disclosure of STI and LTI metrics in report. However, TFG omitted to disclose sustainability measures for STI and LTI. Performance targets must include sustainability targets (non-financial). While we currently do not have non-financial targets linked to LTI, we do incorporate non-financial targets into STI targets through measurement of individual KPIs. The CEO and CFO’s individual performance measures are aligned with TFG’s strategic pillars as detailed in the Strategy performance review.
Once-off special share award to CEO. The once-off special share award in June 2016 was in accordance with a specific agreement with the CEO to extend his tenure beyond his normal retirement date to ensure a number of critical strategic initiatives/objectives are achieved and to ensure a smooth transition to his successor. The actual performance of the CEO in relation to these objectives will be monitored annually by the Nomination Committee. The special shares will only vest if all of the objectives set have been achieved. This once-off special share award and its rationale was explained in detail in last year’s (FY 2016) Remuneration Committee report.
FSP – performance target of HEPS growth of CPI plus 2% is not stretched enough. Currently, South African retail is trading in a challenging environment and we believe HEPS growth of CPI plus 2% over a three-year period will provide a robust stretch in this challenging phase of the South African retail cycle.

Forward-looking approach

One of the Operating Board’s strategic objectives, which ensures organisation-wide fair and equitable remuneration, is to increase the focus on total reward for customer-facing employees. TFG’s commitment is to offer market-related pay and create opportunities that allow employees to grow and succeed in an environment of support, collaboration and respect.

ROCE, introduced as a secondary measure of LTI in the 2017 financial year, has become a key operational and financial focus within the Group. ROCE targets will be predicated on the fundamental objective of attaining long-term incremental improvement in ROCE. For reasons stated earlier in this report, ROCE targets will be reported in the Remuneration Committee report for FY 2018.

We will continue to conduct annual reviews and benchmarking exercises, in particular regarding LTI and STI performance targets, to ensure we remain competitive to the market and align with best practice.

The King IV implementation date is for financial years starting on or after 1 April 2017. Despite only being obliged to implement King IV guidelines for the 2018 financial year, TFG considered King IV guidelines where appropriate for the various sections of the 2017 financial year Remuneration Committee report. However, TFG is committed to fully adopt and comply with the King IV guidelines in the 2018 financial year and will continue to take into account best practice requirements of good corporate governance. Such compliance will further be aided by the King IV practice notes (still due for release).

Shareholder advisory services and investor engagement form an integral part of the Remco’s ongoing review of remuneration policy, and TFG will continue to actively engage with investors on an annual basis. The Remco maintains a proactive approach to consider all emerging and relevant remuneration trends to ensure that remuneration is used as a business tool to create sustainable value within the economic, social and environmental context in which the Group operates.

Annual general meeting (AGM)

For the 2016 financial year, TFG received a 53% non-binding advisory vote in favour of the remuneration policy. We consider the outcome as disappointing, especially after our deliberate and in-depth engagement with the investor community. We have taken cognisance of all the feedback received from shareholders and we have once again engaged with the investor community, explained our remuneration policy and highlighted our forward-looking approach towards remuneration. In the light of our progressive approach, we look forward to your positive vote in favour of our 2017 financial year remuneration policy.

E Oblowitz
Chairman: Remuneration Committee

29 June 2017

SECTION B: REMUNERATION POLICY

Principles

TFG’s remuneration policy, as determined by the TFG Remco, aims to attract, engage and retain the best talent that is essential for the implementation of its business strategy and the achievement of its performance objectives while it operates within the Group’s approved risk and governance frameworks. The remuneration policy is an enabler for creating sustainable and long-term positive returns for shareholders.

The policy seeks to achieve the following principal objectives:

  • External equity – ensuring employees are rewarded in line with the practice in national and retail markets, taking all relevant and appropriate factors into account
  • Internal equity – ensuring employees are remunerated correctly in relation to each other, in recognition of their individual contributions and accountabilities
  • Performance alignment – ensuring employees are aware of the requirements of strong short-term and long-term performance as well as its rewards
  • Appropriate remuneration mix – establishing a balance between base pay, STI and LTI

Remuneration must be balanced with attractive benefits, an enjoyable, ethical and values-based working environment and the opportunity for employees to develop and grow in a respectful, collaborative, competitive, career-oriented environment.

