Directors’ remuneration report

The Board presents its remuneration report, which has been prepared on the recommendation of the Remuneration Committee (‘the committee’) and in accordance with the requirements of the Companies Acts 1985 and 2006. Shareholders will be invited to approve the report at the Annual General Meeting on 5 February 2009. The report covers the following matters:

• executive remuneration policy for the year ended 30 September 2008 and the intended policy for the year ending 30 September 2009; and
• directors’ remuneration, incentive plan participation and pension provision.

With the exception of the annual performance-related award, service agreement details, the second shareholder return graph, disclosure of remuneration to other senior executives and external directorships, the information set out below in this Report represents the auditable disclosures referred to in the Independent auditors’ report as specified by the UK Listing Authority and under Regulation 11 of and Schedule 8 to the Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008.

Role of the committee

The Board sets the Company’s remuneration policy and the committee is responsible, within the authority delegated by the Board, for determining specific remuneration packages and the terms and conditions of employment for the members of the Executive Committee, which comprises the executive directors and other senior executives. The committee ensures that the members of the Executive Committee are provided with the appropriate incentives to enhance the Group’s performance and to reward them for their personal contribution to the success of the business. The committee reviews the remuneration arrangements for Group employees whose salaries exceed a specified level and administers the Company’s share incentive plans. The committee also determines the Chairman’s remuneration although the Board itself determines the level of fees paid to the non-executive directors. No directors are involved in deciding their own remuneration.

The committee also maintains an active dialogue with shareholder representatives and its full terms of reference are set out on the Company’s website at www.compass-group.com.

Membership of the committee

The committee consists entirely of independent non-executive directors (as defined in the Code). During the year the committee comprised the following non-executive directors:

• Sir James Crosby (Chairman, senior independent non-executive director)
• Sven Kado
• Steve Lucas
• Tim Parker (to 23 May 2008 and from 1 November 2008)

Biographical details of the current members of the committee are set out under Board of directors. The General Counsel and Company Secretary acts as the secretary to the committee. The committee met on four occasions during the year. Details of Meeting attendence are given in the Corporate governance section.

Advisors to the committee

The committee has access to detailed external information and research on market data and trends from independent consultants. During the year PricewaterhouseCoopers LLP (who also provide expatriate assignment advice) was engaged by the committee to advise on the design of incentive arrangements and general human resource and compensation related matters. Alithos Limited provided information for the testing of the total shareholder return performance conditions for the Company’s Long-Term Incentive Plan (‘LTIP’).

The Chairman and the Group Chief Executive together with Jane Kingston, the Group Human Resources Director, and David Walker, Director of Group Reward, are normally invited to attend each committee meeting and provide advice and guidance to the committee (other than in respect of their own remuneration).

Summary of activity during the year

During the year the committee conducted its annual review of remuneration philosophy, together with the Company’s remuneration itself to ensure that the overall remuneration structure continues to promote the Company’s business strategy. The performance targets of all the Company’s share plans were reviewed, as was the headroom available in issued share capital before each grant was made. The committee also reconfirmed that no bonus matching awards or share option plan grants would be made to executive directors without seeking shareholder approval.

Remuneration policy and components

The committee reviews the Company’s remuneration philosophy and structure each year to ensure that the remuneration framework remains effective in supporting the Company’s business objectives, in line with best practice, and fairly rewards individuals for the contribution that they make to the business, having regard to the size and complexity of the Group’s operations and the need to retain, motivate and attract employees of the highest calibre.

The committee intends that base salary and total remuneration of executive directors should be in line with the market. Remuneration is benchmarked annually against rewards available for equivalent roles in a suitable comparator group with the aim of paying neither significantly above nor below the median for total remuneration or for each element thereof.

The total remuneration package links corporate and individual performance with an appropriate balance between short- and long-term elements, and fixed and variable components. The policy is designed to incentivise executives to meet the Company’s key objectives, such that a significant portion of total remuneration is performance related, based on a mixture of internal targets linked to the Company’s key business drivers (which can be easily measured, understood and accepted by both executives and shareholders) and appropriate external comparator groups. The committee considers that the targets set for the different elements of performance related remuneration are both appropriate and demanding in the context of the business environment and the challenges with which the Group is faced.

