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Remuneration

report

Letter from the Chairman of the Remuneration Committee to shareholders

We are pleased to present the remuneration report for the 2016 financial year. This report summarises the philosophy, principles and approach to remuneration at TFG as it applies to executive directors, non-executive directors and other employees. It details the policy and principles set by the remuneration committee (Remco) for each of the primary components of remuneration.

In addition, it expands on and explains the implementation of this policy for each of the pay components, depicting the resulting remuneration mix and remuneration structures in detail. We disclosed the changes made to each component in the past year as part of the continuous need to revise and improve our remuneration practices to align with our strategy and respond to current trends and specific circumstances.

TFG operated in a difficult economic environment in light of the slow pace of growth in the domestic market. Despite this, our group turnover increased by 31,2%. We experienced strong cash sales growth and pleasing HEPS growth levels. More details are disclosed in the Chief Executive Officer’s report.

Mr D M Nurek retired from the board and Remco on 19 June 2015 and was replaced by Mr M Lewis. We acknowledge the valuable role Mr Nurek played in the Remco over many years, and we welcome the international experience and insights Mr Lewis brings to the committee.

The CEO, Mr A D Murray, reaches the normal retirement age of 60 in March 2017. Mr Murray agreed not to retire at that date and agreed to extend his tenure as part of our succession strategy. Consequently, and in consultation with the nomination committee, Remco structured his remuneration package to facilitate, inter alia, an orderly and smooth transition to his successor. This matter is covered in more detail in part 1 of this report.

The remuneration and shareholdings of the directors and prescribed officers of TFG Limited are disclosed, as well as the fees paid to non-executive directors. When setting and reviewing the remuneration policy, we have taken into account the best practice requirements of corporate governance, including the draft King IV report on corporate governance (King IV). In addition, the remuneration packages for directors and senior executives are determined after due consideration of their specific performance, experience and responsibilities. This determination includes engaging external remuneration consultants and performing an extensive independent benchmarking exercise of similar roles in companies comparable to TFG’s size, industry, complexity and risk profile.

The remuneration report is segmented into two parts. The remuneration policy is set out first (part 1), followed by the implementation of the remuneration policy in our 2016 financial year (FY2016) (part 2). We are of the view that the implementation of the policy achieved its FY2016 strategic objectives.

We took note of comments received from shareholder advisors and our investors that arose from the shareholder approval of the remuneration report for the 2015 financial year. Some of the comments from shareholder advisors and our investors, and our responses to those comments, are set out in the table alongside.

As in previous years, we will submit our remuneration report for shareholder approval at our annual general meeting (AGM) through a non-binding advisory vote. We request that you demonstrate your support of our policy, and we welcome any comments and/or suggestions for improvement that you may have.

E Oblowitz

Chairperson of the remuneration committee

Shareholder advisor/Investor comment	Response from TFG Remco

There should be more than one performance measure for short-term incentives (STI) and long-term incentives (LTI).	STI has multiple performance measures, namely divisional profit before tax (PBT), group earnings before interest and tax (EBIT) and individual performance rating. As from April 2016, we introduced return on capital employed (ROCE) as a secondary LTI performance condition for performance shares (forfeitable shares).
There was inadequate disclosure of performance criteria for STI and LTI, and a lack of disclosure of weightings.	The weightings and performance conditions are disclosed under part 1 of the report.
The performance criteria for the long-term incentive plan should be reviewed.	The performance criteria is reviewed on an annual basis and we are confident that the performance conditions for the FSP and SAR respectively are sufficiently stretching and robust. Taking into account various macroeconomic and retail economic forecast, Remco has decided that the FSP HEPS vesting of CPI +2% will remain unchanged.
Basic parameters of executive contracts should be disclosed.	The basic parameters of executive contracts were disclosed in part 1 of the report.
Share usage limit is set at 7,5%, which is above the ISS recommended limit of 5% for mature companies.	In response to comments received from investors and shareholder advisors, Remco further reduced the share usage limit to 5%.

PART 1: Remuneration Policy

Principles

TFG’s remuneration policy, as determined by the TFG Remco, aims to attract, engage and retain the best talent that is essential for the implementation of its business strategy and the achievement of its performance objectives while it operates within the group’s approved risk and governance frameworks. The remuneration policy is an enabler for creating sustainable and long-term positive returns for shareholders.

Remuneration of executives seeks to achieve the following principal objectives:

External equity, ensuring executives are rewarded in line with the practice in national and retail markets, taking all relevant and appropriate factors into account
Internal equity, ensuring executives are remunerated correctly in relation to each other, in recognition of their individual contributions and accountabilities
Performance alignment, ensuring executives and employees are aware of the requirements of strong short-term and long-term performance and its rewards
An appropriate remuneration mix, establishing a balance between base pay, short-term incentives (STI) and long-term incentives (LTI)

Remuneration must be balanced with attractive benefits, an enjoyable, ethical and values-based working environment and the opportunity for employees to develop and grow. The Remco is also committed to fair and responsible remuneration. The Chairperson of the social and ethics committee is also a member of the remuneration committee and due cognisance is paid to appropriate recommendations from the social and ethics committee in this regard.

