Remuneration

Share options

Land Securities has historically operated share option arrangements for Executive Directors. Vesting of share options was subject to performance tests and was dependent on growth in NADEPS exceeding RPI by at least 2.5% per annum. Following the adoption of the LTIP in 2005/06, no further awards of share options have been made to the Executive Directors.

For grants made over the period 2000 to 2004, the Committee determined that the required level of increase in NADEPS was achieved and as a result the executive share options granted during that period are exercisable in full. Directors’ options over ordinary shares are shown in Table 63.

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Directors' emoluments

Table 59 sets out Directors’ emoluments for the year under review and the financial year ended 31 March 2009. The basis of disclosure is on an ‘accruals’ basis, that is the annual bonus and Deferred Bonus Shares columns include the amount that will be paid and awarded respectively for performance achieved in the financial year under review.

On 18 June 2009, it was announced that Mike Hussey would leave the Company by mutual agreement on 30 June 2009. In accordance with the mitigation provisions agreed to by all Executive Directors in May 2005, he received a payment of £282,555 comprising six months’ annual salary, pension benefits at 25% of salary together with compensation for other miscellaneous benefits representing 5% of salary. In addition it was agreed that six further monthly payments, subject to mitigation, of £47,092 would be paid from January 2010 in respect of salary, pension allowance and benefit allowance. Also, under the terms of his contract, Mike Hussey received:

• — Time pro-rated annual cash bonus for 2009/10 of £81,506
• — Time pro-rated award of deferred bonus shares amounting to 70,703 shares
• — Vesting of LTIP and maturing share awards with a total value of £266,001.

Mike Hussey was considered to be a ‘good leaver’ for the purposes of the Group’s employee share scheme. Accordingly, he was eligible to exercise share options granted under the Savings-related and Executive Share Option Schemes and to receive shares awarded under the deferred bonus plan, subject to the rules of the relevant plans and schemes in force. Mike Hussey was also eligible to receive vested shares arising from awards of shares under the LTIP and matching share plan in respect of awards made in 2006 and 2007. These awards were subject to attainment of the relevant performance conditions and were pro-rated to the next six-month anniversary from date of grant as specified by the rules of this plan.

The Committee determined attainment of the performance conditions and time pro-rating as follows:

All awards granted under the Company’s Share Incentive Plans were made immediately available to Mike Hussey following the date of his leaving the Company, subject to deductions for PAYE, tax and National Insurance. This was in accordance with the rules for ‘good leavers’ under the relevant plans.

Robert Noel joined the Board as an Executive Director and Managing Director of the London Portfolio on 1 January 2010. Upon joining the Company he was granted an award of shares which broadly matched the long-term incentive awards at his previous employer in terms of the timing of vesting of share awards. In relation to quantum it was agreed that his awards granted in January 2010 would not be subject to performance conditions but the value would be scaled back to reflect assumptions in relation to the likelihood of vesting. The awards granted to Robert Noel upon appointment were as follows:

In addition, it was agreed that he should be paid the sum of £175,000 as a cash bonus for 2009/10 as partial compensation for a bonus foregone at his previous employer. He did not participate in the LTIP/Matching Share Scheme in respect of the 2009/10 financial year.

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Pensions

The Company operates a contributory money purchase pension scheme which was introduced for all staff joining the Group from 1 January 1999. Prior to the introduction of the contributory money purchase arrangement the Company provided pension benefits on a defined benefit basis.

Following a review of pension provision in light of the tax changes that came into effect from 1 April 2006, it was decided that Executive Directors would continue to be entitled to a pension benefit that is equivalent to 25% of their base salary. Executive Directors have the flexibility to determine how this 25% of salary benefit is used, as follows:

• Pension contributions may be made into the Land Securities contributory money purchase scheme up to the personal level that is advised plus a cash contribution on the balance;
• 25% cash payment on base salary to invest outside Land Securities pension arrangements.

Richard Akers participates in a defined benefit pension scheme which was open to property management and administration staff until 31 December 1998. This scheme is designed to provide, at normal retirement age, a pension of 1/60th of Pensionable Salary for each year of pensionable service. The scheme also provides lump sum death-in-service benefits on death before normal retirement age of four times Pensionable Salary and pension provision for dependants of members. Only basic salary is treated as Pensionable Salary. The benefits provided to Richard Akers are based on a Pensionable Salary which is subject to the statutory earnings cap. With effect from 1 April 2006 the defined benefit pension scheme has moved to future accrual on a ‘CARE’ (Career Average Revalued Earnings) basis on either a 1/80th accrual or 1/60th accrual subject to employee contributions. Richard Akers has chosen to accrue benefits on a 1/60th basis with employee contributions of 1% of basic salary in 2006, 3% of basic salary in 2007 and 5% of basic salary thereafter. The balance of Richard Akers’ pension allowance is paid to him to invest outside Land Securities pension arrangements.

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Fees paid to Non-executive Directors

The annual fees of the Chairman of the Board are determined by the Committee having regard to independent advice. The other Non-executive Directors each receive a fee agreed by the Board following a review of fees paid by comparable organisations. The Board also takes into account the time commitments of the Non-executive Directors, which are reviewed annually as part of the Board appraisal process. During the year it was agreed to increase the base Non-executive Directors’ fee from £55,000 to £60,000, with this being the first such increase since 2006/07. No additional fees are payable for attendance at Board or Committee meetings or for membership of Board Committees, but the additional fees outlined below are payable in respect of specific responsibilities:

The appointment of the Non-executive Directors can be terminated upon one month’s notice while the appointment of the Chairman can be terminated upon three months’ notice.

