Annual Report & Accounts 2010

Report of the Remuneration Committee: Part 1

This report has been prepared in accordance with Schedule 8 to the Accounting Regulations under the Companies Act 2006. 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. Shareholders will be invited to approve the report at the Annual General Meeting of the Company to be held on 29 July 2010.

The Act requires the auditors to report to the Company’s members on certain parts of the Report of the Remuneration Committee and to state whether in their opinion those parts of the report have been properly prepared in accordance with the Accounting Regulations. The report has therefore been divided into separate sections for audited and unaudited information.

Unaudited Information

Remuneration Committee

The Company has established a Remuneration Committee (‘the Committee’) which is constituted in accordance with the recommendations of the Combined Code. The current members of the Committee, all of whom are Non-Executive Directors, are given on Executive Committee page. There has been no change to the composition of the Committee in the year. The Chairman of the Committee is Mr R J Harrison OBE. The Group Company Secretary acts as its secretary. Mr G Slark, as Group Chief Executive, is invited by the members of the Committee to attend part of meetings to consult on the proposed remuneration packages of the senior management team. The terms of reference for the Committee can be found on the Corporate Governance section of the Group’s website at www.bssgroup.com.

The role of the Committee is to decide on all aspects of the remuneration packages of the Executive Directors and the Chairman (in his absence). The Group Chief Executive and the Chairman put a recommendation to the Board regarding the remuneration of the Non-Executive Directors, who are absent from the Committee meeting whilst this is discussed and agreed. The Committee reviews all aspects of remuneration for all direct reports of Executive Directors and all members of the senior management team.

Remuneration Policy

The Group aims to provide competitive salary and benefit packages for all employees. As far as is practicable it pursues a consistent policy of terms and conditions across the Divisions. In that context benefits such as share options and pension scheme membership are open to all qualifying employees.

In assessing all aspects of pay and benefits, comparison is made with the packages offered by companies of similar size and business diversity and after considering general pay and employment conditions in the Group. The Committee has access to New Bridge Street Consultants LLP, who act as independent consultants and do not provide any other services to the Group, and provide external research on market data and trends. In order to align individual’s rewards with the Company’s performance, annual bonuses and share incentive schemes are linked to the Company’s strategy and determined by levels of performance achieved against key targets.

During the year the Committee met five times and the following issues were discussed:

• Review the current remuneration policy against the market
• Review the salary levels of the Executive Directors and senior management team
• Agree the annual bonus payments for the financial year ended 31 March 2009
• Agree the annual bonus targets for the financial year ended 31 March 2010
• Agree the vesting of the 2006 Performance Share Plan awards
• Review the performance measures and targets for the 2009 Performance Share Plan awards
• Approve the Report of the Remuneration Committee

Executive Directors

The Committee aims to ensure that remuneration packages are competitive and designed to attract, retain and motivate the Executive Directors to maintain the profitable growth of the business. As far as possible, it is the Committee’s intention to align Executive Directors’ interests with those of the shareholders.

The main elements of the remuneration package for Executive Directors are as follows:

• Basic salary
• Benefits in kind
• Annual bonus scheme
• Pension arrangements
• Share incentive schemes

The Group’s policy is that a substantial proportion of the remuneration of the Executive Directors should be performance related to align performance measures of the Group with those of the Directors. The targeted composition of each Executive Director’s annual remuneration is for performance related remuneration to be more than 50% of the total.

During the year the Committee reviewed the following areas of the senior management’s remuneration in light of the current economic conditions and the approach to pay awards for the other employees of the Group.

Basic Salary

Basic salary for each Executive Director is determined by the Committee annually after a review of individual performance and having regard to competitive practice. Pay rises take effect from 1 April each year unless an individual changes role, when pay changes take effect from the date of change. All Executive Directors received pay rises on 1 April 2009 after review by the Remuneration Committee against benchmark data for other market sector companies and taking into account the sustained growth and performance of the business which has doubled its size over the last five years.

All employees and Directors pay increases effective from 1 April 2009 were individually determined based upon their own performance and were typically within a range of 0 to 5%. There were no annual pay increases for any Director or employee on 1 April 2010.

