Remuneration report
The principal function of the Remuneration Committee (the “Committee”) is to agree with the board the framework and policy for the remuneration of the Group’s executive management and to determine, on behalf of the board, the remuneration packages of the executive directors. The composition of the Committee is given in Corporate governance. The Committee has followed the provisions in Schedule B of the Combined Code in preparing this report.

Remuneration policy
The Committee aims to ensure that the executive directors are fairly rewarded for their individual contributions to the Group’s overall performance. Each director is assessed individually so that his remuneration is directly related to his performance over time and so that a significant proportion of his remuneration package is performance related. During the year, the Committee sought to ascertain a market rate by comparison with similar companies in the industry sector and pay an amount similar to such rate unless specific circumstances apply. The Committee is responsible for determining all elements of directors’ remuneration including, in particular, basic salary, annual bonus, long term incentives and other benefits.

In light of the significant changes in the business over the past year, the Committee has commissioned a fundamental review of executive remuneration using independent advisers. The review will compare all elements of remuneration against a comparator group of similar businesses, having regard to size and geographic spread.

The Committee has followed the provisions in Schedule A of the Combined Code in assessing performance related remuneration.

(i) Basic salary
The basic salary for each director is intended to be competitive, but fair, using information provided both by external and internal sources.

(ii) Performance related annual bonus
The percentages for annual bonuses are set by the Committee and are subject to challenging targets linked to the Group’s and, where appropriate, the relevant division’s operating performance in the year. Such targets include earnings per share and divisional profit. A maximum bonus of 40% of basic annual salary may currently be awarded. This performance related bonus is not pensionable.

(iii) Long term incentive plans
The Company has an Inland Revenue approved executive share option scheme which was established in 1994
(“the 1994 Scheme”). It reflects both the joint guidance note issued by the Association of British Insurers and the National Association of Pension Funds and statutory and listing requirements.

During the year, shareholders approved a new Inland Revenue approved executive share option plan
(“the Approved Plan”) and an unapproved share option plan (“the Unapproved Plan”). These were intended to replace the 1994 Scheme, the rules of which no longer reflected best practice. Since the adoption of the Approved and Unapproved Plans, no new options have been granted and it is the intention that no further options will be granted under the 1994 Scheme.

Under the Approved Plan, the total market value of shares at the date of grant over which any participant may be awarded options is £30,000. At any time, the total number of shares over which options may be granted (under all share option arrangements of the Company) must not in any consecutive 10 year period exceed 10% of the issued ordinary share capital.

It is currently the intention to grant options annually under these plans. The rules of the plans provide that, except in exceptional circumstances, in any 12 month period, a participant may not be granted options over shares (under all share option arrangements of the Company) having a market value in excess of his or her gross remuneration (excluding bonuses and benefits in kind) in that 12 month period. In exceptional circumstances, such as the need to recruit a key executive, this individual limit may be exceeded.

Options granted under the plans are subject to the Company achieving average annual growth in earnings per share over at least three consecutive years of not less than 4% above the increase in the retail price index. This is a significantly more demanding performance criterion than that which applied under the 1994 Scheme.

Options granted under the plans must normally be exercised within the period of three to ten years after the date of grant. In normal circumstances, options may only be exercised if the option holder is an employee or director of the Group at the date of exercise. Exceptionally, options may be exercised earlier than three years, where employment ceases other than on a voluntary basis or dismissal.

The Keller Group plc Deferred Annual Bonus Scheme (“the DABS Scheme”), a long term incentive plan for the executive directors of the Company and a limited number of the Group’s senior employees, adopted in 1998, was terminated on 21 June 2000 in accordance with its rules. No further awards will be granted under the DABS Scheme but in all other respects the provisions of the DABS Scheme remain in force with regard to awards that have already been granted. The operation of the DABS Scheme was subject to the discretion of the Committee and the executive directors of the Company. Participants in the DABS Scheme were required to defer 50% of their performance related annual bonus in the form of shares in the Company for a period of three years. At the end of the three year deferral period matched shares may be awarded up to a maximum of two matched shares for every one share deferred, depending on the Group’s earnings per share growth and the performance of the Group against a group of comparator building and construction companies. This comparative performance is measured by total return to shareholders using share price and dividend criteria.

Once the matched shares have unconditionally vested, participants may sell their deferred shares and matched shares at any time. Alternatively, they have the opportunity to earn additional matched shares at the rate of one additional matched share for every five shares retained for a further two year period.

The cost to the Group of the matched shares and the additional matched shares is charged to the profit and
loss account.

No award of shares, matched shares or additional matched shares form part of a participant’s pensionable salary.

Share purchases in relation to the DABS Scheme are made in the market using funds provided to it by the Group to cover anticipated awards by the Keller Group plc Employee Benefit Trust, the trustees of which are Guinness Flight Trustees S.a.r.l.

Details of the shares awarded are shown below under Directors’ interests in long term incentive plans.