The following chart shows the average proportions of salary, target (or par) bonus, pension, benefits and the expected value of long-term incentives granted to each of the executive directors during the year ended 30 September 2008.

Details of each individual element of the remuneration package are given below.

Salary

Base salaries are rigorously benchmarked and reflect the role, job size and responsibility as well as individual performance and effectiveness. The Group Chief Executive’s salary is reviewed annually by the committee with any increase taking effect on 1 July of each year. Other executives’ salaries are subject to annual review with any increases taking effect on 1 January.

The annual base salaries of the executive directors are:

Richard Cousins	£875,000 (effective 1 July 2008)
Gary Green	US$1,050,000 (effective 1 January 2008)
Andrew Martin	£525,000 (effective 1 January 2008)

Benefits

These comprise healthcare insurance for executive directors and their dependants, limited financial advice, life assurance and car benefit.

Pensions

The Group’s policy is not to offer defined benefit arrangements to new employees at any level (save where required by applicable legislation). Incoming executive directors are invited either to join the Company’s contracted-in money purchase arrangement or to take a fixed salary supplement, calculated as a percentage of base salary, which is excluded from any bonus calculation.

At 30 September 2008 there were no executive directors actively participating in any Compass Group defined benefit pension arrangements and none of the executive directors is accruing additional entitlement to benefit under any arrangements that existed prior to their appointment as executive directors.

Richard Cousins and Gary Green elected to receive a salary supplement equal to 35% of their basic salaries in lieu of pension. As was reported last year, in the light of the A Day pension legislation, Andrew Martin also elected to receive a salary supplement equal to 35% of basic salary with effect from 6 April 2006 and waived all rights to his final salary pension, money purchase pension and unfunded unapproved pension relating to his employment prior to that date as reported in 2006.

Annual bonus

The annual bonus is earned by the achievement of performance targets set by the committee at the start of each financial year and is delivered in cash. The target (or par) award for the year ended 30 September 2008 was 75% of base salary, with a further maximum of 75% of base salary available for superior performance.

For the year ended 30 September 2008, the bonus measures for Messrs Cousins and Martin were Group profit before interest and tax (‘PBIT’) – 60%, Group Free Cash Flow (‘GFCF’) – 20% and a personal target (‘PT’) – 20%, with a supplementary financial underpin such that the amount payable pursuant to the achievement of the GFCF and PT measures would be halved unless the threshold PBIT measure was achieved. In addition to Mr Green’s personal target representing 20% of bonus, his targets of PBIT – 60% and free cash flow – 20% are split between Group and his area of responsibility in the USA, Canada and Mexico as follows: PBIT – 20% Group/40% local, and 5% GFCF/15% local operating cash.

The percentages of base salary shown below were paid to the directors for the year ended 30 September 2008:

	Actual bonus paid (% of base salary)
Richard Cousins	136.5%
Gary Green	127.5%
Andrew Martin	139.5%

The committee continues to be satisfied that the performance targets are challenging and promote the Company’s business strategy. In order to further align bonuses with shareholders’ interests, it is proposed that for the year ending 30 September 2009, the bonus measures for Group directors which are dependent on GFCF will be subject to the caveat that GFCF should not be affected by Board approved strategic capital expenditure.

Long-Term Incentive Plan

The Company currently operates an LTIP under which executives may receive a conditional award of shares which may vest after a single three year performance period, based on the achievement of stretching performance conditions. Prior to each year end the committee agrees the LTIP awards to be made on the basis of the share price as at the year end. Because each LTIP award also depends on financial information only available after the year end LTIP grants are not normally made until some weeks after the year end. Both total shareholder return (‘TSR’) and GFCF have been selected since 2006 as the performance conditions which are considered to most closely align the interests of participants with those of the shareholders. The LTIP rewards the achievement of GFCF targets (which are key business targets for the Group) as well as the Company’s relative TSR outperformance against a defined list of comparator companies (which aligns the interests of participants with those of shareholders). In 2007 the committee reviewed the TSR comparator group and determined that the financial services constituents of the FTSE 100 should be excluded for the purpose of the TSR target for awards made in the year ended 30 September 2008. For awards made prior to this date, the TSR comparator group was the entire FTSE 100.

