Q & A

What are the Company’s pay principles in terms of remuneration for Directors?

Our pay and rewards should attract the best people to the business and incentivise them to produce superior returns for our shareholders. Therefore we believe we should reward people for achieving and exceeding Company targets. This is why a substantial part of our Executive Directors’ reward is performance-related pay, with incentives to exceed industry benchmarks.

There are three key elements to the remuneration we provide:

• Salaries reflect an individual’s consistent performance and contribution to the business, as defined and decided by the Remuneration Committee. We aim to pay salaries at a mid-market level. Please see the Renumeration in detail section for more details on basic salaries.
• Annual bonuses reward performance according to a set of key performance indicators, aimed at ensuring the Company delivers on its key priorities for the year. There is a bonus opportunity of up to 100% of basic salary and, at the Remuneration Committee’s discretion, this can be increased to 130%. There is also an additional bonus opportunity of up to 200% of basic salary for exceptional performance. However, no Director may earn a bonus of more than 300% of basic salary in total. Tables 51 and 52 set out the criteria for each type of bonus.
• Long-term incentive plan rewards for Directors are aligned with our long-term business objectives and the level of value created for shareholders. Please see the Renumeration in detail section for more on long-term incentives.

Why do you pay salaries in the mid-range for the industry?

With salary levels in the mid-range for our industry there is very strong motivation for Directors to achieve outperformance - and so secure a bonus. We believe this medium salary/high bonus approach creates greater value for shareholders.

What were the Executive Directors paid this year?

This table details the salaries and benefits, annual bonuses and long-term incentives - excluding pensions - given to our Executive Directors this year.

Table 48

What was the Executive Directors’ remuneration for 2007/08? (£’000)

Profits were down; why isn’t this reflected in pay levels for Directors?

Salary levels are set according to market salary levels and the specific role of each Executive Director. They do not vary in line with the Company’s profits in the year.

Annual bonuses are calculated according to specific criteria for each individual. These criteria relate to aspects of performance Directors can influence directly, such as performance against an independent industry benchmark. Directors who received a bonus this year did so because they met or exceeded their targets, and so helped the Company achieve relative outperformance.

This is a sound basis for setting bonus levels as it incentivises Directors to prioritise long-term value creation. It also means that in a strong growth market the Company must still outperform the market if Directors are to earn a bonus - they do not benefit simply because the market has grown. The Company must also outperform in poor market conditions if Directors are to receive a bonus.

The independent industry sector benchmarks we use are provided by the Investment Property Databank (IPD).

Directors who received a bonus this year did so because they met or exceeded their targets, and so helped the Company achieve relative outperformance.

How is share price performance factored into the Directors’ remuneration?

It is factored in through the long-term incentive plan and also through awarding part of the annual bonuses in the form of deferred shares which vest after three years. However, it is not considered best practice to make share price performance a major incentive. This could encourage Directors to make decisions that bolster the share price in the short-term rather than decisions that benefi t the Company and its shareholders in the long term.

However, all Executive Directors must, within five years of joining the Board, own shares with a value of at least 1.5 x basic salary - and for the Group Chief Executive 2.0 x basic salary - to ensure their interests are aligned with those of shareholders.

How have the discretionary bonus pool and the additional bonus opportunity been reflected in Directors’ remuneration this year?

Ian Ellis was awarded a bonus from the discretionary bonus pool amounting to 45% of basic salary in recognition of the successful launch of the £1.1bn Trillium Investment Partners Fund in challenging market conditions. As a consequence of the significant relative outperformance in comparison with IPD benchmarks, which represented some £800 million of value preservation for shareholders, Richard Akers and Mike Hussey were awarded bonuses under the additional bonus opportunity of 200% of basic salary, with Francis Salway and Martin Greenslade being awarded bonuses of 130% of basic salary.

How much do you pay Non-executive Directors?

We pay a base fee and in 2007 this was set at £55,000 and set for two years. Non-executive Directors are paid further amounts for specific duties and responsibilities, such as chairing a committee, but are not paid more for attending Board Committee meetings. Please see Table 56a for more information on what we paid our Non-executive Directors this year.