Remuneration report

The Remuneration Report is presented to shareholders by the Board and sets out the remuneration policies operated by the Company and details the remuneration of each director. The Remuneration Report will be put to the Annual General Meeting for approval by the shareholders. This vote is advisory only. The Board has an established Remuneration Committee, the members of which are disclosed on the Board of directors page.

In the early part of 2007 a review of the requirements for external advice was undertaken and as a result Kepler Associates (‘Kepler’) replaced New Bridge Street Consultants as advisors to the Committee. During the year Kepler provided advice on remuneration for main Board directors and senior management across the Group incorporating total remuneration benchmarking, base salary, annual bonus and share incentive scheme design. The Group HR director was also invited by the Committee to provide advice. Kepler provided no other services to, and has no other connection with, the Company.

In determining the remuneration packages of the executive directors, the Committee has regard to two fundamental principles:

• the importance of attracting, motivating and retaining management of the highest calibre; and
• linking reward to the Group’s performance.

The Committee has applied, and continues to apply, these principles to develop remuneration packages which:

• provide a competitive base salary designed to attract and retain executive directors of the highest calibre and to reflect their role and experience;
• provide incentive arrangements which are subject to challenging performance targets, reflect the Company’s objectives and recognise the importance of providing sustained motivation of management to focus on annual, as well as longer-term, performance; and
• align the interests of the executive directors with those of shareholders.

In order to achieve these objectives, the Committee’s approach is that a substantial proportion of the overall remuneration package should be linked to performance, through participation in short-term and long-term incentive schemes. For on-target performance the average expected ratio between fixed and performance based remuneration will be 43% to 57%, excluding pensions and benefits. The Committee constantly reviews developments in executive remuneration and relevant corporate governance practice and determines remuneration packages with regard to the prevailing pay and benefits conditions across the Group’s markets.

The main components are:

• Base salary and benefits
  Base salary and benefits are determined on an annual basis by the Committee after a review taking into account the individual’s performance, market trends and the performance of the Group as a whole and, where relevant, the performance of the business for which the executive is responsible. For guidance, the Committee has regard to available research and published remuneration information on companies within the same industry and markets in the countries in which the executives are based. Base salaries prevailing at the date of this report are: Robert Lerwill £695,000, Alicja Lesniak £390,000, Adrian Chedore £365,000, Mainardo de Nardis £480,000 and David Verklin £420,000. A summary of the benefits payable to executive directors is given under the Audited directors’ remuneration section below.

• Bonus schemes
  i) Annual Cash Bonus Scheme
  All of the executive directors participate in the Group’s Annual Cash Bonus Scheme. For 2007 this continued to be based upon achievement of Group financial targets (profit before tax and management charges), personal objectives and, in the case of directors with operational responsibilities, business/regional performance as well. This may result in the payment of cash bonuses of up to 75% of base salary (100% for the chief executive officer). For on-target financial performance, one half of the maximum bonus opportunity is payable in the case of the chief executive officer and chief financial officer and one third is payable in the case of Adrian Chedore, Mainardo de Nardis and David Verklin.
  
  For 2008 the Group financial targets have been, for bonus purposes, revised to include the specific measures of operating profit, operating profit margin, cash and revenue. The linking of short-term incentives to these measures reflects the balance of business drivers and helps to reinforce the Company’s business objectives. In 2008, the on-target bonus opportunities will also be changed for the Group chief executive officer and Group chief financial officer to align them with market practice. The Group chief executive officer’s on-target will change from 50% to 60% of salary with a maximum of 120% and the Group chief financial officer’s on-target will change from 37.5% to 50% of salary with a maximum of 100%. The arrangements for Adrian Chedore, Mainardo de Nardis and David Verklin remain unchanged.
  
  ii) Deferred Annual Cash Bonus Scheme
  In addition to the Group’s Annual Cash Bonus Scheme, Adrian Chedore, Mainardo de Nardis and David Verklin participate in a separate deferred supplementary annual cash bonus scheme based on achievement of demanding year-on-year profit targets for the regions and businesses for which they are responsible. This additional plan has been in operation since 2004 in order to reflect their critical contribution to the Group and to provide competitive total remuneration relative to other media businesses. This additional bonus is potentially worth up to 200% of base salary. It should be noted that the cap is set in relation to extremely stretching levels of performance. At each year end any bonus earned under the plan is accrued to a personal bonus pool. Only half of the bonus pool is then paid out in any one year with the remaining 50% carried forward to the following year end. This deferred bonus pool will normally be forfeited in the event that the director leaves the Group. Actual payouts have averaged 39% of salary since inception.
  In 2008, the design of the scheme will be reviewed with regards to the inclusion of shares as well as cash and any changes to the operation of the scheme will be considered as individual arrangements approach their renewal date.

