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Remuneration Committee Report

Section A

Report from the Chairman of the Remuneration Committee

Background statement

The economic landscape changed dramatically during the course of the financial period due to the outbreak of the COVID-19 pandemic. Owing to increased pressure to reduce costs in this environment of declining revenue and earnings, and to ensure the sustainability of the business, a key focus has been on achieving a balance between company and employee financial stability as both are critical to our continued success. We are also cognisant of the impact of the pandemic on the wellness of our employees, with increased anxiety affecting employee health in addition to their deteriorating financial stability. We have been particularly mindful of employees at lower earnings levels who are often most vulnerable.

Rewarding and retaining high-performing employees has never been more challenging. We need to reward in a responsible and sustainable way to ensure the retention of key employees so as not to hamper succession plans, while also continuing to focus on transformation.

While the remuneration philosophy and reward principles are consistent with last year, we continuously need to focus on maintaining the long-term sustainability of the business, find the balance for all stakeholders in setting performance targets and ensure that the existing reward methodology does not threaten the achievement of these objectives.

We have introduced certain refinements following engagement with shareholders and external advisers which is detailed below. However, we have been cautious not to make significant changes to remuneration policies until a sustained level of performance is re-established post the initial COVID-19 impact.

We will continue to evolve our remuneration policy in a considered and responsible manner, taking account of the needs of all stakeholders and ensuring the sustained long-term performance of the business.

The year in review

At the company’s 2019 Annual General Meeting (AGM), 67.29% of shareholders voted in favour of the Group’s remuneration policy and 80.94% voted in favour of the implementation report. During the period management engaged with local and international shareholders regarding the remuneration policy. This has resulted in the refinement of our remuneration policies and practices relating to our incentive schemes which include:

  • The introduction of a malus and clawback policy.
  • The amendment of the share usage policy limit to 5% (previously 10%) of the issued share capital in aggregate, with the individual participant limit reduced to 0.5% (previously 2.4%).
  • The amendment of the dividend release policy, whereby dividend payments made on unvested performance shares where performance targets are set at future dates are clawed back from participants if 100% vesting is not achieved at the end of the measurement period.

Remuneration governance

The Remuneration Committee (the committee) has oversight of the Group’s remuneration practices and policies. The committee is responsible for reviewing, recommending and approving the remuneration of executive and non-executive directors of the company; and directors, divisional directors and key executives of principal subsidiaries (collectively referred to as ‘executives’). The committee periodically reviews the Group’s remuneration strategy to ensure it supports the business and human resources strategies, remains aligned with the objective of enhancing shareholder value and is focused on achieving the following objectives:

  • Attracting, engaging, motivating, rewarding and retaining a high-performing executive team as well as ensuring these principles are applied and maintained across all employee levels of the Group.
  • Ensuring that the Chief Executive Officer (CEO) and executive team pursue the long-term sustainable growth and success of the Group.
  • Demonstrating a clear relationship between short and longer-term performance and remuneration.
  • Ensuring an appropriate balance between guaranteed and variable remuneration, taking into account both the short and long-term objectives of the Group.
  • Differentiating pay between higher and average performers through effective performance management and assessment.

In line with the recommendations of King IV the committee comprises only independent non-executive directors, namely Rob Dow (Chairman), Hilton Saven and Tony Taylor, with Hans Hawinkels being appointed as a committee member during the year. The CEO is an invitee to committee meetings and recuses himself from various discussions including those that relate to his performance and remuneration. No external consultants attended committee meetings.

The following activities were undertaken by the committee during the period:

  • Commissioned a review by independent external remuneration advisers, PricewaterhouseCoopers (PwC), of market best practice with regard to malus and clawback policies, on CEO succession, executive level remuneration best practice and the market practice in relation to payment of dividends on performance shares. The review was aimed at ensuring that current policies and practices are appropriate and in line with changing market best practice.
  • Reviewed and approved the remuneration of executives.
  • Reviewed and approved the short-term incentive (STI) targets for the 2020 financial period.
  • Based on a benchmarking exercise by executive management, reviewed and recommended for approval by shareholders the non-executive directors’ remuneration for the 2020 calendar year.
  • Reviewed and approved the issue of share-based long-term incentive (LTI) awards in terms of the 2012 share plan.
  • Amended the policy and practice of paying dividends on performance shares based on recommendations from independent external advisers, Ernst & Young, as well as PwC.
  • Decreased the share usage policy limit to 5% of the issued share capital in aggregate (previously 10%) with the individual participant limit reduced to 0.5% (previously 2.4%).
  • Approved the release of dividends to LTI share scheme participants holding restricted and performance shares, subject to clawback provisions where 100% vesting does not occur when performance targets are not achieved.
  • Confirmed that all long-term remuneration allocations and payments were made in accordance with the rules of the LTI schemes.
  • Agreed and recommended for approval by the board the performance targets for the relevant LTI share schemes in respect of awards being made in the reporting period.
  • Introduced pre-vesting forfeiture (malus) and post-vesting forfeiture (clawback) provisions in the remuneration policy for executive management.
  • Reviewed the benefits offered by the Group across all levels of employees and approved amendments to the healthcare and pension benefits for all flexi-time employees that were introduced before the COVID-19 pandemic.
  • Refined the total reward statements which are now provided to all permanent employees detailing all earnings and benefits received during the year.

The committee plans to undertake the following in the 2021 reporting period:

  • Review the retention mechanisms within the Group to ensure high potential and critical skills talent is retained and that succession is cemented across the Group. This will include the further consideration of the implementation of minimum shareholding requirements for executive directors.
  • Consider a sustainable pay equity process in the current economic environment to ensure the principles and application of equal pay for work of equal value are maintained across all levels within the Group, and how this addresses fair and responsible remuneration for executive management in the context of overall employee remuneration.
  • Evaluate the peer group and consider the impact of the pandemic on the accuracy of this group selection in the short and medium term.
  • Review the reward structures for scarce and critical skills based on market data while considering evolving trends.
  • Ensure the phased succession plan for the CEO and senior executives is supported by appropriate remuneration best practice.

The committee ensures that the Group takes cognisance of evolving legislation and remuneration practices through continuous research and monitoring, with specific focus on equal pay for work of equal value. In this regard remuneration governance will continue to evolve and improve as the Group responds to feedback from shareholders and takes account of evolving international best practice. The chairman of the committee reports to the board on all aspects of the committee’s work as a standing agenda item at each board meeting. This feedback covers all aspects of remuneration strategy and policy, how the policy objectives are being achieved and the implementation thereof over the annual cycle.

This report of the committee focuses primarily on the remuneration of the Truworths International executive and non-executive directors. There were no material policy exceptions during the period and the committee is satisfied that the remuneration policy achieved its stated objectives during the period.

Chairman Signature

Rob Dow
Chairman

Approval of remuneration policy and implementation report

In terms of the King IV principles and the JSE Listings Requirements, the Group’s remuneration policy and implementation report as set out in sections B and C which follow are required to be approved by separate non-binding advisory votes at the AGM of shareholders scheduled for 5 November 2020.

Should 25% or more of the votes cast be against each or both of the non-binding ordinary resolutions, the company undertakes to engage with shareholders to ascertain the reasons for the dissenting votes. Details of the engagement process will be published on SENS after the AGM.

The steps taken to address legitimate and reasonable concerns of shareholders will be disclosed in the following year’s Remuneration Committee Report.

Section B

Remuneration policy

Remuneration philosophy and principles

The remuneration philosophy is aimed at driving a high-performance culture that delivers the Group’s long-term strategic objectives as well as sustainable shareholder returns within the Group’s risk appetite. This ‘total remuneration’ philosophy underpins the Group’s equitable reward mechanisms which are applied across all levels in a fair, responsible and transparent manner.

The remuneration objectives are achieved by utilising a total remuneration approach which comprises all elements of financial reward, including guaranteed earnings, short-term incentives and long-term incentives. The combination of financial and non-financial reward elements constitutes ‘total reward’ and supports the holistic employee value proposition. For further details on the employee value proposition, refer to the Truworths and Office Human Capital Reports and the Social and Environmental Report 2020 on the website at www.truworthsinternational.com.

Remuneration practices are closely linked to the achievement of Group, subsidiary company, team and individual performance objectives. The composition of total remuneration is based on the employee’s role and level in the Group and there is a strong and sustainable link between performance, contribution and potential on the one hand, and the rewards received by the employee on the other.

