Directors' Remuneration Report

Annual Incentive Plan (AIP)

Annual incentive targets are set each year to take account of current business plans and conditions, and there is a threshold performance below which no award is paid. AIP awards are based on financial tests, subject to appropriate adjustments, as determined by the Committee. In 2005, awards were based on the delivery of underlying economic profit (UEP), defined as underlying profit from operations less a charge for the weighted average cost of capital, and growth in Revenue, both key elements of the annual contract. The award is weighted 60% on the delivery of UEP and 40% on the growth in Revenue, and these weightings will remain the same for 2006. However, if our trading margin is below the contracted level, the Revenue element of the award will be reduced at all levels of performance except at the threshold level.

The target incentive award for an Executive Director is 80% of base salary, with the maximum award being at 120% for exceptional performance. From 2006, we propose that as part of the changes to reward arrangements these percentages be increased to 100% and 150% respectively. AIP awards to Executive Directors for 2004 and 2005 averaged 88% and 91%, respectively of base salary, and in 2005, this represented 44% on the delivery of UEP and 47% on the growth in Revenue. AIP received by the Executive Directors in the 2005 financial year is shown in the Directors’ remuneration tables.