Remuneration report

For the year ended 31 July 2009 the Committee consisted of the Company’s two non-executive Directors, Ian Taylor (Committee Chairman) and Will Whitehorn. The Chief Executive attends certain meetings of the Committee by invitation to discuss other executives’ performance, as appropriate. During the year the Committee received advice from the Chief Executive in respect of the remuneration of the Finance Director. The Committee takes professional advice as and when it considers this necessary.

The Committee’s principal function is to determine the remuneration packages of the Company’s senior executives and executive Directors, and make recommendations to the Board concerning the allocation of bonuses and long-term incentive rewards to the two executive Directors and to senior executives in the Group. In addition, it considers the objectives set for each senior executive and how he or she has performed against those targets. Its key terms of reference are to:

• determine and agree with the Board a general policy for the remuneration of the executive Directors and senior executives;
• determine the total individual remuneration package of each executive Director;
• determine the policy for, and scope of, pension arrangements for executive Directors; and
• determine and approve the long-term performance-incentive arrangements for executive Directors and senior executives of the Group.

It takes into consideration the performance of the senior executives and Directors and sets the scale and structure of their remuneration and the basis of their service agreements, with due regard to the interests of shareholders. No one may participate in decisions regarding his or her own remuneration. The Committee’s terms of reference are published on the Company’s website.

The Group’s remuneration policy aims are to:

• attract, develop, motivate and retain at all levels, talented people, of the calibre required to continue the Group’s growth and development;
• ensure that key executives are appropriately rewarded for their contribution to the Group; and
• encourage the holding of Company shares as an effective way of aligning the interests of employees with those of shareholders.

In framing this policy, the Remuneration Committee and the Board have given consideration to the provision of the Combined Code and the QCA guidelines for AIM companies. In arriving at its recommendations, the Committee considers salary surveys covering AIM, small cap, and international PR companies.

The policy for executive Directors’ remuneration is to ensure they are fairly rewarded for their individual contribution to the Group’s performance. This is done through a combination of a competitive salary and the opportunity to increase remuneration with short-term and long-term incentives. Executive remuneration packages are reviewed each year. The remuneration package for executive Directors consists of a basic salary, benefits, an annual performance-related bonus, pension and participation in a long-term incentive plan. Details for each Director are set out below. As the Chief Executive has a large shareholding in the Company, this is also taken into consideration when decisions are made regarding short-term and long-term incentives. The ongoing value of his shareholding is considered to be a long-term incentive for the Chief Executive, and therefore less emphasis is placed on other long-term incentives for him.

Executive Directors’ remuneration includes an element of performance-related pay so that awards can be aligned to improvements in shareholders’ value. The level of bonuses is entirely at the discretion of the Remuneration Committee. Bonuses are based on the performance of the Group as a whole against budgets, and the Committee’s assessment of the performance of individuals against the personal objectives they have been set.

The Remuneration Committee recommends the award of share options and performance shares to executive Directors (apart from the Chief Executive) and senior executives to incentivise and retain them. In January 2005 shareholders approved the Company’s Long-Term Incentive Plan (‘LTIP’), which provides share option and performance share awards to Directors and senior employees.

Under the terms of the LTIP, participants are either awarded share options with a grant price equal to the market price on the day before the grant date, or are awarded performance shares in the Company which are released to the participant upon both the satisfaction of certain performance conditions and the participant remaining an employee of the Group.

The share options and performance shares under the LTIP are subject to the following performance conditions:

• The adjusted Earnings per Share (‘EPS’) of the Group must exceed the Retail Prices Index (‘RPI’) by an average of 15% or more per annum over the performance period for 100% of the award to vest.
• If there is an average of between 5% and 15% EPS growth over RPI per annum over the performance period, between 20% and 100% of the award will vest on a straight-line basis.
• If EPS does not grow an average of 5% or more over RPI per annum over the performance period, none of the award will vest.

The performance period over which the above test is measured is three consecutive financial years of the Group commencing with the financial year in which the award is granted.

EPS growth will be calculated from the information published in the Group’s accounts. The awards will vest when the preliminary results for the final financial year of the relevant performance period are released.

Various employees and Directors still have options that were issued under previous Next Fifteen Executive Share Option Schemes. Under such schemes, share options were issued at the market price on the day before the option was granted (or on another date no more than 30 days prior to the grant date). The share options become exercisable on the following dates:

• The first one-third of the total number granted on the third anniversary of the date of granting.
• The second one-third of the total number granted on the fourth anniversary of the date of granting.
• The final one-third of the total number granted on the fifth anniversary of the date of granting.

The share options will lapse on the date of cessation of the participant’s employment with the Group or ten years after the date on which the options were granted.

For all options granted after 30 November 1999 there is a performance criterion that the options may not be exercised unless the Group’s earnings per share has, over a three-year period beginning not earlier than the financial year in which the option is granted and ending on the financial year preceding the year in which the option is exercised, grown by at least 30%. Options granted before this date did not have specific performance criteria. Share price growth was expected to be derived from EPS growth but without a hurdle-rate for exercise.

All executive Directors have rolling contracts that are terminable on six months’ notice. There are no contractual entitlements to compensation on termination of the employment of any of the Directors other than payment in lieu of notice at the discretion of the Company. The executive Directors are allowed to accept appointments and retain payments from sources outside the Group, provided such appointments are approved by the Board in writing.

The executive Directors are responsible for setting the non-executive Directors’ fees. All non-executive Directors are engaged under letters of appointment terminable on three months’ notice at any time. Owing to his length of service as a non-executive Director, Ian Taylor has a letter of appointment that is renewable by the Company annually after each Annual General Meeting. Non-executive Directors are not entitled to any pension benefit or any payment in compensation for early termination of their appointment. Details of the date of the current letters of appointment for non-executive Directors are:

The following graph illustrates the Group’s total shareholder return since 31 July 2004 relative to the FTSE Media Index.

Since March 2005, the Company has been listed on AIM in the Media sector, but there are no five-year historical data for this sector. The Committee considers that a comparison of its total shareholder return to that of similar businesses on the full list is more relevant than a comparison with the FTSE AIM All-Share index.

The graph looks at the value, by the end of July 2009, of £100 invested in the Company compared with £100 invested in the FTSE Media Index.