The Group’s reward policy is designed to achieve the following objectives:

  • Internal equity, which ensures employees are rewarded appropriately in relation to peers as well as in adherence with the principle of equal pay for work of equal value.
  • External equity, to ensure employees are rewarded competitively in relation to the employment market.
  • Fair and responsible reward management, which ensures that:
    • – there is equal opportunity across the Group for growth and development of high-performing individuals who are aligned to the Group’s values and philosophies;
    • – performance measurement practices are regularly and consistently applied;
    • – remuneration and benefits at all levels are equitable and applied consistently;
    • – employees across all levels of the Group are rewarded appropriately based on their performance and contribution; and
    • – reward practices promote an ethical culture and responsible corporate citizenship.
  • A balanced and appropriate mix of short and long-term incentives to promote sustained high levels of performance and align employee and shareholder interests within the Group’s financial constraints as well as risk appetite. These incentives are regularly reviewed to ensure appropriateness for the current life cycle of the business, the retail industry as well as the breadth and size of the Group.
  • Alignment of risk and reward, with remuneration practices and schemes designed to encourage superior medium to long-term performance relative to competitors, while operating within prudent risk parameters to ensure sustainability.

Executive directors’ remuneration structure

Executive directors’ remuneration is determined according to the nature and responsibilities of the executive’s role in relation to market benchmarks, and the performance of the individual in relation to Group and individual targets. Rewarding executives through guaranteed and performance-related remuneration is aimed at achieving the following:

  • Alignment of executive and shareholder interests
  • Promotion of a culture of executive share ownership
  • Promotion of excellence in individual executive performance
  • Retention of executives

The core principle of the Group’s performance management process is the effective alignment of Group strategic objectives (refer to the Group Strategy report) with individual outputs. The Group utilises external professional service providers, external market surveys and best practices for continued remuneration benchmarking and for job evaluation purposes. Remuneration is further benchmarked against other JSE-listed retailers and comparable JSE-listed companies. All data is appropriately aged, and weighted averages, medians and ranges are applied to establish the most appropriate remuneration levels.

The total remuneration mix is determined as follows:

Guaranteed remuneration

Variable and performance-related remuneration

Annual guaranteed remuneration

Short‑term performance

Long‑term performance

  • Total guaranteed package, which can include the following benefits:

  • Salary

  • Travel allowance

  • Retirement benefits

  • Healthcare benefits

  • Group life and disability insurance benefits

Short-term cash-based incentive scheme

Retention shares

  • Restricted share plan

  • Share appreciation rights

    Performance shares

  • Performance share plan

  • Performance appreciation rights

  • Office performance equity plan

  • Total guaranteed package is based on performance, contribution, experience and market value relative to responsibilities within the Group.

  • Benefits are compulsory but offer flexibility in option choices.

Incentives are based on Group, subsidiary company and individual performance criteria, and are only paid if the Group achieves its threshold performance levels.

Long-term share-based incentives are aimed at retention as well as encouraging sustainable shareholder wealth creation.

Contractual obligations

There are no contractual obligations at any level to pay special severance amounts or compensation on termination of employment contracts arising from failure or incapacity to perform, or from under-performance against contracted objectives.

There are no contractual obligations at any level to allocate any short or long-term incentives, the only exception being the allocation of restricted shares in lieu of a restraint payment when senior employees join the Group.

No employment contract terms are affected by, or are linked in any way to, the automatic severing of such contracts as a result of a change in control of the Group. Furthermore, no payments of unvested short or long-term incentives are guaranteed on, or linked to, such a change in control, save that the rights of participants in the 2012 share plan must be accommodated by the board on a fair and reasonable basis on a change of control, and vesting of such rights will, unless the committee decides otherwise, be accelerated if such change of control leads to retrenchment within 24 months of the change in control.

The CEO’s contract provides for a notice period of six months. Other executive directors have contracts that provide for notice periods of between four and nine months.

Guaranteed remuneration

Guaranteed remuneration is determined in relation to employment market norms. The Group conducts annual remuneration benchmarking against comparable JSE-listed companies and also utilises the services of professional advisers to conduct external surveys with the aim of maintaining guaranteed remuneration at the median market level.

The current peer JSE-listed retailers utilised as comparators are:

  • Woolworths Holdings
  • The Foschini Group
  • Mr Price Group
  • Pepkor Holdings
  • Shoprite Holdings
  • Pick n Pay Stores
  • The Spar Group
  • Massmart Holdings
  • Clicks Group
  • Cashbuild
  • Dis-Chem Pharmacies
  • Italtile
  • Lewis Group

The selection methodology takes account of both size and performance metrics which include number of employees, turnover, total assets and earnings before interest paid and tax (EBIT). This methodology supports an objective determination of the comparator group that eliminates bias and the selection of a comparator group that is not disproportionately weak or strong. Due to the changing economic landscape this peer group will be reviewed during the financial year to ensure it remains relevant.