Role of remuneration committee

The Remco’s primary function is to set the group’s remuneration strategy, policies and practices. The committee is responsible for recommending, reviewing and approving all remuneration components such as base pay (including non-executive directors’ fees), STI and LTI. The Remco implements its board subcommittee mandate through its consultative interaction with board members, external consultants, management (including dedicated human resource specialists) and shareholders. In line with King IV, the majority of members are independent non-executive directors.

In addition to members of the Remco, an independent advisor attends meetings on a regular basis. The CEO attends meetings by invitation and is not present when his remuneration is discussed.

Further details on the role and membership of the Remco are detailed in the corporate governance section.

The terms of reference for the Remco, which are reviewed at least annually to ensure appropriateness and compliance, are available on our website.

Key items considered by the remuneration committee during the year under review

Base pay

Approval of annual merit increase guidelines for pensionable salary
Approval of annual increases in travel and housing allowances
Approval of increases for union members (in line with the two-year agreement signed in the 2015 financial year)
Review and analysis of an external independent remuneration benchmarking exercise for senior executives and directors
Approval of merit increases and promotions for senior executives and directors

STI

Confirmation of divisional and group performance criteria and resultant annual bonus payments
Approval of the Group Annual Bonus Scheme targets at group and divisional levels for the 2016 financial year
Approval of individual performance ratings for senior executives and directors
Approval of the overall distribution curve based on the individual performance ratings for all participants in the scheme
Review and approval of STI payment multiples linked to guaranteed pay (base pay) effective in the 2017 financial year

LTI

Confirmation of group performance, and resultant authority to convert share appreciation rights and vesting of forfeitable shares
Approval of June 2015 share award allocation for share appreciation rights and forfeitable shares (including the share award mix and performance conditions)
Conducted an assessment to include a secondary measure (returns-based) for the Forfeitable Share Scheme (performance shares)
Review and approval of LTI allocation multiples linked to guaranteed pay (base pay) effective in the 2017 financial year (June 2016)
Approval of the change in the share scheme usage limit from 7,5% to 5%

Non-executive directors

Noted that the recommendation of board fees and change in the annual increase cycle for non‑executive directors (including foreign non‑executive directors), effective from 1 October 2015 to 30 September 2016, was approved by shareholders at the AGM in September 2015
Subsequent to the year under review, approval of a recommendation of board fees for the period 1 October 2016 to 30 September 2017, for approval by shareholders at the 2016 AGM

Remuneration mix

Designed to achieve an appropriate mix between base pay, short-term incentives and long-term incentives

Summary of remuneration mix

Remuneration component	Base pay	STI	LTI
Mechanism	Guaranteed pay	Group Annual Bonus Scheme	Share appreciation rights	Forfeitable shares – performance	Forfeitable shares – restricted
Changes to policy in the year under review	None	Change in STI multiples linked to guaranteed pay*	Change to LTI multiples linked to guaranteed pay*	Change to LTI multiples linked to guaranteed pay* Introduction of a secondary measure	Change to LTI multiples linked to guaranteed pay*
Subject to performance criteria	Yes	Yes	Yes	Yes	No
Applicable performance criteria	Performance review	Earnings before interest and tax (EBIT), individual performance and divisional profit growth	HEPS growth (continuing operations)	HEPS growth (continuing operations) ROCE	n/a
Performance condition	Merit increase approved by Remco	Set by Remco each year	CPI	CPI plus 2% Set by Remco each year	n/a
Minimum performance period	n/a	One year	3 years from date of grant	3 years from date of grant	3 years from date of grant
Strategic purpose of component	Attracts and retains key talent, with dual focus on external market equity and internal equity	Rewards employees for achieving or exceeding targeted performance levels	Aligns executive and key management interests with shareholders’ interests

^*	See comparable graphs below illustrating effective change in the remuneration mix.

During the year under review, STI and LTI multiples were adjusted marginally to bring the multiples more in line with current market benchmarks and peers. The comparative graphs above illustrate the change in the remuneration mix effective from 1 April 2016.

Each component, as well as the mix between components, is benchmarked against comparable peers and the market median using independent external objective market information, principles in King IV and expert guidance surrounding best practice.

The remuneration mix comprises base pay (guaranteed pay), short-term incentives (STI) and long-term incentives (LTI). The STI and LTI components of remuneration are designed relative to base pay to achieve an appropriate mix between base pay, short-term incentives and long-term incentives.

The remuneration mix varies by organisational level, with incentive pay (short-term and long-term) forming a more significant portion of remuneration at higher organisational levels.

The targeted remuneration mix at varying levels of organisational performance is approved by the Remco. The tables above depict the mix of remuneration components for the CEO and operating board, taking the following into account:

Current base pay levels
Short-term incentive pay at performance tier On Target levels
Share scheme awards at expected value, for benchmarking purposes, on the date of award

The face value of share scheme awards is determined using industry standard option pricing formulae and probability factors, together with established performance conditions.

