GENERAL POLICY

In determining the remuneration packages of the executive directors, the remuneration committee has regard to two fundamental principles:

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

The committee has applied these principles to develop remuneration packages which:

• 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. For the 1999/2000 financial year, it was decided that there would be no increase in the executive directors' base salaries.

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 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 50% of base salary, the targets related to annual share price performance and EPS performance against budget, and the bonus earned was just under 13% of base salary.

Table 1 - Directors' emoluments

	Salary 1999 £000	Benefits 1999 £000	Annual bonus 1999 £000	Total 1999 £000	Total 1998 £000
Executive
M P Green	610	52	77	739	658
S A Cain (1)	336	417	60	813	-
B A Cragg	288	30	36	354	298
J F de Moller (2)	110	6	-	116	351
N N Walmsley	280	16	35	331	303
Non-executive
Sir Derek Birkin	35	-	-	35	35
A D A W Forbes	35	-	-	35	35
D B Green	35	-	-	35	35
L F Hill	35	-	-	35	35
Sir Sydney Lipworth	35	-	-	35	35
Sir Brian Pitman	35	-	-	35	20
	1,834	521	208	2,563	1,805

Notes

1. S A Cain became Chief Executive of the Company on 18 January 1999. Included within "Benefits" for S A Cain are a payment of £300,000 in compensation for the loss of share option rights with his previous employer and relocation assistance of £100,000.
2. J F de Moller ceased to be a director of the Company on 31 January 1999. The figures set out in Table 1 comprise her salary and benefits until that date. Thereafter, in settlement of contractual rights under her service agreement, she received compensation totalling £345,000 (including the value of car and private medical benefits). Her total remuneration for 1999 was £461,000.
3. For the purposes of Schedule 6 to the Companies Act 1985, the director with the highest total emoluments for 1999 was S A Cain, and for 1998 was M P Green. The accumulated total accrued pension in 1999 for S A Cain was £1,000, as set out in Table 4 below, and in 1998 for M P Green was £59,000.

 
LONG-TERM INCENTIVE ARRANGEMENTS

Share options
New executive share option and Sharesave schemes were approved by shareholders in July 1998. Directors can participate in the Sharesave scheme and options granted to them under that scheme are included in Table 2 below. They can also be granted options under the new executive scheme, but not if they are being granted awards under the long-term incentive share (LTIS) plan referred to below. During the year under review, no awards were made under the LTIS plan and directors were granted options under the new executive scheme as shown in Table 2 below. These options were granted as part of a phased grant, and accordingly no further awards will be made to the directors under the LTIS plan for so long as they receive phased grants of executive share options. Exercise of these options is subject to satisfaction of performance conditions set by the committee each year. The performance condition for the executive share options granted to the directors in the year under review was that the Company's EPS growth in a three year period must exceed RPI inflation during that period by 9%.

 
Table 2 - Options

	Scheme	Options held on 1 Oct 1998	DABS awards vested during the year	Options granted during the year	Options exer- cised during the year	Market price per share on exercise date	Options held on 30 Sept 1999	Option Price	Exercise Period
M P Green	EXEC	28,712	-	-	-	-	28,712	282P	1996-2003
	EXEC (1)	40,000	-	-	-	-	40,000	358.4P	1998-2005
	DABS	-	23,718	-	-	-	23,718	Nominal	1999-2003
	Share save	-	-	5,164	-	-	5,164	334p	2003-2004
	EXEC (2)	-	-	230,188	-	-	230,188	530P	2001-2008
S A Cain	EXEC (2)	-	-	358,490	-	-	358,490	530p	2001-2008
B A Cragg	EXEC	27,500	-	-	-	-	27,500	360.4p	1997-2004
	EXEC (1)	53,250	-	-	-	-	53,250	358.4p	1998-2005
	DABS	-	11,331	-	-	-	11,331	Nominal	1999-2003
	EXEC (2)	-	-	108,490	-	-	108,490	530p	2001-2008
N N Walmsley	EXEC	35,460	-	-	35,460	540.6p	-	282p	1996-2003
	EXEC (1)	113,750	-	-	113,750	540.6p	-	358.4p	1998-2005
	DABS	-	11,595	-	-	-	11,595	Nominal	1999-2003
	Share save	-	-	2,919	-	-	2,919	334p	2001-2002
	EXEC (2)	-	-	105,660	-	-	105,660	530P	2001-2008

Notes

1. Exercise of these options is subject to a performance condition, that the Company's EPS growth in a 3 year period must exceed RPI inflation during that period by 6%. This condition has been satisfied.
2. Exercise of these options is subject to a performance condition, that the Company's EPS growth in a 3 year period must exceed RPI inflation during that period by 9%.
3. For the year under review, the aggregate gains for all directors' options exercised during the year were £777,135 (1998-NIL). This figure represents the difference between the market price of option shares at the exercise date and their exercise price. It does not represent the net proceeds received as no account has been taken of option shares which have been retained, the tax liability or, where option shares have been sold, the sale commissions and expenses. It includes the following gains made on options exercised by J F de Moller who ceased to be a director in January 1999: £216,895 on the exercise of her remaining executive share options which had matured in 1997; and £261,273 on the exercise of DABS and LTIS awards which vested during the year. For the year under review, no directors' options shown in Table 2 above lapsed.
4. The market price of an Ordinary share on 30 September 1999 was 459.5p and the range of prices during the year to 30 September 1999 was between 353p and 656.5p.
5. As at 31 December 1999, the information in Table 2 above was unchanged.

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% of his/her net (ie. 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 (ie. 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 (three years in respect of the first awards made in February 1996), the restricted shares will thereafter become available to the participant.

All employees who have to date been invited to participate in the plan have on each occasion chosen to invest the maximum 50% of their cash bonuses to purchase bonus shares.

The directors' interests in restricted shares conditionally awarded under this plan are shown in Table 3 below.

LONG-TERM INCENTIVE SHARE PLAN (LTIS)

No further awards will be made to the directors under the LTIS plan for so long as they receive phased grants of executive share options. 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 remains employed by the Group for four years, the Company's performance, measured on the basis of total shareholder return (ie. share price movement and dividends paid) against the FTSE-100 companies (TSR) over a three year performance period will determine what proportion (if any) of the award will vest at the end of four years. The proportion and targets were determined by the committee.

The directors' interests in the shares conditionally awarded under this plan are shown in Table 3 below.

Table 3 - DABS and LTIS awards

	Notes	Held on 1 Oct 1998	Awarded during the year	Vested during the year (4)	Lapsed during the year	Held on 30 Sept 1999	Exercise period
M P Green	DABS(1)	23,718	-	23,718	-	-	1999-2003
	(2)	20,331	-	-	-	20,331	2001-2007
	(2)	1,953	-	-	-	1,953	2002-2007
	(2)	-	5,411	-	-	5,411	2003-2008
	LTIS(1)	113,253	-	-	74,578	38,675	2000-2003
	(2)	90,163	-	-	-	90,163	2001-2007
	(2)	115,789	-	-	-	115,789	2002-2007
B A Cragg	DABS(1)	11,331	-	11,331	-	-	1999-2003
	(2)	8,996	-	-	-	8,996	2001-2007
	(2)	860	-	-	-	860	2002-2007
	(2)	-	2,458	-	-	2,458	2003-2008
	LTIS(1)	50,120	-	-	33,005	17,115	2000-2003
	(2)	39,708	-	-	-	39,708	2001-2007
	(2)	52,631	-	-	-	52,631	2002-2007
N N Walmsley	DABS(1)	11,595	-	11,595	-	-	1999-2003
	(2)	10,165	-	-	-	10,165	2001-2007
	(2)	966	-	-	-	966	2002-2007
	(2)	-	2,508	-	-	2,508	2003-2008
	LTIS(1)	56,626	-	-	37,289	19,337	2000-2003
	(2)	44,626	-	-	-	44,626	2001-2007
	(2)	53,684	-	-	-	53,684	2002-2007

Notes

1. These conditional awards take the form of options granted over Ordinary shares. The options are exercisable at a nominal price and subject to certain conditions being satisfied (as summarised above). During the year, both conditions relating to the DABS options were satisfied, they vested and accordingly they are now disclosed in the "Options" Table 2. The LTIS options have been shown in Table 3 as having partially lapsed during the year on account of the performance condition relating to these awards having been only partially satisfied. The performance period ended in February 1999, the Company's TSR ranking was 52nd and accordingly 34.15% of the award can vest.
2. These conditional awards originally took the form of allocations of Ordinary shares. These have since been converted into options over Ordinary shares. The options are exerciseable at a nominal price and subject to certain conditions being satisfied (as summarised above).
3. The rules of the DABS and LTIS plans provide for early vesting of conditional awards in certain prescribed circumstances or at the committee's discretion. Early vesting was permitted of J F de Moller's DABS awards made in February 1997 (10,598 shares) and December 1997 (1,025 shares) and of 34.15% of her LTIS award made in February 1996 (20,160 shares). Only a time-apportioned part of her remaining LTIS awards made in February 1997 (47,358 shares originally awarded) and December 1997 (63,157 shares originally awarded) will be permitted to vest depending upon satisfaction of the performance conditions and following the end of the performance periods relating to such LTIS awards; assuming the same TSR ranking as for the performance period which ended in February 1999, 13,084 shares would vest with a value of £80,600, based on the Ordinary share price following her ceasing to be a director of the Company.
4. The aggregate value of the DABS and LTIS awards which vested during the year was £491,428. This figure is based on the market price of an Ordinary share on the relevant vesting date. The value for each of the directors during the year under review was: M P Green £125,350; B A Cragg £59,884; J F de Moller £244,914 and N N Walmsley £61,280. This value is notional and is not realised until the option is exercised. Upon exercise, the value is disclosed in the "Options" Table 2, and may differ from such notional value, depending on the share price movement in the intervening period.
5. As at 31 December 1999, the information in Table 3 above was unchanged.

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% a year.

Table 4 - Pensions
The following information relates to the three directors (1998 - two directors) who participated during the year in the directors' pension scheme(1):

	Age at 30 Sept 1999	Director's contributions in the year(2) £000	Increase in accrued pension during the year(3) £000	Accumulated total accrued pension at 30 Sept 1999 £000
M P Green	51	34	16	77
S A Cain	35	4	1	1
J F de Moller	52	24	4	206

Notes

1. The pension entitlement shown is that which would be paid annually at the normal date of retirement (age 60), based on service to 30 September 1999 (in the case of M P Green and S A Cain), and service to 31 January 1999 (in the case of J F de Moller who ceased to be a director on that date).
2. These relate to the contributions paid in the year by the director under the terms of the scheme.
3. The increase in accrued pension during the year excludes any increase for inflation.
4. B A Cragg and N N Walmsley do not participate in the directors' pension scheme and company contributions of £77,165 (1998 - £67,100) and £78,960 (1998 - £71,910), respectively, were made during the year into their money purchase pension plans.

SERVICE CONTRACTS

No executive director has a service contract containing a notice entitlement exceeding one year, except B A Cragg. His service contract is terminable upon two years' notice by either party which is considered reasonable having regard, inter alia, to the length of his service with the Company and the voluntary reduction without compensation of his notice entitlement from three years to two years in 1995. For new executive directors, current policy is that the notice entitlement should be one year or less.

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 14 January 2000

David Abdoo, LLB, Company Secretary