• Share-based incentives
  At the 2003 Annual General Meeting shareholders approved the adoption of a new 2003 Executive Share Option Scheme and a new 2003 Performance Share Plan. These schemes replaced all of the previous share-based incentive schemes and were designed to comply with changes in the guidelines issued by institutional shareholders and reflect developments in market practice.
  
  i) 2003 Executive Share Option Scheme
  In any financial year, an executive can receive share options worth (at market value) no more than three times basic salary in normal circumstances. The exercise of options is based upon the Company’s underlying earnings per share (‘EPS’) growth relative to inflation (‘RPI’), and the following performance conditions will apply to options granted in 2008:
  
  

  Average annual EPS growth in excess of RPI	Proportion of option grants exercisable
  3%	Up to 0.5x salary
  3% to 7%	0.5 to 1x salary (pro rata on a straight-line basis)
  7% to 12%	1 to 2x salary (pro rata on a straight-line basis)
  12% to 17%	2 to 3x salary (pro rata on a straight-line basis)

  
  Following a review by the Remuneration Committee in 2005, the EPS growth targets were increased to those detailed above for grants made in 2005 and 2006 in recognition of the outlook for the business, to ensure that performance conditions remain appropriately stretching. The Committee has reviewed the EPS condition again in March 2008 and believes that the targets as detailed above continue to be appropriately challenging. EPS growth targets for awards made in 2003 and 2004 are detailed under the Audited directors’ share option interests section below.
  
  These EPS performance conditions are tested after three financial years beginning with the year in which options are granted. For grants made after 31 December 2004 there is no provision for retesting. To the extent that the performance conditions are not satisfied, the options lapse.
  
  In 2007, a review of the trends and market practice with regards to the granting of options was undertaken by Kepler. As a result of this, it has been decided to progressively withdraw from the practice of granting options and focus on granting shares as the key long term incentive vehicle. This change will begin on a progressive basis in 2008.
  
  ii) 2003 Performance Share Plan
  In any financial year, an executive can receive a conditional award of shares worth (at market value) no more than two times basic salary in normal circumstances. The extent to which awards vest is determined partly by reference to the Company’s Total Shareholder Return (‘TSR’) performance relative to a group of similar businesses and partly by reference to the Company’s underlying EPS growth relative to RPI.
  
  The following TSR targets apply:
  
  

  TSR performance relative to peer group	Proportion of award vesting
  Median or below	Nil
  1st or 2nd	50%
  For intermediate performance	Nil to 50% (pro rata on a straight-line basis)

  
  The following companies will be included in the peer group for calculation of TSR performance:
  
  

  Dentsu Inc.	Pearson plc
  Havas SA	Publicis Groupe S.A.
  The Interpublic Group of Companies Inc	Reed Elsevier plc
  IPSOS S.A.	Taylor Nelson Sofres plc
  Taylor Nelson Sofres plc	Viacom Inc.
  Omnicom Group Inc	WPP Group plc

  
  The Committee has reviewed the constituent members of the TSR comparator group and the vesting schedule in March 2008 and believes that the current mix of companies remains appropriate and the stretching vesting schedule will reward strong relative performance.
  
  The following EPS performance conditions apply:
  
  

  Average annual EPS growth in excess of RPI	Proportion of award vesting
  3% or less	Nil
  15%	50%
  3% to 15%	Nil to 50% (pro rata on a straight-line basis)

  
  The Committee has reviewed the EPS condition in March 2008 and believes that the targets as detailed above continue to be challenging.
  
  These TSR and EPS performance conditions are tested after three financial years beginning with the year in which awards are made. There is no provision for retesting. To the extent that the performance conditions are not satisfied, the awards lapse.
  
  The assessment of these performance conditions will be carried out by Kepler, in its capacity as adviser to the Committee. In relation to EPS measurement, the Committee will ensure that a consistent basis of measurement is used.
  
  The use of EPS for both options and part of the performance share award is considered appropriate after recognising the difference between the two incentives and the different level at which the EPS ranges are targeted.
  
  The Committee believes that using both EPS growth and TSR for awards under the Performance Share Plan provides a balanced incentive between assessing the Company’s relative returns to shareholders and its underlying financial performance. For share options, the sole use of EPS as a performance condition is considered an appropriate underpinning performance condition to the requirement inherent in an option to grow the share price.
  
  The blend between EPS and TSR performance conditions and the two different types of plan are considered to provide a well-rounded incentive for the Company’s executives.
  
  Overall, the value of long-term incentives is considered to be in line with arrangements at peer companies and provide an appropriate balance to other elements of the directors’ remuneration package.
  
