Share options boost retail bosses' pay
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21 February 2005

Johannesburg – Banking and retailing
are the places to be if you want to get paid really big bucks. As chief
executive of one of the big retail groups or big banks, with the
obvious exception of Nedcor at the moment, you are almost guaranteed a
package of R8 million a year.

For many reasons that are beyond the control of the executives of these companies, business has been great.

lowest interest rates for years, a strong rand cutting the price of
imports, generous tax breaks, a growing black middle class and a
generally stable economic and political environment have combined to
bring the consumers out in force. They are buying all manner of goods
and also looking for access to more credit facilities.

So the
banks and the retailers are enjoying the best trading conditions in
decades. The role of the executives has been to turn those good
conditions into strong bottom line performances.

The extensive
consolidation that took place in both the banking and retail sectors
ahead of the current boom has made it easier to do that. It has ensured
that the comparatively few groups left are extremely well placed to
reap the benefits. Not only have they been beefing up their balance
sheets but they are now faced with less threat from fewer competitors.

the retail sector, the remains of Profurn have been gobbled up by JD
Group; a bank-enforced rescue package brought together the considerably
trimmed back Relyant and Beares groups and the remains of the Retail
Apparel Group and CNA were taken over by Edgars Consolidated (Edcon).

for a while in the late 1990s it looked as though Edgars itself might
not survive long into the new millennium. That it has not only survived
but thrived is largely attributed to the skills and efforts of US
import Steve Ross, who was brought in to rescue the group in 1998. He
got off to a hesitant start but since 2002 he has put Edcon firmly back
on the growth path.

In 1996 Edgars reported earnings of R6.36 a
share. From there it dropped to a low of R1.47 in 1999. For financial
2004 Edcon reported earnings of R15.97 a share. The share price has
responded appropriately. Having reached a low of R19 in 2002 compared
with a high of R180 in the early 1990s, the share is now skirting
around the R300 mark.

Of course this is the level the share
might have reached in the late 1990s if the previous management team,
and controlling shareholder SAB, had not taken their eyes off the ball.

investors believe the recent earnings are sustainable, the share price
could move considerably firmer. At just below R300 the share is on an
historic price:earnings ratio (p:e) of 14.5. Back in the early 1990s
the group enjoyed a p:e of more than 20.

For this exceptional
performance Ross received R4.3 million in financial 2002, R7.6 million
in 2003 and R9.9 million in 2004. This is similar to other
not-quite-as-exceptional performers in the retail sector. Ross's big
remuneration kicker is in the form of 1.2 million options granted at
about R23 each when he joined the group. He made a R33 million gain
when he exercised a large chunk of these last year. Ross, who has not
received any additional options since 1998, was left with 800 000 of
the original allocation at the end of 2004.

Mark Lamberti of
Massmart pocketed the same sort of package in financial 2004. He has
overseen strong growth over the years, but not as dramatic as Edcon's.
And the 21st century has so far been much kinder to Massmart than the
1990s when it seemed for some years that Lamberti would not be able to
turn around the struggling Dion's group.

Dion's had been
acquired in the early nineties by the Wooltru retail conglomerate and
injected into the unlisted Massmart division.

Fortunately for
Lamberti, Wooltru executives and shareholders provided him with a
secure environment in which to hone his management talents seemingly
free from the threat of early retirement. This environment gave him the
scope and resources to overcome the problems at Dion's and go on to
build up the Massmart empire.

Lamberti entered into a four-year
contract with Massmart effective from July 2003. At that time he
received an allocation of 1 million shares from the share trust. This
was in addition to the 4.8 million share options he had already been
granted. At his request Lamberti's salary will not be increased for the
duration of his four-year contract. In financial 2004 Lamberti's salary
was held at R2.4 million but he did receive a R3.6 million bonus and
made a profit of R31.5 million on the exercise of 1.2 million of his

Whitey Basson, who recently attained his long-held
Cecil Rhodes-type objective of creating a Cape-to-Cairo retail group,
has managed to overcome the difficulties faced in 2001 when Shoprite's
minority shareholders indicated they would not support plans to write
off R225 million owed by management to the group's share purchase

Back in 2001, despite management's efforts, the share
price was below the level at which management had been allocated
shares. Because it was a share purchase scheme, management was
committed to paying for the shares, unless the shareholders agreed to
write off the debt. At the annual general meeting, group chairman
Christo Wiese, who was a beneficiary of the scheme, used his 42 percent
voting block to pass the write-off proposal.
At that stage 10
million shares of Basson's allocation were repriced down to R6.51c
each. In addition, he was allocated 10 million "share appreciation
rights" at R8 each. These entitle him to receive cash payments based on
the difference between the share price when they are exercised and the
price at which they are granted.

Basson can exercise his rights
at any time before the end of January 2007. His payments will be
reduced by the accumulated amount of the performance bonus he has
received since 2001.

Basson has said that these unusual
rights were created "at a time when the remuneration committee felt
that my interests should be in tandem with those of the shareholders".
He added, without any apparent sense of irony: "The problem was that
the share price fluctuated and the committee wanted to ensure that if
the share price crashed I would not totally lose out."

scheme appears to represent management's general view about aligning
its interests with those of shareholders, which is that if the share
price goes up the shareholders and management will benefit because this
is the result of management's efforts; if the share price drops
shareholders will suffer but management will not because this share
movement is attributed to general market and economic conditions.

R12.5 million package for financial 2004 includes a performance bonus
of R6.8 million for a year analysts described as "below market

Sean Summers of Pick 'n Pay, who probably gets
paid more in one year than Raymond Ackerman received in a decade as
entrepreneurial founder of the group, introduced the notion of
megaexecutive remuneration to the retail sector. As early as 2002
Summers, who has ensured that Pick 'n Pay has remained the country's
blue chip food retailer, received R7.5 million. He also made a share
option gain of R3.7 million in that year.

The Top 10 Highest Paid Chief Executives Over The Past Three Years
Package Year

1       Edgars 
42.7 m  '04

2       Nedcor  Richard Laubscher       36.7 m  '03
3    Massmart        Mark Lamberti   36.2 m  '04
4    MTN     Phutuma Nhleko  19.02 m '04
5    JD Group        David Sussman   14.5 m  '04

Standard        Jacko
Maree     13.2 m  '03

7       Anglo Plat      Barry Davison   12.85 m '02

Shoprite        Whitey
Basson   12.5 m  '04
9    Harmony Bernard Swanepoel       12.44 m '03
10   Absa    Nallie Bosman   12.2 m  '04

annual reports. Note that this table excludes those paid in dollars or
pounds and that the people highlighted in bold did not have share
option gains added to their packages. All others had these gains added
in to their total packages.