Remuneration Committee report

The Remuneration Committee (the committee) presents the following report for the 2019 financial year.

COMMITTEE GOVERNANCE

COMPOSITION

Members of the committee for the financial year under review were independent non-executive directors Harish Mehta (Chairman), Mike Hankinson and Phumla Mnganga. Their qualifications and experience are available here.

MEETINGS

The committee met formally three times during the financial year under review. Members’ attendance at meetings are recorded. The CEO attends meetings by standing invitation to make proposals and provide such information as the committee may require.

EVALUATION OF COMMITTEE

The committee conducted a self-assessment evaluation to measure its effectiveness and performance during the financial year under review. There were no concerns raised with the functioning of the committee nor with the efficiency and competence of its members. The next evaluation will be undertaken in 2021.

ROLE AND RESPONSIBILITIES

The committee’s role and responsibilities are governed by its terms of reference as reviewed and approved annually by the board. As members of the committee, our mandate is to ensure that the company remunerates fairly, responsibly and transparently and in doing so annually reviews the company’s remuneration policy to ensure that it promotes the achievement of strategic objectives and encourages individual performance.

During the financial year under review:

executive management engaged with shareholders regarding the company’s 2018 remuneration policy and implementation report, details of which are here;
the committee reviewed, monitored, considered, recommended and approved (where applicable):

the company’s remuneration policy and remuneration implementation report for approval by the board, which will be put to a non-binding vote by shareholders at the 2020 AGM;
annual remuneration increases from employees outside the bargaining unit. An increase of 6.5% (2018: 4.0%) was mandated;
annual remuneration increases for employees within the bargaining unit. An increase of between 6.5% and 7.0% (2018: 6.0%) was mandated;
executive directors’ and Executive Management Committee members’ performance, remuneration and incentives bonuses;
the annual award of shares in terms of the group’s long-term conditional share plan (CSP), details of which are below;
the fees payable to non-executive directors for approval by shareholders. Details of which are below; and
its terms of reference and annual work plan.

The committee is satisfied that it has fulfilled its responsibilities in accordance with its terms of reference, a copy of which can be found online.

SECTION 1 – BACKGROUND STATEMENT

Engagement with Shareholders

At the 2019 AGM of the company, our 2018 remuneration report was presented and voted on in sections, namely:

Remuneration policy – supported by 94.71% (2017: 95.66%) of the company’s shareholders who voted.

Remuneration implementation report – supported by 66.48% (2017: 89.97%) of the company’s shareholders who voted.

As a result of the dissenting votes on the remuneration implementation report, which exceeded 25%, management undertook a comprehensive review of SPAR’s executive remuneration framework and engaged with shareholders, proxy advisers and other stakeholders to understand their concerns around our remuneration policy and practice. Management has taken all comments on board in an effort to try and get the balance right between supporting shareholders’ interests, and appropriate performance-based remuneration, while at the same time motivating, incentivising and retaining our executive talent to implement SPAR’s strategy. Management:

engaged with its major shareholders telephonically to understand and address their concerns;
invited shareholders via a JSE SENS announcement on 8 October 2019 to email the Company Secretary with their concerns/questions. There were no comments received from shareholders; and
engaged with the ISS who are a global company that provides corporate governance and responsible investment solutions, to discuss concerns raised in their 2019 advisory report, as management felt that shareholders may have acted on their recommendations to vote against the company’s 2018 remuneration implementation report.

Concerns raised by shareholders regarding the 2018 remuneration policy and remuneration implementation report are set out below:

Concerns		Response
Significant increases in the executive directors’ salaries.		The remuneration of the CEO and Group Financial Director were benchmarked by using an appropriate reference group of peers in the market. These were not only similar retail businesses, but also companies of similar market capitalisation. In addition, the committee also considered the increased size of the company, not just in financial terms, but also its geographical expansion with related complexities and increased responsibilities. Finally, the committee took into account the strong reported profit performance of the company. The committee established that there was a significant gap which needed to be addressed through a market-related adjustment. The extent of the adjustment considered appropriate by the committee will be phased in over a period of three years.
Restricted (non-performance) share awards granted, without performance conditions.		The CSP scheme makes provision for the award of retention shares where remaining in the employment of the company for a period of three to five years is a performance obligation. The scheme provides for these awards to be made in “exceptional” circumstances. The committee recognised the significant number of senior and executive directors retiring during 2019 and 2020 and the importance that their designated successors and other identified key senior executives were retained. The risk of losing these key senior executives would be extremely detrimental to the company over this time. The committee therefore made awards of these “retention shares” to lock in identified key and critical executives. These awards will only be made when extraordinary circumstances, such as these, need to be addressed.
Poor disclosure of CSP performance targets and performance against bonus metrics.		Enhanced disclosure of CSP performance targets and actual performance against bonus metrics have been addressed in the 2019 remuneration policy and remuneration implementation report.
The relative Total Shareholder Return (TSR) performance condition for the CSP allows for vesting to occur at performance levels below the average of the undisclosed peer group, with a large proportion (65%) vesting for performance equal to the comparator group.		For the TSR award, the committee takes note of the concerns that an overly generous proportion will vest on the achievement of target. The vesting range is being considered by the committee and before any further awards are made, these will be reduced below the existing level and probably be in the range of 35% – 40% for on-target vesting. The details of the TSR peer group for performance measurement are set out in the remuneration policy.

For the 2020 AGM, the remuneration policy and the remuneration implementation report will again be tabled separately for non-binding advisory votes by shareholders. In the event that either the policy or remuneration implementation report or both are voted against by 25% or more of the voting rights exercised, the committee commits to another engagement process to ascertain the reason for the dissenting votes and appropriately address any legitimate and reasonable objections and concerns raised.

CHANGES IN THE REMUNERATION POLICY

The committee considered developments in remuneration, best practice and feedback from shareholders and proposed the following changes to the remuneration policy:

The adoption of a malus and clawback policy. The committee are in the process of confirming the policy but this will include at least the following provisions:

Malus		Clawback
The committee may, on or before the vesting date of an award, reduce the quantum of an award in whole or in part after an actual risk event (trigger event) occurs, which in the judgement of the committee, had arisen during the relevant vesting or financial period.		The committee may apply clawback and take steps to recover awards that have vested in a participant (on a pre-tax basis) as a consequence of a trigger event which, in the judgement of the committee, arose during the clawback period. The clawback period will run for three years from the vesting date of the awards
In the event of early termination of employment during the vesting period of an award, the committee will consider whether a trigger event arose between the award date and the date of termination of employment.		In the event of a breach of directors’ duties by a participant, the committee reserves the right to pursue any remedies available to it in terms of the clawback policy, as well as common and statutory law.
		The policy will make provision for the implementation of certain methods of recovery in the event that the participant disposes of the shares after the vesting date but before the clawback period ends, as well as in the event that the shares are retained throughout the clawback period.

The summarised trigger events for malus and clawback include:

Employee misbehaviour, dishonesty, fraud or gross misconduct
A material misstatement of the financial results for the performance or employment period of the award, resulting in an adjustment in the audited consolidated accounts of the company
The assessment of any performance metric or condition (where applicable) in respect of an award which was based on error, or inaccurate or misleading information
Any information used to determine the quantum of a cash short-term incentive or long-term incentive scheme payment, or the number of shares subject to a long-term incentive award was based on error, or inaccurate or misleading information, and/or
Events or behaviour of the employee that had a significant detrimental impact on the reputation of the company

Introduced a Minimum Shareholding Requirement (MSR) policy for executive directors. Refer below for details pertaining to the MSR requirements.

The committee is satisfied that remuneration in all forms accruing to employees at all levels is market related and equitably awarded. In addition, the committee believes that SPAR’s remuneration philosophy and policy supports the company’s strategic objects by incentivising both short-term and long-term behaviour to meet and exceed its strategic goals.