Base pay

Attracts and retains key talent, with dual focus on external market equity and internal equity

Base pay consists of the following and applies to all permanent employees:
- A pensionable salary
- Travel and housing allowance (depending on organisational level)
- Employer contributions to:
  - TFG retirement fund
  - Provident fund (dependent on organisational level)
  - Group life and disability benefits
  - TFG medical aid scheme (where applicable)
Base pay is reviewed annually, with reference to the market, and is targeted around the median of comparable market survey statistics.
Base pay increases are awarded based on guidelines determined with reference to peers, independent market surveys, such as REMchannel salary survey, Hay’s salary survey and national economic indicators. The Remco also takes past and current group trading performance and current economic indicators into account when determining the annual merit increase guidelines.
Each role is benchmarked against the market using proven job evaluation and benchmarking methods.
TFG is sensitive to paying fair, market-related remuneration for all employees and fully supports the concept of equal pay for work of equal value in line with the Employment Equity Act 55, as amended, (the EEA). TFG monitors salary differentials for all employees performing work of equal value, and pay inequality is addressed by providing training to employees and ensuring that extensive career mapping and talent management strategies are in place.

Benefits

Influences attraction and retention of key talent

Vehicle benefits are provided based on the employee’s organisational level and role, as defined by our travel allowance and fleet policies.

Retirement, group life and disability benefits are provided in proportion to pensionable salary. To this end, TFG contributes 12% of pensionable salary to the TFG Retirement Fund for all employees eligible for membership of the fund. Members are required to contribute 7,5% to the fund. In addition to being members of the TFG Retirement Fund, executives are also members of a provident fund. The employer contributes 1,5% of pensionable salary to the provident fund and there is no compulsory contribution required of the employee. Contributions to TFG Retirement Fund and provident fund are based on pensionable salary and no element of variable pay is regarded as pensionable.

Medical aid is income related, providing identical cover to employees on the same plans, but requiring lower contributions from lower-earning employees. Employees on one of the in-house schemes receive a 50% subsidy for all approved dependents. In this way, TFG seeks to ease the burden of the increased cost of living on its employees.

Short-term incentives (STI)

Rewards employees for achieving or exceeding targeted performance levels

STI overview

The Group Annual Bonus Scheme defines three targeted tiers of performance at divisional and group level, with commensurate bonus payments at each of these levels. These levels are defined as threshold, target and stretch.

This structure exists for the following reasons:

To drive collaboration between divisions to the overall benefit of the group
To reward strong divisional performance while it moderates payments where group performance targets have not been met and thus cannot be fully funded

The scheme rules are communicated to each participating employee. Any approved bonus payments, and confirmation to employees of the underlying performance measures, are made shortly after publication of the annual financial results.

STI performance metrics

Multiple performance metrics are used to set targets for the payment of short-term incentives. These measures include (but are not limited to) the following:

Primary measure	Executive Management and Centralised Functions	Retail Brands

Earnings before interest and tax (EBIT)	100% weighting	40% weighting
Divisional profit before tax	0% weighting	60% weighting
Total weighting	100% weighting	100% weighting

The bonus pool for executive management and centralised functions is weighted 100% to EBIT, while the bonus pool for retail brands is weighted 60% to divisional profit before tax and 40% to EBIT.

After calculating the bonus pool using the primary measure, a secondary measure of individual performance is applied to an individual’s base bonus. The purpose of having individual performance as a secondary measure is to support a pay‑for‑performance culture. This secondary measure is determined by using the employee’s performance rating. The range is on a five‑point scale between “1” = 0% (very poor performance) to “5” = 120% (exceptional performance) with 100% bonus paid at a “3” rating. In line with good practice, these ratings are calibrated to ensure the group achieves a reasonable distribution curve within the total bonus pool.

The CEO and CFO’s performance measures are aligned with TFG’s strategic agenda. CEO objectives are set and assessed by the Chairman of the board. CFO and operating board members’ objectives are set and assessed by the CEO.

By way of an illustrative example, a participant who is eligible to qualify for a bonus pool payment of R100 000, could have this bonus payment modified from a zero payment to a maximum payment of R120 000 depending on individual performance.

STI target setting

The Remco approves group bonus targets, using annual profit forecasts as a benchmark (primary measure).

It is important to note that return on capital employed or a similar measure is not currently used as divisions presently do not have sufficient line of sight and influence over group assets and funding functions such as debtors.

As a major retailer and in accordance with attaining effective operational monitoring, TFG’s profits and other key retail metrics are reported on in detail on a weekly and monthly basis. This real-time reporting of profit (the cornerstone of the EBIT measure) and review by management support the robust STI design principles of divisional profit before tax and EBIT.

STI payment multiples

Short-term incentive benchmarks are reviewed regularly to ensure that bonus payment levels at each organisational level and performance tier are appropriate and form an appropriate part of the overall pay mix. Changes to the payment multiples or structure require prior Remco approval.

Bonus multiples, before the influence of any individual factors are taken into account, are calculated as a factor of:

each individual’s annual base pay; and
each organisational level.

For ease of comparison and reporting, bonus multiples are shown as a percentage of annual base pay in this report.

The Remco reviews and assesses the achievement of approved group and divisional targets and then recommends the appropriate bonus payments to the board.

The Remco has an overriding discretion in exceptional circumstances to recommend any adjustments to bonus targets and payments to the board as a result of changed business conditions, including where a payment is inappropriate given the company’s financial circumstances.

