Pick n Pay Stores Limited

remuneration report

Chairman’s introduction

It gives me great pleasure to present shareholders with Pick n Pay’s 2015 remuneration report. The team has been extremely focused on delivering the objectives of its strategic long-term plan and its efforts are reflected in the strong profit growth delivered in the 2015 financial year.

The Group’s strategic long-term plan is organised around seven business acceleration pillars, with one of the key focus areas centred on building a winning team. The Group went some way in 2015 in building strong foundations for its vision of creating the most skilled and talented retail business in South Africa. The achievements over the year include the implementation of a new performance management system for senior management and the implementation of the new forfeitable share plan, both closely aligning rewards with the objectives of our long-term strategy. At the same time the Group strengthened its management team through key external appointments and strong internal promotions. The Group improved its BBBEE performance from level 6 to level 4 over the year, reflecting our commitment to transformation at Pick n Pay, including in the area of employment equity.

We have bid farewell to Isaac Motaung, the Head of our Human Resources division (HR), after 42 years with Pick n Pay. We are grateful to Isaac for his dedication and service, and in particular for the way in which he ensured that the Pick n Pay values were kept at the very centre of our remuneration philosophy and underpinned all HR policy and procedure. In Isaac’s place we welcome Jonathan Muthige, who has many years of HR experience at a senior level. We are confident that Jonathan brings great skill, and a renewed energy to the team, and we look forward to working with him. We have tasked Jonathan to work closely with our committee and our senior management team to bring our performance management and reward systems in line with best practice for our industry.

The Group is continually working to improve the quality of its reporting to stakeholders and to this end we are committed to improving our remuneration disclosures. I am pleased with the strides made in the 2015 report, both in terms of structure and content. In line with best practice, the report is divided into two sections. Section 1 addresses our overarching remuneration philosophy and how that is supported by the detailed policies in place. Section 2 details the implementation of policy during the 2015 financial year and includes a summary of the main focus areas of the remuneration committee over the period. This report and the recommendations of the remuneration committee have been approved by the Board and will be submitted to shareholders for consideration at the annual general meeting to be held on 27 July 2015.

Hugh Herman

Chairman: remuneration committee

Cape Town
20 April 2015

Introduction

For ease of navigation, this report is divided into two sections:

Section 1 – Remuneration philosophy and supporting policies, including:

• Alignment with strategic objectives
• Role and mandate of remuneration committee
• Remuneration structure
  – Executive directors and employees
  – Non-executive directors

Section 2 – Implementation of remuneration policies during the 2015 financial year, including:

• Work performed and decisions taken by remuneration committee
• Payments, accruals and awards to executive directors
• Payments, accruals and awards to non-executive directors
• Directors’ interests in shares

Remuneration philosophy and supporting policies

The Group’s remuneration philosophy is aimed at attracting, retaining and motivating employees and executives, while aligning their remuneration with shareholder interests and best practice.

Pick n Pay is managed on a balanced scorecard approach, led by the Pick n Pay steering wheel. The steering wheel acknowledges the five key performance areas of our business which have a material impact on our stakeholders and ultimately our performance. Please see page 7 for more information. One of these key performance areas is “People”, recognising the integral role that the Pick n Pay team plays in achieving long-term strategic objectives.

The Group remuneration philosophy reflects the principles of the “People” section of the Pick n Pay steering wheel:

• Meritocracy – people will be recognised and advanced based on merit
• Most talented SA retail business – we will attract, retain and develop the most talented retail staff in the industry
• Effective lean organisation structure – we will create and reward a culture of productivity and efficiency
• Diversity management – we will ensure Pick n Pay offers equal opportunities to people from all walks of life

We reward employees for their individual contribution to the Group’s strategic, operating and financial performance. We ensure that underlying remuneration policies support the development and retention of top talent, while attracting critical skill and experience in the retail industry.

The remuneration philosophy is supported by the following underlying policies:

• Remuneration at all levels is benchmarked against the remuneration policies and practices of comparable companies (both locally and internationally) to ensure that it is fair and just – and paying above the comparable mean for key or scarce skill
• An independent expert assists the remuneration committee with benchmarking
• Remuneration is balanced between fixed remuneration and variable short-term and long-term incentives – applying a higher proportion variable pay to senior management in order to drive performance, and a greater emphasis on fixed pay for middle and junior management
• Paying for performance and capability – with top performers earning in the upper quartile of the pay range
• Ensuring compliance with all legislation within the Employment Equity Act and Basic Conditions of Employment Act
• Non-executive directors do not receive remuneration or incentive awards related to share price or corporate performance

In 2015 Pick n Pay completed Stage 1 of its strategic long-term recovery plan. While governed more broadly by the Pick n Pay steering wheel, Stage 2 of the strategic long-term recovery plan is organised around seven business acceleration pillars. These pillars represent the seven key growth areas or opportunities for Pick n Pay. The plan is focused, detailed and provides the senior management team with clear objectives and lines of accountability and responsibility.

One of the business acceleration pillars focuses on building a winning team. We delivered a number of achievements under this pillar in the 2015 year, providing a strong foundation for the future. Going forward we will focus on core skills training, improved customer service, effective performance management, better internal communication and more diversity. Please refer to here or more detail.

The Group remuneration philosophy and underlying policies are aligned with the long-term strategic objectives of the Group, with short-term and long-term incentives linked to the achievement of key performance indicators, and will contribute to building a winning team and building long-term, sustainable value creation in the business.

Role and mandate of remuneration committee

The remuneration committee assists the Board in meeting its responsibility for setting and administering appropriate remuneration policies which are in the best long-term interests of the Group and are aligned with the Group’s long-term strategic objectives. The committee considers and recommends remuneration policies for all levels of staff in the Group, with a particular focus on executive directors, senior management and non-executive directors.

The remuneration committee meets at least twice a year, is chaired by an independent non-executive director and comprises only non-executive directors. The committee operates in terms of a Board-approved charter, which is reviewed annually at the Board meeting in April.

The composition of the remuneration committee and meeting attendance is as follows: