corporate governance

remuneration committee

The remuneration committee operates in accordance with its terms of reference, which is formally reviewed and updated on an annual basis.

The main responsibilities include:

Assisting the directors in fulfilling their responsibilities in establishing formal and transparent policies for executive remuneration and people management;
determining 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;
approving the design of short-term incentive schemes, including determining targets and participation thresholds;
approving the design of the long-term incentive schemes, including determining the allocation criteria and performance conditions;
ensuring remuneration for executives, including their short-term and long-term incentives, is based on and rewards performance;
considering the relationship between executive remuneration and the remuneration of other employees; and
reviewing and monitoring progress in people management.

Membership consists of four non-executive directors, all of whom are independent. The Chairman of the board, Buddy Hawton, chairs the committee. The Chief executive officer attends meetings by invitation in order to advise on the remuneration of executives.

The Chief executive officer does not participate in any discussion or decision related to his own remuneration.

The remuneration committee made use of the services of external consultants during the year to advise them on executive remuneration and to provide advice on market data, remuneration trends, retention strategy and performance-related pay.

The Chairman of the remuneration committee attends the annual general meeting.

The details of individual attendance at meetings are set out here.

remuneration strategy

Woolworths remuneration philosophy is designed to attract, develop and retain the 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 performance and alignment with shareholders’ interests, through both short-term 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

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.

short-term incentive scheme

The short-term incentive scheme is designed to focus the executives on the achievement of the short-term strategic, financial and operational objectives in the one-year business plan. The incentive is payable on achieving certain pre-defined stretch targets, in line with our strategy, using an overall profit target to trigger the incentive pool and individual performance criteria to determine the payout. The individual performance criteria are approved by the remuneration committee and ensure that the 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.

In the current year, the overall target was set at a predefined level of profit before taxation and exceptional items (PBTAE).

The PBTAE target was not achieved and as a result there were no short-term incentive payments for the financial year.

long-term incentives – share schemes

The long-term 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.

The group operates a share purchase scheme as well as a share option scheme. In terms of the schemes, the offer shares and options are releaseable 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 10 years.

In addition, the company introduced the following schemes in July 2007:

The Woolworths Share Appreciation Rights Scheme (SARS);
the Woolworths Long-term Incentive Plan (LTIP); and
the Woolworths Deferred Bonus Plan (DBP).

In terms of the long-term share schemes, there are two restrictions when considering grants and/or offers, i.e.:

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 three shares schemes during the financial year are set out below.

Further details on the new share schemes and the conditions of the grants and offers are set out below.

share appreciation rights scheme (SARS)

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 until up to seven years from the date of grant.

The performance conditions are determined by the board after consultation with the remuneration committee. The performance conditions in respect of the 2008 grant of SARs are headline earnings per share (HEPS) growth of CPIX plus 6% over a three-year period. In the event that this growth is not achieved the performance conditions will be retested in year four against HEPS growth of CPIX plus 8%, and if necessary, in year five against CPIX plus 10%.

long-term incentive plan (LTIP)

The LTIP grants conditional share awards which vest after a three-year performance period, subject to the extent to which the performance conditions have been met.

The performance conditions are determined by the board after consultation with the remuneration committee.

The performance conditions for the 2008 awards were equally weighted between HEPS growth over the three-year period and total shareholder return (TSR) of the company relative to the TSR of a selected peer group index for the same period. This index consists of retailers from both the general retailers and food and drug sectors.

Minimum and desired TSR targets have been determined and are based on the historic performance of both Woolworths and the index. 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 of the DBP 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 the company 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.

executive directors’ service contracts

The executive directors’ service contracts do not contain notice periods exceeding 12 months.

Andrew Jennings has a three-year service contract which includes a restraint of trade agreement, details of which are set out below.

directors’ fees and emoluments

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 our shareholders for approval at the annual general meeting.

In the current retail trading environment and given the need to tightly manage expenses, the proposed increase for non-executive director fees for 2009 has been restricted to 5%. The only exception is the fee for the United Kingdom director, where no increase is proposed.

The proposed fees for 2009, which will be tabled for shareholder approval at the forthcoming annual general meeting, are set out below together with the fees approved for 2008.

		Proposed	Approved
		2009	2008
Services as directors
Fees:
	Chairman of the board	R651 000	R620 000
	Director (SA)	R131 250	R125 000
	Director (UK)	£32 000	£32 000
Audit committee	Chairman	R133 350	R127 000
	Member	R70 350	R67 000
Risk committee	Chairman	R94 500	R90 000
	Member	R45 150	R43 000
Remuneration committee	Chairman	R120 750	R115 000
	Member	R63 000	R60 000
Transformation committee	Chairman	R91 875	R87 500
	Member	R46 200	R44 000
Nominations committee	Chairman	R57 750	R55 000
	Member	R36 750	R35 000
Sustainability committee	Chairman	R36 750	R35 000
	Member	R17 850	R17 000

The non-executive directors do not participate in the short-term or long-term incentive schemes.

