REMUNERATION
REMUNERATION PHILOSOPHY
Lewis Group strives to engender a performance-oriented remuneration philosophy which fairly rewards executives and staff for their contributions to assisting the group in achieving its strategic, financial and operational objectives.
Remuneration policies are structured to encourage sustainable, long-term performance through the following:
- Aligning reward systems with the interests of shareholders;
- Driving a performance culture;
- Attracting and retaining talented individuals in the furniture retail and financial services industries; and
- Managing employment costs while at the same time rewarding, retaining and motivating talented executives and staff.
REMUNERATION GOVERNANCE
The board has delegated responsibility for oversight of the group’s remuneration practices to the Remuneration and Nomination Committee. This committee meets twice a year and consists of four independent non-executive directors. The chief executive officer attends meetings at the invitation of the committee, except when matters relating to his own remuneration are under discussion.
The role of the committee includes:
- developing a remuneration philosophy;
- ensuring senior executives are fairly rewarded;
- reviewing and approving compensation of executive directors and senior executives;
- recommending non-executive directors’ fees for shareholder approval;
- approving the award of share incentives;
- succession planning;
- ensuring the board has the required mix of skills, experience and other qualities to effectively manage the group; and
- identifying and nominating candidates to fill board vacancies.
REMUNERATION BENCHMARKING
Remuneration needs to be market-based and competitive owing to the portability of skills. Market information is sourced from a range of industry and executive remuneration surveys to benchmark executive remuneration in comparable positions in peer companies.
Market surveys ensure staff are competitively rewarded in line with their performance and contribution. Most job categories are benchmarked against the furniture retail sector as the knowledge and skills required are industry-specific. Specialists are benchmarked against market trends.
Remuneration packages are determined by considering market trends, the importance of a position relative to the group’s business, the required skills set, job-specific expertise, performance and contribution of individuals.
EXECUTIVE REMUNERATION
Executive remuneration packages include a guaranteed annual salary, annual performance bonus, long-term share-based incentives, motor vehicle allowance, healthcare and retirement benefits. All executive remuneration packages are approved by the Remuneration and Nomination Committee and ultimately the board.
Executives participate in a bonus scheme which is linked to their cash salary. Bonus payments are based on group performance relative to board-approved targets and specific performance measures directly under the executive’s control.
Bonuses are only paid if the group achieves a minimum of 90% of its targeted performance. Any achievement between 90% and 100% of the target will result in a proportionate accrual of the bonus.
The maximum bonus payable to executive directors is 100% of salary and individual targets and bonus criteria for each executive are approved by the Remuneration and Nomination Committee.
Annual bonuses are payable in June each year following the approval of the group’s financial results for the preceding financial year.
Long-term executive remuneration is addressed through share-based incentives to encourage sustainable shareholder wealth creation, and this is detailed further in the report.
The remuneration of the group’s executive directors is set out in note 18.4 of the annual financial statements.
STAFF
The remuneration package for staff generally comprises a salary, performance-linked incentives or a guaranteed annual bonus, retirement and healthcare funding and store discounts.
Salaries are reviewed annually and the level of increase is based on group and individual performance according to pre-determined criteria. Increases are implemented on the anniversary of the employment contract.
A collective wage increase is negotiated with SACCAWU for all employees forming part of the South African-based collective bargaining unit. In October 2009 a wage settlement of R390 across the board was reached.
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.
The group’s decentralised business model requires stores to be accountable for all aspects of the customer relationship, including sales and credit collection. This structure empowers store managers to make decisions which influence the performance of their stores. Managers are remunerated according to this philosophy, earning a basic salary and incentives based on sales, credit collections, the quality of the debtors’ book and profitability. Sales staff within the stores are largely commission-based and are incentivised to achieve performance targets. Credit collection staff within stores are rewarded for achieving collection targets.
Divisional, regional and branch managers qualify for incentive bonuses based on the performance of their particular business unit. Sales, collections and the overall condition of the debtors’ book are considered in determining these bonuses.
SHARE INCENTIVE SCHEMES
Share incentive schemes are aimed at achieving the following:
- incentivising executives to contribute to the long-term growth and sustainability of the group; and
- attracting and retaining talented staff.
