REMUNERATION COMMITTEE AND REPORT

The main purpose of the remuneration committee is to ensure the adoption of remuneration policies which aim to attract and retain top talent, are aligned with the company’s strategy and drive performance in the long-and short-term.

Members: Tom Boardman (Chairman), Peter Bacon, Lindiwe Bakoro, Simon Susman and Stuart Rose.

The Committee’s terms of reference include the following responsibilities:

• approving the remuneration policy to be adopted by the company;
• ensuring that the remuneration strategy is market-related and competitive;
• determining specific remuneration packages for senior executives of the company;
• ensuring remuneration for executives, including their short and long-term incentives, is based on performance and rewards performance;
• considering the relationship between senior executive remuneration and the remuneration of Woolworths other employees;
• considering and recommending to the board the fees to be paid to non-executive director for services on the board and its committees;
• ensuring that disclosure of director remuneration is accurate, complete and transparent;
• approving the design of short-term incentive schemes, including determining targets and participation thresholds;
• approving the design of the long-term share incentive schemes, including determining the allocation criteria and performance conditions;
• reviewing and monitoring progress in people management; and
• reviewing of the terms of reference and activities of subsidiary company and joint venture remuneration committees.

The committee meets four times a year, with the Group Chief executive officer attending by invitation. The committee Chairman reports back to the board on the activities of the committee. The minutes of the committee meetings are circulated to all directors.

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.
• 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.

Long-term incentive share schemes

• 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.

Retention scheme

• Restricted share plan (RSP) is a retention scheme used to retain senior executives and employees who are critical to the delivery of the company’s long term strategy. It may also be used for once-off awards for the recruitment of key executives which invariably requires compensation to address value forfeited on resignation from a previous employer.

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.

Executive directors’ service contracts
Ian Moir, the Group Chief executive officer has a three year service contract. It expires on 31 December 2012, with the option at the request of the company to renew for an additional two years. His contract includes a restraint of trade.

The other executive directors’ service contracts do not contain notice periods exceeding twelve months.

Non-executive directors’ fees
Non-executive directors receive fees for services on board and board committees. Non-executive directors 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.