remuneration committee
The main purpose of the remuneration committee is to assist the board in fulfilling its responsibilities in establishing formal and transparent policies for remuneration and people management.
Members: Buddy Hawton (Chairman), Peter Bacon, Nigel Colne and Brain Frost ( four independent non-executive directors). All have the relevant expertise or experience to fulfil their duties. The Chief executive officer and Chief operating officer: Support services attend the meetings by invitation in order to advise on the remuneration of the executives.
The committee’s terms of reference include the following key responsibilities:
- determine specific remuneration packages for executives of the company, including but not limited to basic salary, performance-based incentives, share incentives, severance packages, pensions and other benefits;
- approve the design of short-term incentive schemes, including determining targets and participation thresholds;
- approve the design of the long-term incentive schemes, including determining the allocation criteria and performance conditions;
- ensure remuneration for executives, including their short-term and long-term incentives, is based on performance and rewards performance;
- recommend to the board the fee to be paid to each non-executive director for services on the board and its committees;
- consider the relationship between executive remuneration and the remuneration of other employees; and
- review and monitor progress in people management.
The Chief executive officer does not participate in any discussion or decision related to his own remuneration. The remuneration committee also makes use of the services of external consultants to advise them on executive remuneration and to provide advice on market data, remuneration trends, retention strategy and performance-related pay.
The committee meets four times during the year.
remuneration strategy
Woolworths’ remuneration philosophy is designed to attract, develop and retain passionate, committed and talented people who are required to effectively implement the overall Woolworths strategy and create value for our shareholders.
The remuneration strategy for executives is based on principles of retention of key and critical skills and to drive performance in alignment with shareholders’ interests, through guaranteed pay, short- and long-term incentives. A significant portion of executives’ total potential remuneration is performance-related in order to drive the right behaviour to optimise company performance. Stretch targets are set annually in the context of future prospects of the group and the prevailing economic environment in which it operates.
executive remuneration
The executive total remuneration package consists of the following:
- total guaranteed pay which includes benefits, is subject to an annual review by the remuneration committee. The targeted pay position for guaranteed total package is aimed between the median and upper quartile when benchmarked against major South African retail and non-retail companies, and is adjusted according to individual responsibility and performance.
- variable pay short-term incentive scheme is designed to focus the senior executives on the achievement of the short-term strategic, financial and operational objectives in the annual business plan. The incentive is payable on achieving certain pre-defined stretch targets, in line with our strategy. It uses an overall profit target to trigger the incentive pool as well as key business unit goals to determine the payout. The business unit goals are approved by the remuneration committee to ensure that the senior executives are rewarded based on delivery against the components of the strategy they are responsible for. The scheme rewards performance when targets are met, with higher rewards for exceptional performance. The scheme, targets and payment limits are reviewed on an annual basis.
(Details of bonuses paid to directors are set out on page 79 of the 2009 Annual Report).
- long-term incentive share schemes are designed to align the objectives of executives with those of shareholders and therefore ensure sustainable long-term performance. Shares are considered an essential element of reward and represent a material part of executive remuneration.
- share purchase and option scheme - in terms of these schemes, the offer shares and options are releasable to beneficiaries on the basis of 20% becoming available on the first anniversary of the date of the offer and 20% each year thereafter. Shares have been granted to participants at the weighted average value per share determined over five trading days immediately preceding the offer date. All offers lapse after ten years.
- Grants of share appreciation rights (“SARs”) are conditional rights to receive Woolworths shares equal to the value of the difference between the share price at the time that the rights were granted and the share price when the rights are exercised. SARs can only vest if performance conditions have been met over a specified period of not less than three years. In the event that the performance conditions have not been met these are retested in year four and, if necessary, year five. If the performance conditions have still not been met, the SARs lapse. If the SARs vest, they can be exercised at any time from the date of vesting up to seven years from the date of grant. The performance conditions are determined by the board after consultation with the remuneration committee.
- Long-term incentive plan (LTIP) grants conditional share awards which vest after a three-year performance period, subject to the extent to which agreed performance conditions have been met. The performance conditions are determined by the board after consultation with the remuneration committee. Payments are made on a linear scale in accordance with agreed targets. No retesting of the LTIP performance conditions will occur if the performance conditions are not met in the three-year performance period.
- Deferred bonus plan (DBP) participants may utilise a portion of their annual bonus to acquire Woolworths shares. These shares, which are beneficially owned by the participants, are held by a third party in escrow. If the participants retain these shares and remain employed by Woolworths for a three-year period, they will receive a matching award of shares at the end of the three-year period, on a one-for-one basis.
In terms of the share schemes, there are two restrictions when considering grants and/or offers:
- the market value of grants and/or offers in any one financial year cannot exceed 250% of the individual’s total guaranteed cost of employment; and
- the value of total share awards to an individual employee (as defined in the Woolworths Holdings Share Trust deed) may not exceed 1.5% of the issued share capital of Woolworths, taking into account the repurchase and cancellation of the treasury shares and all future repurchases and cancellations.
(The grants and/or offers made to the directors under the share schemes during the 2009 financial year are set out on pages 82 and 83 of the 2009 Annual Report).
restricted share plan (rsp)
A new share plan to be known as the Restricted share plan will be introduced to retain key staff and to assist in securing the services of key new senior executives.
The RSP is a retention mechanism:
- the vesting of which would only be based on tenure, as a retention mechanism from time to time and particularly under present circumstances where the group faces significant retention risks with respect to key talent; and
- to permit once-off awards for new appointments, the vesting of which may or may not be subject to performance conditions, to assist in the recruitment of key executives.
Awards under the RSP will include participation by new employees on their appointment or, in the case of specific retention, key employees, including executive directors of the group. The purpose of the RSP would be to provide an incentive for their continuing relationship with the group, by providing them with the opportunity of receiving shares in the company. It is not the intent for awards under the RSP to be regular annual awards. Awards under the RSP comprise the grant of “forfeitable share” in Woolworths, on the basis that the employee will forfeit the shares if he ceases to be employed by the group due to resignation or dismissal before the expiry of the vesting period. There will be a three-year vesting period with 100% vesting at the end of year three. The awards will be subject to a staggered vesting from year three to year five. The forfeitable shares will be held for the benefit of the employee in a controlled account and as such he will be entitled to all shareholder rights applicable to those shares. The employee will have the right to dividends and to vote at general meetings of the company. In the event that the shares are forfeited due to dismissal, any dividends received prior to the forfeiture will be repaid.
The company will purchase shares in the market to settle the awards. The company will include the number of shares purchased in the market in the 15% limit of the issued share capital of the company utilised for share schemes.
executive directors’ service contracts
The executive directors’ service contracts do not contain notice periods exceeding 12 months.
directors’ fees and emoluments
Non-executive directors receive fees for services on board and board committees, and do not receive short-term incentives and do not participate in any long-term incentive share scheme.
The fees for the non-executive directors are recommended by the remuneration committee to the board for their approval, after considering input from the executive directors. The board recommends the fees to shareholders for approval at the annual general meeting.