Thanks go to the members of the committee for their dedication and constructive contributions to the functioning of the committee.

Harish Mehta
Chairman of the Remuneration Committee

12 November 2019

SECTION 2 – REMUNERATION POLICY

PHILOSOPHY

SPAR’s employees are critical in achieving the company’s strategic objectives. Accordingly, SPAR is committed to paying fair, competitive and market related remuneration to ensure that the company is able to attract and retain top-quality and talented employees. Our remuneration policy therefore seeks to:

position the remuneration levels appropriately and competitively in comparison with the labour market; and
acknowledge the contribution of individual employees by rewarding them for the successful achievement of company goals and objectives.

Apart from fixed remuneration, an element of variable remuneration that is aligned to value creation in the form of short and longer-term incentive schemes is also catered for and linked to the achievement and performance of specified targets and objectives, with payment being made from increased returns. This also assists in attracting and retaining key employees.

Fair differentiation based on performance and skills shortage is applied. The company takes cognisance of its external environment through an understanding of national remuneration trends and by regular benchmarking against comparable companies and the market.

SPAR uses remuneration surveys conducted by reputable salary survey companies that have sufficient sample sizes and spread of positions, and an adequate representation in relevant industries comparable to SPAR.

Salary scales provide remuneration guidelines based on the Paterson grading system and are informed by market comparisons. The company strives to remunerate key positions and those positions where there is a shortage of skills (as defined annually) on at least the 75th percentile of the market, and the rest of the positions on at least the 50th percentile of the market.

The use of a performance management system also ensures that there is a positive correlation between individual and team performance and remuneration earned. Management is responsible for managing remuneration and thus supporting the long-term sustainability of the company.

Process to Determine Remuneration

The committee is responsible for approving salary increases for the executive directors and the Executive Management Committee.

The CEO, together with the Executive Management Committee, is responsible for all employees below EU grade. The overall percentage increase for employees below EU grade is authorised by the committee. Salary increases are implemented:

on 1 January each year for all employees graded DU band and below, who are not members of the bargaining unit;
on 1 October each year for employees graded EL band and above; and
as per collective agreements with the union(s) for employees in the bargaining unit.

REMUNERATION STRUCTURE

SPAR’s remuneration structure consists of both fixed and variable remuneration using the Paterson grading methodology.

	Fixed remuneration	Variable remuneration
	Fixed remuneration	Short-term incentives	Long-term incentives
Objective	To help attract and retain the best talent.	To motivate and incentivise delivery of performance, financial and non-financial, consistent with the group’s strategy over the financial year.	To motivate and incentivise delivery of long-term, sustainable performance.
Type	Salary.	Performance Bonus Plan.	CSP. Share Option Scheme (Closed).
Policy	Based on the Paterson grading methodology and determined by level of skill and experience, and scope of responsibilities.*	Solely at the discretion of the company and can be changed or withdrawn at any time. Short-term incentives are only paid to individuals who are in employ of the company at the end of the financial year.	Annual or ad hoc awards approved by the board are granted to employees graded EL and above and identified selected other staff on merit. May be either performance or restricted awards.

* The Paterson grading methodology works as follows:

F	Chief Executive Officer
EL and EU	Executives
DU	High-level specialists/middle to high management
D	Management
CU	Lower-middle management
C	High-level skilled/clerical/supervisory
B	Clerical
A	Low-level skilled

Fixed Remuneration

Fixed remuneration consists of cash remuneration, pensionable remuneration and benefits and is structured as follows:

Bands A to CU (Non-management)		Salary Guaranteed 13th cheque payable in December of each year. This amount forms part of the employee’s pensionable remuneration Benefits
Bands D to F (Management)		Salary Other pensionable remuneration, such as car allowance, vehicle insurance and fuel, which is paid by the company Benefits

All permanent full-time employees are required to become members of one of the company’s available retirement funds, namely:

The Old Mutual SuperFund Provident Fund: The SPAR Group Management Provident Fund;
The Old Mutual SuperFund Pension Fund: The SPAR Group Ltd Defined Contribution Pension Fund; and
The Old Mutual SuperFund Provident Fund: The SPAR Group Ltd Staff Provident Fund.

Membership of a medical aid scheme is voluntary. The company has a number of medical aid schemes which employees are entitled to join. The Tiger Brands Medical Scheme is a group scheme, while a number of other low-cost medical aids have been negotiated at distribution centre level.

Other variable remuneration, such as allowances, is paid where applicable and in accordance with the legislation and collective agreements entered into with the union(s) or workers’ committees.

Non-financial benefits include subsidised canteen meals, access to a clinic, uniforms and training and development.

Variable Remuneration

Short-term incentives

All employees participate in the short-term incentive scheme, as follows:

Bands A to CU (Non-management)	Performance bonus of up to 50% of a month’s salary or part thereof, based on the achievement of set targets. The targets are based on key issues in the business strategy and are mainly financial targets.
Bands D to F (Management)	Performance bonus, as follows:
	Grade	% of basic annual salary	Bonus split financial:functional
	EU to F	100	75:25
	EL	60	60:40
	DU	30	30:70
	DL	15	30:70

The financial component of the short-term incentive is based on:

a targeted divisional profit before tax for divisional management; and
the group’s profit after tax for executive directors and central office management.

In both cases the financial target matrix threshold commences at profit achieved for the previous year (adjusted for extraordinary items if necessary), and increases incrementally until the maximum stretch achievement level is reached at a profit level approximately equal to the board-approved internal budget. On-target is set at approximately 97% of budget.

The methodology is based on the company’s approach in setting budgets that include sufficient stretch for management, and are not simply seen as an “easily achieved result”. For this reason the achievement of the budget presupposes an exceptional performance. This allows management to focus on all components of the budget throughout the year and to ensure these remain relevant.

The functional component comprises objectives that include corporate objectives (for example, transformation) and individual objectives, which are specific to a manager’s sphere of influence. The attainment of these targets contributes to the achievement of the company’s strategic objectives, which are aligned to the delivery of sustained shareholder value. The principle of paying for performance is a key factor underpinning the short-term incentive, and any variable payments are directly aligned to performance outcomes. Achieving these objectives will result in a bonus pay-out subject to the achievement of a minimum profit level of no less than the profit level achieved in the previous year.

Transformation is weighted at 60% of the functional allocation of 15% and addresses (1) the employment and promotion of black employees and (2) the development of black ownership.

The short-term incentive bonus is capped at 100% of annual salary for executive directors and senior general management.

Long-term Incentives

The company has two long-term incentive plans in place for key employees, senior management and executive directors, namely the Share Option Plan and CSP.

Share Option Plan (SOP)

The SPAR Group Ltd Employee Share Trust (2004) scheme closed in 2014 and no further share option allocations can be made in this scheme.

The SOP provided the right to the option holder to purchase shares in the company at the option price. On election by option holders, one third of the options granted vests after three years, with a further third vesting on the expiry of years four and five respectively. There is no performance criteria in this scheme and as the scheme is now closed, none can be introduced for previous awards.

The last options were allocated on 7 February 2014 and remaining participants have 10 years from date of issue to exercise their option rights. Based on the SOP rules, all awards under this scheme will lapse or vest by February 2024.

Options previously granted to executive directors, options exercised during the year under review and unexercised options as at 30 September 2019 are provided in the remuneration implementation report below.

CSP

The CSP provides a mechanism that enables the company to provide key employees with the opportunity to receive shares in the company based on personal or group performance. The primary intent is to make performance-related awards under the CSP through an award of shares that are subject to appropriate performance conditions. An award of restricted shares may be made in exceptional circumstances to address serious retention risks or to compensate prospective employees for the loss of long-term incentive awards with their existing employer.