Benefits in Kind

The Executive Directors receive certain benefits in kind, which in the main relate to the provision of a company car and medical insurance.

Annual Bonus Scheme

All of the Executive Directors are eligible to participate in a short term cash incentive scheme for which targets are set annually by the Remuneration Committee. The targets are designed to encourage individual performance, operating efficiencies and profitable growth. During 2009/10 these related to improvements in profit before taxation after allowance for bonuses (90% of basic salary) and the achievement of working capital targets (10% of basic salary). Mr F M Elkins’s targets differ to Mr G Slark and Mr J R Murray, as he is also a Managing Director of BSS Industrial. 65% of basic salary is based upon improvements in profit before taxation after allowance for bonuses for the Group and another 30% of basic salary is based upon this metric but just for BSS Industrial. The final 5% of basic salary is based upon achievement of working capital targets. Therefore the maximum payable under the scheme during 2009/10 was 100% of basic salary. For the financial year 2010/11, the maximum payable under the scheme will again be 100%. The targets for 2010/11 are again based upon the achievement of working capital targets (10% of basic salary) and profit before taxation after allowance for bonuses and as above for Mr F M Elkins. The profit before taxation is based upon growth above the budgeted profit before taxation for the Group.

The targets for the 2009/10 scheme were not achieved for the profit before taxation element of the award, due to the decline in the economic environment that the Group trades in. Mr G Slark and Mr J R Murray will receive 7% of basic salary each based upon achievement of working capital targets. Mr F M Elkins will receive 5% of basic salary based upon achievement of working capital targets and 3% of basic salary based upon achievement of Industrial Divisional profit before taxation target.

Pension Arrangements

In line with the Group policy all new Executive Directors are eligible to join The BSS Group plc Group Stakeholder Pension Plan. The BSS Group plc Pension and Life Assurance Scheme, which Mr G Slark is a member of, is closed to members. The scheme provides a pension on normal retirement at age 62 based upon a maximum accrual rate of 1/75th of pensionable earnings for each completed year of service. Early retirement is possible from age 55 if the Company agrees. Only basic salary is pensionable.

Share Incentive Schemes

All of the Executive Directors participate in long term incentive schemes, details of which are set out below. The share option schemes are reviewed annually to ensure the grant level, performance conditions and vesting schedules remain appropriate and will align the interests of the participants with the shareholders.

There were two long term incentive schemes in operation during the year; The BSS Group plc Performance Share Plan and The BSS Group plc Approved and Unapproved Share Option Scheme. The BSS Group plc Approved and Unapproved Share Option Scheme final grant of options matured on 1 June 2007; there are no future plans to grant options under this scheme.

With a view to linking rewards to performance, average EPS (for the 2007 and 2008 grants) or PBT (for the 2009 grant) growth per annum for the awards made shall result in vesting as follows:

Growth in EPS / PBT (average per annum) over RPI	Vesting
Less than 5% EPS / PBT	No part of the award will vest
Between 5% and 10% (inclusive)	Straight line proportionate vesting between 30% and 100% (inclusive)
More than 10% EPS / PBT	100% of the award will vest

The 100% vesting targets for the previous three years grants are shown in the table below. Where RPI information is not available yet a rate of 2.6% has been assumed for 2010/11 and 3% has been assumed for 2011/12.

	EPS target June 2007 grant				EPS target June 2008 grant				PBT target June 2009 grant
	Target		Actual		Target		Actual		Target		Actual
Initial target	27.100p		n/a		33.300p		n/a		£50.2m		n/a
March 2008	30.929p		33.300p		n/a		n/a		n/a		n/a
March 2009	34.944p		33.300p		37.622p		33.300p		n/a		n/a
March 2010	38.606p		25.400p		41.565p		25.400p		£57.6m		£44.2m
March 2011	n/a		n/a		46.802p		n/a		£64.8m		n/a
March 2012	n/a		n/a		n/a		n/a		£73.2m		n/a
Cumulative	104.479p		92.000p		125.989p		n/a		£195.6m		n/a