• the importance of recruiting and retaining management of the highest calibre; and
• linking reward to the Company’s performance.

• provide a competitive base salary designed to attract and retain executive directors of the highest calibre and to reflect their role and experience;
• provide incentive arrangements which are subject to challenging performance targets, reflect the Company’s objectives and recognise the importance of motivating management to focus on annual, as well as longer-term, performance; and
• directly align the interests of the executive directors with those of shareholders.

REMUNERATION PACKAGE
The four components of the remuneration package are base salary and benefits, annual cash bonus, long-term incentive arrangements and pension. The following sections provide an outline of current practice with regard to each component.


BASE SALARY AND BENEFITS
Base salary and benefits are determined on an annual basis by the committee after a review of the individual’s performance and market trends. For guidance, the committee has regard to available research and published remuneration information on comparable companies. Salary policy within the rest of the Group is also taken into consideration. Benefits typically include a car and life, disability and health insurance. The value of benefits is not pensionable.

The executive directors waived any increase in base salary for the year under review. MP Green and GM Murphy have also waived any increase in base salary for the 2002/03 financial year.


DIRECTORS' EMOLUMENTS  


ANNUAL CASH BONUS
The directors’ annual performance-related cash bonus scheme provides executive directors with an incentive to achieve demanding short-term performance targets. The bonus earned, which is not pensionable, depends principally upon the Company’s performance as measured against a specific target or targets set by the committee each year.

For the year under review, the scheme provided for a bonus of up to 100 per cent of salary, and the targets related to operating performance and individual objectives. M P Green, GM Murphy and P C Murray have waived any bonuses they earned under the scheme.


LONG-TERM INCENTIVE ARRANGEMENTS
Share options  
Directors can participate in the Sharesave scheme and options granted to them under that scheme are included in the table above. They can also be granted options under the Carlton Executive Share Option Scheme 1999. During the year under review directors were granted options under this scheme, details of which are included in the table above. These options were granted as part of a phased grant. The exercise of executive share options is subject to satisfaction of performance conditions set by the committee.

Deferred Annual Bonus Share plan (DABS)   
The plan, which operates on an annual basis, provides that a participant may choose to invest up to 50 pr cent of his net (i.e. after tax) annual cash bonus to purchase Carlton Ordinary shares (bonus shares). The investing participant is then conditionally awarded a number of Carlton Ordinary shares (restricted shares) with a value that is the gross (i.e. pre-tax) equivalent of the annual cash bonus so invested. Provided the bonus shares are retained for three years and the participant remains employed by the Group for four years, the restricted shares will vest and thereafter become available to the participant.

The directors’ interests in non-vested restricted shares conditionally awarded under this plan are shown in the DABS table above.

Long-Term Incentive Share plan (LTIS)
During the period, no awards were made under the LTIS plan. It is intended that no further awards will be made in future under this plan.

The LTIS plan provided for a participant to be conditionally awarded a number of Carlton Ordinary shares with a value equating to a percentage of his/her base salary. The percentage was determined by the committee. Provided the participant remained employed by the Group for four years, the Company’s performance, measured on the basis of total shareholder return (TSR) (i.e. share price movement and dividends paid) against the FTSE-100 companies over a three year performance period, determined what proportion (if any) of the award would vest at the end of four years. The proportion and targets were determined by the committee.

The directors’ interests in non-vested shares conditionally awarded under this plan are shown in the DABS table above.

The Carlton Equity Participation Plan (EPP)  
The EPP received shareholder approval at the AGM on 1 March 2001. A summary of the main features of the plan is set out above.

Participation in the EPP applies to executive directors and selected senior executives. Participants invited to take part in the EPP are required to commit Carlton shares (EPP shares) by a specified date to qualify for a matching award. Normally a participant is entitled to commit EPP shares to a value of up to 100 per cent of basic salary (save for the first award where the maximum EPP share commitment was to a value of up to 200 per cent of basic salary). A matching award comprises both an award of free shares (in the form of a nil-price option) and an option grant over shares at market value. The extent to which a matching award will vest depends on the participant retaining his/her EPP shares and the performance conditions relating to the matching award being satisfied. The maximum matching award will be free shares equal in number to three times the EPP shares and options (at market value) over an equal number of shares. The principal performance conditions applicable to the first awards will be measured on the basis of the Company’s TSR performance against that of other major UK media companies and the FTSE-100 companies. None of the matching award will vest if the Company’s TSR is below median for the media comparator group.

On 5 December 2001 the first awards were made under the terms of the EPP, including to the directors as shown in the EPP table above.


PENSIONS  
All executive directors are eligible to participate in a directors’ contributory defined benefit pension scheme, within the main Carlton Communications Plc Group pension scheme. The directors’ pension scheme enables members to retire at age 60 with a maximum pension after 30 years’ pensionable service equivalent to 2/3rds of final pensionable salary. Pensionable salary is basic salary, excluding bonuses. Final pensionable salary is the average of pensionable salary over the last three years before retirement. On death before retirement, a lump sum equal to four times pensionable salary is paid, together with a spouse’s pension of 4/9ths of pensionable salary. Pensions in payment are guaranteed to increase in line with inflation up to 5 per cent a year.


SERVICE CONTRACTS
G M Murphy’s and P C Murray’s service agreements are terminable on one year’s notice by either party, save on a change of control whereupon for one year thereafter the contract is terminable by the Company on two years’ notice.

No executive director has a service contract containing a notice entitlement exceeding one year, except as set out above.


OUTSIDE APPOINTMENTS
Executive directors are encouraged to accept non-executive directorships offered by FTSE-100 and FTSE-250 companies and other organisations which provide industry experience or public service. Outside appointments are subject to prior Board approval, taking into account existing duties and potential conflicts of interest. Fees paid for these services are normally retained by the executive director concerned.


NON-EXECUTIVE DIRECTORS’ FEES
The executive directors are responsible for setting the non-executive directors’ fees. Non-executive directors do not receive benefits or pension contributions from the Group and do not participate in any Group incentive scheme.

Approved by the Board on 26 November 2002


David Abdoo, LLB, Company Secretary