The Remco is also committed to fair and responsible remuneration across all levels of employees within the Group, including its international divisions, that supports the implementation of our four strategic pillars:

The following selected measures are addressed to ensure fair and responsible remuneration is applied across all levels of employees:

  • Annual exercise to identify and address unexplained income differentials as part of the Employment Equity Report (EEA4) submission to the Department of Labour
  • Annual monitoring of TFG’s internal Gini coefficient (i.e. the ratio of income dispersion between the different levels) to ensure it is within reasonable benchmarks nationally and within the South African retail industry

Remuneration mix

Designed to achieve an appropriate mix between base pay, STIs and LTIs

Summary of remuneration mix

REMUNERATION COMPONENT MECHANISM ELIGIBLE EMPLOYEES CHANGES TO POLICY IN THE YEAR UNDER REVIEW SUBJECT TO PERFORMANCE CRITERIA APPLICABLE PERFORMANCE CRITERIA PERFORMANCE CONDITION MINIMUM PERFORMANCE PERIOD STRATEGIC PURPOSE OF COMPONENT
Base pay Guaranteed pay All employees None Yes Performance review Annual increase approved by the Remco n/a Attracts and retains employees with dual focus on external market equity and internal equity
STI Group annual bonus scheme CEO to Grade 7 (middle management) Increased STI multiples for Peromnes Grades 6 and 7 employees (middle management), effective FY 2018 Yes EBIT individual performance and divisional profit growth Set by the Remco each year One year Rewards employees for achieving or exceeding targeted short-term performance levels
LTI SAR Operating Board None Yes HEPS growth (excluding acquisition costs) CPI Three years from date of grant Aligns executive and key management’s interests with long-term shareholders’ interests
FSP – performance Operating Board and executives None Yes HEPS growth (excluding acquisition costs) – ROCE
  • CPI plus 2%
  • As explained in section A, June 2016 share award and June 2017 share award – ROCE target now to be set during FY 2018
Three years from date of grant
FSR – restricted Executives and key talent employees None Yes n/a n/a Three years from date of grant

Remuneration mix policy

The remuneration mix comprises base pay, STI, and LTI for the CEO and the Operating Board. The STI and LTI components of remuneration are designed relative to base pay to achieve an appropriate mix between base pay, STIs and LTIs.

The remuneration mix varies by organisational level, with incentive pay (short and long term) forming a more significant portion of remuneration at higher organisational levels.

The targeted remuneration mix at varying levels of organisational performance is approved by the Remco. The infographics above depict the mix of remuneration components for the CEO and Operating Board, taking into account:

  • current annualised base pay levels;
  • the STI payment, which is at performance tier On Target levels; and
  • the annual LTI allocations, which are shown at expected value, for benchmarking purposes, on the date of award. The expected value of the LTI annual allocations is determined by using industry standard option pricing formulae and probability factors, together with established performance conditions.

Base pay

Attracts and retains key talent with focus on external market equity, internal equity as well as equal pay for work of equal value

Base pay consists of the following, and applies to all permanent employees:

  • A pensionable salary
  • Travel and housing allowance (depending on organisational level)
  • Employer contributions to:
    • TFG Retirement Fund
    • Provident fund (dependent on organisational level)
    • Group life and disability benefits
    • TFG Medical Aid Scheme (where applicable)
  • Base pay is reviewed annually with reference to the market, and is targeted around the median of comparable market survey statistics.
  • Base pay increases are awarded based on guidelines determined with reference to direct comparable industry peers, independent market surveys, such as the REMchannel® salary survey, Hay’s salary survey and national economic indicators. The Remco also takes past and current Group trading performance and current economic indicators into account when determining the annual increase guidelines.
  • Each role is benchmarked against the market using proven job evaluation and benchmarking methods.
  • TFG is sensitive to paying fair, market-related remuneration to all employees and fully supports the concept of “equal pay for work of equal value” in line with the EEA. TFG monitors salary differentials for all employees performing work of equal value, and pay inequality is addressed by providing training to employees and ensuring that extensive career mapping and talent management strategies are in place.

Benefits

Influences attraction and retention of key talent

Vehicle benefits are provided based on the employee’s organisational level and role, as defined by our travel allowance and fleet policies.

Retirement, group life and disability benefits are provided in proportion to pensionable salary. To this end, TFG contributes 12% of pensionable salary to the TFG Retirement Fund for all employees eligible for membership of the fund. Members are required to contribute 7,5% to the fund. In addition to being members of the TFG Retirement Fund, executives are also members of a provident fund. TFG contributes 1,5% of pensionable salary to the provident fund and there is no compulsory contribution required by the employee. Contributions to both the TFG Retirement Fund and provident fund are based on pensionable salary and no element of variable pay is regarded as pensionable.