The retirement of approximately 10 senior executives during the 2019 financial year caused the committee to seriously consider the need to retain the services of both internal replacements and external appointments for these positions. Accordingly, the committee decided to make certain awards of retention shares to identified key executives to “lock” them in to the company during this period of change. These were clearly understood to be extraordinary awards during 2018 and 2019 as the loss of any of our senior executives at this time would have been detrimental to our performance and the overall business.

It is not the committee’s intention to use restricted shares as an add-on award to retain or compensate executives during a year of poor performance.

The committee continues to review its compensation practices and may consider, as per global and local best practice, not to reward the executive team with time-based restricted shares.

The CSP is differentiated from the SOP in that it has performance conditions governing the vesting of awards. In addition, whereas the SOP is generally settled by the issue of shares, the CSP is intended to be settled by a market purchase of shares and will therefore not cause dilution to shareholders.

Salient features of the CSP remain as follows:

Details		Conditional share plan
Description		Under the CSP, participants receive a conditional right to receive a share in the company on the vesting date and will have no shareholder rights prior to this date.
Company limit		The cumulative aggregate number of shares that may be allocated under the CSP shall not exceed 5 200 000 shares (approximately 3% of issued share capital). This limit excludes share purchases in the market and shares forfeited. The aggregate number of restricted shares that may be allocated under the CSP may not exceed 1 300 000 shares.
Individual limit		The cumulative aggregate number of shares that may be allocated to any one individual may not exceed 570 000 shares (approximately 0.33% of issued share capital). To prevent these numbers being exceeded, the annual awards are capped at a percentage of gross annual basic salary, for example, the CEO at 60%.
Settlement method		The intention of the company is to settle all CSP awards from a market purchase of shares; however, the rules of the CSP do allow for settlement in any of the following ways: Market purchase of shares Issue of shares Use of treasury shares
Termination of employment		Bad leavers will forfeit all awards on the date of termination of employment. In the case of good leavers, a pro rata portion of all unvested awards will vest. The pro rata portion will reflect the number of months served since the award date and the extent to which the performance conditions (if any) have been met. The balance of the awards will lapse.
Allocation methodology		The CSP may be used for annual allocations. The company will define annual allocation levels expressed as a percentage of gross annual basic salary. In defining these levels, the company will endeavour to maintain the fair value that participants would have maintained under the SOP. To this end, allocation levels that may be made on an annual basis (expressed as a percentage of gross annual basic salary) are as follows: CEO: 60% Executive Committee members: 50% Senior managers: 35%
Grant price		Not applicable
Vesting/employment period		The scheme rules set this at three years for annual award of performance shares and in equal parts after years three, four and five for restricted shares. Prior to vesting, executive directors may elect to subject settled shares to an additional holding period of three years.

Performance conditions

The performance conditions applicable to an award of shares are set annually by the committee, in broad consultation with shareholders. The performance conditions will be measured over a performance period of three years, which is aligned with the financial years of the company.

The table presented below summarises the three performance conditions along with their definitions, and the proportion of the total number of shares awarded to which the performance conditions relate. Also included in the table is the target levels for the Threshold, On-target and Stretch measures which represent the levels of achievement required for certain portions of the performance shares related to that particular performance condition to vest. The targets remain unchanged from those approved by shareholders on 11 February 2014 when this scheme was initiated.

Performance Condition	Defined as	Detail	Threshold	On-target	Stretch	Weighting
Return on net assets (RONA)	Operating profit expressed as a percentage of the net closing asset value at the relevant year-end.	The average RONA over the performance period will be compared to the targets set out herewith.	80% of the on-target.	The average RONA as per the operating budget approved by the board for each financial year in the performance period. For the 2019 award, this was set at an average of 40%.	120% of the on-target.	30%
HEPS	Headline earnings divided by the weighted average number of ordinary shares (net of treasury shares) in issue during the relevant financial year. Headline earnings consist of the earnings attributable to ordinary shareholders, excluding non-trading and capital items.	Growth in HEPS will be calculated as the growth between the base year and the last year in the performance period.	Consumer price index (CPI) growth over the performance period.	HEPS growth between the operating budget approved by the board for the last year in the performance period and the base year HEPS. For the 2019 award, this was set at 30% growth.	Target plus 9% over the performance period.	50%
Total shareholder return (TSR) relative to a peer group	The TSR will be measured as the compound annual growth rate (CAGR) in the TSR index for the company and the peer companies over the performance period after holding the shares and reinvesting the dividends over the performance period.	To remove vagaries in the market, the CAGR in TSR calculation is to be smoothed by using the average TSR index for the 20 business days up to and including the start of the performance period and 20 business days up to and including the end of the performance period. The peer group will constitute suitably constructed and appropriate peer companies.	80% of the on-target.	Weighted average TSR of peer group. The committee recognises the concern that this is overly generous and before any further awards are made, this will be reduced below the existing level and probably be set in the range of 35% – 40% for on-target vesting. The relative stretch vesting would then be increased to 175% of the on-target measure.	120% of the on-target.	20%

The peer group for purposes of the TSR measurement are:

Shoprite Holdings Limited
Pick n Pay Stores Limited
Woolworths Holdings Limited
Massmart Holdings Limited
Cashbuild Limited
Clicks Group Limited

and remain unchanged.

The portion of the performance shares that will vest at each target will be as follows:

	Performance	Vesting Percentage
Threshold	Acts as a “gatekeeper” and will represent the minimum performance that is required before performance shares vest.	30% of the award of performance shares will vest for performance at threshold. None of the performance shares will vest for performance below threshold.
On target	Relates to good, but sufficiently stretching performance.	65% of the award of performance shares will vest for performance on-target. For the TSR award, the committee recognises shareholders’ concern that the award percentage is possibly overly generous. Before any further awards are made, these will be reduced to below the existing level and probably be set in the range of 35% – 40%.
Stretch	Relates to exceptional performance in the context of the prevailing business environment.	100% of the award of performance shares will vest for performance at stretch.

For performance levels between threshold and stretch, linear interpolation is used to determine the proportion of shares vested.

The performance conditions of the CSP continue to be reviewed in line with best practice.

The Remuneration Committee supports shareholding by its executive directors and believes this re-enforces shareholder alignment post the vesting of long-term incentives. To this end, executive directors can elect to subject their CSP shares that are coming up for vesting for a further agreed holding period during which time such shares cannot be disposed of. All executives have agreed to further hold their shares for an additional three years.

The committee plans to introduce a MSR policy which will apply to executive directors. The policy will require the executives to build up a specific shareholding in SPAR using shares from various sources, including (but not exclusively or limited to) the vesting of awards under the CSP.

The target minimum shareholding to be built up by executives would be:

CEO – 200% of total guaranteed package; and
other executives – 150% of total guaranteed package.

In terms of the MSR policy, executives will hold their shares to the earlier of:

three years; or
the date of his or her termination of employment with any of the SPAR employer companies; or
the abolishment of the MSR policy; or
upon his or her successful application to the committee in special circumstances as governed by the MSR policy, which may include proven financial hardship.

The shares that have vested are settled and held by an escrow agent. Executives are prohibited to trade with the share freely until the end of the holding period but will be treated as a normal shareholder and will be able to vote and receive dividends paid by the company in respect of the shares.

CURRENT CSP AWARDS

Performance conditions, targets, information and allocations

The interim measures against the targets for the unvested awards issued in 2016, 2017 and 2018 are summarised in the table below. The projected HEPS growth and average annual RONA returns over the appropriate performance periods for each applicable grant have been calculated using historical and forecast HEPS values and are provided purely for shareholders’ information.