50% of any LTIP award is based on GFCF over the three year performance period and 50% on the Company’s TSR over the same period relative to the companies comprising the TSR comparator group at the start of performance period. The precise GFCF target for each award is linked to the Group’s wider business targets and is set by the committee at the time of award based on Group projections and market expectations. The target for any award made in the year ending 30 September 2009 will be subject to the caveat that GFCF should not be affected by Board approved strategic capital expenditure.

No shares vest unless the Group achieves minimum performance. 25% of the portion of the award based on GFCF vests on the achievement of minimum performance. Awards vest on a straight-line basis between 25% and 100% where GFCF is between minimum and maximum performance. Calculations of the achievement of the targets are independently performed and are approved by the committee.

TSR is the aggregate of share price growth and dividends paid (assuming reinvestment of those dividends in the Company’s shares during the three year performance period). 100% of the portion of the award based on TSR will vest if performance is in the top quartile and 25% of the award will vest if performance is at the median. Where performance is between the median and top quartile, awards will vest on a straight-line basis between the median and top quartile. No shares will be released if the Company’s TSR performance is below the median.

Awards made since 2004 do not benefit from retesting. In addition, for awards made in the year ended 30 September 2006 and subsequent years, any vesting of an award at the end of the performance period is conditional upon the committee being satisfied that the underlying financial performance of the Group justifies such vesting. Extant awards remain subject to the achievement of performance conditions following a participant’s agreed retirement date and vesting is determined at the end of the performance period.

Awards are discretionary and may be granted up to an annual maximum of 200% of base salary. The committee agreed that 200% be reserved for exceptional circumstances and determined that any award made in the year ending 30 September 2009 should be set at 150% of annual base salary.

The following table sets out the percentage of each award made within the last five years which has vested and the percentage of each extant award, had it vested on 30 September 2008:

Directors’ interests in the Long-Term Incentive Plan

Details of existing awards as at the date of this Report and awards conditionally made to the executive directors in office during the year ended 30 September 2008 are shown in the table below:

Total shareholder return

The performance graphs below show the Company’s TSR performance against the performance of the FTSE 100 over the three and five year periods to 30 September 2008. The FTSE 100 Index has been chosen as being a broad equity market index of which the Company has been a constituent member throughout the period.

Suspended plans

The LTIP has been the primary form of equity-based incentive for the year ended 30 September 2008, and this will continue to be the policy for the year ending 30 September 2009.

Awards prior to 2005 were made under two further share incentive plans: the Compass Group Bonus Matching Shares Plan and the Compass Group Share Option Plan. Existing rights under these plans remain and may result in the vesting of further shares in the capital of the Company. Shareholder approval will be sought should the Company wish to make any further awards to executive directors under these suspended plans.

Under the Compass Group Bonus Matching Shares Plan, executive directors were permitted to invest up to 50% of any pre-tax performance related bonus in the Company’s shares. If the shares were held for three years and the director continued to be employed by the Group, the participant would be eligible to receive a proportion of matching shares based on the Group achieving underlying earnings per share average growth in excess of RPI over the period.

Under the Compass Group Share Option Plan, executive directors were eligible to receive awards equating to an annual maximum of 200% of basic salary, at an exercise price not lower than the market value of the Company’s shares on the day prior to grant. Options would normally be exercisable on a sliding scale between the third and tenth anniversaries of the date of grant subject to satisfaction of an EPS performance condition, after which they lapse.

The Company also has in place UK and overseas all-employee plans in which executive directors may participate. However, no grants have been made under these plans since 2005. Further details of the plans may be found in prior years’ Annual Reports.

The table below shows the number of options and awards held by the directors in office during the year under the suspended share incentive plans:

Dilution limits

All of the Company’s equity-based incentive plans incorporate the current ABI Guidelines on headroom which provide that overall dilution under all plans should not exceed 10% over a 10 year period in relation to the Company’s issued share capital (or reissue of treasury shares), with the further limitation of 5% in any 10 year period on executive plans.