Medical aid is income related, providing identical cover to employees on the same plans, but requiring lower contributions from lower-earning employees. Employees on one of the in-house schemes receive a 50% subsidy for all approved dependants. In this way, TFG seeks to ease the burden of the increased cost of living on its employees.

Short-term incentives (STI)

Rewards employees for achieving or exceeding targeted performance levels

STI overview

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. These levels are defined as threshold, target and stretch.

This structure exists for the following reasons:

  • To drive collaboration between divisions to the overall benefit of the Group
  • To reward strong divisional performance while moderating payments where Group performance targets have not been met and thus cannot be fully funded

The scheme rules are communicated to each participating employee. Any approved bonus payments, and confirmation to employees of the underlying performance measures, are made shortly after publication of the annual financial results.

STI performance metrics

Multiple performance metrics are used to set targets for the payment of STIs. These measures include (but are not limited to) the following:

The bonus pool for executive management and centralised functions is weighted 100% to EBIT, while the bonus pool for retail brands is weighted 60% to divisional profit before tax and 40% to EBIT.

After calculating the bonus pool using the primary measure, a secondary measure of individual performance is applied to an individual’s base bonus. The purpose of having individual performance as a secondary measure is to support a “pay for performance” culture. This secondary measure is determined by using the employee’s performance rating. The range is on a five-point scale between “1” = 0% (very poor performance) to “5” = 150% (exceptional performance) with 100% bonus paid at a “3” rating. In line with good practice, these ratings are calibrated to ensure the Group achieves a reasonable distribution curve within the total bonus pool.

During the year under review, the Remco approved changes to the payment modifiers linked to the individual performance ratings to determine final bonus payments. Previously, the range was “1” = 0% to “5” = 120%. The purpose of the changes is to further embed the “pay for performance” culture within the Group.

Performance measures for all Operating Board members (including the CEO) as well as all heads of retail brands and heads of functions are aligned with the TFG strategic pillars as detailed in the Strategy performance review. CEO objectives are set and assessed by the Chairman of the Supervisory Board. CFO and Operating Board members’ objectives are set and assessed by the CEO. The CEO and Operating Board’s performances are reviewed by the Remco as part of the STI bonus payment approval process.

STI target setting

The Remco approves Group bonus targets by using annual profit forecasts as a benchmark (primary measure).

As a major retailer and in accordance with attaining effective operational monitoring, TFG’s profits and other key retail metrics are internally reported in detail on a weekly and monthly basis. This real-time reporting of profit (the cornerstone of the EBIT measure) and review by executive management supports the robust STI design principles and underpinning performance metrics of divisional profit before tax and EBIT.

STI payment multiples

STI benchmarks are reviewed regularly to ensure that bonus payment levels at each organisational level and performance tier are appropriate and form a fitting part of the overall pay mix. Any changes to the payment multiples or structure require prior approval from the Remco.

Bonus multiples, before the influence of any individual factors are taken into account, are calculated as a factor of:

  • each individual’s annual base pay; and
  • each organisational level.

For ease of comparison and reporting, bonus multiples are shown as a percentage of annual base pay in this report.

The Remco reviews and assesses the achievement of approved Group and divisional targets and then recommends the appropriate bonus payments to the Supervisory Board.

The Remco has an overriding discretion to recommend any adjustments to bonus targets and payments to the Supervisory Board as a result of changed business conditions, including where a payment is inappropriate given the Group’s financial and/or other justifiable circumstances.

STI tiers of performance and related bonus multiple

The following rationale is applied at each tier of performance when determining and approving targets:

Threshold

  • Performance marginally below On Target that is nevertheless satisfactory and substantially aligned with forecasted trading performance.
  • Performance at this level, or anywhere between Threshold and On Target, warrants and justifies up to a maximum of 50% of the On Target bonuswarrants and justifies up to a maximum of 50% of thevalue.
  • Payment of a bonus for performance below threshold will only be made at the discretion of the Remco. In the event that a discretionary payment is made for performance below threshold, this payment will be less than a payment for achieving threshold.

On Target

  • Strong performance that is above forecasted trading performance.