The group’s schemes are equity-settled and the total number of shares and options under the schemes may not exceed 10% of the group’s issued share capital. Awards will only be paid if staff are in the employ of the group at the time of vesting, other than in the event of death, ill-health, retirement or retrenchment.
The group has four approved schemes, with two that are currently in operation. Participation in the schemes is at the discretion of the Remuneration and Nomination Committee.
Lewis Executive Performance Scheme: Awards under this scheme offer executives the right to acquire shares for no consideration, subject to the achievement of board-approved annual performance objectives. Awards vest after three years. Targets are set for each of the three years and a proportionate number of shares are allocated for each year. No performance shares will accrue in a particular year if the group achieves less than 90% of its targeted performance in that year. Any achievement between 90% and 100% of target will result in a proportionate accrual of shares.
In September 2009 a five-year performance award was made to executives and key staff to encourage retention. These shares will vest in equal amounts after three, four and five years.
Lewis Co-Investment Scheme: This scheme allows executives to invest all or part of their net annual bonus in the group’s shares. At the date of the award matching shares equal to the pre-tax bonus amount are granted for no consideration. These invested shares are held by the share trust for three years. The matching shares only vest if the executive is in the employ of the group at the time of vesting at the end of the three-year period, and has not elected early withdrawal from the scheme.
Since the implementation of this scheme in June 2006, more than 75% of the bonus pool available to executives has been invested in the Co-investment scheme every year.
The following are the outstanding share awards:
| Lewis Executive | Outstanding | |
| Performance Scheme | Vesting date | shares |
| June 2007 | June 2010 | 135 595 |
| June 2008 | June 2011 | 208 778 |
| September 2008 | September 2011 | 23 791 |
| June 2009 | June 2012 | 222 952 |
| September 2009 | September 2012, | |
| 2013 and 2014 | 650 000 | |
| Lewis Co-Investment | Matching | |
| Scheme | Vesting date | share option |
| June 2007 | June 2010 | 39 123 |
| June 2008 | June 2011 | 50 214 |
| June 2009 | June 2012 | 49 582 |
| Total outstanding | ||
| shares | 1 380 035 | |
| Shares held by Lewis Employee Incentive | ||
| Scheme Trust | 810 706 |
EMPLOYEE BENEFITS
Membership of a retirement fund is compulsory for all permanent staff. Staff may join either the Lewis Stores Provident Fund, the SACCAWU Provident Fund in the case of union members or the Lewis Stores Namibian Provident Fund for employees in Namibia. These are defined contribution funds.
The group also has two defined benefit funds, namely the Lewis Stores Retirement Fund for executive management and the Lewis Group Pension Fund which was closed to new members on 1 July 1997 and consequently the membership of this fund is declining every year.
Total membership of these retirement plans at year-end was 4 519 (2009: 4 143).
Membership of the Discovery Health Group Scheme is compulsory for staff earnings more than R8 200 per month and the group contributes 47% of the total medical aid contribution. Staff earning less than R8 200 may participate in a voluntary medical aid scheme administered by Discovery and also qualify for the 47% subsidy. The group provides a medical aid subsidy to retired staff who were employed prior to 1 August 1997.
Other staff benefits includes home loan assistance, educational bursaries, subsidised canteen facilities at head office, discounts on merchandise at group stores and low-cost funeral and personal accident insurance.
NON-EXECUTIVE DIRECTORS
Non-executive directors receive fixed fees for their services to the board and board committees. Fees are based on an assessment of the non-executive director’s time commitment, service, expertise, and increasing governance obligations. Fees are paid quarterly in arrears. In line with best governance and remuneration practice, non-executive directors do not participate in the group’s incentive schemes.
The remuneration of non-executive directors is reviewed annually by the Remuneration and Nomination Committee and recommended to shareholders for approval at the annual general meeting.
Fees paid to the non-executive directors for the 2010 reporting period are outlined in note 18.4 f the annual financial statements. The proposed fees for the 2011 financial year are included in the Notice of annual general meeting.
FOCUS AREAS IN THE YEAR AHEAD
The group will continue to build a talent pool to ensure business continuity and to retain key individuals at all levels of management. Remuneration practices are regularly evaluated to ensure compliance with all legal requirements and employment practice.