Background statement - Famous Brands IAR 2023

It is the view of the Remuneration Committee that the Remuneration Policy has achieved its stated objective of driving performance while ensuring retention.

We value the opportunity to engage with shareholders to better align their interests and perspectives with those of our executives for the long-term benefit of the Group. Our stakeholders’ views were a major consideration in our decision making for 2023, including a complete review of our LTI scheme.

External considerations

Shareholder views and recommendations.
Economic trends and competitive pressure.
The labour market and the pay gap between executive management and other employees.
South Africa’s skill shortages which are exacerbated by emigration.
CPI and the rising cost of living.
Requests from bargaining unit representatives.
Market benchmarks for employees are premised on comparable job grades and selecting the appropriate peer group benchmarks with similar attributes, including complexity, industry, size and geographic spread.
The potential maximum total remuneration that each executive could earn, benchmarked against the market at the 50th percentile.

Internal considerations

Cash flow management and cost leadership remain important in ensuring our continued financial recovery.
Alignment between roles, including between the CEO and Group Financial Director roles and between executive roles across SA, AME and the UK.
Implementing the legal requirements regarding equal pay for equal value of work.
Executive recruitment and succession planning considerations.

Shareholders’ view on our remuneration

At the 2022 AGM, both our remuneration-related resolutions did not receive the requisite 75% shareholder support. The issue of the 2022 grant letters to approved participants was suspended, pending the outcome of the engagement with shareholders.

The Committee engaged extensively with various shareholders regarding the underlying reasons for dissenting votes. Our response to shareholders is detailed in the following table.

Shareholder feedback	Committee feedback and actions taken
LTI performance metrics not sufficiently challenging
ROCE: The stretch target of 130% of WACC is not sufficiently challenging compared to historic ROCEs.	We believe that 130% of WACC is sufficiently challenging given the difficulties that the business has overcome and the trajectory going forward. While Leading Brands has recovered, there are other areas where this is not the case. Signature Brands’ have not recovered to pre-pandemic levels. Margins will remain under pressure for some time. We have aligned the new targets based on the new incentive plan to a 200% of WACC as a stretch target.
Concern about how the GBK impairment will be treated. If no adjustment is made for the impairment (adding the impairment back to the capital base), then ROCEs will be artificially overstated.	ROCE is calculated on continuing operations, which excludes the impact of GBK.
Absolute TSR: The target of 30-day VWAP + cost of equity is too low. The 30-day VWAP as at 22 February 2022 was below pre-pandemic levels.	These concerns have been taken into account and TSR targets will be measured as follows: 60th percentile of the peer group; and Cost of equity + 2%.
Concerns around the choice of metrics. Shareholders would like HEPS to be reinstated as a performance target. TSR is an inappropriate performance metric. Management should be incentivised on a fundamental business performance target over which they have some measure of control.	The instability in the business in recent years, including COVID-19 trading restrictions, KwaZulu-Natal floods and the riots of July 2021, has meant that the HEPS targets, which have been set historically, have not been met. The Committee, therefore, did not have the confidence to establish medium to long-term HEPS performance and HEPS was removed as a measurement for 2022. The Committee and the Board considered reintroducing HEPS or another income statement measure in the LTI targets, based on long-term budgets. For 2024, HEPS was reintroduced as a metric. The concern around absolute TSR was considered, however, certain shareholders have indicated that they believe that TSR should be retained and TSR was not removed as a metric for 2024. Refer to measurement above.
Greater detail on how the LTI works in practice, such as the retention share relative to the share appreciation rights and the top-up grants relative to the new grants.	The Board will consider conducting detailed investor sessions to unpack, among others, the LTI and what informs it. Share appreciation rights will no longer be applied following the adoption of the new Long-Term Incentive Share Plan.
Disclosure of targets, reporting process and timelines
More forward visibility on the LTI and STI targets and confirmation of how the STI measures are split. Financial performance STI targets (HEPS and EBITDA) should be disclosed prospectively rather than retrospectively. STIs are a significant component of management remuneration and shareholders cannot take a view of the appropriateness of these forward looking targets if they are only disclosed retrospectively. Some shareholders seek to engage before the Remuneration Policy is completed to ensure that the Remuneration Committee considers their views and can implement changes if required. The engagement process would be significantly improved if the results were released sooner after the financial year-end	While we endeavour to engage proactively, we are deliberate in terms of what information is provided. The Board is obligated to ensure that it treats all shareholders equally. This means that if the Remuneration Policy or its metrics are shared proactively with one shareholder, it will need to be published to all. If certain forward looking information is provided, it runs the risk of being seen as guidance, which is prohibited by the JSE Listings Requirements. In 2023, we published our results 7 working days earlier than in 2022.
ESG targets
Shareholders would like further details about the ESG targets contained in the performance scorecard. They would like to see measurable weightings and clearly defined targets.	In terms of ESG and sustainability, we are satisfied with the progress being made in evolving meaningful measurements to account for the Group’s commitments in our sustainability focus areas. The ESG targets against which management is measured are set out on page 148 and are included in the Group performance scorecard, which will be used to measure management performance. These measures include: Retain a Level 2 B-BBEE rating. Management control (employment equity). Enterprise and supplier development. Injuries on duty. Achieving sustainability targets including a reduction of GHG emissions.
Fees to non-executive directors
Shareholders recommended that a fixed fee is paid to directors rather than an attendance fee. Shareholders would like to understand the consultancy fees paid to non-executive directors, including the details of the amount and services rendered.	The Remuneration Committee considered the proposal to pay a fixed fee to directors and agreed to adopt a fixed fee for 2024, subject to shareholder approval. The details of fees paid to non-executive directors are included in the remuneration report.