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Key features of the Executive Directors’ service agreements

The Committee’s policy on service agreements for Executive Directors is that they should provide for 12 months’ rolling notice of termination by the Company. As a result, the unexpired term and the notice periods (both from the Company and from the Executive Director) are 12 months. The contracts contain a provision that if an Executive Director is given notice to terminate their employment by the Company, they will be considered for a bonus in the usual way and the usual time following the relevant bonus year subject to a minimum bonus amount of 10% of basic salary, pro-rated to reflect the number of months of the bonus year prior to the service of notice of termination. Any proposals for the early termination of the service agreements of Directors or senior executives are considered by the Committee.

The service agreements of the Executive Directors provide for phased payments of amounts payable on termination, in order to mitigate amounts potentially payable by the Company. Bonus, LTIP, redundancy and outplacement payments are considered by the Committee and are dependent on the circumstances of leaving and the rules of the relevant bonus and incentive schemes. The Company does not make any arrangements that guarantee pensions with limited or no abatement on severance or early retirement.

The Chairman and the other Non-executive Directors do not have service agreements with the Company.

Board approval is required before any external appointment may be accepted by an Executive Director. Any fees earned in relation to outside appointments are retained by the Executive Director. No such fees were earned by the Executive Directors in 2009/10.

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Directors’ shareholdings

The interests of the Directors in the shares of the Company as at 31 March 2010 are shown in Table 61.

There have been no changes in the shareholdings of the Directors between the end of the financial year and 18 May 2010, save that on 1 April 2010 Alison Carnwath and Martin Greenslade acquired 1,321 and 855 shares respectively under the Company’s Scrip Dividend Plan.

No Director had any other interests in contracts or securities of Land Securities Group PLC or any of its subsidiary undertakings during the year.

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Shareholding guidelines for Directors

The Committee believes that it is important for a significant part of the compensation of each Executive Director to be tied to ownership of the Company’s shares so that each Executive Director’s interest in the growth and performance of the Company is closely aligned with the interests of our shareholders. The Committee has, therefore, established share ownership guidelines for the Company’s Executive Directors.

These guidelines require the Chief Executive to own shares with a value equal to twice his base salary and for other Executive Directors to own shares with a value equal to 1.5 times their base salary. An Executive Director must normally satisfy the guidelines within five years of his date of appointment or the date of introduction of this requirement in order to qualify for future awards of long-term incentives.

In May 2007, the Committee determined that Francis Salway had met the revised share ownership guidelines and in May 2010 the Committee agreed that Martin Greenslade and Richard Akers had met the revised guidelines. The Committee continues to monitor the Executive Directors’ progress against the guidelines on an annual basis. In addition, Non-executive Directors are required to own shares with a value equal to their annual fees within three years of the date of their appointment.

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Dilution effect of the Group’s share incentive schemes

Awards granted under the 2005 Long-term Incentive Plan, which covers LTIP and Matching Share awards, and the 2005 Executive Share Option Plan, which covers employees below Board and senior management level, are met by the funding of an Employee Share Trust administered by an external trustee which acquires shares in the market. The exercise of share options under the Group’s Savings-Related Share Option Scheme, which is open to all employees who have completed six months’ service with the Group, is satisfied by the allotment of newly issued shares. At 31 March 2010, the total number of shares which could be allotted under this scheme was 522,049 shares. This represents less than 0.07% of the issued share capital of the Company.

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Pay of senior managers below Board level

The Group currently employs 19 senior managers in positions below Board level. None of these senior managers receives a salary which is higher than those paid to the Executive Directors and the structure of their remuneration package, including bonuses, is broadly consistent with that of Executive Directors. The senior managers generally have a bonus potential of up to 80% of annual salary determined by a range of performance indicators. In addition, they are eligible to participate in the discretionary bonus pool of up to 50% of salary. Six of the senior managers, who are responsible for the areas which impact the most significantly on the results of the Group, will also be eligible from 2010/11 to participate in the additional bonus opportunity for the delivery of exceptional financial returns, as described above in this report, but at up to a maximum of 80% of annual salary. During the year under review, bonuses for this group of employees ranged from 54% to 96% of salary, with an average bonus of 68% of salary. In addition a small number of senior managers were paid retention bonuses in respect of the demerger of the Group proposed in 2007 and stopped in 2009.

Performance graphs

As required by legislation covering the Directors’ remuneration report, Chart 55 illustrates the performance of the Company measured by total shareholder return (share price growth plus dividends paid) against a ‘broad equity market index’ over a period of five years. As the Company is a constituent of the FTSE All Share Real Estate sector this index is considered to be the most appropriate benchmark for the purposes of the graph.

The Committee also considered that it would be helpful to provide an additional line to illustrate performance compared with the FTSE 100 index over the previous five years of the Company (see Chart 55).

Signed for and on behalf of the Board by

• David Rough
• Chairman, Remuneration Committee

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