Remuneration policy

The Remuneration Policy, with a focus on the LTI, was reviewed and amended in 2023 to ensure it remained relevant and successfully retains and rewards our management.

In 2023, 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.

A Long-Term Share Plan was developed as a more appropriate LTI scheme to attract, retain, and reward key senior management employees by allowing them to receive shares in Famous Brands. This also offers greater alignment of management with shareholder interests. Famous Brands considered the balance between the implementation cost of the Long-Term Share Plan and the dilution of current shareholders.

On 23 May 2023, the Group’s shareholders approved the Long-Term Share Plan to replace the previous LTI for the 2024 financial year. The current granted “in-flight” LTI awards will continue to vest as per the rules and performance conditions of the previous scheme. Read more details on the Long-Term Share Plan.

The Remuneration Committee’s mandate (refer here) is to assist the Board in discharging its oversight responsibilities relating to all compensation matters.

Our policy design

Our remuneration policy, setting out the Group’s remuneration principles and practices, applies to all employees. It provides a high-level guideline for implementing the Group’s remuneration strategies and designing and managing remuneration processes.

The policy was designed around the following themes:

• Support for the business strategy, objectives and long-term interests of Famous Brands and its stakeholders, aligned with the Group’s Core Beliefs.
• Maintain a competitive reward system to attract, motivate and retain high-performing individuals, including industry-competitive packages.
• Maintain a competitive reward system to attract, motivate and retain high-performing individuals, including industry-competitive packages.
• Develop performance metrics that are demanding and sustainable and cover all relevant aspects of the business.

The policy also considers King IV (principle 14), the Companies Act 2008, the Basic Conditions of Employment Act 1997, the Employment Equity Act 1998 and other applicable legislation.

Key principles of the Remuneration Policy

The Remuneration Policy is in place to support our remuneration approach and is based on the following key principles:

• Reward, retain and, where necessary, attract talent through fair, transparent and competitive remuneration.
• Reward short-term and long-term performance by linking STIs to operational, financial, and other targets; and LTIs to the achievement of Famous Brands’ strategic objectives.
• Key focus areas are reflected in the scorecard of executive management and the annual performance evaluations for employees. Scorecards reflect key performance areas (KPAs) and the associated KPIs.
• We reward for value created, contribution and performance to ensure alignment with shareholder interests, balancing this across economic, social, and environmental aspects.
• Employee rewards are influenced by individual and Company performance, and employees’ contributions are recognised through a discretionary performance bonus.
• Bargaining unit employees are subject to the terms of wage agreements and are part of a “basic plus benefits” remuneration scheme.

Fair and responsible remuneration

The remuneration principles are underpinned by a fair and responsible remuneration approach where:

• Remuneration must be free from any form of discrimination.
• Market benchmarking refers to the correct remuneration bands and levels with progression reflected for experience and accountability.
• Remuneration design and application must drive internal and external parity.
• All the applied remuneration components are designed and implemented within the applicable tax and regulatory requirements.
• Performance and value are defined and measured over the short, medium, and long terms and protect our shareholders’ interests.
• An overarching drive for the correct moral and legally defensible remuneration practices.

We focus on developing an equitable workplace. We commit to equal pay and gender equality in line with the JSE Listings Requirements and King IV.

Famous Brands conducts an equal pay for equal work audit as part of the annual salary increase exercise in March each year. The following interventions were applied this year in response to findings from the audit:

• 17 African Females had their salaries adjusted.
• 9 African Males had their salaries adjusted.
• 4 White Females had their salaries adjusted.
• 1 White Male had his salary adjusted.
• 1 Coloured Female had her salary adjusted.

Benchmark methodology

Famous Brands undertakes a total remuneration benchmark at least every two years, using reputable remuneration consultants. The one benchmark uses a database covering over 700 South African companies, extracting data from companies with a relevant job match. The second benchmark is from a specified comparator group of companies approved by the Committee.

An overview of the remuneration components

The remuneration structure for executives and employees in senior management positions comprises guaranteed (including benefits) and variable remuneration (together referred to as the pay mix). A different set of rules and guidelines are applicable to each remuneration component.