STI tiers of performance and related bonus multiple

The following rationale is applied at each tier of performance when determining and approving targets:

Threshold

Performance marginally below On Target that is nevertheless satisfactory and substantially aligned with forecasted trading performance
Performance at this level, or anywhere between Threshold and On Target, warrants and justifies up to a maximum of 50% of the On Target bonus value
Threshold is thus the point under which no payment, regardless of size, is warranted

On Target

Strong performance that is above forecast trading performance

Stretch

A superior level of performance that is sufficient to warrant and justify the maximum potential bonus payment (double the On Target value)
Performance above Stretch target does not result in additional bonus payment; payment cap by design is achieved once stretch targets are achieved

Remco guidelines dictate that the performance range between Threshold and On Target be substantially smaller than the range between On Target and Stretch to prevent payment for underperformance.

Threshold and On Target is paid on an all-or-nothing basis to limit bonus payments at performance below strong levels and to create a significant incentive to achieve On Target performance levels.

Performance between On Target and Stretch is rewarded proportionately and payments are capped at the Stretch level.

As mentioned earlier in this report, STI multiples have been adjusted to bring the multiples more in line with the market and TFG’s peers. As from the 2017 financial year, the On Target multiple for the CEO was increased from 62% to 90% and the average On Target multiple for the operating board was increased from 43% to 49%.

We have taken note of comments received from shareholder advisors and our investors that arOse from the shareholder approval of the remuneration report for the 2015 financial year.

As of 1 April 2016, the resultant bonus structure for the CEO and operating board members, expressed as a percentage of annual base pay, is indicated below.

CEO and operating board bonus payments for financial year 2017

		% annual base pay assuming individual performance modifier of 3 (met all expectations)		% annual base pay assuming maximum individual performance modifier of 5 (exceeded all expectations)
Divisional Profit/EBIT performance level	Sliding Scale	CEO	Operating board (average)	CEO	Operating board (average)

Stretch	Sliding scale between target and stretch	180%	97%	216%*	116%*
On Target	Sliding scale between target and stretch	90%	49%	108%	58%
Threshold	No sliding scale between threshold and target	45%	24%	54%	29%
Under Threshold	No payment	0%	0%	0%	0%

^*	216% and 116% is the maximum resultant bonus payment expressed as a percentage of annual base pay for the CEO and average operating board respectively.

Long-term incentives (LTI)

Aligns executive and key management interests with those of shareholders

Share Appreciation Rights (SARs)

(Foschini 2007 Share Incentive Scheme)

Participants are entitled to receive resultant shares in value equal to the growth in the share price on a defined number of rights between the date of grant and the date of conversion to resultant shares.

All shares issued under this scheme are subject to group performance criteria, which are tested against inflation-linked group HEPS targets over a period of three years with no retesting. The minimum period between grant and conversion is three years, and all rights expire after six years.

Forfeitable Shares

(Foschini 2010 Share Incentive Scheme)

Two instruments form part of this scheme, namely Performance shares and Restricted shares.

Performance Shares (Forfeitable Shares)

Performance shares issued under this scheme are subject to group performance criteria, which are tested against inflation-linked HEPS targets and ROCE targets over a period of three years with no retesting.

The weighting between HEPS and ROCE as performance measures is 80%/20% respectively, with linear vesting for both measures.

Share awards prior to June 2016

100% vesting will take place after three years if a performance criterion of HEPS growth of CPI plus 2% is met. Linear vesting will take place if HEPS growth is between CPI and CPI plus 2%, with no vesting taking place if HEPS growth is less than CPI.

Share awards after June 2016

100% vesting will take place after three years if performance criteria of HEPS growth of CPI plus 2% is met and the upper ROCE target is met. On a weighted basis, linear vesting will take place if HEPS growth is between CPI and CPI plus 2% and if ROCE is between the lower limit and the upper limit. No vesting of the HEPS weighted shares takes place if HEPS growth is less than CPI. No vesting of the ROCE weighted shares takes place if ROCE is at or below the ROCE lower limit. FY2017 share awards will be the first year that ROCE targets have been introduced as a secondary measure. Stretching and robust targets will be proposed by management for Remco approval before the end of September 2016. These targets will be disclosed in the 2017 integrated annual report.

Restricted Shares (Forfeitable Shares)

Restricted shares are issued with the specific objective of improving the retention of key senior talent, while still utilising an instrument that aligns the interests of recipients with those of shareholders. Restricted shares vest after three years and are subject to continued employment.

LTI allocation policy

Allocations are made using predefined multiples for each share incentive type based on:

organisational level;
annual base pay; and
targeted pay mixes, given market guidelines appropriate for each organisational level.

Allocations are made annually on a consistent basis to establish the awards as an accumulating asset in the hands of eligible employees with the objective to incentivise them to create growth and retain such employees in service for at least three years. With annual allocations, each allocation has a three-year vesting period, resulting in each new LTI allocation providing a further three-year incentive/retention period. Ad hoc, once-off allocations are exceptional, and will normally represent upfront remuneration approved when an employee is first employed. Any such exceptional awards to executive directors are disclosed to shareholders.

The allocation levels per role for LTI (as percentage of annual base pay) are outlined below:

Role	Expected value of annual share allocation level (as a % of Annual Base Pay)

CEO	100%
Operating board executives	75% – 60%
Balance of participating employees	55% – 15%

Benchmarks for the expected value of share awards are reviewed regularly. No changes are made without approval by the Remco and in turn by die board.

