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AGM Annexure 1 Analysis of Shareholders Shareholders' Diary Definitions

 

Remuneration Report

Creating a high performance culture

Remuneration committee

The remuneration committee of the board is ultimately responsible for ensuring the group has a competitive remuneration policy which is aligned with the group strategy and performance goals. The functions of the committee include:

• Assessing and reviewing remuneration policies, employee short-term and long-term incentive schemes and performance bonuses;
• Approving the remuneration of executive directors and senior management;
• Proposing fees for non-executive directors; and
• Determining executive and staff participation in the long-term incentive schemes.

The composition of the remuneration committee is included in the corporate governance report.

Remuneration structure

Annual guaranteed remuneration is determined taking the following factors into account:

• The Hay-based job grading level and pay point;
• Annual remuneration benchmarking surveys, which include general, retail, specialist, positional and executive benchmarking surveys;
• The market position of the Clicks Group relative to its defined market position in the retail industry;
• Individual performance and contribution aimed at creating a clear differentiation between exceptional, high, acceptable and unacceptable performance, relative to the individual’s position in the range of his or her pay band; and
• Pay bands based on prevailing market forces which determine the remuneration ranges applicable to each job category. Although salary bands are generally targeted to be at the median (50th percentile) of the comparable local retail market, a premium may be paid for scarce or specialist skills (such as in-store retail pharmacists, buyers and planners) which are defined on an annual basis and based on remuneration surveys.

External compensation and benefit consultants advise the group on issues relating to best practice, competitive positioning and benchmarking on financial or strategic human capital issues.

Executive directors
The remuneration package of executive directors consists of three components:

• Annual guaranteed pay, which allows for flexible structuring of retirement fund contributions, medical aid and car allowance;
• A short-term incentive bonus; and
• A long-term incentive scheme.

The group’s policy is to align the remuneration structure of senior executives with shareholder interests. In order to encourage practices which will optimise group performance, a significant portion of remuneration is therefore performance related.

Base salaries are set at competitive market rates, taking account of the detailed benchmarking exercise and are subject to annual review. The performance of the chief executive officer is assessed by the chairman and the board, while the performance of the other executive directors is evaluated by the chief executive officer and the board. The annual pay increase of the executive directors is based on the individual performance rating and position in range, as determined by the remuneration committee during the annual review of remuneration.

Executive directors participate in the annual short-term incentive scheme. Financial targets are set for the group by the board and the achievement of these targets is reviewed by the remuneration committee before any incentive payments are made to executive directors.

Targets are based on the group’s return on net assets (RONA) and a bonus of 40% (60% in the case of the chief executive officer) of total cost of employment is paid on the achievement of an on-target performance. Performance exceeding the targeted performance will result in the payment of a higher bonus provided. This is funded by the increase in the operating profit.

The long-term incentive scheme is based on the allocation of share appreciation rights and is detailed later in the report.

In the period under review, the group benchmarked all benefits, including notice periods. The notice period for the chief executive officer is 12 months and six months for the other executive directors.

Management
The remuneration package of senior management consists of an annual guaranteed package and participation in the short-term incentive bonus scheme. The remuneration package of all senior managers across the group has been converted from the current basic salary plus benefits remuneration structure to the annual guaranteed package methodology, with the intention to convert the remainder of the managers by the end of the 2010 financial year. A limited number of senior employees participate in the long-term incentive scheme, based on strategic contribution to their business unit, and their individual performance levels.

An annual salary increase is paid to all staff and the average increase for the financial year was 7.0%. The annual increase date has been moved from 1 July to 1 September to align with the group’s financial year.

Staff
A collective wage increase is negotiated with the representative trade unions for all employees forming part of the collective bargaining units.

A one-year wage settlement with an increase of 11.3% was granted to all permanent employees in the Clicks bargaining unit. All staff in the bargaining unit also participate in the group’s short-term incentive scheme.

An annual bonus is paid in mid-December to all qualifying permanent employees. The bonus is calculated on a sliding scale from the first year of employment until it is equivalent to a 13th cheque after five years. While this bonus forms part of the group’s compensation strategy, the focus of remuneration remains performance-based.

All staff receive discounts on purchases at group stores which vary by business unit.

For UPD staff, a one-year wage agreement was concluded with an increase of 10.0%. All UPD staff receive a guaranteed 13th cheque.

Non-executive directors
Non-executive directors receive fees for their services as directors and for serving on board committees. These fees reward the directors fairly for the time, service and expertise provided to the group, based on an annual benchmarking of non-executive directors’ fees. No incentives were awarded to non-executive directors. As at 31 August 2009, a non-executive director held share options which were allocated and exercised in September 2000 under a previous incentive scheme and has subsequently taken delivery of these shares.