Should 25% or more of the shareholders vote against either the Remuneration Policy or the implementation report at the next AGM, the Committee will seek to better understand dissenting shareholders’ concerns. A SENS announcement will be issued with the results of the AGM and proposed way forward for shareholder engagement, including the manner, date and timing of the engagement.

Key decisions and changes to policy

Focus area	Consequent decisions by Committee	Reference
Appropriateness of 75%/25% split in performance and retention shares	No changes made to the split in 2023. However, the Committee reviewed the split based on the rules of the new share plan. Refer to page 142. Vesting of shares will be executed in line with the Famous Brands LTI Scheme rules.	Read more
STI key performance	KPAs are as follows: Financial and operational performance: 60%. Market share: 20%. People: 10%. Transformation and ESG: 10%. Financial and market share will be measured using HEPS and EBITDA (stretch): HEPS: 50%. EBITDA: 50%.	Read more
2024 Long-Term Share plan KPIs and targets	HEPS reintroduced (defined as growth in HEPS vs CPI). Targets CPI + 5% and a stretch target of CPI + 10%. Absolute TSR: TSR will be measured as follows: 60th percentile of the peer group; and Cost of equity + 2% ROCE: 100% vesting – 170% of weighted average cost of capital; 150% vesting – 200% of weighted average cost of capital	Read more
Malus and Clawback Policy	No malus and clawback conditions were triggered. The Malus and Clawback Policy was reviewed and found to be fit for purpose.	Read more
Administration and bargaining unit employee increases	Bargaining unit employees: Implemented 4.5% effective March 2022, second year of the collective agreement. Administration employees (non-bargaining unit): Approved at 4.5% effective March 2022. This is subject to performance, and high-performing employees may receive an annual increase of up to 6.5%.
Administration employees bonuses	Approved a total bonus pool of R30 million to be allocated in line with the Remuneration Policy.	Read more
CEO and Group Financial Director increases	Approved a 4.5% annual increase.	Read more
Executive salary increases	Average of 4.5% annual increase.
Non-executive directors’ fees	Fees increased by 4.5% effective June 2022. The Committee proposed the inclusion of a fee for the Investment Committee Chairman of R40 000 per meeting	Read more
2018 and 2019 LTI vesting	Shares purchased to settle shares due: 93 549 Value of vested shares: R5.5 million. No value for SARs as the share price at date of vesting was below award price	Read more

Remuneration consultants

Where appropriate, the Committee obtains advice from independent remuneration consultants. The Committee employs the consultants directly, with direct engagement from the Committee to ensure independence.

In 2023, the Committee engaged the services of two remuneration consultancies, namely 21st Century Pay Solutions and Deloitte. The consultancy 21st Century Pay Solutions was contracted to conduct an annual benchmarking study on the STI scheme. The study considered the STI on target and maximum pay against the market and concluded that the STI was in line with the market.

Deloitte was consulted to perform the following services:

Review the current LTI scheme including benchmarking the scheme against remuneration arrangements from the broader South African market. The benchmarking exercise also analysed the on-target pay mix from a best practice perspective. The findings suggest that the Famous Brands CEO and executives are well-positioned from a guaranteed pay perspective but fall slightly below market benchmarks from a cash target pay and total on target pay perspective.
Design and recommend a revised LTI scheme, in the form of a Long-Term Share Plan, that is fit for purpose and ensures the attraction and retention of key senior management employees through market-aligned incentivisation.
Review the STI scheme, considering current practices, targets, and pay mix and propose a new STI scheme (read more).

The Committee is satisfied with the independence and objectivity of both 21st Century Pay Solutions and Deloitte as being independent consulting firms with extensive experience in remuneration.

New Long-Term Share Incentive Plan

As part of its annual review of executive remuneration, the Remuneration Committee undertook a detailed analysis of the LTI scheme to determine whether it remains relevant, appropriate and aligns with best practice. The analysis reflected that full-value share-based plans, with the ability to vary performance conditions per award cycle, are a better match with market practice and King IV.

The Long-Term Share Plan aims to attract, retain and reward key senior management employees by allowing them to receive shares in Famous Brands. The Company has considered the balance between the implementation cost of the Long-Term Share Plan and the dilution of current shareholders. This also offers greater alignment of management with shareholder interests.

In 2024, the Long-Term Share Plan will replace the existing LTI. The current granted “in-flight” LTI awards will continue to vest as per the rules and performance conditions of the current scheme.

Summary of the new Long-Term Share Plan

The Long-Term Share Plan provides for the following instruments:

Performance Share Awards: Annual awards of Famous Brands shares, the vesting of which will be subject to the fulfilment of specific key performance vesting criteria over a set performance period and the employee remaining employed by Famous Brands until the vesting date. The annual award will be made as a percentage of the employee’s guaranteed package.

Retention shares: Annual or ad hoc awards of Famous Brands shares, the vesting of which will be subject to the employee remaining employed by Famous Brands until the vesting date. The Company may award the Restricted Shares for any of the following:

In specific circumstances where new employees are compensated for a value forfeited by their previous employers.
For retention of key talent and scarce and critical skills generally below the Exco level.

The Remuneration Committee will set appropriate performance vesting criteria, performance periods, and vesting dates for each award or grant, considering the business environment and these will include performance conditions to measure, of the very least, profitability, shareholder return and environmental and governance performance. These details will be communicated to the qualifying employees in an individual award or grant letter.

The performance period and the duration between the award or grant date and the vesting date will be at least three years. There is no post vesting holding requirement for Exco members. However, each Exco member must achieve a minimum shareholding requirement expressed as a percentage of their guaranteed package. The minimum shareholding requirement must be fulfilled within five years.

The full details of the Long-Term Share Plan can be found at: https://famousbrands.co.za/pdf/Famous_Brands_LTI_Share_Plan_Rules.pdf