Stretch

  • A superior level of performance that is sufficient to warrant and justify the maximum potential bonus payment (double the On Target value).
  • Performance above stretch target does not result in an additional bonus payment. The payment cap by design is achieved once stretch targets are achieved.

The Remco guidelines dictate that the performance range between Threshold and On Target is substantially smaller than the range between On Target and Stretch to prevent payment for underperformance.

Payment between Threshold and On Target is paid on an all-or-nothing basis to limit bonus payments at performance below strong levels, and to create a significant incentive to achieve On Target performance levels.

Performance between On Target and Stretch is rewarded proportionately, and payments are capped at the Stretch level.

CEO and Operating Board bonus payments for financial year 2017

    % ANNUAL BASE PAY ASSUMING INDIVIDUAL PERFORMANCE MODIFIER OF 3 (MET ALL EXPECTATIONS) % ANNUAL BASE PAY ASSUMING MAXIMUM INDIVIDUAL PERFORMANCE MODIFIER OF 5 (EXCEEDED ALL EXPECTATIONS)
DIVISIONAL PROFIT/EBIT PERFORMANCE LEVEL SLIDING SCALE CEO OPERATING  BOARD  (AVERAGE) CEO OPERATING  BOARD  (AVERAGE)
Stretch Sliding scale between Target and Stretch 180% 96%  270%* 143%*
On Target 90% 48%  135% 72% 
Threshold No sliding scale between Threshold and Target 45% 24%  68% 36% 
Under Threshold No payment unless bonus payments are approved at the discretion of the Remco 0% 0%  0% 0% 
* 270% and 143% = the maximum resultant bonus payment expressed as a percentage of annual base pay for the CEO and average Operating Board respectively.

Long-term incentives (LTI) – Share appreciation rights and forfeitable shares

Aligns executive and key management’s interests with those of shareholders

Share appreciation rights (SARs)

(Foschini 2007 Share Incentive Scheme)

Participants are entitled to receive resultant shares equal in value to the growth in the share price on a defined number of rights between the date of grant and the date of conversion to resultant shares.

All shares issued under this scheme are subject to Group performance criteria, which are tested against inflation-linked Group HEPS targets over a period of three years with no retesting. The minimum period between grant and conversion is three years, and all rights expire after six years.

Forfeitable shares

(Foschini 2010 Share Incentive Scheme)

Two instruments form part of this scheme, namely performance shares and restricted shares.

Performance shares (forfeitable shares)

Performance shares issued under this scheme are subject to Group performance criteria, which are tested against inflation-linked HEPS targets and ROCE targets (applicable only to Operating Board) over a period of three years with no retesting.

The weighting between HEPS:ROCE as performance measures is 80%:20% respectively with linear vesting for both measures.

Share awards prior to June 2016
100% vesting will take place after three years if a performance criterion of HEPS growth of CPI plus 2% is met. Linear vesting will take place if HEPS growth is between CPI and CPI plus 2%, with no vesting taking place if HEPS growth is less than CPI.

Share awards after June 2016
100% vesting will take place after three years if performance criteria of HEPS growth of CPI plus 2% and the upper ROCE target are met. On a weighted basis, linear vesting will take place if HEPS growth attained is between CPI and CPI plus 2%, and if ROCE is attained between the lower limit and the upper limit of the target range. No vesting of the HEPS-weighted shares takes place if HEPS growth is at or below CPI. No vesting of the ROCE-weighted shares takes place if ROCE is at or below the ROCE lower limit. For reasons explained in section A of this report, ROCE targets for the June 2016 share award and the June 2017 share award will be set during FY 2018.

Restricted shares (forfeitable shares)

Restricted shares are issued with the specific objective of improving the retention of key senior talent, while still utilising an instrument that aligns the interests of participants with those of shareholders. Restricted shares vest after three years, and are subject to continued employment.

LTI allocation policy

Allocations are made using predefined multiples for each share incentive type based on:

  • organisational level;
  • annual base pay; and
  • targeted pay mixes, given that market guidelines are appropriate for each organisational level.

Allocations are made annually and on a consistent basis to establish the awards as an accumulating asset in the hands of eligible employees, with the objective of incentivising them to create growth and retain such employees in service for at least three years. With annual allocations, each allocation has a three-year vesting period, resulting in each new LTI allocation providing a further three-year incentive/retention period. Ad hoc, once-off allocations are exceptional and will normally represent upfront approved remuneration usually when a senior employee is first employed. Any such exceptional awards to executive directors are disclosed to shareholders.