As mentioned earlier in this report, LTI multiples were adjusted to bring the multiples more in line with the market and TFG peers. As from the 2017 financial year, the expected value of annual share allocation level for the CEO was increased from 85% to 100% and operating board reduced from a range of 75% to 70% to a range of 75% to 60%. The balance of participating employees reduced from a range of 60% to 20% to a range of 55% to 15%.

100% of LTI allocations made to the CEO, operating board executives and senior executive management are subject to group performance criteria. LTI shares vest based on the performance criteria applicable to the relevant LTI scheme.

New allocations are not adjusted to compensate for any existing allocations that may be underwater.

As part of TFG’s retention strategy of other key senior employees, annual allocations are a defined mix of both performance and restricted shares. However, restricted shares are not allocated where there is another retention mechanism in place, namely a restraint of trade and minimum service agreement.

Newly appointed executives and managers may have their allocations initially increased to ensure that an appropriate holding for their role is reached over time and to create parity in the incentivising of long-term performance across similar categories of employees.

All allocations are approved by the Remco. The Remco confirms that fair principles and scheme rules were applied in determining each individual’s allocation, and also ensures that the overall share capital dilution and costs are within the defined guidelines.

Dilution limits

Despite dilution limits detailed as part of each scheme’s rules, Remco guidelines do not permit the total number of shares issued, allocated across all schemes, to exceed the following limits:

1% individual limit
5% company limit

LTI shares are settled through market purchase and are therefore not resulting in a dilution to shareholders. The usage of the dilution limit in FY2016 is set out in part 2 of the report.

Performance conditions (current and forward looking)

A best practice review was undertaken to evaluate the current LTI performance criteria against the market for forfeitable performance shares. After consultation with external remuneration advisors and a review of recommendations, Remco introduced a secondary measure for forfeitable performance shares as from the 2017 financial year.

Forfeitable performance shares

From 2017 financial year, HEPS growth of CPI plus 2% and a stretching and robust ROCE (return on capital employed) target will be used as performance measures for share awards. ROCE is the secondary measure for forfeitable share awards made to the CEO and operating board members. The use of the HEPS performance target is considered appropriate as it establishes a basis for long‑term financial planning and team-based effort between share scheme participants. ROCE has been introduced as a secondary measure to further align the vesting of share awards to the board strategy. ROCE targets as proposed by management will be approved by Remco during the first half of the 2017 financial year.

Eligibility, allocation guideline, performance conditions for vesting (weighing and vesting levels) for LTI are detailed below:

			Performance target*
	Participants	Allocation frequency	HEPS	ROCE	Measurement period	Vesting summary

Share Appreciation Rights	CEO and operating board	One allocation per annum	HEPS growth of at least CPI, compounded annually over the measurement period Weighting 100%		Three years Expiry period six years from date of grant	100% vest if performance target is met and participant is employed by TFG All lapse if performance target is not met
Performance Shares (forfeitable shares)	CEO, operating board and executives (Paterson scale E1 and above)	One allocation per annum	HEPS growth of CPI plus 2%, compounded annually over the measurement period Weighting 80% Target reviewed and set annually by Remco	ROCE target as set by Remco Weighting 20%	Three years Expiry period three years from date of grant	100% vest if performance targets are met and participant is employed by TFG Linear vesting takes place between HEPS growth of CPI and CPI plus 2% and ROCE of between lower and upper target On a weighted basis, 100% shares that do not meet minimum HEPS criteria will lapse and 100% shares that do not meet minimum ROCE criteria will lapse
Restricted Shares (forfeitable shares)	Senior management above the entry level of middle management i.e. Paterson scale D3, (excluding CEO, operating board and any employee with a restraint of trade and minimum service agreement)	One allocation per annum	No performance target –retention only		Three years	100% vest once measurement period has expired and participant is employed by TFG

^*	Note that ROCE will be introduced as a secondary measure for the first time in 2017 financial year, with a weighting of 20% ROCE and 80% HEPS. Prior to 2017 financial year, FSP share award has one performance measure, namely HEPS.

Vesting on termination

In line with scheme rules, the Remco must consider and resolve whether, based on the circumstances, a portion of the unvested LTI may vest as a result of early termination. In the case of normal retirement, death, ill health or retrenchment, all shares vest. In the case of early retirement, the Remco applies defined decision-making guidelines in determining if a portion of the shares will vest.

All shares and rights are forfeited upon an employee’s resignation or dismissal in terms of the scheme rules.

Retention strategy

Specific programmes are in place to ensure that business continuity and delivery of strategy is supported through risk management of the loss of key employees

Restraints and minimum service agreements

It is TFG’s practice to have restraint of trade and minimum service agreements in place for the CEO and operating board members. These agreements are in place for the duration of employment and contain notice periods of between 6 and 12 months. In the event of summary dismissal on grounds of misconduct (for example dishonest or fraudulent conduct), notice periods do not apply.

Ex gratia or other lump sum payments on severance or retirement

Apart from the CEO transitional agreement (see alongside), there are no other agreements currently in place that provide for ex gratia or other lump sum payments to executives on severance or retirement. Executives who depart after having performed poorly are not awarded “golden handshakes”. There are no ex gratia payments made in the event of a merger or takeover.