Incentive schemes

Short-term incentive scheme
All permanent employees in the retail businesses participate in the short-term incentive scheme which rewards the achievement of predetermined performance targets based on the return on assets managed (ROAM) on an annual basis. Senior UPD employees participate in a similar short-term incentive scheme based on return on net assets (RONA) of the business.

The performance measurement is based on each employee’s area of responsibility and can be determined for a specific store, region, business unit or at the group level.

The scheme is self-funding as the value of an on-target bonus is included in the annual budget. Performance exceeding the targeted performance will result in the payment of a higher bonus provided this is funded by the increase in the operating profit.

A total of R45 million (2008: R42 million) was paid or payable to employees for the 2009 financial year.

Long-term incentive schemes
The group’s long-term incentive scheme detailed below replaced the staff share option scheme and aligns executive remuneration with the creation of shareholder value. Share options were last issued in August 2005.

Share appreciation rights scheme
Under a share appreciation rights scheme introduced in 2005, rights were allocated to executive directors and senior employees. The exercise price of the rights is dependent on the performance of the share price. The first tranche of share appreciation rights was allocated on 7 April 2005 and a further tranche on 11 May 2006. The rights vest equally after three years and five years. The three-year rights in the first tranche matured in April 2008 and the second tranche in May 2009.

As the group’s liability relating to these share appreciation rights is dependent on the future performance of the company’s share price, a derivative hedge was acquired to limit the level of exposure. The group’s maximum exposure in relation to the unhedged portion is R14 million. Further details on the hedging instrument and the cost of the hedge are contained in notes 17 and 22 to the annual financial statements.

The following share appreciation rights allocated to the executive directors under this scheme were outstanding at year-end:

	Number of
	five-year
Director	rights	Total
Tranche 1
Michael Harvey	1 000 000	1 000 000
David Kneale	750 000	750 000
Keith Warburton	825 000	825 000
Tranche 2
Bertina Engelbrecht	200 000	200 000
David Kneale	75 000	75 000

The exercise price of the rights varies according to the performance of the share price on the vesting date:

	Tranche 1: April 2005	Vesting date: April 2010	Tranche 2: May 2006	Vesting date: May 2010
	Share price on vesting	Exercise price (R)	Share price on vesting	Exercise price (R)
	date (R)		date (R)
Five-year rights	Above 16.81	8.36	Above 21.22	10.55
	Above 20.80	4.18	Above 26.25	5.27
	Above 25.51	0.01	Above 32.20	0.01

Long-term incentive scheme
The long-term incentive scheme was revised with effect from the start of the 2007 financial year. In terms of this scheme, cash-settled share appreciation rights are allocated to participants and these rights are cash-settled at the end of the three-year performance period. The value of the rights is linked to the group’s diluted headline earnings per share multiplied by an internal price earnings ratio of 12, derived from the five-year performance of the Clicks Group.

On the expiry of the three-year period, employees are required to apply 25% of the after-tax cash settlement value to purchase Clicks Group shares in the open market and to retain these shares for a minimum of one year.

A total of 48 employees currently participate in this scheme, collectively holding 17 923 136 rights at year-end. The table below details rights which have been allocated to executive directors under this scheme and the relevant amounts have been expensed through the income statement.

Employee benefits

Retirement funds
Membership of a retirement fund is compulsory for all permanent employees. The group offers a number of retirement fund options. Employees have the option to join the Clicks Group Retirement Fund, the Clicks Group Negotiated Pension Fund or the Clicks Group Negotiated Provident Fund. Employees of UPD can join the Clicks Group funds, the New UPD Corporate Selection Pension Fund or the Chemical Industries’ National Provident Fund. The funds all provide death and disability cover, while the negotiated funds include a funeral benefit.

Total membership across the funds was 7 405 (2008: 6 911) at year-end. Total assets of the funds (excluding the Chemical Industries’ Provident Fund) amounted to R695.3 million (2008: R759.1 million).

All the funds are defined contribution schemes and the group carries no liability in relation to these funds.

Medical aid
Membership of the Discovery Health Medical Scheme is actively encouraged. At year-end 1 010 employees had joined the Discovery scheme.

The existing Clicks Group Medical Aid Scheme is administered by Lethimvula Healthcare. The fund had 704 principal members at year-end (2008: 1 427) and a solvency ratio of 56% (2008: 28.5%). UPD operates a medical scheme administered by Fedhealth and 58 of the permanent employees are members of the fund.

