Governance

Directors' remuneration report

The following report has been prepared in accordance with the Directors' Remuneration Report Regulations 2002 ('Regulations', now contained in Schedule 7A to the Companies Act 1985) and approved by the Board for agreement with the shareholders.

The Remuneration Committee

The role of the Remuneration Committee ('Committee') is to assist the Board in the development and application of remuneration policy for the Chairman, the Group Chief Executive and Executive Directors. The terms of reference of the Committee are available on www.bbg.co.uk.

Committee membership

The Committee is composed entirely of independent Non-executive Directors as detailed below:
All yearLouise Patten (Chairman from 2007)
All yearIan Chesire
All yearRod Kent
All yearGeorge Cox (Chairman to June 2007)

Louise Patten replaced George Cox as Chairman of the Committee. The Group Chief Executive, Steven Crawshaw, is normally invited to attend Committee meetings for those items other than his own remuneration arrangements. In addition, the Group HR Director may also provide advice to the Committee.

At these meetings, amongst other items, the Committee considered:

• the remuneration levels for Executive Directors;
• the efficacy and competitiveness of the Group's total reward package;
• the structure of the executive pension arrangements and life assurance provision; and
• the appointment of Remuneration Committee advisers.

Each year, the Committee considers the Group's remuneration policy in the context of market and best practice. The Committee regularly reviews arrangements and incentives to ensure that they remain effective and appropriate to the Group's circumstances and prospects and to monitor the level of potential awards.

Advisers

During the year, following an independent selection process, PricewaterhouseCoopers LLP ('PwC') were appointed by the Remuneration Committee as independent adviser to provide external advice on market data, structure and design, and also to provide services to the Group on employee reward. In addition, PwC provides miscellaneous tax services to the Group. Prior to the appointment of PwC, Towers Perrin provided advice to the committee. Mercer are appointed as actuaries to the Company's pension scheme. Watson Wyatt Consultants provide advice to the Committee on pension issues.

The committee met four times during 2007 with each member attending as follows:

Remuneration policy

The overall aim of the Committee is to ensure that the Group's remuneration policies attract, retain and motivate the Executive Directors. The Committee considers total remuneration to be the true measure of reward and considers the level and impact of the package in its totality as well as individual elements. Total remuneration for Executive Directors is geared heavily towards performance.

The main remuneration principles are to:

• provide competitive total remuneration for on-target performance, with the potential to achieve outstanding total remuneration for superior performance;
• provide Executive Directors with competitive levels of total remuneration with respect to comparable companies in the UK retail financial services sector; and
• provide share-based incentive plans that facilitate the building of a significant stake in the Company by Executive Directors and keep a balance between short and longterm focus.

As Bradford & Bingley have few direct comparators, the Remuneration Committee considers a range of data sources in forming a judgement on competitive levels of total remuneration. The primary reference points are FTSE 100 retail financial services companies that predominantly operate in the UK market. The Committee takes into account the size of Bradford & Bingley when determining appropriate positioning against these benchmarks.

During the year, the Remuneration Committee conducted a review of remuneration in order to ensure consistency with their policy. The review identified a significant shortfall in total remuneration levels against the desired market position and identified that changes were necessary to make the package more closely aligned with the Group's business strategy.

As a result, the Remuneration Committee agreed to introduce a new one-off incentive plan, the Executive Incentive Scheme ('EIS'), payable entirely in shares and restricted for three years. This was intended as an interim solution for 2007 only to ensure competitiveness. In addition, the Committee is proposing some changes to the Executive Incentive Plan ('EIP'), to apply from 2008, in order to address the issues identified in the review for the longer term. Find out more on Changes to EIP.