The allocation levels per role for LTIs (as a percentage of annual base pay) are outlined below:

Benchmarks for the expected value of share awards are reviewed on an annual basis. No changes are made without approval by the Remco, and in turn by the Supervisory Board.

100% of LTI allocations made to the CEO, Operating Board and senior executive management are subject to Group performance criteria. LTI shares vest based on the performance criteria applicable to the relevant LTI scheme.

New allocations are not adjusted to compensate for any existing allocations that may be financially underwater.

As part of TFG’s retention strategy of other key senior employees, annual allocations are a defined mix of both performance and restricted shares. However, restricted shares are not allocated where there is another retention mechanism in place, namely a restraint of trade and a minimum service agreement.

Newly appointed executives and managers may have their allocations initially increased to ensure that an appropriate holding commensurate with their role is reached over time to create parity in the incentivising of long-term performance across similar categories of employees.

All allocations are approved by the Remco. The Remco confirms that the principles and scheme rules have been fairly applied in determining each individual’s allocation, and also ensures that the overall share capital dilution and costs are within the defined guidelines.

Dilution limits

Despite the dilution limits detailed as part of each share scheme’s rules, the Remco guidelines do not permit the total number of shares issued, allocated across all schemes, to exceed the following limits:

  • 1% individual limit
  • 5% company limit

LTI shares are settled through on-market purchases and are therefore not resulting in a dilution to shareholders. The usage of the dilution limit in the 2017 financial year is set out in section C of the report.

Performance conditions (current and forward looking)

For reasons explained in section A of this report, ROCE targets for share awards made in FY 2016 and FY 2017 will be set during FY 2018. These targets are designed to achieve long incremental improvement in ROCE and have been introduced to drive pragmatic and commercially minded capital management within the Group.

Performance criteria and weightings are reviewed on an annual basis and are subject to change as approved by the Remco.

Eligibility, allocation frequency and performance conditions for vesting (weighting and vesting levels) for LTIs are detailed below:

      PERFORMANCE TARGET    
  PARTICIPANTS ALLOCATION FREQUENCY HEPS ROCE MEASUREMENT PERIOD VESTING SUMMARY
Share appreciation rights CEO and Operating Board One allocation per annum HEPS growth of at least CPI, compounded annually over the measurement period

Weighting 100%
  Three years

Expiry period six years from date of grant
100% vest if performance target is met and participant is employed by TFG

All lapse if performance target is not met
Performance shares (forfeitable shares) CEO, Operating Board and executives (Paterson scale E1 and above) One allocation per annum HEPS growth of CPI plus 2%, compounded annually over the measurement period

Weighting 80% (Operating Board)

Target reviewed and set annually by the Remco

Weighting 100% (below Operating Board)
ROCE to be set during FY 2018 and reported in the Remuneration Committee report for FY 2018

Weighting 20%

(ROCE only applicable to Operating Board)

Target reviewed and set annually by the Remco
Three years

Expiry period three years from date of grant
100% vest if performance targets are met and participant is employed by TFG

Linear vesting takes place between HEPS growth of CPI and CPI plus 2% and ROCE of between lower and upper target levels

On a weighted basis, 100% of the shares that do not meet minimum HEPS criteria will lapse and 100% of the shares that do not meet minimum ROCE criteria will lapse
Restricted shares (forfeitable shares) Senior management above the entry level of middle management (i.e. Paterson scale D3) (excluding CEO, Operating Board and any employee with a restraint of trade and minimum service agreement) One allocation per annum No performance target – retention only   Three years 100% vest once measurement period has expired and participant is employed by TFG

Vesting on termination

In line with the scheme rules, the Remco must consider and resolve whether, based on the circumstances, a portion of the unvested LTI may vest as a result of early termination. In the case of normal retirement, death, ill health or retrenchment, all shares vest. In the case of early retirement, the Remco applies defined decision-making guidelines when determining if a portion of the shares will vest.

All shares and rights are forfeited upon an employee’s resignation or dismissal in terms of the scheme rules.

Retention strategy

Specific programmes are in place to ensure that business continuity and the delivery of strategy are supported through risk management of the loss of key employees

Restraints and minimum service agreements

It is TFG’s practice to have restraint of trade and minimum service agreements in place for the CEO and Operating Board members. These agreements are in place for the duration of employment and contain notice periods of between six and twelve months. In the event of summary dismissal on grounds of misconduct (for example dishonest or fraudulent conduct), notice periods do not apply.