To ensure consistency in the evaluation and sizing of employment roles the Group conducts job profiling and evaluation to ensure the correct match to comparable roles and benchmarking of guaranteed remuneration levels. This is achieved by utilising PwC’s REMeasure and REMChannel database as well as Willis Towers Watson’s database.

A combination of performance and market remuneration positioning is utilised to adjust guaranteed remuneration levels annually. Adjustments to guaranteed remuneration outside of the annual review process are made on an exception basis and linked to changes in responsibility level.

Variable remuneration

The performance of executive directors is reviewed annually by the committee against predetermined financial and non-financial targets to ensure alignment with shareholder interests. Targets for both short and long-term variable pay schemes are selected to discourage behaviour in pursuit of incentive targets which is contrary to the Group’s risk appetite. Instead, targets are set with the objective of being challenging, yet realistic within the context of the economic realities of the countries in which we are operating and stage in the business life cycle. The malus and clawback policy is applicable to all variable remuneration awarded to executives.

The targets and measures are verifiable and a robust process is applied to both obtaining approval for the determination, as well as when making payment, of short and long-term incentives. The committee has discretion regarding incentive payments to mitigate unintended consequences that may arise from a purely formulaic approach. Discretion may not be used to compensate for unfavourable outcomes.

Short-term incentives

The short-term cash incentive (STI) scheme aims to drive performance through appropriate incentivisation in a measurable and sustainable way, thereby rewarding and retaining key talent.

The Group follows a formulaic hybrid approach with regards to structuring the STI which is a combination of both top-down and bottom-up considerations. This hybrid approach ensures bonuses are firstly linked to the key performance metrics of the business which determine the incentive pool size and secondly, individual performance metrics which determine the individual’s relative share of the pool. A formulaic approach is used to quantify the incentive pool that is self-funded through the achievement of both financial and non-financial key performance metrics. This approach further mitigates against unjustified outcomes by ensuring that there is no single performance metric which acts as an exclusive gatekeeper.

The following qualifying criteria apply to participation in the STI scheme:

  • Employees must have contributed to the attainment of company targets for at least one quarter of the financial year measured.
  • Employees must be performing at the required level at the time of the award in order to qualify.
  • Employees must be in service (and not in their resignation notice period or have given intention of their resignation) on the date of payment.
  • Only employees within qualifying roles at the approved Patterson grading level that do not participate in other short-term performance incentive schemes qualify for the STI.

Incentives are based on Group, company and individual performance levels. Group financial targets are based primarily on EBIT and no short-term incentive is paid to executive directors if the Group’s threshold EBIT performance measures for the period are not achieved.

The Group targets are determined by the committee prior to the financial year. EBIT threshold, target and stretch levels are utilised to determine the STI pool value. Further Group performance modifiers which include return on assets (ROA), gross margin, cash realisation rate and short-term strategic goals (these include strategic projects, and transformation as well as sustainability goals) are utilised as a quality overlay to ensure other key metrics set are achieved. Threshold, target and stretch levels are pre-agreed for these metrics that act as modifiers to the bonus pool.

Individual performance is measured with reference to a scorecard of metrics to encourage all participants to focus on both the financial and non-financial performance targets that are directly aligned to the participant’s responsibilities.

The quantum of the STI earning potential is based on the guaranteed pay of the relevant employee multiplied by a market-related on-target percentage based on her/his Patterson grade.

No portion of any STI is guaranteed. STI payments are at the discretion of the committee which must be satisfied that such payments are fair and reasonable. All executive directors’ STI payments are approved by the committee. The achievement of targets is reviewed by the committee before any STI payments are made to executive directors. STIs are in the form of cash and the committee may consider deferral of a portion of the incentive paid.

The table indicates the threshold, on-target and stretch STI payments as a percentage of guaranteed pay. These may be further adjusted based on the individual performance score achieved, and STIs are capped at 150% of guaranteed pay.

Percentage of annual guaranteed earnings for STI purposes

Below threshold

Threshold

On-target

Stretch

CEO

50%

100%

150%

Executive directors

30%

60%

100%

Long-term incentives

Long-term incentive (LTI) schemes are aimed at aligning executive remuneration with shareholder interests by rewarding executives for the creation of shareholder value over the medium to longer term. The LTI schemes are reviewed regularly to ensure alignment with relevant legislation, other governing rules and standards, appropriate market benchmarks and best practice.

