Turn Page 
Remuneration report
Long-term incentives The Company currently operates a long-term incentive plan under the Wolseley plc 2002 Long Term Incentive Scheme (‘2002 Scheme’), which was approved by shareholders in December 2002 and amended at the 2004 Annual General Meeting. The 2002 Scheme (as amended) provides for awards of ordinary shares in the capital of the Company, subject to the Company meeting total shareholder return (‘TSR’) targets over single three-year periods. All awards are made subject to the achievement of stretching performance conditions and TSR has been selected as the appropriate performance measure to more closely align the interests of the Executive Directors and senior executives with those of shareholders over the long term. The 2002 Scheme rewards the relative outperformance of the Company against a defined list of comparator companies. Calculations of TSR are independently carried out and verified before being approved by the committee.
The lists of comparator companies for awards made under the 2002 Scheme are based upon the constituent members of the FTSE 100 as at the respective dates of grant, excluding banks, telecommunications, IT and utility companies but together with CRH plc and Travis Perkins plc, which compete in the same sector as the Company. A similar group of companies will be selected for the 2007 awards under the 2002 Scheme.
The 2002 Scheme is discretionary. The committee’s current policy is to make annual awards to the Group Chief Executive, Executive Directors and other senior executives. Awards are made in shares, save where there are material securities or tax law constraints in overseas jurisdictions where the scheme would be operated, in which case conditional awards in cash would be considered.
Details of the awards conditionally made to the Executive Directors in office during the year under the 2002 Scheme and outstanding at 31 July 2007 are shown in the table below:
| Name of Director | Interests in shares held at 1 Aug 2006 |
Interests
awarded during the year1 |
Interests in shares held at 31 Jul 20072 |
|---|---|---|---|
| F N Hord | 74,190 | 31,099 | 105,289 |
| C A S Hornsby | 90,687 | 77,748 | 168,435 |
| R H Marchbank | 51,412 | 35,309 | 86,721 |
| F W Roach | 26,314 | 33,849 | 60,163 |
| S P Webster | 77,031 | 40,240 | 117,271 |
The maximum amount that can be granted under the amended 2002 Scheme for each award is 200 per cent of base salary per annum; however, awards made to date have not exceeded 125 per cent, or 150 per cent in the case of the Group Chief Executive, of base salary. Each year the committee assesses the proportion of awards that should be made up of both share options and long-term incentive awards. It is the committee’s intention that for the year ending 31 July 2008, awards are made to the Group Chief Executive of 150 per cent of salary with lower award levels for other Executive Directors. The vesting level for a maximum award under the 2002 Scheme requires performance to be in the upper decile. To better reflect market practice, shareholder approval was sought and received on 18 November 2004 so that 25 per cent of awards made from that date would vest for achievement of performance at the median, with a straight line percentage to vest between median and upper decile. Extant awards remain subject to the achievement of performance conditions following a participant’s agreed retirement and vesting is determined at the end of the performance period.
The following table sets out the percentage of each award which has vested and the percentage of each extant award, had it vested on 31 July 2007:
| Year of award | Percentage vested on maturity or indicative vesting percentage based on performance as at 31 July 2007 |
|---|---|
| 2002 | 100% (vested 31 July 2005) |
| 2003 | 34.5% (vested 31 July 2006) |
| 2004 | 0% (at 31 July 2007) |
| 2005 | 0% (performance after 24 months) |
| 2006 | 0% (performance after 12 months) |
The committee annually reviews whether grants under the 2002 Scheme should be subject to a financial performance underpin, in addition to the satisfaction of a TSR performance target. The committee decided that for the 2006 award, the continuing use of EPS as a performance target under the Wolseley Share Option Plan 2003 and the use of financial measures for the annual bonus plan provided an appropriate balance to the use of TSR within the 2002 Scheme. The committee has decided that future awards under the 2002 Scheme may, if deemed appropriate, be subject to performance criteria in addition to the current TSR targets and the committee will continue to monitor whether circumstances warrant the imposition of such additional criteria. The factors which the committee would consider relevant in making their decision include: a substantial drop in the Company’s share price, the presence of significant bid speculation in the sector, the adoption of weaker targets for the TSR condition, or, a significant change in policy away from granting options to granting only long-term incentive awards.
Performance graph The following graph shows the Company’s TSR performance against the performance of the FTSE 100 Index over the five-year period to 31 July 2007. The FTSE 100 Index has been chosen as being a broad equity market index consisting of companies comparable in size and complexity to Wolseley.