Ex gratia or other lump sum payments on severance or retirement

Apart from the CEO’s transitional agreement as disclosed in the 2016 Remuneration Committee report, there are no other agreements currently in place that provide for ex gratia or other lump sum payments to executives on severance or retirement. Executives who depart after having performed poorly are not awarded “golden handshakes”. There are no ex gratia payments made in the event of a merger or takeover.

Non-executive directors

Non-executive directors are appointed for a term of three years. The Nomination Committee recommends candidates for election to the Supervisory Board. A candidate’s eligibility for re-election is dependent on an annual performance evaluation.

In addition to a base fee, all non-executive directors are paid a committee fee based on the number of committees on which they serve, and are reimbursed by TFG for all travel expenses incurred during the course and scope of their duties.

Non-executive directors do not receive any payments linked to organisational performance, nor are they entitled to take part in any LTI/share schemes. None of the non-executive directors have service contracts with the Group.

SECTION C: IMPLEMENTATION OF REMUNERATION POLICY FOR THE 2017 FINANCIAL YEAR

The section of the Remuneration Committee report that follows provides further details regarding the application of the remuneration policy in relation to organisation-wide employees.

Key items by pay component during the year under review

Base pay The guideline given by the Remco for increases to all employees (other than unionised employees subject to negotiation with the union) in April 2016 was set at 6,5% or a minimum Rand amount of R400. The minimum increase resulted in an effective increase of more than 10% for lower-paid employees.

Car allowances for eligible employees were adjusted by 6,5% in April 2016.

CEO base pay
As disclosed in the 2016 integrated annual report, future increases to the annual base pay of the CEO will be linked to inflationary market guideline increases. Therefore, the Remco approved an increase of 6% on base pay for the 2018 financial year.
STI The Remco set the EBIT target for 2017.
LTI All shares allocated to the CEO, Operating Board and senior executive management this year were performance-based shares contingent on the achievement of company performance criteria.

Outstanding share instruments awarded to employees and executives at 31 March 2017 are as follows:

Share appreciation rights 1 568 600  
Forfeitable shares 2 870 000  
Total 4 438 600  

The above total is 2% of total issued shares. This is lower than the total limit of 5% set by the Remco and approved by shareholders.

STI outcomes

During the year under review, actual TFG EBIT was measured against the target set by the Remco. Group EBIT was marginally below threshold for the 2017 financial year. As disclosed earlier in the report, because EBIT was only marginally below threshold target and in recognition of the strategic contribution made by Messrs Murray and Thunström to the Group’s international expansion plans, the Remco exercised its discretion by approving bonus payments for Group performance.

The following graphic indicates actual performance versus target, and the resultant bonuses paid to Messrs Murray and Thunström.

STI OUTCOME THRESHOLD TARGET STRETCH
2017 earnings before interest and tax performance tiers set
% annualised base pay per performance tier
A D Murray 45% 90% 180%
A E Thunström 27,5% 55% 110%
2017 earnings before interest and tax actual
Bonus pool as % annualised base pay*      
A D Murray 36%    
A E Thunström 22%    
* Actual bonus paid (after applying individual performance modifier) as a percentage of annualised base pay:
  A D Murray 45%
  A E Thunström 27,5%

LTI scheme outcomes

The expected value of share allocations to the CEO and Operating Board members for the 2017 financial year is detailed below. The share scheme awards are shown at their expected value on the date of awards to ensure meaningful comparisons for benchmarking. Internally, the share scheme awards are communicated to participants at their face value. The expected value of the award is expressed as a percentage of their annual base pay (guaranteed pay).

LTI performance outcomes

The 2014 FSP share award performance target was measured over the three-year performance period. The actual three-year cumulative HEPS growth of 34,3% exceeded the target cumulative HEPS growth of 24,0% and consequently 100% of share awards vested.

The 2014 SAR share award performance target was measured over the three-year performance period. The actual three-year cumulative HEPS growth of 34,3% exceeded the target cumulative HEPS growth of 17,2% and consequently 100% of SARs are available for conversion.

Current allocation vs policy limits

In terms of the policy set by the Remco, it is evident that share awards held by scheme participants are within the defined limits both at an individual and overall level. The CEO is the highest individual holder of share awards, and is thus compared against the individual limit.