  No further awards will be made under the previous closed schemes, although awards granted in the past will continue to be exercisable in accordance with the rules of each respective scheme. The closed schemes are the 1995 Executive Share Option Scheme and the 1998 Management Incentive Scheme. Details of the 2003 schemes and the performance conditions of these and the closed schemes are given under the Remuneration package of executive directors section on this page. Details of all share incentive awards outstanding for each executive director serving during 2007 are set out under the Audited directors’ share option interests & Audited awards under the 2003 Performance Share Plan sections on this page.
  

Jeremy Hicks participated in an Inland Revenue approved Group personal pension scheme up until his resignation. Mainardo de Nardis, Robert Lerwill and Alicja Lesniak have chosen not to join the Group personal pension scheme and instead receive an appropriate level of additional salary with which to make their own pension arrangements. Pensionable salary is limited to base salary excluding all bonuses and other benefits. No changes to pension arrangements were made as a result of A-day tax changes and no compensation has been provided for any increased tax due. Adrian Chedore and David Verklin have arrangements in line with local (Hong Kong and USA respectively) market conditions and statutory obligations. Annual employer pension contributions or salary equivalent payments are shown in the Audited Directors’ Remuneration table on this page.

Details of the service contracts of those who served as executive directors during the year are set out below. All directors have rolling service contracts which expire at normal retirement age unless terminated beforehand in accordance with the terms of the individual contract. All contracts contain non-compete obligations.

Notes:
a) No payments were made to Jeremy Hicks related to his resignation. Details of the treatment of his outstanding share options and performance share plan awards on the cessation of his employment are set out on the Audited awards under the 2003 Performance Share Plan section on this page.

b) Mainardo de Nardis has a contract of employment which contained a liquidated damages clause providing for a payment equal to one year’s basic salary should the Company commit a repudiatory breach of his contract of employment within 12 months from the date of commencement of employment. This clause expired on 18 August 2007. The Remuneration Committee believes that this provision was reasonable and appropriate given the circumstances surrounding the Company (it was in an offer period) at the time of the negotiations with Mainardo de Nardis for him to join the Company.

c) David Verklin retains a contractual entitlement on termination of an amount equal to 12 months’ salary and benefits in addition to any payments in respect of his normal 6 months notice period. The Remuneration Committee believes that this provision remains in line with market practice in the USA and continues to be appropriate in this instance.

Unless there are exceptional circumstances, it is the Company’s policy that under any new service contracts, notice periods to be given by the Company will not exceed 12 months. In addition, new contracts will not normally include liquidated damages clauses and any termination payments will be calculated on normal contractual principles taking into account a director’s duty to mitigate loss.

Non-executive directors are appointed for an initial term of three years with a one month notice period. Renewal of appointments for a further term of three years is not automatic. The fees of the non-executive directors are approved at a Board meeting at which the non-executive directors do not vote. Fees are based on time commitment and responsibility and are regularly reviewed, taking advice from Kepler. Fees are disclosed on under the Audited directors’ remuneration section. Non-executive directors have letters of engagement rather than service contracts and do not receive benefits or pension contributions and do not participate in any Group incentive scheme. Dates of appointment and unexpired terms are shown below:

Notes:
a) Benefits relate generally to the provision of car cash allowance, life assurance, various disability and health insurances and, in the case of Adrian Chedore (resident in Hong Kong), a housing allowance of £60,500 and home leave allowance of £2,690.

b) The main terms of the bonus schemes are summarised under the Remuneration package of executive directors section. For executive directors, whose annual cash bonus is determined by the Company’s financial performance, between 81% and 83% of the maximum potential was earned in respect of 2007. For executive directors, whose annual cash bonus is determined by business/regional performance, between 46% and 75% of the maximum potential was earned in respect of 2007 for the annual cash bonus and between 0% and 89% of maximum potential was earned in respect of the deferred bonus.

c) Jeremy Hicks continued employment as an executive of the Company until 10 April 2007 and his salary as disclosed above was paid through to that date.

d) Alicja Lesniak commenced employment as an executive of the Company from 21 March 2007 and her salary, benefits and bonus entitlement disclosed above commenced from that date.

It is the Board’s policy that executive directors with external non-executive positions are allowed to retain any fees from such positions. However, before an executive director can accept an external, non-executive position permission must be sought from the chairman who will take into consideration the amount of time involvement. As at the date of this report Robert Lerwill and Alicja Lesniak had external non-executive directorships as follows:

None of the directors was materially or beneficially interested in any contract of significance with the Company or any of its subsidiary undertakings during or at the end of the financial year ended 31 December 2007.

The interests of the directors (including the interests of ‘connected persons’ of the directors (as defined in the Disclosure and Transparency Rules), in the ordinary shares of the Company were as follows:

*or at date of appointment if later

As at 18 March 2008 the executive directors (Adrian Chedore, Robert Lerwill, Alicja Lesniak, Mainardo de Nardis and David Verklin) were also deemed to have an interest in the 24,436,101 shares, held by the Trustee of the Aegis Group plc Employee Share Trust, as potential beneficiaries under that Trust.