The Group operates five share-based LTI schemes, four in terms of the 2012 share plan and one further LTI scheme in terms of the Office performance equity plan:

Retention awards

Performance awards

• Restricted share plan

• Performance share plan

• Share appreciation rights

• Performance appreciation rights

• Office performance equity plan

The following core principles apply to the Group’s share-based schemes:

  • The maximum aggregate allocation in terms of all the schemes is limited to 5% of the company’s issued shares at June 2012 over the life of the schemes in terms of the policy, being 23 090 501 shares.
  • Annual allocations are capped at 1.25% of issued shares at June 2012 in any one year and no more than 5% in any five-year period in terms of the policy, but committee guidelines are to limit annual allocations to below 1% in any one year.
  • The maximum aggregate allocation for any one employee is limited to 0.5% of issued shares at June 2012 over the life of the schemes in terms of the policy, being 2 309 050 shares.
  • Annual awards are allocated based on face value of the awards granted with the maximum annual allocations limited to 130% of guaranteed pay for the CEO and 110% of guaranteed pay for other executive directors.
  • The restricted share plan scheme and share appreciation rights scheme have no performance conditions and are utilised to support the retention of key executives and employees.
  • The performance share plan scheme and performance appreciation rights scheme have multiple performance targets and are utilised to support and reward good long-term decision-making, and both financial and non-financial performance. Threshold, target and stretch measures are applied to all long-term incentive targets.
  • The Office performance equity plan takes the form of options with performance targets and these are utilised to reward and support the retention of key executives and employees of Office.
  • Awards can be made across all five schemes and can vest over a period of up to six years.
  • Where awards lapse, there is no replacement compensation.
  • No long-term incentive allocation is guaranteed.
  • The committee assesses and approves all Group performance targets to ensure that the interests of all stakeholders are appropriately considered, and financial and non-financial targets are set as an incentive for employees to perform, and simultaneously for the business to achieve stretch goals.
  • All unvested shares and options, as well as unvested and unexercised vested rights are forfeited upon an employee’s resignation or dismissal in terms of the scheme rules.
  • Retention-focused long-term incentives awarded to existing executive directors may not make up more than 50% of the total long-term incentive allocations in any particular year. These will only be issued in exceptional circumstances as the intention is for all awards for executive directors to be performance linked.
  • Performance-focused long-term incentives issued to executive directors will be subject to corporate performance targets.
  • The committee approves the release of dividends to holders of both restricted and performance shares. Dividends paid on performance shares held where performance targets are not yet finalised, are clawed back from participants should performance targets not be met and, therefore, 100% vesting not be achieved.
  • The committee regularly monitors the overall actual and forecast impact and costs of these schemes on Group earnings.
  • Loans to employees pursuant to the legacy 1998 share option scheme have been discontinued (historical loans will remain in place until they expire in the 2021 financial year).

In line with the Group’s value of rewarding excellence as well as maintaining a long-term perspective on both the business and employees’ careers, management aims to include all high-performing employees at senior level as well as those key to future succession or with scarce skills in the LTI share plan.

Legacy share scheme

The legacy long-term incentive scheme (1998 share option scheme) remains in operation but no further awards have been made in terms of this scheme since 2012 nor are any currently planned to be made. The last share options issued under this scheme expire in August 2022. Potential gains relating to restricted instruments under the 1998 share option scheme as well as the number of instruments issued in terms of this scheme are taken into account in the allocation of shares under the 2012 share plan and Office performance equity plan.

Non-executive directors’ remuneration

Non-executive directors receive fixed fees for services rendered as directors and as members of board committees. All non-executive directors receive the same base board fees, regardless of their length of service. In line with best governance and remuneration practice, non-executive directors do not participate in incentive schemes and do not receive any benefits (other than the discounts applicable to employees in respect of purchases charged to store card accounts) or performance-related remuneration from the Group. None of the non-executive directors have service contracts with the Group and no consultancy fees were paid to non-executive directors during the period. The fee structure of non-executive directors is reviewed annually by the committee with due consideration of internal, economic and market factors utilising benchmarks from similar businesses. In line with best practice and to avoid a conflict of interests, the peer group comparators utilised are the same as those utilised for executive director guaranteed remuneration considerations. Recommendations for increases are researched and presented by executive management to the committee for consideration, and presented to the shareholders at the AGM for consideration and approval. Fees are determined in advance for a calendar year.