Executive directors’ remuneration

For the year under review, the Supervisory Board has determined that the prescribed officers are the CEO and CFO. Messrs Murray and Thunström serve as executive directors on the Supervisory Board, and they exercise general executive control and management of the business.

2017

EXECUTIVE
DIRECTORS
REMUNE-
RATION
R’000
PENSION
FUND
R’000
TRAVEL
ALLOW-
ANCE
R’000
OTHER  
BENEFITS**
R’000  
GUARANTEED
PAY
R’000
PER-  
FORMANCE  
BONUS#
R’000  
TOTAL  
GUARAN-  
TEED  
PAY PLUS  
PER-  
FORMANCE  
BONUS#
R’000  
IFRS SHARE
ALLO-
CATION
FAIR VALUE
R’000
A D Murray 8 362,9 1 129,0 455,9 52,7   10 000,5 4 500,0   14 500,5   13 734,2
A E Thunström 3 368,4 454,7 349,5 57,9   4 230,5 1 163,8   5 394,3   2 586,0
Total 11 731,3 1 583,7 805,4 110,6   14 231,0 5 663,8   19 894,8   16 320,2
# Performance bonus included in 2017 remuneration to be paid in 2018 but accrued in 2017.
** Other benefits include housing allowance and medical aid subsidy.

2016

EXECUTIVE
DIRECTORS
REMUNE-
RATION
R’000
PENSION
FUND
R’000
TRAVEL
ALLOW-
ANCE
R’000
OTHER
BENEFITS
R’000
GUARANTEED
PAY
R’000
PER-
FORMANCE
BONUS
R’000
TOTAL
GUARAN-
TEED
PAY PLUS
PER-
FORMANCE
BONUS
R’000
IFRS SHARE
ALLO-
CATION
FAIR VALUE
R’000
A D Murray 6 431,9 868,3 428,0 52,8 7 781,0 6 959,7 14 740,7 6 088,6
A E Thunström 2 194,3 296,2 246,1 41,8 2 778,4 2 308,4 5 086,8 829,8
R Stein 856,3 115,6 82,0 12,5 1 066,4 1 066,4
P S Meiring 776,8 104,9 82,0 12,5 976,2 976,2
Total 10 259,3 1 385,0 838,1 119,6 12 602,0 9 268,1 21 870,1 6 918,4

Directors’ interests

As at 31 March 2017, directors had the following interests in the company’s issued shares:

  M LEWIS
’000
E OBLOWITZ
’000
D FRIEDLAND
’000
N V SIMAMANE
’000
R STEIN
’000
TOTAL NON-EXECUTIVE
’000
A D MURRAY
’000
A E THUNSTRÖM
’000
TOTAL EXECUTIVE
’000
TOTAL
SHARES
’000
Direct beneficial   2,2   1,6 501,5 505,3 1 207,1   1 207,1 1 712,4
Indirect beneficial     29,4   31,7 61,1 722,5   722,5 783,6
Indirect
non-beneficial
8 251,7         8 251,7       8 251,7
Total 8 251,7 2,2 29,4 1,6 533,2 8 818,1 1 929,6   1 929,6 10 747,7

As at March 2017, directors had accepted the following share appreciation rights and forfeitable shares:

  FINANCIAL
YEAR OF
AWARD
FINANCIAL
YEAR OF
EARLIEST
DELIVERY
FINANCIAL
YEAR OF
LATEST
DELIVERY
STRIKE
PRICE PER
INSTRU-
MENT
NUMBER OF
INSTRU-
MENTS
AWARDED
’000
NUMBER
EXERCISED
IN YEAR
CLOSING
NUMBER OF
UNVESTED
AND/OR
UNEXERCISED
INSTRUMENTS
A D Murray              
SARs 2012 2016 2018 R86,32 85,2 85,2
  2013 2016 2019 R136,22 62,8   62,8
  2014 2017 2020 R96,86 133,4 133,4
  2015 2018 2021 R111,10 89,4 89,4
  2016 2019 2022 R148,15 76,4 76,4
2017 2020 2023 R142,72 119,0 119,0
FSPs 2014 2017   21,7 21,7
2015 2018   38,3 38,3
2016 2019 32,8 32,8
2017 2020 54,9 54,9
2017 2020 142,9 142,9
A E Thunström          
SARs 2016 2019 2022 R148,15 31,2 31,2
2017 2020 2023 R142,72 37,8 37,8
FSPs 2015 2019 11,8 11,8
2016 2019 13,4 13,4
2017 2020 17,4 17,4

