Remuneration in detail

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The Committee calibrated the bonus targets so that the achievement of a maximum payout under this part of the bonus arrangements would represent performance in excess of the Group budget and individual targets. 25% of any bonus award is compulsorily deferred into the Company’s shares for a period of three years and receives a Matching Award under the terms of the LTIP (see below).

• Additional Bonus Opportunity: up to 200% of salary

This part of Executive Directors'annual bonus opportunity is intended to reward exceptional performance and value creation for shareholders. The performance targets that applied during 2007/08 are set out in Table 52.

Total Property Return (TPR) was chosen as a performance measure for the investment portfolio element of the business because it is used both internally and externally within the property sector for measurement of relative performance. For the Chief Executive of Land Securities Trillium, the excess total return above the weighted average cost of capital (WACC) was employed because it remains a key measure of Land Securities Trillium’s underlying financial performance.

The Committee calibrated the bonus targets that applied to this part of the Executive Directors’ bonus opportunity so that the performance required was above that required for bonuses of up to 100% of salary. To provide some context as to the challenging nature of the performance targets, the TPR conditions are based on more than 10 years of historic data and require TPR performance to fall broadly within the top 30th percentile of each relevant Investment Property Databank (IPD) performance benchmark if any additional bonus is to be earned. The Committee considered the performance targets set for the Chief Executive, Land Securities Trillium to be as challenging as these TPR targets.

This year, to reflect Mike Hussey assuming responsibility for the Ebbsfleet Valley project in Kent, an additional similarly challenging criterion was introduced relating to the securing of major office lettings at that project, but this will not result in the additional bonus opportunity exceeding 200% in a single year.

During 2007/08 the Committee decided to adjust the requirement to carry forward both under- and over-performance against the relevant benchmarks into the next financial year. Now a payout for beating the IPD benchmark by more than 2% is conditional upon the relative performance in that year and the prior year exceeding the IPD benchmark. For example:

• In year 1 performance is 1% below the IPD benchmark
• In year 2 performance is 3% above the IPD benchmark
• Payout for year 2 is based on performance in that year as the aggregate performance over the two years is at least equal to the benchmark.

The Committee considers this approach provides a greater individual incentive than targets recalibrated annually based on historic performance. The Committee’s objective in introducing the additional bonus was to encourage a striving for material outperformance every year.

Half of any bonus earned between 100% and 300% of salary during 2007/08 was compulsorily deferred into the Company’s shares for a period of three years which is considered highly retentive. Any deferral under this part of the annual bonus arrangements is not the subject of a matching award under the LTIP.

In recognition of the strategic importance of delivering the demerger of Land Securities Group into three separate trading entities, the Remuneration Committee is to apply alternative stretching performance criteria to both the Group Finance Director and Chief Executive’s additional bonus opportunities in 2008/09.

These performance criteria are measurable and include:

• Achievement in relation to the budgeted costs of the demergers
• Achievement in relation to ongoing operational costs of all three business areas
• Delivery of process milestones to agreed timescales
• Other relevant criteria.

The Finance Director's entire additional bonus opportunity will be based on these revised criteria with the Chief Executive retaining half his additional bonus opportunity on the same conditions as for 2007/08 and half on the revised criteria above.

Alternative performance criteria, which are demerger-related, will also apply for the Chief Executive of Trillium in 2008/09. The criteria relate to the value ascribed to Trillium as a separate company and the conduct of the demerger of Trillium.

Other Executive Directors will remain on the 2007/08 targets, however, the Remuneration Committee will retain discretion to apply more appropriate targets related to the demerger if it considers it appropriate to do so.

Following a successful demerger, the bonus payouts will be up to 60% in cash with the balance paid in shares over up to a further two years. This is considered to provide a focused incentive over the critical timeline to the anticipated demergers.

Any bonus payouts related to the revised targets set out above or amendments to the 2007/08 targets for the other Executive Directors would be fully disclosed and explained in the relevant Prospectus or subsequent Directors' Remuneration Report.

Executive Directors have also been eligible to participate in a discretionary bonus pool for all employees which, if applicable, is normally in the range of 5-30% of salary. During 2007/08, the Committee agreed that discretionary bonus awards of up to 50% of salary may be granted in exceptional circumstances within the maximum of 130% of base salary for total annual bonus (excluding the additional bonus for exceptional performance). Such discretionary bonus payments are subject to an overall cap of £750,000 for payments to all Executive Directors in any one year. It remains the Committee's intention not to pay aggregate annual bonuses in excess of 300% of salary.

The actual total bonus payouts, inclusive of the additional bonus opportunity described above, that were earned in respect of the two financial years ended 31 March 2007 and 2008 are set out in Table 53.

Long-term incentives

Executive Directors participate in the Long-Term Incentive Plan (LTIP) approved by Shareholders in 2005. The LTIP replaced the share option scheme approved in 2002 and also replaced, from 2006/07, the performance share matching plan, also approved in 2002. No changes were made to the operation of the LTIP in 2007/08. There is no retesting in relation to long-term incentives for Executive Directors.

The LTIP consists of the facility to make annual awards of Performance Shares and Matching Shares.

LTIP Performance Shares

In the year under review, Executive Directors were eligible to receive conditional awards of shares of up to 100% of salary (Table 55).

LTIP Matching Shares

Matching share awards are linked to co-investment by participants in shares (Table 55).

A Director’s investment can be made through the deferral of an annual bonus award (with the maximum permitted investment by this means of 25% of base salary). Investment can also be made through the pledging of shares purchased in the market. Such additional investment is permitted to bring the Director's total investment to 50% of base salary (for this purpose the value of pledged shares is taken as the amount of gross salary that would have been required to fund the purchase of the shares). Accordingly, Executive Directors are eligible to receive a matching award of shares under the LTIP which is made at a ratio of up to 2 for 1 on a gross to net tax basis (up to 100 shares for every 30 purchased out of net income). The maximum Matching Share award is over shares with a value of 100% of salary.

Awards of LTIP Performance Shares and Matching Shares are subject to the same performance conditions measured over three years. Half of any award will vest based on achieving increases in Normalised Adjusted Diluted Earnings Per Share (NADEPS). The other half will vest dependent on the Group's TPR equalling, or exceeding, IPD weighted indices that reflect the sector mix of Land Securities' investment portfolio. The targets:

NADEPS Target
• Growth of RPI + 3% per annum – 12.5% of the award vests;
• Growth of RPI + 5% per annum – 50% of the award vests; and
• Straight-line vesting occurs between these points.

TPR target
• Performance equal to the sector weighted IPD index – 12.5% of the award vests
• Performance equal to the sector weighted IPD index plus 1% per annum – 50% of the initial award vests
• Straight line vesting occurs between these points.

An overview example of the vesting range is shown in Chart 60.

The Committee considers NADEPS and TPR to be key long-term measures of the Group’s performance.

Table 54

What Performance Shares vested this year? (audited)

Table 55

What LTIP and Matching Shares were awarded and vested this year?* (audited)

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