Directors' remuneration report

The Remuneration Committee (“the Committee”)
Remuneration paid to executive directors is considered and determined by the Committee on behalf of the Board. The Committee comprises Edward Wilson, the Chairman of the Committee, Michael Hartnall and Kevin Matthews, who was appointed as a member of the Committee on 16 February 2005, all of whom are non-executive directors. Jonathan Fry was Chairman and a member of the Committee until his resignation from the Board. Keith Hopkins also served as a member of the Committee from 7 October 2004 to 2 February 2005. The Chief Executive attends some meetings of the Committee in an advisory capacity but is not a Committee member and is not present for discussions which directly concern him.

Advisers to the Committee
The Director of Group Human Resources is the internal adviser to the Committee who provides information and advice to facilitate discussion and decision making on remuneration matters. He also provides the Company and its subsidiaries with services which include the setting of employment policies, recruitment of senior managers and overall responsibility for all major issues involving human resources. The Director of Group Human Resources was appointed by the Company.

New Bridge Street Consultants LLP, who were appointed by the Committee, provide information and data to the Committee to assist with the development of executive remuneration and, in particular, in relation to the development of share incentive schemes. They also help the Committee agree appropriate packages reflecting the remuneration policy.

The Committee also uses information provided by Hay Group Management Limited, who were appointed by the Company, relating to rates of pay for similar positions in comparable companies.

Policy on directors' remuneration
Remuneration policy centres, and will continue to centre, on ensuring that remuneration packages are sufficiently competitive, in both fixed and variable terms, to attract, retain and motivate the right calibre of executive director for each individual function. The fixed and variable elements are of equal importance in achieving these objectives. Incentive payments are conditional upon demanding performance criteria so as to align incentive awards paid to directors directly with the interests of shareholders. The constituent parts of those packages are set out in the following paragraphs.
The policy of the Committee is to set basic salaries at a level which is competitive with that of comparable businesses, with a substantial proportion of the overall remuneration package being linked to individual and corporate performance through participation in short term and long term incentive schemes.

Salaries, fees and benefits
Salaries for executive directors are determined by the Committee and are reviewed annually by it, taking into account individual performance over the previous twelve months, external benchmark salary data, and pay and employment conditions elsewhere in the Group. Any increases in basic salary are effective from 1 July in each year.

Fees for non-executive directors are determined by the Board, having regard to fees paid to non-executive directors in other UK quoted companies, the time commitment and responsibilities of the role. No options are held by the non-executive directors. Individuals cannot vote on their own remuneration.

Benefits relate to the provision of cars, life assurance and medical cover.

None of the executive directors has served as a non-executive director of another company outside the Group during the year.

Short-term incentive arrangements
The 2004 Annual Bonus Scheme for executive directors was based on operating profit and working capital relative to the operating plan for that year. The maximum value of annual bonus under the scheme was 70 per cent of basic salary (equivalent to 56 per cent of annual basic salary paid in cash and 14 per cent in the form of a deferred share award, the shares to be held in trust by the Trustee of the Company's Employee Share Ownership Trust for three years and would normally be forfeited if an executive left or was dismissed). No bonuses were paid in respect of operating profit and working capital as the performance target was not met. A similar Annual Bonus Scheme is in place for 2005.

Performance Share Plan (“the Plan”)
All awards under the Performance Share Plan, in respect of which a report has previously been made, lapsed on 1 January 2005, and no further awards have or will be made under the Plan.

1987 and 1998 Executive Share Option Schemes
The 1987 Executive Share Option Scheme (the “1987 Scheme”) and the 1998 Approved and Unapproved Executive Share Option Schemes (the “1998 Schemes”) which replaced the 1987 Scheme, are discretionary option schemes under which senior management below Board level were granted options to purchase shares in the Company. The option price at which options may be exercised is the average market price over the five working days preceding the grant and there is no discount. Options are capable of exercise after three years and within ten years of the date of grant; those granted since 1995 are subject to earnings per share performance targets.
No further options will be granted under the 1998 Schemes. Subject to the rules of the Schemes certain awards under the 1987 Scheme and the 1998 Schemes, however, remain exercisable.

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