Outcome of executive benchmarking

As reported last year, the CEO received a base pay increase of 12% for the 2016 financial year. This 12% increase was the initial step in a series of steps intended to reduce the gap between historical base pay and that of comparable industry-specific peers. During the year under review, Remco once again commissioned external remuneration experts to conduct a comprehensive benchmarking survey and a specific evaluation of the complexity and increased span of responsibilities of the various executive director job functions within TFG. As a result of this survey, further steps were taken to ensure that levels of remuneration are market related.

Taking into account market benchmarking, the complexity of the job, his increased responsibilities both domestically and internationally, commensurate with the international expansion of the group and the CEO’s extensive retail experience (31 years in the retail sector and nine years as CEO of TFG), Remco considered and approved an increase to the CEO’s annual base pay to bring it in line with a market-related annual base pay of R10 million for the 2017 financial year.

Remco reviewed and approved an increase in the CFO’s annual base pay to a market-related annual base pay of R4,23 million for the 2017 financial year. Both the CEO and CFO’s pay mixes weightings remain geared towards variable pay, which contains robust performance metrics aimed at realising TFG’s overall business strategy.

We believe that TFG has now closed the gap between current annual base pay and that of comparable market peers. However, to ensure that annual base pay remains market related and competitive (supported by good remuneration governance), annual benchmarking will continue to be conducted.

Transition and succession for the CEO

Mr Murray will reach the normal TFG retirement age of 60 in March 2017. In order to ensure completion of a number of strategic initiatives currently underway and to enable a smooth transition to his successor, Mr Murray agreed to extend his tenure as CEO to at least the completion of the 2018 financial year and will not retire before that date. Mr Murray agreed that future annual increases to his annual base pay will only be linked to inflationary market guideline increases, if applicable.

In terms of an agreement with Mr Murray to extend his tenure until at least the completion of the 2018 financial year and for him to facilitate a smooth transition to his successor, the Remco agreed to award Mr Murray forfeitable restricted shares to the value of R20 million. This award will vest no earlier than June 2019 and will be subject to Mr Murray meeting a number of objectives set by the nomination committee regarding, inter alia, his successor and the smooth transition from Mr Murray to his successor.

Remco’s approach is to ensure an effective and deliberate handover and succession plan that preserves and builds on the value and momentum that Mr Murray and his executive team achieved. It is further aimed at ensuring active mentorship of the replacement CEO and to ensure that Mr Murray’s long-term decision-making extends beyond his retirement date. The Remco believes that the award will maximise the long-term value of TFG’s business strategy for shareholders and assist in attaining the business objectives for the duration of his extended tenure.

In the event that the specific performance criteria set are not achieved by Mr Murray, this once-off award will lapse in June 2019.

Non-executive directors

Non-executive directors are appointed for a term of three years. The nomination committee recommends candidates for election to the board. In the case of proposed re-election of existing non-executive directors, evaluated performance is taken into consideration by the nomination committee before reappointment is recommended.

Non-executive directors are paid a base fee, plus a committee fee derived based on the number of meetings.

Non-executive directors do not receive any payments linked to organisational performance, nor are they entitled to take part in any long-term incentive/share schemes. None of the non-executive directors has service contracts with the group.

Non-executive directors’ remuneration (comprising base fees and committee fees) is regularly benchmarked to the market for companies of a similar size in a similar sector. Fee proposals are put to shareholders at the annual general meeting for approval in terms of the Companies Act requirements.

Engagement with investors

Investor feedback is an integral part of Remco’s ongoing review of remuneration policy and TFG actively engages with investors on an annual basis. Remco maintains a proactive approach to consider all emerging and relevant remuneration trends.

PART 2: Implementation of remuneration policies for the year under review

The remuneration report that follows provides further details regarding the practical implementation of the remuneration policy in relation to senior executives.

Key items by pay component during the year under review

BASE PAY

The guideline given by the Remco for increases to all staff (other than unionised staff subject to negotiation with the union) in April 2015 was set at 6,5% or a minimum Rand amount. The minimum increase resulted in an effective increase of more than 10% for lower-paid employees.

Car allowances for eligible employees were adjusted by 6,5% in April 2015.

STI

The Remco set the EBIT target for 2016.

LTI

All shares allocated to the CEO, operating board and senior executive management this year were performance-based shares contingent on the achievement of company performance criteria.

Outstanding share instruments awarded to employees and executives at 31 March 2016 are as follows:

Share appreciation rights	2 501 500
Forfeitable shares	2 542 650
Total	5 044 150

The above total is 2,3% of total issued shares. This is lower than the total limit of 5% set by the Remco and approved by shareholders.

Five-year performance vs incremental remuneration increase

	Headline earnings Rm	CEO and prescribed officers total remuneration rm	^**	Remuneration as PERCENTAGE of headline earnings %	CAGR in HEPS (continuing operations)^**** %	five-year CAGR in TSR %	^****

2016^*	2 185,2	29,7		1,36	14,5	14,8
2015^*	1 881,9	36,0		1,91
2014	1 872,3	39,0		2,08
2013	1 796,6	28,1		1,56
2012	1 584,2	43,7		2,76

^*	Adjusted headline earnings excluding once-off acquisition costs.
^**	Includes all CEO and prescribed officers’ total guaranteed package (TGP), STI and LTI at IFRS fair value (excludes exceptional bonus payment made to P Meiring in 2015).
^***	Five-year compound annual growth rate (CAGR) in HEPS calculated from base year 2011 (537,3 cents) to 2016 (1 055,8 cents)
^****	Five-year compound annual growth rate (CAGR) in total shareholder return (TSR) calculated using closing share price 2016 of 14 144 cents plus dividends declared for the five years ending 2016 of 2716 cents compared to base share price in 2011 of 8 465.