	Allocation	Allocation	Allocation
	at R8.52	at R12.36	at R15.83
	per right	per right	per right
	1 Sept 2006	1 Sept 2007	1 Sept 2008
Director	number	number	number
Bertina Engelbrecht	528 169	396 845	335 439
Michael Harvey	669 014	502 670	431 333
David Kneale	1 671 127	1 255 617	1 072 331
Keith Warburton	704 225	529 126	450 284
Total	3 572 535	2 684 258	2 289 387

Directors' remuneration

Executive directors' remuneration-2009
Director (R’000)	Salary	Bonus	Pension fund	Other benefits	Total	Gain on sale of share options
Bertina Engelbrecht	1 621	1 001	131	49	2 802	–
Michael Harvey	1 905	1 206	184	212	3 507	3 761
David Kneale	4 451	4 116	398	86	9 051	–
Keith Warburton	2 025	1 344	192	182	3 743	–
Total	10 002	7 667	905	529	19 103	3 761
Executive directors' remuneration-2008
Director (R’000)	Salary	Bonus	Pension fund	Other benefits	Total	Share appreciation rights
Bertina Engelbrecht1	731	663	61	23	1 478	–
Michael Harvey	1 607	875	167	194	2 843	5 742
David Kneale	4 054	1 801	364	86	6 305	4 207
Keith Warburton	1 894	885	176	131	3 086	3 506
Total	8 286	4 224	768	434	13 712	13 455
1 Appointed as an executive director on 1 March 2008
Non-executive directors’ remuneration
Director (R’000)	2009			2008
	Directors’ fees	Consultancy fees	Total	Directors’ fees	Consultancy fees	Total
David Nurek	594	–	594	529	–	529
Fatima Abrahams	225	–	225	91	–	91
John Bester*	253	–	253	n/a	n/a	n/a
Peter Eagles#	157	300	457	196	600	796
Fatima Jakoet	247	–	247	94	–	94
Robert Lumb^	63	–	63	299	–	299
Martin Rosen	144	–	144	169	–	169
Roy Smither+	n/a	n/a	n/a	78	–	78
Lucia Swartz+	n/a	n/a	n/a	75	–	75
Total	1 683	300	1 983	1 531	600	2 131

*	Appointed 1 October 2008
#	Resigned 29 June 2009
^	Resigned 30 November 2008
+	Resigned in previous financial year

Prof Peter Eagles consulted to the group on professional pharmacy issues on a contractual basis with the University of the Western Cape (UWC). During the period until his resignation on 29 June 2009, R198 025 was paid directly to Professor Eagles and R101 975 to UWC.

Total directors’ remuneration
R’000					2009	2008
Executive directors					19 103	13 712
Non-executive directors					1 983	2 131
Total directors’ remuneration					21 086	15 843
Directors’ shareholdings (at 31 August)
Director	2009			2008
	Direct beneficial shares	Indirect beneficial shares	Total	Direct beneficial shares	Indirect beneficial shares	Total
David Nurek	–	129 682	129 682	–	129 682	129 682
Fatima Abrahams	–	–	–	–	–	–
John Bester*	10 000	–	10 000	n/a	n/a	n/a
Peter Eagles#	n/a	n/a	n/a	–	–	–
Bertina Engelbrecht	–	–	–	–	–	–
Michael Harvey	100 000	–	100 000	100 000	–	100 000
Fatima Jakoet	–	–	–	–	–	–
David Kneale	105 200	–	105 200	105 200	–	105 200
Robert Lumb^	n/a	n/a	n/a	–	40 000	40 000
Martin Rosen	2 000	–	2 000	2 000	–	2 000
Keith Warburton	–	5 000	5 000	–	5 000	5 000
Total	217 200	134 682	351 882	207 200	174 682	381 882

*	Appointed 1 October 2008
#	Resigned 29 June 2009
^	Resigned 30 November 2008

Issued shares = 302 841 401. Percentage of issued share capital held by directors is 0.12%.

Non-executive director fees 2010

The fee structure for non-executive directors has been adjusted for the 2010 financial year and is subject to retrospective approval by shareholders at the annual general meeting in January 2010. This fee structure will be reviewed in light of the governance requirements of King lll and any adjustments will be subject to shareholder approval.

The increases are generally in line with the average salary increase for group employees. The fees are also reviewed annually against a defined retail comparator group.

Board position	Proposed fees for 2010 (R)	Fees paid for 2009 (R)
Chair of the board	387 000	355 000
Board member	121 000	111 000
Chair: Audit committee	110 000	100 000
Audit committee member	55 000	50 000
Chair: Remuneration committee	65 000	58 000
Remuneration committee member	32 500	29 000
Chair: Risk committee	98 000	90 000
Risk committee member	49 000	45 000
Chair: Nominations committee	63 000	58 000
Nominations committee member	31 500	29 000
Chair: Transformation committee	63 000	58 000
Transformation committee member	31 500	29 000