The performance condition comparing increases in earnings per share against inflation was chosen in order to ensure that LTIP awards and options would only be received against a background of a sustained real increase in the financial performance of the Company.

The Remuneration Committee, on conducting the annual review of the operation of the LTIP for 2007, determined to make the following changes to the proposed 2007 grant of awards:

• an increase in the award made to the CEO from 80% of salary to 100%; and
• n an increase in the award made to the other Executives from 60% of salary to 80%.

The primary reason for the Remuneration Committee’s decision to increase the level of award was to bring the Company into line with its policy of providing median comparative levels of award under its share incentives.The Remuneration Committee strongly believes that increasing the balance of the compensation package provided to the Executives in favour of the performance elements is in the interests of both the Company and shareholders. In the case of both the increase in annual bonus potential and the increase in award level under the LTIP, Executives will only receive the full benefit if they generate consistently high levels of EPS growth over both the short and medium term.

This grant of awards for 2007 is set out in the following table:

	Shares	Market value
Name	Granted	of shares
Alan Hearne	124,893	£2.9225
Gary Young	49,272	£2.9225
Andrew Troup	53,378	£2.9225
Peter Dowen	60,222	£2.9225
Phil Williams	60,222	£2.9225

Full details of the Directors LTIP awards are set out on page 64.

For 2003 and earlier years long-term incentives comprised of annual grants of options.The Remuneration Committee set

out the level of the option grant to the Executive Directors of the Company at the median level.

The maximum annual grant under the Executive Share Option Scheme was 75% of salary. Options were not issued at a discount.The Performance Conditions attached to the Share Options granted to the Directors under the Executive Share Option Schemes are that:

• Ordinary Options may only be exercised if, over any three year measurement period of the Company, beginning no earlier than the financial year during which the option is granted, the percentage growth in earnings per share exceeds the growth in the Retail Prices Index over the same period by at least 3% per annum, being 9% for the three year period; and
• n Super Options may only be exercised if, over any five year measurement period of the Company, beginning no earlier than the financial year during which the option is granted, the percentage growth in earnings per share exceeds the growth in the Retail Price Index over the same period by at least 6% per annum, being 30% for the five year period. It is also necessary for the share price to rise over both the three and five year periods to make the exercise worthwhile.

The options granted to Executive Directors during 2003 were Ordinary and Super Options.

Options are not able to be exercised if performance is below target, and there is no reward for below target performance. The performance conditions are measured at the end of the three year holding periods applying to the relevant grants of Options.There is no re-testing of the performance conditions.The Directors are required to refund to the Company all National Insurance contributions payable at exercise.This makes the effective tax rate for Executives 47%.

During the year the Directors exercised share options as follows:

		Market value
Name		of shares
Alan Hearne		426,206
Peter Dowen		241,129
Andrew Troup		88,008
Gary Young		136,790

At a market price of 326.78p.The total gain on share options exercised was £1,742,000.

The Directors’ individual share options are detailed in the Directors’ report on page 63 and 64.

No further options will be granted to the Executive Directors following the adoption of the LTIP.

The Company’s rolling dilution for the purposes of the ABI guidelines is less than 1% pa for all share plans and less than 0.5% pa for discretionary plans.

It is the current intention that the proposed awards for 2008 will be satisfied by the new issue shares within the same rules of dilution as applied in respect of 2007.

Benefits
The Executive Directors participate in a Company money purchase (defined contribution) scheme for which the Employer Contribution is 15%.

Executive Directors can also participate in the all-employee Sharesave Plan. Under the rules of this Plan, all employees can contribute up to £250 per month with the option to buy shares at the end of the savings contract at the price at the start of the contract. Currently the Company does not provide a discount to the price at which shares can be acquired. No new contracts have been offered under the plan since 2003.

Executive Directors can also participate in the all-employee Inland Revenue Share Incentive Plan (SIP).The SIP gives employees the opportunity to purchase up to £1,500 of shares a year with the Company providing one additional matching share for every