This report sets out the company’s remuneration philosophy, the implementation thereof and the guidelines and assumptions used when determining senior executives pay packages. The report and the recommendations of the Remuneration committee have been approved by the Board and will be submitted to shareholders for consideration at the AGM.

Remuneration committee

The Remuneration committee, which meets at least twice a year, is chaired by an independent non-executive director and comprises only non-executive directors. The committee is responsible for reviewing and recommending the remuneration of executive and non-executive directors and senior management to the Board. The Remuneration committee bases its recommendations upon the achievement of certain Key Performance Indicators (KPI’s) of senior executives and prevailing market conditions.

The CEO and CFO attend the committee meetings by invitation and assist the committee with its deliberations, except when issues relating to their own compensation are discussed. No directors are involved in deciding their own remuneration.

The full terms of reference and mandate of the committee can be found in the full corporate governance framework on the Group’s website.

Remuneration committee meetings attendance

P = Present

Remuneration philosophy

The Group’s philosophy is to remunerate its employees fairly in relation to the market and nature of services they provide. Employees may attract above market related remuneration in order to retain skills and experience. The Remuneration committee ensures that an appropriate portion of senior executives remuneration is performance related. The committee considers KPI’s when setting executive director and senior management’s short term incentives. In addition to cash remuneration (base pay, retirement and medical, performance bonus, other fringe benefits), employees are afforded the opportunity to participate in Group share schemes, which align the interests of management to that of shareholders.

Base pay

The Remuneration committee reviews the salaries of executive directors and senior management annually. They reflect the relative skill, experience, contribution of and performance of the individual. Base pay is set at levels which are competitive with the rest of the market so that the Group can attract, motivate and retain the right calibre of people to achieve the Group’s strategic business objectives. Executive base pay is benchmarked to information disclosed in the remuneration reports of comparator organisations. Annual increases in the base pay are determined with reference to the scope of the employee’s role, competence and performance of the employee as well as the projected CPI (Consumer Price Index) figures.

Retirement and medical

Pick n Pay contributes a total of 17.35% of salary towards retirement funding of executive directors and employees. In addition the Company also contributes towards medical aid. For further details please refer to note 23 where retirement benefits are disclosed in more detail.

Performance bonus

Performance bonuses awarded to management are based on the Group and individual performance in achieving KPI targets such as budgets set by the Board, growth in headline earnings per share and milestones attached to the implementation of Group strategy. In a year where targets are met performance-related remuneration of the CEO and CFO will account for at least 50% of total remuneration.

Other fringe benefits

Executive directors and management are either granted the use of a company vehicle which includes service and maintenance, fuel and insurance, or are given the choice of accepting a car allowance.

Share option scheme

All employees participate in the Group’s share option scheme. Share options are allocated for both years of service and status within the Company. It is the Group’s philosophy to recognise all employees and to reward employees with a part ownership of the Company. Status share options have vesting conditions relating to years of service and can only be exercised when the vesting condition is met. For further information on the share schemes including details of the total options granted to employees and other pertinent information please refer to note 4.

The value of share options awarded to management is dependent on their level of seniority and the influence they may have over Group performance and strategy implementation. All options granted to executive directors and senior management are approved by the Remuneration committee and where appropriate may be linked to the attainment of certain share price growth hurdles. For further information regarding share options granted to directors refer to note 3.2.

The directors have recommended that there be no discount applied to the market value of shares at grant date. This change to the share scheme rules will be tabled for consideration by shareholders at the annual general meeting on 10 June 2011.

Risk management and remuneration practices

The Remuneration committee ensures that corporate governance aspects and legal requirements are met when existing remuneration policies are reviewed and new remuneration plans and policies are put in place. In doing so, the committee ensures that shareholder interests are protected and reward systems and remuneration policies are aligned to the Company’s risk profile.

Report on remuneration and benefits awarded during 2011

For information on the remuneration of the Chief Executive and executive director’s please refer to note 3.1.

Key management personnel

The Board together with the Group Executive committee and Roni Perlov, the acting Managing director of Franklins, form the key management personnel who have authority and responsibility for planning, directing and controlling the activities of the Group. The total remuneration for the key management personnel is as follows.

No comparative information has been provided as this new management structure was only formed in the current year. No key management personnel had a material interest in any contract with any Group company during the year.

Top three earners

In accordance with the recommendations of King III, we disclose below the top three earners of the Group, excluding executive directors, identified by the total remuneration awarded including the IFRS 2 value of share options granted.

Non-executive directors’ fees

In respect of non-executive directors, the Remuneration committee proposes fees to be paid for the membership of the Board and Board committees. Such fees are market related, commensurate with the time required to undertake their duties and are approved by the Board and shareholders. Approved fees are set for the year and are not subject to attendance at each meeting as generally attendance at Board meetings is very good. Such remuneration is not linked to the performance of the Group or its share performance. Specifically, non-executive directors do not receive performance-related bonuses and are not granted share options. The Chairman receives a flat fee for all work undertaken and does not receive additional remuneration for attendance of Board committee and sub-committee meetings. The fees for 2011 were approved by shareholders in the AGM held on 18 June 2010 and the proposed fees for 2012, which are unaltered, will be submitted to shareholders for approval in the AGM to be held on 10 June 2011.