Section C

Implementation report 2020

There was compliance with and no deviations from the remuneration policy for the reporting period and no payments were made as a result of termination of office or employment.

Guaranteed remuneration

Guaranteed remuneration is reviewed annually with effect from 1 March and is based on a combination of prevailing inflation levels, Group performance, retail market data, internal comparatives, as well as individual performance.

All store employees’ compensation complies with the sectoral determination or statutory requirements, and the minimum rates of pay as determined for the retail industry are either met or exceeded.

Annual salary reviews are merit based and a range of increases is approved based on the employee level, the market positioning as well as their individual performance rating for the prior period. The committee is cognisant of the disparity in levels of executive pay in relation to those of lower-paid employees within the retail industry and therefore due consideration is given to ensuring an appropriate salary increase range is approved to ensure this is addressed over time. The annual average remuneration increase ranges recommended by the committee for non-unionised employees were based on the below for employees performing at the Group’s minimum required standard or higher:

  • Management 5%
  • Non-management 6%

Union negotiations had not yet been concluded at financial period-end and therefore no increase had been applied yet for unionised employees.

Following a detailed market analysis, guaranteed pay was adjusted for executive directors as follows:

Annual increases

Executive director

Change
%

2020
R’000

2019
R’000

2018
R’000

Michael Mark~

6.0

9 950

9 383

9 100

David Pfaff*

9.1

5 600

5 134

4 596

Doug Dare^

12.9

4 337

3 843

3 731

Sarah Proudfoot#

3 533

288

~This March 2019 adjustment was the first adjustment to guaranteed pay that Michael Mark had received since March 2016. No adjustment was made in March 2020.

*This increase was in most part due to the March 2019 adjustment to guaranteed pay due to the promotion to Chief Operating Officer. The guaranteed pay adjustment in March 2020 was in line with inflation.

^Doug Dare’s 2019 earnings were reduced due to unpaid leave taken. The increase on full earnings is 8.6% and in most part due to the March 2019 adjustment to guaranteed pay as a result of increased role responsibility which included the Human Resources portfolio. The guaranteed pay adjustment in March 2020 was in line with inflation.

#Sarah Proudfoot’s earnings were disclosed for one month in the prior period.

The impact of COVID-19 required a considered and fast approach be taken to protect the sustainability of the business as well as employment of staff. All directors volunteered to sacrifice a portion of their guaranteed earnings for a period of up to three months to be used to assist staff in need in this critical time and no salary cuts were implemented. Employees were required to take leave during the period of lockdown and Temporary Employer/Employee Relief Scheme (TERS) benefits were applied for and paid to all employees who had to take leave or unpaid leave. Further to these measures, new hires were delayed with the exception of critical roles and no employees were retrenched during the financial period due to the impact of COVID-19.

Short-term incentives

As detailed in the remuneration policy, the Group follows a formulaic approach which includes balanced company and individual scorecards. This combined approach mitigates against unjustified outcomes, while it ensures that at the same time employees are rewarded for the performance conditions which were met over the financial period.

The STIs in respect of the 2020 reporting period, determined with reference to Group EBIT threshold, target and stretch levels, were pre-agreed. The Group EBIT threshold level was not achieved for the period and, as such, no STIs were paid.

Long-term incentives

Group financial performance conditions and targets for LTI purposes are determined by the committee. Measuring performance over a longer period ensures a focus on longer-term, sustainable growth in shareholder value.

Actual performance against targets was assessed for the 2020 period and applied to performance shares allocated in August 2017. This resulted in a total vesting of 37.5% of this share allocation.

Details of the targets set as well as vesting achieved are as follows:

F2020 LTI targets for August 2017 award

Weighting %

50%
Vesting target

100%
Vesting target

150%
Vesting target

Final
result

Vesting
achieved

ROA

35%

20%

23%

25%

Not
achieved

0%

EBIT growth

35%

CPI pa

CPI+1ppt pa

CPI+2ppts pa

Not
achieved

0%

Strategic targets

30%

Good
performance

Very good
performance

Excellent
performance

125%

37.5%

Total

100%

37.5%

During the period the committee agreed and recommended for approval by the board the performance targets for the relevant share schemes in relation to awards being made in the 2020 reporting period.