Changes to directors’ interests after year end

1. On 2 June 2017, the executive directors accepted the following share appreciation rights (SARs).
    SARS 
ACCEPTED 
’000*
PRICE PER
SAR
R
A D Murray 132,8  138,30
A E Thunström 47,0  138,30
* Subject to performance criteria.
2. On 2 June 2017, the executive directors accepted the following ordinary shares in terms of the Group’s 2010 Share Incentive Scheme for nil consideration. The shares vest on the third anniversary of the grant date provided the recipient remains in the Group’s employ and the requisite performance conditions are satisfied.
  SHARES 
ACCEPTED 
’000*
ESTIMATED  
VALUE  
Rm#
A D Murray 61,3  8,6  
A E Thunström 21,7  3,0  
* Subject to performance criteria.
# Estimated value based on closing share price of R139,53 on 2 June 2017.
3. On 2 June 2017, the executive director sold ordinary shares previously granted on 10 June 2014 with performance-based restrictions in terms of the Group’s 2010 Share Incentive Scheme:
SHARES
SOLD
VALUE  
Rm#
A D Murray 17,2 2,4  
# Estimated value based on closing share price of R139,53 on 2 June 2017.

Non-executive directors

Fees are based on an assessment of the responsibility placed on non-executive directors arising from increased requirements for regulatory oversight and TFG’s international expansion. A benchmarking exercise was conducted during the year under review using market data benchmarks. The proposed base fee increase from October 2017 is proposed at R295 000 per annum (6,1% increase) and market-related increases in committee fees.

The following table sets out the proposed fees (VAT exclusive) for approval at the AGM in September 2017 for the period 1 October 2017 to September 2018:

ROLE CURRENT
APPROVED FEES
PROPOSED
FEES
%
INCREASE
Chairman (all inclusive) R900 000 R954 000 6,0%
Director (South African) R278 000 R295 000 6,1%
Director (foreign) R540 000 R572 500 6,0%
Audit Committee Chairperson R240 000 R254 500 6,0%
Risk Committee Chairperson R160 000 R170 000 6,3%
Remuneration Committee Chairperson R120 000 R127 500 6,3%
Social and Ethics Committee Chairperson R110 000 R117 000 6,4%
Member/Invitee of Audit Committee R120 000 R127 500 6,3%
Member/Invitee of Risk Committee R80 000 R85 000 6,3%
Member of Remuneration Committee R75 000 R79 500 6,0%
Member of Social and Ethics Committee R60 000 R64 000 6,7%
Member of Nomination Committee R40 000 R42 500 6,3%
Member of ad hoc Finance Committee*   R42 500
* An ad hoc Finance Committee has been mandated to specifically consider and investigate all potential acquisition opportunities on behalf of TFG and is remunerated as such.

The fees (VAT exclusive) for the 2017 financial year and 2018 financial year (based on current committee membership) are presented below:

NON-EXECUTIVE
DIRECTORS
NOTE FEES PAID
IN RESPECT
OF 2017
R’000
BASE FEES
PROPOSED
R’000
COMMITTEE
FEES
PROPOSED
R’000
TOTAL FEES  
PROPOSED IN  
RESPECT  
OF 2018#
R’000  
M Lewis   R875 000 R927 000 R927 000  
F Abrahams 1 R492 000 R286 500 R314 500 R601 000  
S E Abrahams 3 R560 000 R286 500 R392 250 R678 750  
D Friedland   R502 500 R286 500 R283 500 R570 000  
B L M Makgabo-Fiskerstrand 2 R456 000 R286 500 R268 250 R554 750  
E Oblowitz   R597 500 R286 500 R433 750 R720 250  
N V Simamane 2 R456 000 R286 500 R268 250 R554 750  
R Stein 3 R470 000 R286 500 R247 500 R534 000  
G H Davin R520 000 R556 250 R556 250  
Total R4 929 000 R3 488 750 R2 208 000 R5 696 750  
# Proposed total fee increases for non-executive directors (after taking into account committee structures, new appointments and market adjustments) will increase by 15,6%.

Notes:

1. F Abrahams appointed as a member of the Audit Committee on 1 October 2016.
2. B L M Makgabo-Fiskerstrand and N V Simamane appointed as members of the Risk Committee on 1 October 2016.
3. R Stein and S E Abrahams have open invitations to attend meetings of the Audit and Risk Committees respectively and are remunerated accordingly.