• Dealing fairly with the individual according to the particular circumstances

• Taking full account of the departing executive's obligations to mitigate loss

Details of the service agreements of those directors who retire by rotation at the 2002 Annual General Meeting are given on page 16.

Share Schemes
The Company currently operates three share option schemes. There are also two share incentive plans in existence, although neither is currently being actively used. Further details of the number of shares under option and details of options currently held by executive directors are given in note 6 to the Accounts (p30-33).

The issuing of new shares to satisfy share option grants is limited by the rules of the various schemes which restrict the level of total grants to a predetermined percentage of share capital, within specified timescales. Where necessar y, the Company acquires additional shares on the open market to satisfy the grant of share options which it wishes to make. Information on the schemes is given below. With the exception of the Savings Related Scheme, share options are not granted at a discount to market value.

2001 Savings Related Share Option Scheme

This is an Inland Revenue approved scheme whereby employees enter into a three or five year savings contract with a maximum monthly savings amount of £250 and a minimum of £5. On maturity of the savings contract the employee is able to exercise the options. The option price is set at the commencement of the savings contract. There are no performance criteria relating to this scheme.

The Company offers the opportunity of participation to all UK based permanent employees at least once each year with an option price set at 20% below the prevailing market rate. Currently, 273 employees holding a total of 470,676 options are participating in the scheme. A further 402,216 options have been exercised by 128 employees since the introduction of the original scheme in 1991.

2001 Approved Company Share Option Plan

This scheme is subject to a £30,000 limit on the value of options which may be granted to an individual employee, in order to qualify for Inland Revenue approval.

To be exercisable, options must normally be held for at least three or five years, depending on the performance measurement period applied to the grant. They must be exercised within ten years of date of grant. In the case of the Executive and Divisional Directors, it is the Remuneration Committee's current policy to grant options subject to performance conditions where growth in earnings per share over the five years immediately following grant must be at least 15% above the increase in RPI over that period. For other employees, growth in earnings per share must be at least 6% above RPI over three years.

The Company's policy has been to offer executive share options fairly widely to senior and middle management. Currently, 61 employees holding 691,436 options are participating in this and the previous Inland Revenue approved scheme. A further 644,033 options have been exercised by 33 employees since the original scheme's inception in 1991.

1996 Unapproved Share Option Scheme

This scheme was introduced to allow the Company to grant options which exceed the £30,000 value limit for Inland Revenue approved schemes. The scheme provides for two types of option ('A' and 'B'). To be exercisable, 'A' options must be held for at least three years. In the case of options granted from 12 January 2000, they must be exercised within ten years of date of grant, and growth in earnings per share over three consecutive years within the ten year period, must be at least 6% above the increase in RPI o ver the same period. 'A' Options granted prior to 12 January 2000 must be exercised within seven years of date of grant. Together with grants under the 1991 Executive Scheme and its successor, 'A' options up to a combined value of four times salary can be granted under the scheme rules, over a ten year period.

Grants of 'B' options are made to the Executive Directors and a limited number of other senior executives on a regular, annual basis. Performance criteria are significantly more demanding than for 'A' options. For 'B' options to be exercisable, the increase in earnings per share over the five years

following the option grant must be at least 10% above RPI growth over that period. In the case of new grants this figure will increase to 15%. 'B' Options must be exercised within ten years of date of grant. Under the terms of the scheme, over a ten year period, grants of 'B' Options up to a combined value of eight times salary can be made, including grants made under other executive and other discretionary schemes.

Currently, 44 employees holding 529,336 'A' options are participating in the scheme and 17 employees hold 799,382 'B' options. 223,403 scheme options have been exercised by 14 employees since its inception.

1997 Long Term Incentive Plan and 1997 Employee Incentive Plan

The 1997 LTIP and EIP schemes have, in the past, been used to facilitate effective and tax efficient operation of Executive Directors' performance linked bonus schemes, a portion of the bonuses being paid in shares held as nil cost options (LTIP) or shares held in trust (EIP). Neither scheme is currently being actively used and the numbers of shares and share options involved is small. The interests of Executive Directors in these schemes is shown in note 6 to the Accounts (p.33).

C H McLintock

Remuneration Committee Chairman

10 Decemeber 2001