The performance measures for awards made to executive directors were based on ROA, headline earnings per share (HEPS) growth, gross profit margin, inventory turn and strategic targets with a variable vesting scale from 0% to 150% with the application of linear vesting between performance measures. These awards were all performance based with a vesting period of between three and five years.

The targets applicable to the performance shares awarded during the 2020 reporting period are as follows:

F2022 LTI targets 
for September 2019
and March 2020 awards

Weighting %

50%
Vesting target

100%
Vesting target

150%
Vesting target

2019
published
medium‑term
Group targets

ROA

25%

18%

21%

24%

18%—24%

HEPS growth

15%

CPI pa

CPI+1ppt pa

CPI+2ppts pa

Gross profit margin

15%

49%

51%

53%

49%—53%

Inventory turn (times)

15%

3.5

4.0

4.5

3.5—4.5

Strategic targets

30%

Good
performance

Very good
performance

Excellent
performance

Notes:

1. CPI means the Consumer Price Index as published by Statistics SA.

2. The awards have a vesting period of between three and five years.

3. The vesting period for executive directors’ shares awarded in September 2019 is four years, with 40% vesting in year three and 60% vesting in year four.

4. The vesting period for executive directors’ shares awarded in March 2020 is five years, with 20% vesting in year three, 30% vesting in year four and 50% vesting in year five.

5. The performance measurement takes place at the end of financial year three, being June 2022.

6. No shares vest if performance falls below the 50% vesting target, whilst performance above the maximum 150% vesting target does not increase the vesting percentage above 150%.

These targets were set taking into account the economic environments in which the operating segments of the Group operate and are intended to focus management’s attention on growing revenue, containing the fixed cost base, making well-reasoned and profitable capital expenditure decisions, maintaining a healthy and efficient balance sheet structure and achieving the deliverables on the non-financial performance measures relating to strategic projects. Restricted and performance shares were allocated during the period and all shares allocated to executive directors were performance shares (all shares allocated to executive directors since 2017 have had performance conditions attached). No share appreciation rights were allocated during the period.

Share-based awards

Executive director share scheme allocations in the 2020 financial period:

2020

2019

Executive director

Number
of shares
and type
’000

Face value
of shares
allocated
R’000

Face value
as % of
guaranteed pay

Number
of shares
and type
’000

Face value
of shares
allocated
R’000

Face value
as % of
guaranteed pay

Performance share plan shares (PSPs)
(with performance targets)

Michael Mark

David Pfaff

109

5 700

102

75

5 500

107

Doug Dare

86

4 500

104

54

4 000

104

Sarah Proudfoot

74

3 850

109

39

2 750

ND*

*Not disclosed as Sarah Proudfoot was not a director for the full financial period.

Total share scheme allocations in the 2020 financial period:

Scheme

Number of
participants

Value of
awards
R'000

Restricted share plan (with no performance targets)

374

102 995

Performance share plan (with performance targets)

16

26 197

Share instruments awarded to employees and executives, including the above share scheme allocations in the 2020 financial period (i.e. total share scheme utilisation), constitute 18 021 000 shares, being 3.9% (2019: 3.8%) of total issued shares at June 2012 which is below the policy’s aggregate allocation of 5%. The annual allocation as detailed above is 0.55% of issued shares at June 2012 which is below the committee guideline of 1% in any one year (1.25% in terms of the policy). The maximum aggregate allocation for any one participant is 0.5% of shares in issue at June 2012 (0.5% in terms of the policy).

Targets agreed for shares to be awarded in the 2021 financial year with the measurement period being the 2023 financial year are as follows:

F2023 LTI targets for
September 2020 award

Weighting %

50%
Vesting target

100%
Vesting target

150%
Vesting
target

2020 published
medium‑term Group targets

ROA

15%

14%

17%

20%

14% – 20%

Total shareholder return (TSR)

10%

CPI pa

CPI+1ppt pa

CPI+2ppts pa

HEPS growth

10%

CPI pa

CPI+1ppt pa

CPI+2ppts pa

Gross profit margin

15%

49%

51%

53%

49% – 53%

Inventory turn

10%

3.5 times

4.0 times

4.5 times

3.5 – 4.5 times

Strategic targets*

40%

Good
performance

Very good
performance

Excellent
performance

*Due to the impact of COVID-19 on the economies we operate in as well as the planned restructure for succession within the business, strategic projects have been given priority due to their critical achievement in ensuring sustainability across the supply chain and sustained performance for Truworths. The strategic targets include projects focused on the restructuring of Office for its long-term success, vertical integration within the supply chain, the launch of futuristic flagship emporium stores and new chains as well as implementing the broad-based phased succession plan which includes transformation targets.

Executive directors’ remuneration

Please refer to the Group Audited Annual Financial Statements 2020 on the website for further details relating to executive directors’ remuneration and share-based awards. The total annual guaranteed pay, benefits, short-term cash incentives and loans pursuant to the 1998 share scheme in the single-figure remuneration table below have been extracted from note 31.1 of the Group Audited Annual Financial Statements 2020, while the value of long-term incentives and qualifying dividends have been calculated in terms of the requirements of King IV.

Single–figure remuneration table

Director

Months
paid

Total annual
guaranteed
pay
R’000

Benefits*
R’000

Short-term
cash
incentive
R’000

Long‑term
incentive^
R’000

Qualifying
dividends#
R’000

Total single
figure of
remuneration
R’000

Loans
pursuant to
1998 share
scheme
R’000

2020

Michael Mark

12

9 950

3 011

1 747

5 668

20 376

43 254

David Pfaff

12

5 600

1

874

981

7 456

Doug Dare

12

4 337

8

612

726

5 683

Sarah Proudfoot

12

3 533

172

524

835

5 064

2 273

2019

Michael Mark

12

9 383

3 338

6 308

19 029

43 254

David Pfaff

12

5 134

2

18

650

5 804

Doug Dare

12

3 843

13

15

484

4 355

Sarah Proudfoot

1

288

16

304

2 273

*Benefits comprise the interest benefit in respect of loans pursuant to the 1998 share scheme, subsistence allowances for local and overseas travel, long-service awards and fringe benefits on life insurance premiums paid.

^The long-term incentive value is calculated as the sum of:

Performance share plan shares: For all awards where performance against the company performance targets (CPTs) was measured in the financial period, the five-day volume weighted average price (VWAP) of the company’s shares at period-end multiplied by the CPT vesting percentage and the number of awards.

Restricted share plan shares: The grant price value of all awards issued in the financial period.

Performance appreciation rights: For all awards where performance against the CPTs was measured in the financial period, the difference between the five-day VWAP of the share at period-end and the strike price multiplied by the CPT vesting percentage and the number of awards.

Share appreciation rights: For all awards vesting in the 12 months after the financial period-end, the difference between the five-day VWAP of the share at period-end and the strike price multiplied by the number of awards.

#The qualifying dividend includes the dividend on performance shares, which have not yet vested and for which performance has still to be measured against agreed targets. Security, in the form of a pledge of the shares in question, for the possibility that a portion of such dividends may have to be repaid if such targets are not achieved, has been provided by the directors to the company. These clawbacks will be reflected in a separate column in respect of the years in which these agreed targets are measured. This clawback policy was introduced in March 2020.

The company does not have any prescribed officers as defined in the Companies Act (71 of 2008, as amended) of South Africa.

Table of total awards and cash flow

Non-executive directors’ remuneration

The total fees paid to non-executive directors in respect of the 2020 financial period are detailed below.

Total remuneration (excluding VAT)

Months
paid

2020
R’000

2019
R’000

Hilton Saven

12

1 346

1 251

Rob Dow

12

709

666

Thandi Ndlovu

2

88

411

Michael Thompson

12

679

683

Tony Taylor

12

499

467

Roddy Sparks

12

755

747

Maya Makanjee

12

378

374

Hans Hawinkels

12

375

374

Cindy Hess

12

333

79

Tshidi Mokgabudi

4*

175

Total

5 337

5 052

*Appointed with effect from 19 February 2020.

The proposed fees for non-executive directors for the 2021 calendar year were benchmarked against fees payable by other JSE-listed companies with a similar profile and are detailed below.

Proposed fees
(excluding VAT) for
12 months to
December 2021
R’000

Fees
(excluding VAT)
for 12 months to
December 2020
R’000

Non-executive chairman

1 175

1 075

Non-executive director

370

350

Audit Committee chairman

350

350

Audit Committee member

160

160

Remuneration Committee chairman

170

154

Remuneration Committee member

98

98

Risk Committee member (non-executive only)

115

110

Nomination Committee chairman

135

122

Nomination Committee member

80

72

Social and Ethics Committee chairman

115

105

Social and Ethics Committee member (non-executive only)

80

72