BOARD AND GOVERNANCE

Salary and Benefits

The Committee reviews salaries taking account of Group and personal performance. Account is also taken of the levels of pay awarded elsewhere in the sector and competitive market practice.

Short Term Incentives

The Company operates an annual performance related bonus scheme for Executive Directors. The maximum bonus payment under this scheme in 2007 is 100% of basic salary for the Chief Executive Officer and 70% for other Executive Directors. On target bonus is 60% for the Chief Executive Officer and 40% for other Executive
Directors. The bonus for the Chief Executive Officer is wholly dependent on the financial performance of the Group; the bonus for the other Executive Directors is 80% based on the financial performance of the Group with the remaining 20% subject to achievement of specified personal objectives.

Long Term Incentive Plan (“LTIP”)

The Company operates a Long Term Incentive Plan (“LTIP”) for Executive Directors. In line with current best practice, the LTIP provides for annual grants to Executive Directors.

Under the LTIP, Executive Directors are awarded rights to acquire ordinary shares. Each award made under the LTIP is subject to performance conditions which will determine how many, if any, of the shares under the award the participant is entitled to receive after the three year performance period. The value of awards which can be made in any year to a participant will normally be equal to 100% of basic salary. This limit can be increased to a maximum of 200% in the case of a participant who within the previous 12 months joined the Group or received a significant promotion.

In any ten-year period, the number of shares which may be issued or placed under option under any executive share plan established by the Company, may not exceed 5% of the issued ordinary share capital of the Company from time to time. In any ten-year period the number of shares which may be issued or placed under option, under any all-employee share plan established by the Company, may not exceed 10% of the issued ordinary share capital of the Company, from time to time.

Two performance conditions apply to the awards so that the vesting of 50% of the award will be linked to earnings per share (“EPS”) growth and 50% will be linked to Total Shareholder Return (share price growth and reinvested dividends) (“TSR”), measured by comparison with the FTSE mid-250 index (excluding investment trusts).

The first performance condition is that the average annual compound growth in the Company’s earnings per share (“EPS”) over the three consecutive financial years, following the year prior to the grant, must exceed the annual compound growth rate in the UK Retail Price Index (RPI) plus 3% per annum, over the same period. At this level of performance, 30% of the award relating to EPS performance would vest. Full vesting of the award relating to EPS performance requires that the Company’s average annual compound growth in EPS exceeds the compound growth in RPI plus 5% per annum over the period. Between these two points, an increasing proportion of vesting occurs at RPI plus 3.5%, RPI plus 4% and RPI plus 4.5%. For the purposes of this condition, EPS will comprise adjusted EPS as defined in note 2 to the consolidated financial statements. The definition of adjusted EPS remains consistent with the definition of EPS approved by the Remuneration Committee in previous years.

EPS was chosen as the appropriate measure of performance as it provides an absolute benchmark of the Company’s performance and is therefore a suitable balance to the relative TSR performance measurement.

The second performance condition compares the growth of the Company’s TSR over a three year period to that of the companies in the FTSE mid-250 index (excluding investment trusts). The Company’s ranking amongst the comparator companies determines the percentage of shares which will vest to a participant. For the participant to receive the full number of shares awarded, the Company must rank in the top quartile of the comparator group. Where the Company’s performance is at the median, 30% of any award is vested. Between these two points, vesting is on a straightline basis. Where performance over the three year period does not reach the median ranking no shares are vested, the relevant award lapses and there is no re-testing of performance.

The TSR performance condition was chosen as the Committee believes that TSR is an appropriate method of comparing the performance of the Company to that of its peers. The FTSE mid-250 index (excluding investment trusts) was chosen as the comparator group as there are a limited number of companies which are directly comparable to the Company and the index was therefore felt to be a suitable yardstick of relative performance.

Benefits under the LTIP are not pensionable.

Awards under this LTIP were made by the Remuneration Committee to BM Thompson, I Henderson and NP Lingwood on 7 January 2004,on 29 November 2004, on 2 December 2005 and on 22 December 2006. Following the end of the relevant performance period, the number of shares over which an award vests is determined and a participant may then exercise the award on payment of £1 at any time within ten years of the date of grant. The performance period for the awards granted on 7 January 2004 and on 29 November 2004 ended on 30 September 2006 and 2007, respectively. The outstanding awards will vest on 30 September 2008 and 2009 respectively, subject to the performance conditions set out above, measured over three year performance periods ending on 30 September 2008 and 2009.