Pay mix

Famous Brands’ pay mix aims to achieve a balanced mix appropriate for the job, level, and performance and in line with best market practice. In 2023, Deloitte reviewed the pay mix and determined that the pay mix is appropriately aligned with the current market, and there is no need for adjustments at this time.

There is a balance between fixed and variable pay. For F-level positions (Executive committee, the CEO, and his direct reports), fixed pay represents about 51% of total remuneration, which is deemed high enough to avoid employees becoming overly dependent on variable pay. This pay mix ratio is in line with the market remuneration mix.

Remuneration landscape and eligibility

Cost to company and bonus

Base salary

Salaries are reviewed annually in May after the audited financial results are available. The increase is effective 1 March of each year. Increases are informed by consumer price inflation (CPI) and adjusted upward or downward to recognise individual performance. Bargaining unit employee increases are based on two-year wage agreements, and are processed in March.

The CEO makes recommendations regarding Exco’s increases to the Committee. The Committee reviews the CEO’s base salary.

The overall increase pool is expressed as and limited to a percentage agreed by the Committee.

Retirement fund

All Company-related funds are defined contribution funds. Retirement funds vary depending on jurisdiction and legislation. Famous Brands ensures contributions align with country-specific legislation and any Company contribution is part of TCC.

Medical insurance

Medical funds vary depending on jurisdiction and legislation (some countries have national insurance). Any Company contribution towards a medical aid fund form part of the total guaranteed package, in line with Company policy.

Benefits

Benefits are provided based on local market trends and ensure overall competitiveness in the respective markets. Benefits can include life insurance, dread disease insurance, temporary and permanent disability, accidental death insurance, assistance with tax filing, cash in lieu of leave not taken (above legislated minimum leave requirements) and provisions under the executive travel guidelines.

Allowances

Allowances are linked to specific tasks, for example, a subsistence allowance for specific types of travel. Separate policies cover these types of allowances, or it is covered in the bargaining unit’s recognition agreements. No discretion is applied.

13^th cheque

The 13^th cheque is part of guaranteed pay for bargaining unit employees and forms part of the wage agreement with the trade unions.

Long-term service awards

All the employees are eligible for long service awards, except the Executives.

Discretionary bonus

A bonus is provided based on individual performance, subject to Company performance criteria. It can only be up to 120% of one month’s TCC, and a sliding scale adjustment is made to recognise individual performance. Performance ratings of less than 3 do not qualify for the discretionary bonus. This applies to all the employees outside the bargaining unit parameters but below the executives.

Short-term incentives

The STI is designed to drive Famous Brands’ short-term strategies (aligned to annual business plans and budgets) and ensure that participants deliver on the key priorities for the year. Performance ratings of less than 3 do not qualify for the STI. These have been designed to align and deliver on the Company and shareholder interests. The STI incentivises and drives participants’ motivation, contributes to attracting and retaining scarce human resources, and rewards superior performance.

The STI is paid in total in June or each year.

How it is calculated

In 2023, Deloitte reviewed the STI scheme and recommended that the scheme rules be simplified and redesigned to remove the correlation between the weighted performance score and the amount of target STI earned. The scheme was redesigned so that the weighted performance score between 100% and 116% determines the target STI pay-out between 100% and 200%. There is a threshold payment of 50% of the target for performance sufficiently above the business plan. The scheme incorporates leverage, with a maximum pay-out of 200% of the target.

The target STI is a targeted amount (a percentage of TCC) applicable to a person’s Paterson grade. The actual STI earned depends on performance.

Target STI is determined by market benchmarked targets and is validated regularly. The performance score is determined by individual and Group/operational performance relevant to the individual’s role to create a line of sight between business performance and individual reward. These are weighted and collectively provide a weighted score for the individual. Before the start of each half-year, the Board approves KPAs and associated KPIs.

In this design, the following formula applies:

To drive line-of-sight principles, STI earnings are linked to areas where the executive is accountable and able to influence. The percentages reflect the relative weighting of performance on the participant’s ultimate combined scorecard.

Relative weighting of performance (%)

The table below indicates how line of sight is achieved between combined performance and the individual’s level of STI earned, supporting the principle of rewarding exceptional performance.

Long-term incentives

The LTI is designed to drive Famous Brands’ longer-term strategic and sustainable focus, ensuring alignment between the long-term interests of executives and shareholders. It serves as a wealth creation mechanism for executives and creates shareholder value when strategic performance drivers are met. In 2024, the Long-Term Share Plan replaced the previous LTI. The granted awards will continue to vest as per the rules of the previous scheme.

The 2015 Long-Term Incentive Scheme vesting structure and methodology (2015 LTI Scheme)

Th 2015 LTI Scheme consists of two types of awards:

Growth Shares in the form of SARs (Share Appreciation Rights): allocated at 75% of the total share grant for any allocation and issued at a strike price based on the 30-day VWAP as at date of approval by the Board; and

Retention Shares (RSs) in the form of full shares issued at a R0 (zero) strike price usually allocated at 25% of the total share grant for any allocation.

The 2015 LTI Scheme Performance conditions applied to determine the vesting of SARs

The 2023 Long-Term Share Plan

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.

Restricted 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. These will include performance conditions to measure 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 vesting structure in terms of the new share plan has been simplified. All share awards vest in year three, provided that the service condition and performance conditions which were set at the award date are met. (Refer here).

The 2023 Long-Term Share Plan award methodology

HEPS was reintroduced in the new Long-term Share Plan in 2023 (defined as growth in HEPS vs. CPI). The target is CPI + 5%, with a stretch target of CPI + 10% (Refer here).

Share appreciation rights no longer exist in the Long-term Share Plan.

FY24 Long-term Incentive Performance Metrics and Conditions

Malus and clawback

Famous Brands has malus and clawback provisions that enable adjustments to variable pay.

The Board may act on the recommendation of the Committee to reduce/cancel/adjust unvested variable remuneration (malus) or to recover (clawback) vested/paid variable remuneration where there is reasonable evidence that an executive director of Famous Brands materially contributed to, or was materially responsible for, but not limited to:

• Personally acting fraudulently or dishonestly or in a manner that adversely affects the Company’s reputation or is characterised as gross misconduct.
• Directing an employee, contractor, or adviser to act fraudulently, dishonestly, or to undertake other misconduct.
• Receiving an STI or LTI award because of fraud, dishonesty or a breach of obligation committed by another person.
• Receiving an STI or LTI award because of an intentional error in calculating a performance measure.

Recruitment, contracts, and termination

Recruitment

When recruiting new executives, a comparative benchmarking exercise is done to determine the size, nature and complexity of the role and the skills availability before making a competitive offer.

For new appointments, the Committee may consider compensation for remuneration forfeited by the appointee (STI, LTI, or any other relevant and valid element). The intention is to not grant more than what the appointee would have received from the Company in a 12-month period.

The Committee does have the discretion to compensate higher values if it can be demonstrated through a fair-value valuation that the forfeited amounts exceed the grants.

The Committee compensates the forfeitures through a combination of equity and cash.

Famous Brands has a formal Recruitment and Selection Policy.

Sign-on

Sign-on bonuses are paid at the discretion of executive management and the Committee.

Service contracts

All executive team members have permanent employment contracts that entitle them to standard Group benefits as defined by their specific region and participation in the Company’s STI and LTI.

In exceptional situations, an executive team member can be appointed on a fixed-term contract.

Employee contracts contain defined termination notice periods, and the executive management team has a three-month notice period.

Termination

The executive management team typically does not have fixed-term contracts, and contracts are, therefore, open-ended. Exceptions include where prescribed retirement ages apply or where specific circumstances justify the appointment on a fixed-term basis.

The incentive scheme rules are clear on the termination provisions by termination category. In the event of termination, the Company can allow the employee to either work out their notice period or pay the TCC for the stipulated notice period in lieu of notice.

Employment contracts do not oblige Famous Brands to pay special severance or compensation on termination of employment contracts arising from failure or incapacity to perform or underperformance against contracted objectives.

Minimum shareholding requirements

Executive directors are required to build and maintain a minimum holding of Famous Brands shares. They may sell only up to 50% of their shares that vest until they have reached their minimum shareholding requirement. The CEO must hold 200% of their TCC, and the Group Financial Director must hold 100% of their TCC.