The Remuneration and Nomination Committee (“the Committee”), comprised solely of the Non Executive Directors, is responsible for determining the remuneration and conditions of employment of the Chairman and Executive Directors. The fees of the Non Executive Directors (other than the Chairman) are set by the Board as a whole.

Policy

In determining appropriate levels of remuneration for the Executive Directors, the Committee aims to provide packages that are competitive in the marketplace and will attract and retain high quality executives capable of achieving the Group’s objectives. To this end, the Committee seeks advice each year from a firm of executive remuneration consultants, who are instructed to review the existing remuneration of all the Directors, making comparisons with peer companies of similar size and complexity. Proposals for the forthcoming year are then discussed in the light of the Group’s growth prospects. The Committee is kept informed by the Chief Executive of the salary levels of all senior executives employed by the Group.

Individual components of remuneration

A detailed breakdown of Directors’ remuneration appears on pages 41 to 43. In summary, the components are:

(i) Basic salary: the salary of individual Executive Directors is reviewed at 1 January each year. Account is taken of the performance of the individual concerned, together with any change in responsibilities that may have occurred and, as stated above, the rates for similar roles in comparable companies.

(ii) Performance-related bonus: a discretionary bonus scheme for the Executive Directors was first introduced in 1993. Payments for 2001 are conditional on the achievement of year on year growth in earnings per share, on a graduated basis. For 2001, the Committee set the maximum bonus payable at 75% of basic salary for achieving earnings per share growth of 20% or above. No bonus is payable if earnings per share growth of less than 4% is achieved.

(iii) Other benefits: Executive Directors receive a fully expensed car, private health insurance and long-term sickness insurance.

(iv) Pensions: under the terms of their service agreements, Executive Directors are entitled to become members of one of the Group pension schemes or, if preferred, to receive payment of a fixed percentage of salary into an approved personal pension scheme.

(v) Share option and long-term incentive arrangements: the Committee has made awards to Executive Directors under two schemes. Details of the awards are shown under the heading “Directors’ share options” on page 42.

The two schemes are:

(a) Executive Share Option Scheme: the Company operates an executive share option scheme for Directors and other senior management. Options granted under this scheme to Executive Directors up until 1999 are subject to performance criteria of growth in the Company’s earnings per share of RPI+6% over the three year period from the date of grant.

Following the approval by shareholders in 2000 options granted to Executive Directors under the Company’s Executive Share Option Scheme are subject to an annual maximum grant of twice basic salary. Each grant is exercisable after three years, subject to a sliding scale of compound annual growth in earnings per share. Each option is subject to a fixed three year performance period and will lapse at the end of that period if the performance conditions are not fulfilled.

Options granted in 2000 and 2001 become exercisable in full where compound annual growth in earnings per share is 10% in excess of the growth in RPI over the same period. No part of the option is exercisable if the compound annual growth in earnings per share is 2% or less in excess of the growth in RPI. Between these two points an option is exercisable on a straight line basis.

Currently, Executive Directors may hold options over shares having a market value (measured at the date of grant of an option) not exceeding eight times the individual’s salary. To the extent that any option on its grant would cause an individual to exceed the existing limit of four times salary, the option will be satisfied by the transfer of shares from the Company’s Employee Benefit Trust, rather than by the issue of new shares.

(b) Long Term Share Incentive Scheme (“LTIS”): The LTIS was introduced in 1997. In normal circumstances, shares may vest under this scheme no earlier than three years from the date of award. The number of shares which may vest is based on the total return to shareholders measured using share price and dividends over a three year performance period relative to the performance of a defined comparator group. Phil White is the only remaining Director to hold an award under the LTIS and no further awards to Directors are planned under this scheme.

Approval is being sought at the Annual General Meeting to adopt a new Executive Share Option Plan (the “Plan”) which will reflect current market practice and the guidelines of institutional investment protection bodies. Further details of the new Plan can be found in Appendix 1 to the Notice of the Annual General Meeting.

In order to align the interests of the Directors more closely with the shareholders, the Remuneration Committee has also determined that the Executive Directors should build up a share fund equal to at least one year’s salary over a period of six to eight years.

Directors’ service contracts

No Executive Director has a service contract with the Company terminable on more than 12 months’ notice. The Non Executive Directors do not have service contracts with the Company.

Outside appointments

Under the terms of their service agreements, Board approval is required before any external appointment may be accepted by an Executive Director.

Notes

(a) The total emoluments of the highest paid Director for the year ended 31 December 2001 (including salary, bonus and gains on exercise of options, but excluding pension contributions) were £1,073,018. In the previous year the emoluments of the highest paid Director were £847,571.

(b) Phil White, Ray O’Toole and William Rollason participate in defined contribution pension schemes. Included in benefits are contributions payable above the earnings cap to Phil White (£122,537), Ray O’Toole (£31,100) and William Rollason (£31,100).

(c) Richard Brown left the Company on 7 December 2001. He received a payment of £246,240 on termination of employment.

Directors’ interests and transactions

The beneficial interests of the Directors in office as at 31 December 2001 are shown below:

Notes

(i) Options granted under the Executive Share Option Schemes.
(ii) Awards under the Long Term Share Incentive Scheme are held in the Employee Benefit Trust and may be transferred to participants in the Scheme at the discretion of the Trustees, subject to certain performance criteria being met. No exercise price is payable on shares transferred pursuant to the Long Term Share Incentive Scheme. In normal circumstances, no award under this scheme may vest until three years after the date of the award.
(iii) Options granted under the Savings Related Share Option Scheme.

In addition to their individual interests in shares the Executive Directors were, for Companies Act purposes, regarded as interested in the 946,971 shares held at 11 March 2002 by the National Express Group QUEST (“QUEST”), established for satisfying exercises under the Group’s Savings Related Share Option Scheme. All employees (including Executive Directors) are potential beneficiaries under this Trust.

No change occurred in any of the interests held by Directors in office between 31 December 2001 and 11 March 2002. The Register of Directors’ Interests maintained by the Company contains full details of the Directors’ holdings of shares and options over shares in the Company. The aggregate difference between the exercise prices and the mid-market prices on the dates of exercise by Directors of all share options during the year was £320,292.

The mid-market price of the Company’s ordinary shares at 31 December 2001 was 565p (2000: 723p) and the range during the year ended 31 December 2001 was 467p to 1010p.