ONLINE ANNUAL REPORT 2010

REMUNERATION OF DIRECTORS AND EXECUTIVES

During the 2010 financial year the Remuneration and Nominations Committee comprised Messrs Kuseni Dlamini (Chairman), Chris Seabrooke, Mark Lamberti, Nigel Matthews and Ms Dawn Mokhobo. With the exception of Mark Lamberti, all Committee members are independent non-executive directors for the 2010 financial year. The CEO attends all Committee meetings by invitation but is not present when his own remuneration is discussed.

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.

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More information on the Committee can be found here

Corporate Governance

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.

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:

  2010 2011
Chairman of the Board R675,000 R725,000
Deputy Chairman R490,000 R520,000
Directors R200,000 R215,000
Committee Chairmen R200,000 R210,000
Committee members R94,000 R100,000
Audit Committee (additional to above). For the additional meetings and responsibilities arising from the Corporate Laws Amendment Act relative to subsidiaries R25,000 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 Chairman.

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 2010 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 % increments. With effect from 2006, an element of the annual incentive bonus was linked to corporate accountability performance, specifically the achievement of B-BBEE 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 2010 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, whilst all other participants receive options.

DIRECTORS’ EMOLUMENTS

REMUNERATION OF DIRECTORS AND EXECUTIVES

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

Grant received a 5% increase to his salary and allowances for the 2010 financial year, from R2.88 million to R3.02 million. For the 2010 financial year Grant did not receive any bonus in terms of the Group’s Short-term Executive Incentive Scheme which rewards the Group’s executive directors based on annual growth in headline earnings per share (HEPS). The Remuneration and Nominations Committee awarded him a qualitative bonus of four months in recognition of his exceptional efforts strategically and operationally in a difficult economic and operating environment to minimise profit declines and enhance the Group’s base for future growth. This bonus totalled R0.98 million. Grant’s total cash remuneration for the year of R3.99 million is 6% lower than that for 2009.

Grant did not sell any Massmart shares or options during the 2010 financial year.

Through the Share Scheme, Grant has 1,562,298 Massmart shares and options. The average length of time that he has held these shares is 4.5 years and the average strike price is R50.02 per share. A family trust of which Grant is a beneficiary also owns 445,010 Massmart shares directly.

GRC HAYWARD

Guy received an 8% increase to his salary and allowances for the 2010 financial year, from R2.24 million to R2.42 million. For the 2010 financial year Guy did not receive any bonus in terms of the Group’s Short-term Executive Incentive Scheme which rewards the Group’s executive directors based on annual growth in HEPS. The Remuneration and Nominations Committee awarded him a qualitative bonus of four months in recognition of his exceptional efforts strategically and operationally in a difficult economic and operating environment to minimise profit declines and enhance the Group’s base for future growth. This bonus totalled R0.81 million. Guy’s total cash remuneration for the year of R3.23 million is 4% lower than that for 2009.

Guy did not sell any Massmart shares or options during the 2010 financial year.

Through the Share Scheme, Guy still has 1,032,898 Massmart shares and options. The average length of time that he has held these is 4.7 years and the average strike price is R48.75 per share. Guy also owns 22,000 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 2010 financial year, the top three executives’ combined salaries (comprising basic salary, motor vehicles, medical aid and retirement benefits) were R8.8 million (2009: R8.3 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 2011 financial year will be proposed to the November 2010 annual general meeting:

Chairman R725,000
Deputy chairman R520,000
Non-executive directors R215,000
Committee chairpersons R210,000
Committee members R100,000

SALE OF SHARES TO BLACK NON-EXECUTIVE DIRECTORS IN 2008

Shareholders at the November 2008 annual general meeting approved the sale of Massmart treasury shares to the Group’s five black non-executive directors. Accordingly, each director purchased 20,000 Massmart shares for a nominal value of 1 cent each. The market price of the Massmart shares at the time of the transaction was R83.63 and so each director received deferred value of approximately R1.7 million.

The salient points relating to these shares were covered in detail in the resolutions for the November 2008 annual general meeting. Points to note here are that the shares attract ordinary dividends and have voting rights, and that they may only be sold in two 50% tranches from November 2011 and November 2013, respectively.

INTERESTS OF DIRECTORS IN THE COMPANY’S SHARE SCHEME

Details of directors’ shares and share options per director:

           
        Number of Gain on  
    Subscription Market shares/ sale/  
    price price share exercise Expiry
  Relevant date R R options R000 date

Pattison, GM

           
Balance at the beginning of the previous year       1,931,386    
Shares traded* 13 November 2000 12.25   (400,000)    
Options exercised 27 May 2003 18.98 72.42 (55,219) 2,951  
New shares/options granted 27 May 2009 77.56   86,131   26 May 2015
Balance at the beginning of the year       1,562,298    
No shares were traded, exercised or granted in the current period.          
Balance at the end of the year       1,562,298    
Comprising: 27 August 2001 10.95   150,000   26 August 2011
  26 May 2004 29.87   35,919    
  1 April 2005 41.91   400,000   31 March 2011
  23 May 2006 54.13   750,000   22 May 2012
  24 May 2007 94.25   55,000   23 May 2013
  26 May 2008 72.86   85,248   25 May 2014
  27 May 2009 77.56   86,131   25 May 2015
*These shares were transferred to The Pattison Family Trust.            

Hayward, GRC

           
Balance at the beginning of the previous year       817,697    
New shares/options granted 27 May 2009 77.56   215,201   26 May 2015
Balance at the beginning of the year       1,032,898    
No shares were traded, exercised or granted in the current period.          
Balance at the end of the year       1,032,898    
Comprising: 10 March 2000 14.61   8,643    
  13 November 2000 12.25   100,000   12 November 2010
  27 August 2001 10.95   150,000   26 August 2011
  26 May 2004 29.87   43,881    
  1 April 2005 41.91   200,000   31 March 2011
  23 May 2006 54.13   150,000   22 May 2012
  24 May 2007 94.25   49,889   23 May 2013
  1 April 2008 66.91   40,641   1 April 2014
  26 May 2008 72.86   74,643   25 May 2014
  27 May 2009 77.56   215,201   26 May 2015
             

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