Emoluments to directors of Woolworths Holdings Limited in connection with the affairs of the company and its subsidiaries during the year ended 30 June 2008 and comparatives for 2007 are set out below:

2008

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1	Remuneration includes fees paid by Country Road as follows: Simon Susman A$30 000, Norman Thomson A$30 000 and Richard Inskip A$13 750.
2	Other benefits include discounts received on purchases made in our stores and executive accommodation for Andrew Jennings.
3	The interest-free loans relate to the purchase of shares under the Woolworths Holdings Share Trust. The benefit for 2008 was calculated at 12% on the value of the outstanding loan.
4	In addition to the above and as a result of the decision to dispose of a significant portion of the financial services business, Richard Inskip relinquished his portfolio on 31 May 2008. Consequently, an amount equivalent to two years of his guaranteed pay, amounting to R5 094 000, was paid to him. In addition, in terms of the rules of the share scheme, the directors approved that his shares and share options vest at his request but by no later than 10 years from date of grant.
	A restraint of trade preventing him joining any competitor for a period of 18 months after 31 May 2008 will be obtained. In return for this restraint, an amount of R541 122 will be paid and he will be entitled to retain his interest-free loan on his shares provided he does not join a competitor, but for no longer than 10 years from the date of offer of the shares.
	In addition, a payment of R2 013 000 was paid to him in respect of his leading role in the negotiation with Absa. A further payment of R608 976 will be paid for his continued involvement in the negotiation. In the event of the successful completion of the transaction, a further amount of R1 250 000 will be payable. The transaction is expected to be concluded during the course of the year.
5	Andrew Jennings was appointed on 1 December 2006. After completing his initial three-year contract, he will receive an additional payment of R2 000 000. This is an additional restraint amount preventing him from joining competitors for a period of two years after the completion of his contract.
6	Zyda Rylands was appointed as Chief operating officer: Support services, effective from 16 April 2008, and her remuneration was adjusted accordingly.
7	Peter Bacon was appointed to the remuneration committee with effect from 20 November 2007.
8	Mair Barnes resigned as a non-executive director of the board on 20 February 2008.
9	Fees are paid in sterling as British residents.
10	Judy Dlamini resigned on 31 July 2008.

2007

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1	Remuneration was re-stated to include fees from Country Road as follows: Simon Susman A$30 000, Norman Thomson A$30 000 and Richard Inskip A$15 000.
2	Other benefits include discounts received on purchases made in our stores. Andrew Jennings’ benefits have been re-stated to include executive accommodation costs for the period.
3	The interest-free loan relates to the purchase of shares under the Woolworths Holdings Share Trust. The benefit for 2007 was calculated at 8% on the value of the outstanding loan.
4	Andrew Jennings was appointed on 1 December 2006. During 2007, Andrew Jennings was paid a restraint amount of R5 000 000 as part of his three-year service contract. This restraint prevents him from joining competitors for a period of two years after the completion of his contract. He would be required to repay the restraint on a pro rata basis should his contract be terminated early. After completing the initial three-year contract, he will receive an additional restraint payment of R2 000 000.
5	Zyda Rylands was appointed on 22 August 2006.
6	Peter Bacon was appointed on 22 August 2006.
7	Board fees are paid in sterling as British residents.
8	Other benefits include fees in respect of the Woolworths Trust.

directors’ interest in shares

Details of directors’ interests in shares of the company are disclosed in the directors’ report. Shares purchased and options granted to executive directors in terms of the Woolworths Holdings Share Trust, which had not been exercised at June 2008, are set out below:

June 2008

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June 2008

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Notes:

1	These shares were held in the Woolworths Holdings Share Trust as security for a loan. The loan was paid and the shares transferred to the individuals.
2	Zyda Rylands exercised share options and converted them to shares at a price of R10.89.

Further notes:

All share options vest over a five-year period at 20% per annum except:

the 14 May 1999 offer which vests over seven years as follows: 20% vests after year two, 10% vests after year three, four and five respectively and 25% vests in years six and seven respectively.

The loans used to repurchase shares must be repaid within 10 years of the offer date.

June 2008

Share purchase scheme
	Shares held as at		Shares awarded/purchased/		Shares held as at
Name and	30 June 2007		transferred during the year		30 June 2008
Offer date	Number	Price (R)	Number	Price (R)	Vested shares	Unvested shares	Total
Richard Inskip
May 1999	270 376	3.22			270 376		270 376
Total	270 376				270 376		270 376
Zyda Rylands
December 1998	11 500	2.60			11 500		11 500
February 1999	17 500	2.90			17 500		17 500
May 1999	45 000	3.22			45 000		45 000
December 2000	16 840	2.77			16 840		16 840
April 2001	40 000	3.03			40 000		40 000
August 2001	9 727	3.33	9 727¹	10.89
August 2002	8 842	3.98	8 842¹	10.89
September 2003	36 102	5.76	36 102¹	10.89
Total	185 511		54 671		130 840		130 840
Andrew Jennings
December 2006	1 784 652	16.81				1 784 652	1 784 652
Total	1 784 652					1 784 652	1 784 652
Total	2 240 539		54 671		401 216	1 784 652	2 185 868

Notes:

¹ Zyda Rylands exercised these share options and converted to shares at a price of R10.89.

All offers vest over a five-year period at 20% per annum except the 14 May 1999 offer which vests over seven years.

The vesting over the seven-year period is as follows: 20% vests after year two, 10% vests after year three, four and five respectively and 25% vests in years six and seven respectively.

The options must be exercised within 10 years of the offer date.

June 2008

Share appreciation rights scheme (SARS), long-term incentive plan (LTIP) and deferred bonus plan (DBP)

Name and	Number of SARS grants made during the year		Number of LTIP grants made during the year		Number of shares purchased under the DBP by directors (direct beneficial shares)
Offer date	Number	Price (R)	Number	Price (R)	Number	Price (R)
Simon Susman
16 April 2008	176 392	11.95	299 867	11.95	62 241	12.45
Total	176 392		299 867		62 241
Andrew Jennings
16 April 2008	142 259	11.95	142 259	11.95	40 916	12.40
Total	142 259		142 259		40 916
Zyda Rylands
16 April 2008	91 767	11.95	91 767	11.95	26 285	12.45
Total	91 767		91 767		26 285
Norman Thomson
16 April 2008	87 904	11.95	87 904	11.95	25 179	12.45
Total	87 904		87 904		25 179

Note: The shares purchased by directors under the DBP are included in the disclosure of directors’ interests in shares in the directors’ report.