Considering the HEPS growth and TSR created for investors over the five-year period in comparison to the incremental total remuneration over the same period, progression of total remuneration is considered fair and reasonable.

Short-term incentive outcomes

During the year under review, actual TFG EBIT was measured against the target set by the Remco and bonus payments were then made to qualifying eligible employees.

The following graphic indicates actual performance vs target, and the resultant bonuses paid to Messrs Murray and Thunström.

Short-term Incentive Outcome	Threshold	Target	Stretch

2016 earnings before interest and tax performance tiers set
2016 earnings before interest and tax actual
Actual bonus paid as % annualised base pay^*
A D Murray		88%
A E Thunström		62%

^*	As at March 2016.

Long-term incentive scheme outcomes

The expected value of share allocations to the CEO and operating board members for FY2016 are detailed below. The share scheme awards are shown at their expected value on the date of awards to ensure meaningful comparisons for benchmarking. Internally, the share scheme awards are communicated to participants at their face value. The expected value of the award is expressed as a percentage of their annual base pay (guaranteed pay).

	Expected value of annual share allocation as % base pay
CEO	85%
Operating board	75% – 70%
Balance of participating employees	60% – 20%

LTI performance outcomes

The 2013 FSP share award performance target was measured over the three-year performance period. The actual three-year cumulative HEPS growth of 35% exceeded the target cumulative HEPS growth of 24% and consequently 100% of share awards vested.

The 2013 SAR share award performance target was measured over the three-year performance period. The actual three-year cumulative HEPS growth of 35% exceeded the target cumulative HEPS growth of 24% and consequently 100% of SARs are available for conversion.

Current allocation vs policy limits

In terms of the policy set by the Remco, it is evident that both at an individual level and overall level, share awards held by scheme participants are within the defined limits. The CEO is the highest individual holder of share awards, and is thus compared against the individual limit.

% ISSUED SHARES

Executive directors’ remuneration

For the year under review, the board determined that the Prescribed Officers are the CEO and CFO. Messrs Murray and Thunström serve as executive directors on the TFG Limited board and they exercise general executive control and management of the business.

2016

EXECUTIVE DIRECTORS	REMU- NERATION R’000	PENSION FUND R’000	TRAVEL ALLOWANCE R’000	OTHER BENEFITS R’000^**	GUARANTEED PAY R’000	PER- FORMANCE BONUS R’000^#	IFRS SHARE ALLOCATION FAIR VALUE R’000

A D Murray	6 431,9	868,3	428,0	52,8	7 781,0	6 959,7	6 088,6
A E Thunström^*	2 194,3	296,2	246,1	41,8	2 778,4	2 308,4	829,8
R Stein^***	856,3	115,6	82,0	12,5	1 066,4	–	–
P S Meiring^***	776,8	104,9	82,0	12,5	976,2	–	–
Total	10 259,3	1 385,0	838,1	119,6	12 602,0	9 268,1	6 918,4

^#	Performance bonus included in 2016 remuneration paid in 2017 but accrued in 2016.
^*	A E Thunström joined TFG on 1 February 2015 as CFO-elect and was appointed as a director of Foschini Retail Group (Pty) Ltd. On 1 July 2015, he was appointed as an executive director of TFG Limited. In addition to his remuneration paid for the year under review, he received a once-off payment of R6,5 million as consideration for accepting a service agreement and restraint of trade contract.
^***	R Stein and P S Meiring both retired from the group on 30 June 2015. Remuneration paid for the year under review is from April 2015 to June 2015.
^**	Other benefits include housing allowance and medical aid subsidy.

2015

EXECUTIVE DIRECTORS	REMU- NERATION R’000	PENSION FUND R’000	TRAVEL ALLOWANCE R’000	OTHER BENEFITS R’000	GUARANTEED PAY R’000	PER- FORMANCE BONUS R’000	IFRS SHARE ALLOCATION FAIR VALUE R’000

A D Murray	5 716,5	771,7	401,9	51,0	6 941,1	5 651,3	6 195,6
R Stein	3 216,2	434,2	308,1	47,7	4 006,2	2 749,9	2 448,2
P S Meiring	2 917,6	393,9	308,1	47,7	3 667,3	12 078,8	2 226,2
Total	11 850,3	1 599,8	1 018,1	146,4	14 614,6	20 480,0	10 870,0

Directors’ interests

As at 31 March 2016, directors had the following interests in company issued shares:

						Executive
	M Lewis ’000	E Oblowitz ’000	D Friedland ’000	N V Simamane ’000	R Stein ’000	A D Murray ’000	A E Thunström ’000	Total shares ’000

Direct beneficial		2,1	41,1	1,6	751,6	1 207,1		2 003,5
Indirect beneficial					281,7	699,6		981,3
Indirect
non-beneficial	9 799,8							9 799,8
Total	9 799,8	2,1	41,1	1,6	1 033,3	1 906,7	–	12 784,6

As at March 2016, executive directors had accepted the following share appreciation rights and forfeitable shares:

	Financial year of award	Financial year of earliest delivery	Financial year of latest delivery	Strike price per instrument	Number of instruments awarded ’000	Number exercised in year ’000	Closing number of unvested and/or unexercised instruments ’000

AD Murray
SARs	2012	2017	2018	R86,32	85,2		85,2
	2013	2017	2019	R136,22	62,8		62,8
	2014	2017	2020	R96,86	133,4		133,4
	2015	2018	2021	R111,10	89,4		89,4
	2016	2019	2022	R148,15	76,4		76,4
FSs	2013	2016	–		27,9	27,9	–
	2014	2017	–		21,7		21,7
	2015	2018	–		38,3		38,3
	2016	2019	–		32,8		32,8

A E Thunström
SARs	2016	2019	2022	148,15	31,2		31,2
FSs	2015	2019	–		11,8		11,8
	2016	2019	–		13,4		13,4

Changes to directors interests after year end

Acceptance of SARs in June 2016:

	SARs accepted ’000	Price per SAR R

A D Murray	119,0	142,72
A E Thunström	37,8	142,72

Acceptance of FS in June 2016:

	Shares accepted ’000	Indicative Value Rm^*

A D Murray	54,9	8,1
A D Murray^**	142,9	21,0
A E Thunström	17,4	2,6

^*	Estimated value based on closing share price of R147,00 on 2 June 2016.
^**	Special share award of R20 million restricted shares granted. Vesting of this share award subject to specific number of objectives being met. Refer to earlier details on the CEO’s transition.

On 2 June 2016, an executive director sold ordinary shares previously granted on 13 June 2013, with performance-based restrictions in terms of the group’s 2010 share incentive scheme:

	Shares sold ’000	Value Rm

A D Murray	21,7	3,2

On 8 June 2016, a non-executive director converted share appreciation rights (previously granted to him in capacity as an executive director on 3 June 2011, 19 July 2012, 13 June 2013 and 10 June 2014) into ordinary shares and sale thereof in open market:

	Shares sold ’000	Value Rm

R Stein	61,5	9,2

Non-executive directors

As reported last year, a comprehensive market benchmarking exercise was performed utilising independent external remuneration consultants to determine whether current non-executive director fees are market related. The benchmarking exercise determined that certain committee fees are significantly below market levels. Shareholders approved the proposal that fees will be adjusted using a staggered approach over a three- to five-year period subject to shareholder approval on an annual basis. Fees are based on an assessment of the responsibility placed on non-executive directors arising from increased requirements for regulatory oversight and TFG’s international expansion. It is proposed that, rather than using a staggered approach, fees are adjusted to fair market value from October 2016, reviewed on an annual basis and approved by shareholders on an annual basis. The proposed base fee increase from October 2016 is proposed at R278 000 per annum (8,2% increase) and market-related increases in committee fees.

The following table sets out the proposed fees for approval at the annual general meeting in September 2016 for the period 1 October 2016 to September 2017:

ROLE	Current approved fees	Proposed fees

Chairman (all inclusive)	R850 000	R900 000
Director (South African)	R257 000	R278 000
Director (foreign)	R500 000	R540 000
Board audit committee Chairperson	R195 000	R240 000
Risk committee Chairperson	R95 000	R160 000
Remuneration committee Chairperson	R90 000	R120 000
Social and ethics committee Chairperson	R84 000	R110 000
Member of board audit committee	R75 000	R120 000
Member of risk committee	R60 000	R80 000
Member of remuneration committee	R60 000	R75 000
Member of social and ethics committee	R42 000	R60 000
Member of nomination committee	R30 000	R40 000

The fees for the 2016 financial year and the 2017 financial year fees (based on current committee membership) are presented below:

NON-EXECUTIVE DIRECTORS	NOTE	Fees paid in respect of 2016 R’000	Base fees proposed R’000	Committee fees proposed R’000	Total Fees proposed in respect of 2017^# R’000

M Lewis	1	712,5	875,0	–	875,0
Prof F Abrahams	2	419,0	267,5	164,5	432,0
S E Abrahams		477,8	267,5	292,5	560,0
D Friedland		448,3	267,5	235,0	502,5
B L M Makgabo-Fiskerstrand		368,0	267,5	148,5	416,0
E Oblowitz	3	465,8	267,5	330,0	597,5
N V Simamane		371,8	267,5	148,5	416,0
R Stein	4	275,3	267,5	202,5	470,0
G H Davin	5	202,4	520,0	–	520,0
D M Nurek	6	364,0	–	–	–
Total		4 104,9	3 267,5	1 521,5	4 789,0

^#	Proposed total fee increases for non-executive directors (after taking into account committee structures, new appointments and market adjustments) will increase by 16,7%.

Notes

1.	M Lewis appointed as Chairman of TFG Limited board on 19 June 2015.
2.	Prof F Abrahams stepped down as Chairperson of remuneration committee to become a member on 1 October 2015.
3.	E Oblowitz appointed as Chairperson of remuneration committee on 1 October 2015.
4.	R Stein appointed as a non-executive director on 1 July 2015 and became a member of the risk and nomination committees on 1 October 2015.
5.	G H Davin appointed as a non-executive director on 5 November 2015.
6.	D M Nurek resigned from the board on 19 June 2015.