Description	2016	2017	2018
Grant date	15 November 2016	14 November 2017	14 November 2018
Vesting date	7 February 2020	8 February 2021	14 February 2022
Performance period	1 October 2016 to 30 September 2019	1 October 2017 to 30 September 2020	1 October 2018 to 30 September 2021

HEPS condition
Threshold (expected CPI growth)	14.80%	14.20%	14.17%
On-target growth (based on approved budget)	30.00%	30.00%	30.00%
Stretch growth	39.00%	39.00%	39.00%
Base year HEPS measure	1 033.0c	976.0c	1 063.2c
On-target HEPS required	1 342.9c	1 268.8c	1 382.2c
Management forecast based on current projections	1 134.9c	1 309.1c	1 385.9c
Expected HEPS growth (management forecast based on current projections)	9.9%	34.2%	30.4%

Rona condition
Threshold (80% target)	32.00%	32.00%	32.00%
On-target RONA (average for 3 years)	40.00%	40.00%	40.00%
Stretch	48.00%	48.00%	48.00%
Base year RONA measure	45.8%	39.3%	39.1%
On-target RONA required	40.0%	40.0%	40.0%
Management forecast based on current projections	39.9%	41.1%	42.6%

The measure of TSR will be the TSR of SPAR relative to the weighted average TSR of the six selected peer group companies.

Awards made during 2019

On 12 February 2019, the committee awarded 281 500 performance shares (2018 grant) and 100 000 restricted (retention shares) (2018 grant) to key employees, senior management and executive directors. The vesting date of the performance shares award is 12 February 2022 and the vesting dates of the retention shares are 12 February 2022, 12 February 2023 and 12 February 2024.

The performance targets for both the HEPS and RONA conditions are set out in the table above (see column headed 2018). Also included in the table are management’s current forecasts of the achievement levels for both conditions.

These performance shares were calculated in accordance with the targeted award level at a share price of R173.38.

Details of CSP awards to executive directors are provided in the remuneration implementation report below.

Awards that vested during 2019

On 18 February 2019 the second tranche of CSP awards issued in November 2015 vested. The final performance conditions for the grant were measured and externally verified by Deloitte. The results of the calculation of the actual vesting percentage were as follows:

HEPS growth over performance period

Vesting percentage

Revised vesting percentage

Weighted
x 50%

Threshold

On-target

Stretch

Actual

HEPS Condition

16.82%

30.00%

39.00%

13.10%

0.00%

28.38%*

14.19%

^*	Adjustment approved by the committee to recognise the unforeseen dilution effect of additional equity issued – recalculated as if equity has not been issued.

RONA growth over the performance period

Vesting percentage

Revised vesting percentage

Weighted
x 30%

Threshold

On-target

Stretch

Actual

RONA Condition

36.00%

45.00%

54.00%

41.35%

50.80%

15.24%

Compound annual growth rate

Vesting percentage

Revised vesting percentage

Weighted
x 20%

Threshold

On-target

Stretch

Actual

TSR Condition

0.20%

0.26%

0.31%

5.01%

100.00%

20.00%

Total to vest

49.43%

The committee adjusted the HEPS measurement for the 2019 vesting tranche to recognise the additional equity shares issued in 2016 which were not taken into account when the growth target was originally set. These 11.9 million additional ordinary shares, constituting approximately 6.9% of issued shares, were placed in March 2016 to raise funding for inter alia the Swiss business acquisition. The adjustment took into account the extent of dilution caused to HEPS growth due to these additional shares.

Of the total number of awards in effect at the measurement date, 149 036 vested.

The awards were settled by a market purchase of shares.

The actual vesting awards for the last two years were as follows:

	2019	2018
HEPS growth	28.38%	51.10%
RONA growth	50.80%	53.20%
TSR	100.00%	100.00%
Final vesting	49.43%	61.50%

Executive and Non-Executive Directors’ Remuneration

The committee makes use of PricewaterhouseCoopers’ (PwC) executive and non-executive remuneration reports to provide insight into current remuneration practices and trends and continually engages with PwC to assist them with a benchmarking exercise of salaries, including looking at short-term and long-term incentives in order to ensure that the remuneration of executive management is fair and responsible in the context of overall employee remuneration. The committee is satisfied that PwC are independent and objective in giving their advice.

Executive directors’ remuneration

Executive directors receive a monthly salary and benefits based on the role of each executive and his or her performance and contribution to the group’s overall results, including other pensionable remuneration, allowances such as a car allowance, pension fund, medical aid, vehicle insurance and fuel, which is paid by the company.

Details of executive directors’ remuneration for the year under review are provided in the remuneration implementation report below.

Executive directors’ terms of service

Executive directors are full-time employees of the company and, as such, each has an employment agreement in accordance with the company’s standard conditions of service, but with a notice period of two months (versus one month for other employees) and more comprehensive confidentiality undertakings. The CEO has a notice period of three months.

Non-executive directors’ remuneration

Non-executive directors are not full-time employees of the company and, as such, each has a contract for services and not a contract of employment. Non-executive directors’ remuneration consists of a fixed basic fee and is not linked to the financial performance of the group, nor do they receive share options or bonuses.

Details of non-executive directors’ remuneration for the year under review are provided in the remuneration implementation report below.

Management recommends non-executive directors’ fees, based on industry benchmarks, to the committee for onward recommendation to and approval by the board who in turn recommends the fees to shareholders for approval in accordance with the Companies Act. Non-executive remuneration increases are implemented on 1 March each year and their proposed fees for the period 1 March 2020 to 28 February 2021 are as follows:

	Current R	Proposed R	Increase %
Board directors
Chairman (including his participation in all committees)	1 410 000	1 620 000	14.9
Member	445 000	470 000	5.6
Audit Committee
Chairman	225 000	263 000	16.9
Member	110 000	127 000	15.5
Risk Committee
Chairperson	130 000	155 000	19.2
Member	90 000	110 000	22.2
Social and Ethics Committee
Chairperson	130 000	151 000	16.2
Member	90 000	99 000	10.0
Remuneration Committee
Chairman	130 000	151 000	16.2
Member	90 000	98 000	8.9
Nomination Committee
Chairman	130 000	146 000	12.3
Member	90 000	98 000	8.9

The committee reviewed the fees for non-executive directors against the Institute of Directors Non-Executive Directors’ Fees Guide and PwC’s Non-Executive directors: Practices and remuneration trends report in terms of percentile and reference group. The latter consists of a group that is comparable to SPAR in terms of market capitalisation. The remuneration of SPAR directors showed a significant lag which was addressed through a market adjustment. The committee further recognised that directors’ fiduciary duties and obligations have expanded significantly following SPAR’s geographic diversification. Board members have to exercise governance and compliance oversight over a broader spread of countries and businesses, with an associated increase in levels of care and due diligence. This has resulted in directors taking on a more demanding role with greater complexity and responsibility.

In aggregate, non-executive directors will receive an 13.62% increase (2018: 19.91%).

Non-executive directors’ terms of service

The notice period for non-executive directors is three months with an age limit of 70 years. The board may at its discretion extend a non-executive director’s retirement date.

SECTION 3 – REMUNERATION IMPLEMENTATION REPORT

The remuneration implementation report contains the detailed information and figures pertaining to the application of the remuneration policy in relation to executive and non-executive directors.

Executive Remuneration

The policy for executive directors’ remuneration is summarised below.

The remuneration of the CEO was benchmarked by using an appropriate reference group of peers in the market and the committee established that there was a significant gap which was addressed through a market-related adjustment.

The adjustment further recognised SPAR’s significant geographical expansion from South Africa into Ireland, Switzerland, Sri Lanka and Poland. These new territories increased the scope of the CEO’s international responsibility and contribute to the complexity of the business. As a result, the CEO’s role encompasses a much broader span of control and management, with an increase in reportees and accountabilities.

The committee also took cognisance of the CEO’s role as the Chairman of SPAR International which is beneficial to the SPAR group’s international standing, reputation and ability to identify new growth opportunities.

The Group Financial Director’s effective basic salary increase in 2019 was 10.1%, however this was influenced by the timing of his increase in the 2018 calendar year. His actual increase received for the 2019 financial year was 4.0% and in line with the group mandate.