The committee regularly monitors the position and prior to the making of any award considers the effect of potential vesting of options or share awards to ensure that the Company remains within these limits. Any awards which are required to be satisfied by market purchased shares are excluded from such calculations. No treasury shares were utilised in the year ended 30 September 2008.

As at 30 September 2008, the Company’s headroom position, which remains within current ABI Guidelines, was as shown in the chart below:

Service agreements

It is the Company’s policy that service contracts for the executive directors have no fixed term but are capable of termination on 12 months’ notice from the Company and six months’ notice from the director (12 months for Richard Cousins). The Company also retains the right to terminate the contract immediately by making a payment in lieu of notice equal to 12 months’ pay, on target bonus, pension supplement and an amount equal to 10% of basic pay in respect of benefits to be paid in monthly instalments, subject to an obligation on the director to mitigate his loss. The service contracts outline the components of remuneration paid to the individual but do not prescribe how remuneration levels are to be modified from year to year.

Executive directors’ service agreements

	Date of contract
Richard Cousins	22 November 2007
Gary Green	27 November 2007
Andrew Martin	27 November 2007

External appointments

With the Board’s agreement executive directors may take up one non-executive directorship outside of the Group. Richard Cousins received a fee of £97,125 during the year in respect of his directorship of HBOS plc, which he is permitted to retain.

Share ownership policy

In order that their interests are aligned with those of shareholders, executive directors are expected to build up and maintain a personal shareholding in the Company of at least 100% of gross base salary. New directors will undertake to build up their shareholding within four years of their appointment.

The committee reviewed and noted that these targets were achieved by all executive directors during the year. Directors’ current shareholdings are set out in the Directors’ report.

Chairman

The fee for the Chairman is reviewed annually by the committee each June with any increase taking effect on 1 July. The Chairman’s fee was set at £416,000 p.a., with effect from 1 July 2008.

The Chairman is not eligible for pension scheme membership, bonus or incentive arrangements. He is entitled to the provision of life and medical insurance for himself and his spouse, financial planning assistance and car benefit.

Policy on remuneration of non-executive directors

The fees for the non-executive directors are reviewed and determined by the Board each year. The base fee for the year ended 30 September 2008 was £60,000 p.a., with an additional fee of £15,000 p.a. payable where a non-executive director acts as Chairman of either the Audit or Remuneration Committee and an additional fee of £25,000 p.a. for the director nominated as senior independent non-executive director. Non-executive directors are not eligible for pension scheme membership, bonus, or incentive arrangements.

Non-executive directors have letters of engagement. They are appointed for an initial period of three years, after which the appointment is renewable at three year intervals by mutual consent. Details of their appointments, which are terminable without compensation, are set out in the table below.

Non-executive director	Original date of appointment	Letter of engagement	Total length of service at 30 September 2008
Sir Roy Gardner	1 Oct 2005	15 Sep 2005	3 years
Sir James Crosby	17 Feb 2007	16 Feb 2007	1 year, 7 months
Sven Kado	10 Apr 2002	10 Apr 2002 (rev. 31 Mar 2004)	6 years, 5 months
Steve Lucas	7 Jul 2004	17 Jun 2004 (rev. 25 Jun 2007)	4 years, 2 months
Susan Murray	11 Oct 2007	11 Oct 2007	1 year
Tim Parker1	1 Nov 2008	1 Nov 2008	–
Sir Ian Robinson	1 Dec 2006	1 Dec 2006	1 year, 10 months

1

Tim Parker was a non-executive director from 17 February 2007 to 23 May 2008 and from 1 November 2008.

Other senior executives and management

There are a number of senior executives who, with the executive directors, comprise the Executive Committee. These key management roles influence the ability of the Group to meet its strategic targets. The committee has regard to the remuneration level and structure of this group whose total remuneration including salary and other short-term benefits, target (or par) bonus and the expected value of long-term incentives is summarised in the following table:

Total remuneration for the year ended 30 September 2008 £000	Number in band (2007 in brackets)
200–500	– (1)
501–1,000	– (2)
1,001–1,500	5 (4)
1,501–2,000	3 (–)

On behalf of the Board
Sir James Crosby
Chairman of the Remuneration Committee
26 November 2008