This report has been prepared in accordance with Schedule 7A to the Companies Act 1985 (the ‘Act') and has been approved by the Board and the Remuneration Committee. The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board has applied the Principles of Good Governance relating to Directors' remuneration. A resolution to approve the report will be proposed at the Annual General Meeting.

The Act requires the external auditors to report on certain parts of the report and to state whether, in their opinion, those parts of the report have been properly prepared in accordance with it. The report has therefore been divided into separate sections for audited and unaudited information.

Unaudited information

Remuneration Committee

Role

The Remuneration Committee is responsible for determining and agreeing with the Board the pay, benefits and contractual arrangements for the Executive Directors of the Company (including the Chairman) and other members of the Executive Committee. It aims to develop and recommend remuneration strategies that drive performance and reward it appropriately. In determining its policy, the Committee has paid regard to the principles and provisions of good governance contained in the Combined Code published in July 2003 by the UK Financial Reporting Council as updated in June 2006 (the 'Code'). The Committee operates under the delegated authority of the Board and its terms of reference are available on request from the Company Secretary.

Membership

The Committee was chaired by Barry Gibson until 27 February 2009 when Ian Chippendale was appointed as Chairman, having been a member of the Committee throughout the year. Barry Gibson remains a member of the Committee. John Maxwell served on the Committee until 27 February 2009 when Mark Morris was appointed to replace him. All of the members are independent Non-Executive Directors.

Meetings

Attendance at Committee meetings held during the year and the number of meetings held is set out here.

Advisers

During the year Hewitt New Bridge Street (HNBS), a firm of independent remuneration consultants, served as advisers to the Committee. The Company also instructed HNBS to advise it on a limited number of remuneration matters concerning individuals below the Executive Committee during the year. Other than in relation to advice on remuneration, HNBS has no other connections with the Company. The terms of engagement for HNBS are available on request from the Company Secretary.

The Committee has also received assistance from Brian Whitty, the Group's Chairman, Richard Harpin, the Chief Executive, the Company Secretary (Emma Thomas until July 2008 and then Anna Maughan) and until his departure in October 2008, Martin Sawkins, the Group HR Director, all of whom attended meetings of the Committee as required. None took part in discussions in respect of matters relating directly to their own remuneration.

Remuneration policy

The Committee's remuneration policy for the remuneration of Executive Directors and other senior executives is based on the following principles:

• to provide a remuneration package that is sufficient, but no more than necessary, to attract, retain and motivate high calibre executives;
• to align rewards with the Group's performance;
• to reward good performance with remuneration that is in line with that payable by broadly comparable businesses i.e. high-growth companies of a similar size and those with similar operating characteristics; and
• to reward exceptional performance in such a way as to align the executives' interests with those of the Company's shareholders, delivering upper quartile rewards for upper quartile performance.