In aggregate, executive directors received an 8.65% increase (2018: 11.68%). Excluding the effect of the increase made to the CEO’s remuneration, discussed earlier, the average increase for the remaining executives was 5.1% and in line with the general level of salary increases.

Directors’ remuneration

R’000	Salary	Performance- related bonus⁽¹⁾	Retirement funding contributions	Travel allowance and other benefits⁽²⁾	Share option gains	Total
Emoluments
2019
Executive directors
GO O’Connor	6 735	6 525	787	545		14 592
WA Hook	3 407	1 599	427	1 467		6 900
MW Godfrey	4 451	4 267	528	533	1 509	11 288
R Venter	3 185	3 000	400	924		7 509
Total emoluments	17 778	15 391	2 142	3 469	1 509	40 289

2018
Executive directors
GO O’Connor	5 850	4 374	687	468		11 379
WA Hook	3 407	1 747	425	474	14 037	20 090
MW Godfrey	4 042	3 022	481	476	1 589	9 610
R Venter	3 063	2 236	384	1 360	2 694	9 737
Total emoluments	16 362	11 379	1 977	2 778	18 320	50 816

¹	The performance-related bonuses relate to amounts earned in the current year.
²	Other benefits include medical aid contributions and a long service award.

EXECUTIVE SHORT-TERM INCENTIVES

The short-term incentive policy is summarised above. For the executive directors, the breakdown of the targets, relative bonus caps as a percentage of annual salary and the average pay-out for the 2019 financial year, were as follows:

	Bonus cap (% of annual salary)	Executive directors’ average performance achievement %
Group financial results	75	87.50%
Transformation targets	10	68.80%
Key performance	15	88.83%
Total	100	83.47%

The table below shows the annual bonus payments to each of the executive directors in respect of the performance achieved in 2019.

Annual performance bonus achieved 2018/19


	Maximum bonus achievable (% of salary)	Actual bonus (% of salary)	Actual Bonus (R’000)

Director
GO O’Connor	100.00	96.88	6 525
WA Hook	100.00	46.94	1 599
MW Godfrey	100.00	95.88	4 267
R Venter	100.00	94.18	3 000
Average achievement		83.47

Performance bonus scorecard

	Weighting (as a % of total annual bonus opportunity)	Achieved as a % of maximum			Actual Achievement	Payout (as a % of total annual bonus opportunity)
	Weighting (as a % of total annual bonus opportunity)	Threshold	On-target	Stretch	Actual Achievement	Payout (as a % of total annual bonus opportunity)
Performance measure
Group financial		15.00%	80.00%	100.00%
Profit after tax, adjusted for exceptionals	75%	R2.11 billion	R2.20 billion	R2.30 billion	R2.34 billion	75.00%
Strategic scorecard
Transformation objectives	10%
Employment equity management appointments	5%		50% of all management positions filled		8/20	1.66%
Enterprise development – store ownership	5%		Weighted points awarded for stores owned by equity groups, with bonus points if Stretch exceeded		31.33/30	5.22%
Other measures
Personal objectives	15%					15.00%

Profit after tax, adjusted for exceptionals

In 2018/19, profit after tax increased by 18.4% to R2.16 billion but was positively impacted by certain financial liability measurements. Management has consistently adjusted for these and reported a normalised profit after tax in order to provide meaningful comparisons, and have based the dividend declaration on this adjusted profit. The normalised profit i.e. profit after tax, adjusted for exceptionals, for the reporting year increased by 9.9% to R2.34 billion in an extremely competitive grocery retail environment and represented an exceptional result.

Employment equity management appointments

To achieve the group transformation objectives, management has been challenged to fill at least 50% of all available management positions (graded DL to EU) with equity candidates. During the current financial year 20 positions were identified at the group’s head office and eight of these were successfully filled with designated managers. This was particularly disappointing in the DU positions but management remain committed to this objective.

Enterprise development – store ownership

Management has been strategically focused on developing equity ownership within the South African retail formats and this objective awards points on a weighted format basis, to all stores owned by designated groups. This has been an extremely pleasing result as reported ownership increased to 153 stores, an increase of 13.3% in the year.

Personal objectives

The executive directors’ personal objectives are fundamentally set to drive strategic initiatives. Each agrees a minimum of three personal objectives with the committee and these are generally equally weighted but may be adjusted to recognise more significant matters. The broad objectives and achievements of the executive directors in the 2018/19 year were;

GO ‘Connor Formulation of new strategy for the business Manage the succession appointments within the group Develop and finalise the targeted overseas acquisition
	Score achieved	100.00%

MW Godfrey Irish Promoter exit arrangements and bank refinancing Overseas acquisition – deal finalisation and funding requirements Drive group profitability
	Score achieved	93.33%

WA Hook Drive Build it strategic plan and manage leadership succession Monitor and manage designated foreign business performances Manage achievement of initiatives specific to Logistics and IT
	Score achieved	80.00%

R Venter Develop strategic plan for future voluntary retail model Drive new business with focus on new store numbers Drive strategic plan and budget for pharmaceutical subsidiary
	Score achieved	82.00%

Executive Long-Term Incentives

SOP

The SOP closed in 2014 and no options have been allocated since 7 February 2014. There is no performance criteria in this scheme and as the scheme is now closed, none can be introduced.

Options held over shares in The SPAR Group Ltd

	Date of option issue	Option price Rand	Number of options held
	Date of option issue	Option price Rand	2019	2018
Executive directors
GO O’Connor	07/02/2014	124.22	50 000	50 000
Total			50 000	50 000

WA Hook	10/11/2009	66.42	50 000	50 000
	08/12/2010	99.91	50 000	50 000
	08/11/2011	96.46	55 000	55 000
	13/11/2012	122.81	60 000	60 000
Total			215 000	215 000

R Venter	08/11/2011	96.46	11 800	11 800
	13/11/2012	122.81	30 000	30 000
	12/11/2013	126.43	30 000	30 000
Total			71 800	71 800

MW Godfrey	10/11/2009	66.42	–	12 000
	08/12/2010	99.91	25 000	25 000
	08/11/2011	96.46	35 000	35 000
	13/11/2012	122.81	30 000	30 000
	12/11/2013	126.43	30 000	30 000
Total			120 000	132 000
Total options held by directors			456 800	468 800

Options exercised	Date of options exercised	Number of options exercised	Option price Rand	Market price on exercise	Gain R’000

MW Godfrey	27/09/2019	12 000	66.42	192.19	1 509

CSP

The CSP policy is summarised above.

Details of unvested CSP awards held by directors

	Award date	Share price on date of grant Rand	Number of shares
	Award date	Share price on date of grant Rand	2019	2018

Executive directors
GO O’Connor	09/02/2016	180.11		20 000
	07/02/2017	183.55	14 600	14 600
	07/02/2018	190.25	30 700	30 700
	12/02/2019	190.21	33 100
Total			78 400	65 300

WA Hook	09/02/2016	180.11		7 500
	07/02/2017	183.55	7 500	7 500
	07/02/2018	190.25	13 000	13 000
	12/02/2019	190.21	15 800
Total			36 300	28 000

R Venter	09/02/2016	180.11		9 600
	07/02/2017	183.55	7 500	7 500
	07/02/2018	190.25	15 000	15 000
	12/02/2019	190.21	20 800
Total			43 300	32 100

MW Godfrey	09/02/2016	180.11		11 000
	07/02/2017	183.55	9 000	9 000
	07/02/2018	190.25	17 500	17 500
	12/02/2019	190.21	20 800
Total			47 300	37 500

Total directors’ interest in the CSP			205 300	162 900

Details of vested award shares held by directors

In line with the Remuneration Committee’s view that senior executives should be exposed to the share price post the vesting of their long-term incentives, the following executives have elected to subject their CSP shares to a further agreed upon holding of three years.

	Award date	Total number granted	% vested	Total vested

2018
GO O’Connor	17/02/2015	36 665	61.50	22 548
WA Hook	17/02/2015	14 000	61.50	8 610
R Venter	17/02/2019	22 000	61.50	13 530
MW Godfrey	17/02/2019	22 000	61.50	13 530
2019
GO O’Connor	09/02/2016	20 000	49.43	9 886
WA Hook	09/02/2016	7 500	49.43	3 707
R Venter	09/02/2016	9 600	49.43	4 745
MW Godfrey	09/02/2016	11 000	49.43	5 437

Non-Executive Directors’ Remuneration

The policy for non-executive directors’ fees is summarised above.

R’000	2019	2018
Fees for services as non-executive directors
MJ Hankinson (Chairman)^b	1 385	1 319
MP Madi	213	498
M Mashologu^a	544	515
HK Mehta^abc	848	805
P Mnganga^bd	741	704
CF Wells^acd	875	831
AG Waller^ac	631	358
LM Koyana	185
Total fees	5 422	5 030

^a	Member of Audit Committee.
^b	Member of Remuneration and Nomination Committees.
^c	Member of Risk Committee.
^d	Member of Social and Ethics Committee.

Executive and Non-Executive Directors’ Interests in the share capital of the company

Number of shares	2019	2018
Directors’ interests in the share capital of the company
Executive directors
GO O’Connor – direct beneficial holding	53 634	22 986
WA Hook – direct beneficial holding	77 817	74 110
MW Godfrey – direct beneficial holding	18 967	13 530
R Venter – direct beneficial holding	18 275	13 530
Non-executive directors
MJ Hankinson – held by associates	2 800	2 800
HK Mehta – direct beneficial holding	2 000	2 000
HK Mehta – indirect beneficial holding	10 000	10 000
CF Wells – direct beneficial	1 100	1 100
AG Waller – direct beneficial	3 200	3 200

As at the date of this report the directors’ interests in the share capital of the company remain unchanged.

Declaration of disclosure

The company enters into transactions in the ordinary course of business with certain entities in which directors CF Wells and GO O’Connor, or their direct family members, have a significant influence. These interests are in the form of shareholdings in food service and retail entities and are disclosed in an annual declaration of directors’ interests to the company. The transactions between these entities and the group were insignificant in terms of the group’s total operations for the year. Other than that disclosed above and in note 37 in the annual financial statements, no consideration was paid to or by any third party, or by the company itself, in respect of the services of the company’s directors, as directors of the company, during the year ended 30 September 2019.

Principle	Arrangements, achievements, measurements and future focus areas	Examples and references in the integrated report
1 The governing body should lead ethically and effectively	The board endeavours to meet the highest ethical standards of business practice and acknowledges that ethics are the foundation of, and reason for, corporate governance. The board is responsible for ensuring that management actively cultivates a culture of ethical conduct and establishes the values we must uphold. We value independent judgement and require that each board member prepare, participate and contribute at each meeting, in addition to informal discussions and interaction with the Chairman related to the SPAR business. The board meets formally four times year. To further improve non-executive directors’ understanding of the company’s operating divisions, a board meeting is held at least once a year at a distribution centre.	Our governance system Nomination Committee report
2 The governing body should govern the ethics of SPAR in a way that supports the establishment of an ethical culture	SPAR’s culture is informed by its values of passion, family values and entrepreneurship, in combination with the SPAR Code of Ethics. The board sets a leadership example through its adherence to the relevant guidelines, regulations and benchmarks for good corporate governance and ethics. This includes adherence to the Universal Declaration of Human Rights and the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work. The Social and Ethics Committee, which functions independently of the board, oversees SPAR’s actions and promotes a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public. The committee is responsible for monitoring and making recommendations in relation to the following: Social and economic development, including compliance with the United Nations Global Compact, the Organisation for Economic Co-operation and Development (OECD) recommendations on corruption, the Employment Equity Act and Broad-based Black Economic Empowerment Act. Good corporate citizenship, including the promotion of equality, prevention of unfair discrimination, reduction of corruption, contribution to community development, sponsorship, donations and charitable giving, environmental risks, health and public safety as well as reputational risks and other related risks. Consumer relationships, including advertising, public relations and compliance with Consumer Protection laws. Labour and employment, including employment relationships and contributions towards the educational development of employees. This also includes compliance with standards such as the International Labour Organisation Protocol on decent work and working conditions. Ethics management, including recognising the importance of all stakeholders while minimising the negative impacts and maximising the positive impacts of SPAR on the communities within which it operates. The committee exercises oversight by reviewing the programme to monitor compliance with the SPAR Code of Ethics annually. Employee recruitment, on-boarding and training interventions contain elements that relate to expected behaviours aligned to SPAR’s values and culture. An ethics survey was conducted by the Ethics Institute of South Africa (EthicsSA) during the 2015 financial year. Consequently, an action plan to address the shortcomings identified was discussed, and a relaunch of the Code of Ethics and Whistleblowing hotline took place in 2017. The independent whistleblowing hotline provides a mechanism for stakeholders to report any ethics breaches. These are reported to the Social and Ethics Committee and appropriate action is taken. SPAR has a customer care and complaints line with all complaints being reported to the Company Secretary, who directs these to the relevant distribution centres from where these are relayed to retailers. The distribution centres take ownership of complaints and are responsible for communication with the relevant manager of store in question to address any issues. The regional and national guild committees have the power to rescind retail membership if any ethics breaches take place. The board reviewed and approved the Group Fraud and Corruption Prevention Policy during 2016. This policy acts as a guide to ensure all instances of fraud or corruption are managed in a fair and uniform manner. The policy further assists us in creating a climate for the prevention and detection of fraud, theft, corruption or associated internal irregularity.	We are a family of entrepreneurs driven by passion Fact sheet: The SPAR Guilds Chairman’s report Our strategy and business model Our governance system Social and Ethics Committee report
3 The governing body should ensure that SPAR is and is seen to be a responsible corporate citizen	SPAR’s vision positions the group as a responsible corporate citizen: to be the first-choice brand in the communities we serve. A strong community focus is supported by the SPAR values of demonstrating passion, living our family values and encouraging entrepreneurship in our leadership as well as through our relationships. Where we are able to create authentic shared value, as per our sustainability pledge, we build our reputation as a good corporate citizen and strengthen the material relationships that enable value creation. Our supermarket strategy’s outcomes all consider our internal and external interactions with stakeholders and the environment to support our commitment to being a responsible corporate citizen. Our sustainability pledge aims to create authentic shared value through the following outcomes: Contribution to societal change Contribution to responsible living Opportunity creation Resources stewardship The report contains extensive context and commentary on SPAR’s material relationships, including interfaces with SPAR International and the guilds. SPAR’s voluntary trading model is furthermore based on relationships of trust and co-operation between SPAR and our retailers, to mutual benefit. For the voluntary trading model to operate effectively, all parties have to display responsible corporate citizenship. Corporate citizenship is one of the elements monitored by the Social and Ethics Committee and is based on SPAR’s stakeholder-inclusive approach. The committee approves and monitors corporate social development spend and impact, for example in the case of the emerging farmer programme. It also tracks progress with SPAR’s BBBEE rating.	Introducing SPAR We are a family of entrepreneurs driven by passion Fact sheet: The SPAR Guilds Fact sheet: SPAR International and the voluntary trading model Our material relationships Our strategy and business model Focus on South Africa Focus on Ireland Focus on Switzerland Our governance system Social and Ethics Committee report
4 The governing body should appreciate that SPAR’s core purpose, risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process	The board recognises that SPAR creates value on a global scale through the voluntary trading model. It creates significant value for our independent retailers, who benefit from the economies of scale gained by our buying efficiencies, and the cost savings through operational efficiency and a wide scope of products offered and distributed through our distribution centres. Our material relationships provide input into our business activities and help us mitigate the risks, including waste and resource depletion, associated with a distribution and wholesale business. The board provides overall guidance and direction for the development and annual review of the strategy, which articulates the key imperatives and enablers required to deliver on the group’s outcomes. Progress with the implementation of the strategy is measured according to financial and non-financial indicators, combined with an enterprise risk management programme which considers SPAR’s entire value chain. The board formally considered the going concern assertion of SPAR and is of the opinion that it is appropriate for the forthcoming financial year.	Fact sheet: The SPAR Guilds Fact sheet: SPAR International and the voluntary trading model Chairman’s report Our strategy and business model Our profile in South Africa Our governance system
5 The governing body should ensure that reports issued by SPAR enable stakeholders to make informed assessments of SPAR’s performance, and its short, medium and long-term prospects.	The board takes responsibility for SPAR’s financial and integrated reporting, supported by internal and external assurance mechanisms. SPAR’s integrated annual reports aim to provide our readers with a broad understanding of the group’s past performance in the context of the external environment, demonstrated through a wide range of activities, interactions and relationships. This should enable readers to gauge the prospects and future trajectory of SPAR’s value creation abilities. Our commitment to reporting according to the <IR> Framework means that we only report on what is material for SPAR to be able to create value over the short, medium and long term this is structured according to our material relationships. Our full reporting suite and archives are available on the SPAR website.	Our reporting approach
6 The governing body should serve as the focal point and custodian of corporate governance at SPAR	The board works according to an annual board plan which ensures a structured and formal approach to governance. There are at least four formal board meetings per annum and board members are provided with ample context, reports and indicators to be able to ensure that the group acts ethically, performs according to expectations, maintains the necessary controls and is being perceived as a responsible corporate citizen. Board meeting attendance is high and additional conversations between board members are encouraged for updates or when pertinent decisions require more deliberation. The board is satisfied that it has fulfilled its responsibilities according to its charter for the year. The board intends to improve the detail understanding of corporate governance structures per country where SPAR is invested and will ensure that more detail from these operations are available in the board packs.	Our governance system
7 The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively	SPAR’s core governance structure includes the board and its committees; however, the wider governance ecosystem also encompasses the guild structures and external assurance providers, who all assist the board in discharging its governance role and responsibilities. The board member profiles in the integrated report summarise the demographics, qualifications, capacity, status and memberships of each board member and indicate their respective tenures. The nomination committee amended the company’s gender diversity policy to include a policy on race diversity and renamed it the board diversity policy. The voluntary targets in terms of this policy are a minimum of three black people and two females. An internally facilitated independence assessment is conducted annually by the Nomination Committee for each non-executive director who has served on the board beyond nine years. An externally facilitated, independent assessment is conducted every three years. The SPAR policy for board appointments is implemented by the Nominations Committee, who ensures that there is an appropriate balance of diversity, skills and experience within the board’s ranks to fulfil its mandate and covers both financial and sustainability roles and responsibilities.	Chairman’s report Leadership teams Our governance system Nomination Committee report
8 The governing body should ensure that its arrangements for delegation with its own structures promote independent judgment, and assist with balance of power and the effective discharge of its duties	The board delegates specific roles and responsibilities to the Chief Executive Officer (CEO) and the board committees. Each committee has terms of reference that is reviewed annually. In addition to the four committees, there are three Executive Committees according to the three main geographies, each with very specific functions and responsibilities. Diverse backgrounds and cross-membership between committees, including guild memberships, ensure that there is appropriate balance in judgement and influence. The committee reports contain details of membership, responsibilities, advisors, attendance and key areas of focus.	Our governance system Nomination Committee report
9 The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness	The board and its committees conduct an annual self-evaluation process to measure its respective performances and the chair of the board and committees present to the board the results of those self-assessments. Evaluation criteria include the effectiveness of the board’s composition, governance processes and procedures; the effectiveness of the board’s committees in discharging their respective mandates; the effectiveness of the executive directors; and the effectiveness and contributions of each of the directors.	Our governance system Nomination Committee report
10 The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities	The SPAR governance bodies are all governed by a delegation of authority framework, which is reviewed annually and sets out the matters reserved for determination by shareholders, the board, and those matters delegated to management and the Executive Committees. The board is satisfied that the delegation of authority framework contributes to role clarity and the effective exercise of authority and responsibilities. The CEO is accountable to the board for the daily management of the company and co-ordinates the implementation of board policy and strategy through the Executive Committees. The CEO’s responsibilities include, among other things, ensuring that the company conducts its affairs within the rule of law and abides by the company’s Code of Ethics, and keeping the board informed of all its major business proposals and developments by way of specific reports, within limits set by the board. The CEO’s notice period is three months and his performance is measured as per the remuneration policy. The board approved the appointment of SPAR’s CEO as the chairman of SPAR International. Succession planning is an ongoing focus area and will become important in medium-term as a number of senior management members will be reaching retirement age. SPAR’s Company Secretary is a suitably qualified and experienced employee who is able to provide the board with the requisite support for its efficient functioning and discharge of its duties. She contracts with the necessary service providers to provide specialist input or guidance on board matters, including, for example, PwC, EOH Legal Services, the Chartered Secretaries South Africa, Garlicke & Bousfield, The Ethics Institute the Institute of Directors Southern Africa, the Ethics Institute and the company’s JSE sponsors. We believe these arrangements are effective and appropriate for the efficient functioning of the board.	Our governance system Nomination Committee report
11 The governing body should govern risk in a way that supports SPAR in setting and achieving its strategic objectives	SPAR operates according to a voluntary trading model, which creates unique challenges for effective control as retailers have the freedom to operate independently under the SPAR brand. Our primary area of control extends to operations at the distribution centres, including delivery, with more limited control in the retail environment. SPAR’s retail operations team, in co-operation with the guilds, provides the necessary structures to facilitate the most appropriate risk mitigation, and financial and reputational controls for retail. In terms of distribution centres, subsidiaries and central office functions, the board relies on a range of internal and external assurance mechanisms in combination with formal policies and frameworks. External mechanisms include, for example, the auditors, sponsors and verification agencies, while internal audit and management reviews provide internal control. SPAR’s risk management ability is integral to the achievement of strategic objectives. The integrated report includes detail reporting on these risks – showing the risk ranking, mitigation actions and a link to the relevant strategic imperative. We also identify the most strategic risks per material relationship. Risk is governed and managed through the Risk Committee. The committee oversees the company’s risk management, IT and compliance processes to ensure that management identifies potential risks in these areas which may affect the company or its operations. It implements effective policies and plans to mitigate any risks, enhance the company’s ability to achieve its strategic objectives, and support the company in being ethical and a good corporate citizen.	Risk Committee report
12 The governing body should govern technology and information in a way that supports SPAR in setting and achieving its strategic objectives	Technology and information at SPAR is governed through the Risk Committee mandate, which ensures that information technology (IT) is managed as an integral and strategic part of the business. The IT strategy supports and enables the business strategy and delivers value through cost and resource management, risk management and regulatory compliance. IT serves all aspects, components and processes of SPAR in South Africa, with limited integration with the international entities. The South African IT team creates synergies between the group operations where possible and provides the teams in Ireland and Switzerland with guidance and support to ensure acceptable governance measures are in place. IT is therefore leveraged to create opportunities and to gain a competitive advantage. The board is cognisant that, as much as IT is a strategic asset within the group, it also presents the organisation with significant risks. IT is represented on the SPAR Executive Committee. This generates continuous information management dialogue, aligned to the short, medium and long-term business requirements. Demands placed on IT resources are expected to exceed the capacity of these resources for the foreseeable future. It is therefore crucial that the limited resources available are put to optimal use. To this end proposed projects will be selected and ranked by the Executive Committee according to their value to SPAR. Application maintenance is limited to necessary fixes and selected change requests for which a convincing business case exists. All projects have an owner outside the IT department, responsible for the overall project management, acceptance by the business and implementation. IT work is divided in major projects, minor projects and maintenance. Each type is dealt with differently. Major projects take more than six months to deliver, and include, for example, the SAP implementation. Major projects follow the following steps: Initiation by a user, supported by the functional executive responsible for the relevant area of business. Investigation by initiator, functional executive, business analyst and systems manager. Development of a business case by functional executive, business analyst and systems manager. Presentation to Executive Committee for approval, ranking and budget. Delivery. Implementation pre- and post-reviews with all parties concerned. Minor projects typically take less than six months to deliver. These projects follow the same steps as major projects with the exception that approval and ranking take place by the IT management team together with the functional executive. IT risks were reviewed during the year with software quality emerging as the most significant risk. Cybercrime was rated fairly low due to the systems in place to mitigate this risk. South Africa is quickly following in the footsteps of first world countries by introducing legislation governing corporate behaviour. Some of the acts that have a direct effect on IT are: The Electronic Communications and Transactions Act The Promotion of Access to Information Act The Regulation of Interception of Communications and provision of communications related information Act Payment card industry data security standard Protection of personal information act Consumer Protection Act Non-compliance with this legislation exposes SPAR to unnecessary risk. It is the specific responsibility of the Group Systems Audit & Security manager to keep abreast of legislative developments by subscribing to a suitable legal service. Any significant IT investments form part of the budget process and are submitted to the board for final approval. The board subsequently oversees the return on investment from these projects. Annual internal and external IT audits are based on the COBIT IT governance framework. Based on these audits and feedback from the Audit and Risk Committees, the board is satisfied that the SPAR Group has adequate resilience arrangements in place for disaster recovery. IT effectiveness is monitored mainly through independent audits, user surveys, uptime and support statistics and user meetings with retailers. The SAP transition to the Enterprise Management generation software based on the HANA database architecture was completed with SPAR being the 6th installation worldwide to achieve this. The second phase of the SAP programme is well underway. This phase completes the finance area with the introduction of accounts payable and accounts receivable. Roll-out of this phase will start in 2019. Preparation for the third and last phase has started. This phase will cover merchandising, replenishment and logistics. Significant investment is also being made in advanced firewall technology to keep abreast with developments in the cybercrime area.	Risk Committee report
13 The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that supports SPAR being ethical and a good corporate citizen	One Capital is SPAR’s Sponsor and advises the board, through the Company Secretary on compliance with the JSE Listings Requirements. We subscribe to LexisNexis’s online legal library and engaged with LexisNexis to provide their Lexis Assure programme, which is a notification service that informs SPAR of any regulation changes and allows SPAR to view all the relevant Acts pertaining to its business, as well as the level of associated compliance risk for each Act. SPAR has had no regulatory penalties, sanctions or fines and had not had any inspections by environmental regulators. SPAR adheres to the Code of Commercial conduct of the Industry Association for Responsible Alcohol Use and is a co-signatory to industry and government bodies on issues relating to fishery improvements. We are aligning our seafood procurement to be within the parameters of the World Wide Fund for Nature (WWF) South African Sustainable Seafood Initiative (SASSI) guidelines on how seafood should be caught and sold. SPAR’s commitment to food safety and nutrition provides consumers with quality assurance and aims to promote healthy living. We deliver on our promise to provide consumers with high-quality, traceable product through strict adherence to product and packaging specifications. This includes providing information on sourcing and ingredients. To ensure our products meet the highest health and safety standards, we contract with an external laboratory that conducts random monthly testing across our entire product range. South African retailers rely on SPAR’s supplier management and audits to ensure food safety compliance for the products provided by the distribution centres. Where retailers elect to source their own products from smaller suppliers, they take responsibility for food safety. Since this poses a risk to SPAR and retailers alike, we work with retailers and hold them accountable to ensure that the appropriate controls are in place and documented. We also assist small suppliers to improve and align with programmes such as GFSI. An additional food safety control takes the form of quarterly inspections of all stores by a SPAR service provider. The operations in Ireland and Switzerland rely, to a larger extent, on government inspectors who enforce food safety regulations, enhanced by an internal SPAR audit programme. In terms of future reporting, SPAR is considering establishing a mechanism to alert the board of all fines. This would enable the board to monitor and track trends and potential impact.	Risk Committee report
14 The governing body should ensure that SPAR remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term	SPAR’s employees are pivotal in meeting our strategic objectives. The board is committed to paying fair, competitive and market-related remuneration to ensure that SPAR is able to attract, retain and motivate top-quality and talented employees. Shareholders voted in favour of the remuneration policy and implementation report at the AGM in February 2019. The remuneration report contains detail on SPAR’s approach to remuneration, policy and implementation.	Remuneration report
15 The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of SPAR’s external reports	The board relies on internal and external assurance providers for effective control. Financial information contained in the 2019 integrated report was independently audited by PwC and external assurance was sought on non-financial data. This includes the group’s 2019 BBBEE verification, which was evaluated independently by AQRate. The SPAR Group board applied its collective mind to the contents of the integrated report and is satisfied that it provides a fair account of the business’s performance, risks, opportunities and prospects. An integrated assurance framework is still in development.	Our reporting approach Audit Committee report
16 In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time	The board takes SPAR’s responsibility as a corporate citizen seriously, which means that we continuously evaluate the group’s impact on stakeholders and the environment. The Social and Ethics Committee is mandated to provide guidance on and oversight of SPAR’s activities regarding the environment, consumers, employees, communities and other stakeholders, and to monitor the company’s sustainability and governance performance in this regard. The committee also ensures that these activities take place in a compliant and ethical manner that contributes to the welfare of the business and our stakeholders. To further expand on the group’s legitimacy, the SPAR guilds also have Social and Ethics Committees. Our sustainability pledge is to create authentic shared value through the following outcomes: contribution to societal change; contribution to responsible living; opportunity creation; and resources stewardship. Our commitment to creating authentic shared value is inherently linked to our values.	Introducing SPAR Fact sheet: The SPAR Guilds Fact sheet: SPAR International and the voluntary trading model Chairman’s report Our material relationships Our strategy and business model Focus on South Africa Focus on Ireland Focus on Switzerland Social and Ethics Committee report