A share appreciation rights scheme also exists. It was introduced primarily to enable overseas executives to be granted comparable incentives to those available to their UK colleagues under the 1994 Scheme. There is currently no intention to use the share appreciation rights scheme.

Awards under these long term incentive plans provide an incentive to executive directors and senior employees and further align the interests of management and shareholders.

(iv) Other benefits
Other benefits for executive directors include a car and payment of its operating expenses and fuel, entitlement
to a private health care scheme and pensions as detailed below.

(v) Service contracts
T Dobson has two service agreements, one in his capacity as chairman of Keller Foundations Inc which is terminable on two years’ notice by the employer, and the other in his capacity as chief executive of Keller Group plc which is terminable on one year’s notice. The service agreement for J R Atkinson is terminable on one year’s notice by the employer. The Company seeks to apply the principle of mitigation in the payment of compensation on the termination of the service agreement of any executive director.

Directors’ emoluments

	Basic salary 2001 £000	Fees 2001 £000	Benefits 2001 £000	Annual bonus 2001 £000	Total emoluments 2001 £000	Total emoluments 2000 £000
Executive
J R Atkinson	120	-	12	48	180	118
T Dobson (highest paid director)	233	-	49	93	375	250
K Kirsch	-	-	-	-	-	180
M W C Martin	117	-	6	26	149	137
Non-executive
Dr K Bond	-	20	-	-	20	20
E G F Brown	-	-	-	-	-	-
K Payne	-	20	-	-	20	20
Dr H Peipers	-	20	-	-	20	15
Dr J M West	67	-	14	-	81	80
	537	60	81	167	845	820

Directors’ shareholdings
The directors’ beneficial interests in the issued ordinary share capital of the Company were:

	At 31 Dec 2001 Ordinary shares	At 31 Dec 2000 Ordinary shares
J R Atkinson	24,134	24,134
T Dobson	898,000	898,000
M W C Martin	954,000	954,000
K F Payne	3,808	-
Dr J M West	1,948,000	1,948,000

There have been no changes in the directors’ beneficial interests during the period from the end of the financial year to 6 March 2002.

Directors’ pension rights
J R Atkinson, M W C Martin and Dr J M West are all members of the Keller Group Pension Scheme. This scheme provides a lump sum death in service benefit and pensions for dependants on death in service or following retirement. On retirement at age 62, J R Atkinson will be eligible for a pension based upon a percentage of final salary. This percentage will increase with pensionable service to a maximum of two-thirds, subject to Inland Revenue limits. M W C Martin, having retired on 31 December 2001 at age 60, will be eligible for a pension of two-thirds of final pensionable salary. Dr J M West, having retired in 1997, received a pension of £131,000 in 2001.

T Dobson is a member of a defined contribution scheme operated in the USA. His normal retirement age is 65. Company pension contributions to this scheme in 2001 in respect of T Dobson were £12,200 (2000: £9,600).

	Age at 31 Dec 2001	Directors' contributions during the year £000	Increase in accrued pension entitlement during the year £000	Transfer value of increase £000	Total accrued pension entitlement at 31 Dec 2001 £000
J R Atkinson	41	2	7	40	25
M W C Martin	60	-	3	66	78

The total accrued pension entitlement shown is that which would be paid annually on retirement based on service to the end of the year and the increase in accrued pension entitlement during the year excludes any increase for inflation.

Directors’ interests in long term incentive plans
Deferred annual bonus scheme

	Awards at 1 January 2001 Number	Awards made in the year Number	Awards at 31 December 2001 Number
J R Atkinson	11,557	-	11,557
T Dobson	30,310	-	30,310
M W C Martin	10,235	-	10,235

As mentioned above, the Deferred Annual Bonus Scheme was terminated on 21 June 2000. No awards were therefore made in relation to the year ended 31 December 2000 and none will be made in relation to the year ended 31 December 2001.

Share option arrangements
All share options granted under the 1994 Scheme were granted on 26 April 1995. All share options granted under the Unapproved Plan were granted on 14 May 2001.

	At 1 January 2001 Number	Granted in 2001 Number	Exercised in 2001 Number	At 31 December 2001 Number	Exercise price Pence
Share options
J R Atkinson
1994 Scheme	14,800	-	-	14,800	102.0
Unapproved Plan	-	25,000	-	25,000	231.5
T Dobson
1994 Scheme	80,000	-	-	80,000	102.0
Unapproved Plan	-	50,000	-	50,000	231.5
	94,800	75,000	-	169,800

The market price of the shares at 31 December 2001 was 278p and the range during the year was 164.5p to 306.5p.
Under the 1994 Scheme, the conditions set for the exercise of the options, being a real growth in earnings per share over three consecutive years at some time between the date of grant of the option and the date of exercise, where real growth means a percentage increase of not less than 2% per annum above the increase in the Retail Price Index, were met on 26 April 1998. The remaining options may be exercised at any time up to 26 April 2005.

Share appreciation rights
There were no share appreciation rights outstanding at any time during the year.

On behalf of the board

Dr K Bond Chairman, Remuneration Committee
6 March 2002