Investor guidelines recommend that the number of newly issued shares used to satisfy awards under all share plans over any ten-year period should be limited to 10% of a company’s issued share capital. If all options granted had become exercisable on 31 December 2007 and new issue shares had been used to satisfy all exercises, the dilution would have been 7.58% of issued share capital.

Ordinary 5p shares for which directors have, or had during the year, beneficial options to subscribe are as follows:

a) Jeremy Hicks exercised these options at a market price of 125.19p, realising a total gross gain of £15,888.

Notes: All of the above options were granted for nil consideration.
* Options granted under the closed 1998 Management Incentive Scheme (the performance condition required that the Company’s TSR over the three year performance period must be not less than 15% per annum compound and must at least match that of the FTSE Actuaries 350 Index). There are re-testing opportunities after the fourth, fifth and sixth years.
** Options granted under the 2003 Executive Share Option Scheme have the following performance condition attached:

For options granted in 2003 and 2004, the performance condition may be retested once after the fourth year.

All other options are granted under the closed 1995 Executive Share Option Scheme (the performance condition required that EPS growth over the performance period exceeds a composite retail price index plus 5% per annum and that the Company’s TSR performance must be greater than that of the FTSE 100 company ranked 33rd over the performance period). There are opportunities to re-test these conditions annually over the life of the option if they are not achieved after three years, in each case measuring from the same base point.

Other than as noted above, no directors or members of their immediate families have exercised or sold options during the year. In addition, other than as noted above, no options have been granted, expired or lapsed during the year in respect of the directors.

The middle market price of the ordinary 5p shares of the Company as derived from the Stock Exchange Daily Official List on 31 December 2007 was 117p and the range during the year was 107.25p to 152p. The share price on 17 March 2008 the latest practicable date prior to signing of the Annual Report and Accounts, was 107p.

Options granted under the Management Incentive Scheme lapsed with immediate effect on cessation of his employment. Options granted under the 1995 Executive Share Option Scheme, were able to be exercised, in accordance with the rules of the scheme, within the period of six months after resignation. Thereafter they lapsed.

For options granted under the 2003 Executive Share Option Scheme, the Remuneration Committee determined that options may be exercisable for a period of 12 months following resignation to the extent that the performance conditions had been achieved provided that the number of options exercisable was pro-rated for time elapsed since the relevant date of grant. After the end of the 12 months period any unexercised options lapse.

The table below details awards to executive directors under the 2003 Performance Share Plan:

The market price of Aegis shares at the date of the 2004 award was 100.75p, for the 2005 award was 101.75p, for the 2006 award 134p and for the 2007 award 147.5p. The market price of Aegis shares at the date of award for Alicja Lesniak was 147.25p.

The number of shares shown represents the maximum number of shares which is capable of vesting at the end of the performance period, if the performance conditions are satisfied to the fullest extent.

The performance conditions for all outstanding awards are set out in the policy section of this report under the Remuneration package of executive directors section on this page. (Cordiant Communications was initially included in the comparator group for awards granted in 2003. Grey Global Group Inc. was initially included in the comparator groups for awards granted in 2003 and 2004 and VNU N.V. was initially included in the comparator group for awards granted in 2003, 2004, 2005 and 2006. Subsequent to their takeover they have been removed from the relevant comparator group).
*details of transferred awards:

(as disclosed previously in last year’s accounts)
On resignation outstanding awards were to be released to the extent that the performance conditions had been achieved, provided that the number of shares released was pro-rated for time elapsed since the relevant date of award. Details of shares transferred and gains made by Jeremy Hicks are shown in the tables above.

The Company has share ownership guidelines which operate in tandem with the executive share incentive schemes introduced in 2003. Executive directors and other senior executives are required to retain at least 35% (50% in the case of the chief executive officer) of any profit made (after paying the exercise price and any tax liability) on the exercise of options and the vesting of any Performance Share Plan awards, until they have built a shareholding equal to one times basic salary (two times basic salary for executive directors of the Company). No further options or Performance Share Plan awards would be granted unless executives retained shares in accordance with these guidelines.

The following graph illustrates the Company’s TSR between 31 December 2002 and 31 December 2007 relative to the FTSE All Share Media Index, in accordance with paragraph 4 of the Directors’ Remuneration Report Regulations 2002. Aegis Group plc is a member of the FTSE All Share Media Index and the Remuneration Committee considers that a comparison of the Company’s TSR relative to similar businesses is more appropriate than a comparison with a general FTSE Index, in order to reduce the impact of general stock market trends.

Source: Bloomberg

Notes:
TSR based on end of year prices. FTSE All-share Media dividends based on the 12-month rolling dividend yield.

Charles Strauss
chairman of the Remuneration Committee
18 March 2008