King IVTM disclosure and reference index for the 2019 SPAR integrated report

Remuneration Committee report

COMMITTEE GOVERNANCE

COMPOSITION

MEETINGS

EVALUATION OF COMMITTEE

ROLE AND RESPONSIBILITIES

SECTION 1 – BACKGROUND STATEMENT

Engagement with Shareholders

CHANGES IN THE REMUNERATION POLICY

SECTION 2 – REMUNERATION POLICY

PHILOSOPHY

Process to Determine Remuneration

REMUNERATION STRUCTURE

Fixed Remuneration

Variable Remuneration

Short-term incentives

Long-term Incentives

Share Option Plan (SOP)

CSP

Performance conditions

CURRENT CSP AWARDS

Performance conditions, targets, information and allocations

Awards made during 2019

Awards that vested during 2019

Executive and Non-Executive Directors’ Remuneration

Executive directors’ remuneration

Executive directors’ terms of service

Non-executive directors’ remuneration

Non-executive directors’ terms of service

SECTION 3 – REMUNERATION IMPLEMENTATION REPORT

Executive Remuneration

Directors’ remuneration

EXECUTIVE SHORT-TERM INCENTIVES

Profit after tax, adjusted for exceptionals

Employment equity management appointments

Enterprise development – store ownership

Personal objectives

Executive Long-Term Incentives

SOP

CSP

Details of vested award shares held by directors

Non-Executive Directors’ Remuneration

Executive and Non-Executive Directors’ Interests in the share capital of the company

Declaration of disclosure

King IV^TM disclosure and reference index for the 2019 SPAR integrated report