Long Term Incentive Scheme (“LTIS”)

For a number of years, the Company operated a Long Term Incentive Scheme (“LTIS”) for the benefit of Executive Directors. The LTIS provided that an Executive Director would receive a cash bonus based upon three performance conditions, measured over a three year period. On vesting of awards, one-third of the aggregate amount was paid to the Directors immediately with the balance being paid in two deferred payments.

The final awards under this LTIS vested on 7 January 2004 for BM Thompson and I Henderson and on 11 anuary 2005 for NP Lingwood. No further awards have been, or will be, made under this LTIS as the Company has replaced the LTIS with the LTIP with effect from 1 October 2003. The details relating to the LTIS are set out in the 2004 Annual Report and have not been repeated here as the LTIS is now closed.

Pension Arrangements

The Executive Directors receive pension contributions from the Company which are paid into money-purchase schemes. No Directors are members of the Group’s defined benefit schemes. The pension contributions are 20.0% (2006: 20.0%) of base remuneration, excluding bonuses.

RELATIVE PERFORMANCE OF REMUNERATION ELEMENTS

The Committee’s view is that the performance related elements of the remuneration package for Executive Directors should be a significant element of the total. This serves to align the interests of such Directors with shareholders. Assuming full payment of all elements, more than 60% of the total remuneration of each of the Executive Directors would be performance related.

SERVICE CONTRACTS – EXECUTIVE DIRECTORS

The service agreements of the Executive Directors include the following terms:

The Executive Directors are subject to rolling contracts and offer themselves for re-election as Directors at least every three years in accordance with the Company’s Articles of Association. Payments on termination for Executive Directors are restricted to the value of salary and contractual benefits for the notice period. There is no predetermined special provision for Executive Directors with regard to compensation in the event of loss of office. The Remuneration Committee would consider the circumstances of individual cases of early termination and determine compensation payments accordingly.

NON-EXECUTIVE DIRECTORS

The fees for the non-Executive Directors are determined by the Board as a whole, having regard to market practice. Business expenses are also reimbursed.

The non-Executive Directors do not have contracts of service, but are appointed pursuant to letters of appointment. Such appointments are for a one year term and the Company’s policy is for re-appointment to
be on an annual basis. Non-Executive Directors are not eligible to participate in any incentive plan or Company pension arrangement and are not entitled to any payment in compensation for any early termination of their appointment. They are due for re-appointment to the Board on the following dates:

All Directors’ appointments are subject to approval of the shareholders in General Meeting sought on a three yearly basis, apart from Directors who have attained the age of 70 years who are required to seek re-election on an annual basis.

During the year ended 30 September 2007 the non-Executive Directors received a base fee of £30,000 per annum (2006: £30,000). The Chairman, who is a non-Executive Director, received a salary and fees of £60,000 per annum (2006: £60,000) for his services during the year ended 30 September 2007.

TOTAL REMUNERATION OF THE DIRECTORS

The total remuneration of the Directors for the year ended 30 September 2007 is set out below.

Notes:

1. IM Grice was appointed to the Board on 24 January 2007; Lord Stewartby retired from the Board on 10 January 2007.

The pension contributions paid on behalf of the Directors are as follows:

On 22 December 2006 Executive Directors received a share award with a face value of one times salary as set out below. On 30 September 2007 the performance period relating to the award made on 22 November 2004 ended and the LTIP awards vested and became exercisable by each of the Directors, as set out below.

Notes:

1. The awards may be exercised at any time before 29 November 2014 on payment of £1. In aggregate 50% of the total LTIP award granted on 29 November 2004 vested
   unconditionally and became exercisable.
   • Under the first performance condition, the average annual compound growth rate in the Company’s EPS over the three year period ended 30 September 2007 was 17.0% pa; this compares with an annual compound growth rate in RPI +5% over the same period of 8.4% pa. Accordingly 100% of the shares relating to this award (representing 50% of the total award) vested unconditionally.
   • Under the second performance condition, the Company’s TSR grew 77.25% over the three year period ended 30 September 2007; this growth gave the Company a ranking of 90 in the comparator group and put the Company in the 47.3 percentile. The median TSR was 79.7% and the lower threshold of the
     upper quartile was 121.2%. Accordingly Nil% of the shares relating to this part of the award vested unconditionally.

Long Term Incentive Scheme

As explained, the Long Term Incentive Scheme (“LTIS”) preceded the Long Term Incentive Plan. The final award under the LTIS vested on 11 January 2005 in respect of performance conditions which were measured over a three year period ended 30 September 2004. On vesting, one-third of the award was paid immediately with the balance being paid, unconditionally, in two deferred payments.

Details of awards made to Directors under the Company’s LTIS and which remained outstanding at 1 October 2006, are as follows: