2020 REMUNERATION REPORT CONTENTS Part 1: Background statement The COVID-19 pandemic 02 Market conditions 02 The role and mandate of the committee 02 Shareholder engagement 03 Legislative changes 04 Advisory services utilised 04 Members of the Remcom 04 Part 2: Overview of remuneration policy and philosophy The scope and aim of the remuneration policy 05 The remuneration philosophy 05 The remuneration framework for all employees 05 Remuneration governance with regard to executive management and directors 06 Clawback and malus provision 08 Non-executive director (NED) fees for 2020 and proposed fees for 2021 09 Discretion 09 Part 3: Implementation of remuneration policy Compliance with the remuneration policy 10 Fair and responsible remuneration 10 Guaranteed pay benchmarking and increases in FY21 10 Short-term incentive outcomes in FY20 11 Short-term incentive scheme targets for FY21 11 Long-term incentive scheme grants and accruals 12 Long-term incentive scheme grants in FY21 14 Single figure remuneration 14 Total remuneration in FY20 14 NED fees in 2020 15 Corporate information 16 PEPKOR REMUNERATION REPORT 2020 01 We aim to position ourselves in the market to ensure we attract, motivate and retain key and critical talent. 02 PEPKOR REMUNERATION REPORT 2020 PART 1: BACKGROUND STATEMENT This report is presented in compliance with the Companies Act, No. 71 of 2008, as amended (Companies Act), the JSE Listings Requirements and the recommendations of the King IV Report on Corporate Governance™ for South Africa, 2016 (King IV™).* We continue to benchmark, monitor and review our Market conditions remuneration policy to ensure we fulfil our purpose and strategy It is estimated that the national lockdown period during and deliver value for all our stakeholders in the short, medium April 2020 resulted in lost revenue of approximately and long term. Based on our benchmarking, monitoring and R5.0 billion for the group. Very strong trade was achieved review, we believe that no substantive changes need to be made during May and June 2020 as lockdown measures eased and to our remuneration policy in FY21, although we have enhanced can be attributed to pent-up demand, social grant payments, the level of disclosure, which we believe is appropriate. as well as the value propositions and market positioning of the group’s brands. Strong trading momentum continued during the remainder of The COVID-19 pandemic the year. It is uncertain how long these levels of performance are possible as the impact of the COVID-19 pandemic on the On 23 March 2020, the President announced a national economy and employment unfolds. The group is expecting a lockdown from 27 March 2020 to 16 April 2020, which constrained retail environment over the next 18 months. was later extended to 30 April 2020. In FY20, the COVID-19 pandemic had an impact on all The role and mandate of the aspects of life, including employee remuneration. The committee board, executive directors and executive team supported The mandate and activities of the Remcom are reported in the call by government and, for the months of April to this section of the report, illustrating how remuneration is June 2020, donated a portion of their salaries and fees to governed. assist with the relief effort. In aggregate, R3.1 million was donated to the Solidarity Fund and the CoCare Voucher The Remcom is mandated by the board to oversee that the Programme. During this period, Pepkor prioritised the group remunerates employees fairly, responsibly and livelihoods of its employees and continued to remunerate transparently, in a manner that promotes the achievement of all employees (in both operational and support areas) with strategic objectives and positive outcomes. One of the key the assistance of different measures and relief options. strategic objectives is transformation and broad-based black economic empowerment (B-BBEE), which The COVID-19 pandemic has had an impact on short-term have been contracted in both short- and long-term incentives. and long-term incentives and, in most cases, targets that The Remcom is also responsible for approving the group’s were set were not achieved for FY20. The impact was that general remuneration policy and implementation reports, very limited short-term incentives were paid in relation to which are presented at each annual general meeting (AGM) FY20, during a year in which it was necessary for the group for non-binding advisory votes by shareholders. The and its employees to respond swiftly to protect the group committee is responsible for making recommendations to the and its operations and to navigate the COVID-19 crisis. It board on Pepkor’s framework of executive remuneration, was therefore necessary for the human resources and including the remuneration packages of certain senior remuneration committee (the Remcom or the committee) managers and each of the executive directors. It also ensures to react to this to ensure that the remuneration policy that incentives are appropriately structured and awarded, in continued to fulfil its objective of driving the right order to drive the group’s performance, and assist the group in performance to ensure that value was created for all reaching its short-, medium- and long-term strategic goals. stakeholders. Increases on guaranteed pay were reviewed The group remuneration policy and philosophy are designed in line with current inflation levels and business unit to achieve these objectives, and its effectiveness is reviewed performances and are discussed in more detail in the annually by the committee. implementation report. * Copyright and trade marks are owned by the Institute of Directors in South Africa NPC and all of its rights are reserved. PEPKOR REMUNERATION REPORT 2020 03 A key aspect of this governance function is that every non-binding advisory votes at the AGM held on business within the Pepkor group has its own remuneration 11 March 2020. Of the votes cast, 92.61% were in favour of committee, which is reflective of the decentralised operating the remuneration policy and 90.15% were in favour of the structure of Pepkor. The group’s chief executive officer (CEO), implementation report. chief financial officer (CFO) and human resources (HR) executive attend the meetings of these committees and Voting results report back to the Remcom on relevant matters. Voting at the 2020 AGM has seen a slight decline in votes in favour of the remuneration resolutions compared to the votes Shareholder engagement in favour at the 2019 AGM, but reflected an increase in the The remuneration policy and the implementation report of overall participation of shareholders as a percentage of remuneration policy were presented to shareholders for issued shares. Total votes as a % Pepkor 2020 AGM results Votes FOR Votes AGAINST of issued shares All shareholders Remuneration policy 92.61% 7.39% 97.10% Remuneration implementation report 90.15% 9.85% 97.10% Both Pepkor’s remuneration policy and its implementation report will be presented to shareholders for separate non-binding advisory votes at the upcoming AGM. In the event that 25% or more of shareholders vote against either the remuneration policy or the implementation report at the meeting, Pepkor will engage with such shareholders through dialogue, requesting written submissions or otherwise in order to address their concerns, always with due regard to meeting Pepkor’s stated business objectives, while being fair and responsible towards both the employees and the shareholders. Matters raised Through engagement with shareholders during the past year on the group’s remuneration policy and implementation report, the following key matter was raised and duly considered in the context of the Remcom mandate and responsibility: Remcom feedback Progress has been made during the past two years with increased transparency provided in the annual Shareholder feedback remuneration report, balancing the Increase transparency around long-term stakeholder needs, while preserving the successful execution of the group incentive (LTI) and short-term incentive remuneration policy and ensuring (STI) targets appropriate commercial sensitivities. In the FY20 remuneration report, the transparency request has been addressed for the FY20 grants and STI targets for FY21. More detail can be found on pages 11 to 13. Future focus areas The Remcom has identified the following areas that will be considered in FY21 to ensure alignment and compliance: 1 Continue to look for mutually beneficial opportunities with regard to remuneration and benefits across the group and leverage the scale of the group. 2 Drive greater standardisation with regard to STI structures across the group and continue to align the grading system. 3 Monitor the application of equal pay for work of equal value to ensure equity is maintained within Pepkor and how this speaks to fair and responsible remuneration for executive directors and the executive team compared to employee remuneration. 04 PEPKOR REMUNERATION REPORT 2020 Legislative changes leave, or 10 consecutive days of parental leave once the adoption is granted. Pepkor has aligned its policies As of 1 March 2020, new labour laws came into effect, accordingly. amendments to the National Minimum Wage Act of 2018, the national minimum wage rose to R20.76 an hour, from R20.00 Advisory services utilised previously. Amendments to the Basic Conditions of The Remcom utilised the services of PE Corporate Services Employment Act of 1997 are set to benefit new parents. In (Willis Towers Watson) for the executive and non-executive addition to maternity leave for mothers, new parental leave remuneration benchmarking conducted during the year. provisions will allow an employee at least 10 consecutive days’ leave when their child is born, or adoption is granted. Additionally, Pepkor also subscribes to REMchannel and This replaced employees having to take three days of family REMeasure, previously provided by PwC, which are rolled out responsibility leave, which was usually used in these through the broader business.