The Terms of Reference of the Committee comply with the Combined Code and were adopted by the Board on 12 March 2004. They are available on the Company’s website. In addition, the terms of reference for New Bridge Street are available on request from the Group Company Secretary.

The Committee acknowledges that it is accountable to shareholders through the Directors’ Remuneration Report and the vote on it at the Group’s AGM. It welcomes and values the dialogue that it has with major shareholders on remuneration matters.

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REMUNERATION POLICY
The Committee sets and monitors the overall remuneration policy for the Chairman, executive Directors and other senior executives, and makes recommendations to the Board on these matters. Remuneration and benefits are set at market levels comparable with companies of similar size and scope of activity in order to be able to attract, retain and motivate high calibre individuals. During 2005, the review of remuneration, share plans and pensions has continued. With advice from New Bridge Street, the Committee believes that it has shaped the approach taken on remuneration for 2006 and going forward to be appropriate to the Group’s current profile. Nevertheless the Committee keeps the remuneration policy under close and regular review and hence the current policy set out in this report may change over time.

The components of the remuneration package for A E Friend, A J H Ewer, D Potts and R Weston are basic salary, annual cash bonus, a Long-Term Incentive Plan (‘LTIP’), membership of a pension scheme, car allowance and fuel card, provision of a health insurance scheme and the provision of a pension cap related supplement to all executive Directors other than R Weston whose long period of service negates the need for this. Entitlements under the bonus scheme and LTIP are subject to the achievement of performance conditions. Full details of the LTIP awards are given under the Long-Term Incentive Schemes section on page 65 and 66.

The 2005 review of basic pay for A E Friend, A J H Ewer, D Potts and R Weston resulted in increases to £340,000, £300,000, £153,000 and £153,000 respectively. The variable pay element for 2005 revolves around a cash bonus scheme and details are provided below. The review of salaries for 2006 has resulted in the salaries of A E Friend, A J H Ewer, D Potts and R Weston being increased to £390,000, £312,000, £180,000 and £180,000 respectively. The increases were 14.7%, 4%, 17.6% and 17.6% respectively. The level of increases given to A E Friend, D Potts and R Weston results from a review of market comparisons. In the case of D Potts and R Weston this review was anticipated in the 2004 Report.

The structure of remuneration for executive Directors under the remuneration policy (excluding pensions) is such that, for achievement of maximum performance, over 50% of the total package would be directly performance related, i.e. short-term cash and long-term share arrangements, and the Committee feels that the split remains appropriate with a significant element being at risk.

On 19 January 2005, the Committee approved guidelines for share ownership applying to executive Directors and members of the Group’s Executive Committee. From that date, they are required to build a shareholding of 1 x salary (1.5 x for the Chief Executive) through the continuing policy of retaining shares equal to 50% of the after tax gain arising from LTIP awards or share option exercises. The number of shares to be retained is recalculated based upon the market value of the Company’s shares from time to time. For executive Directors, the guidelines apply to all LTIP conditional awards and share option grants existing at 19 January 2005. For members of the Executive Committee, the guidelines apply to all new LTIP conditional awards or share option grants subsequent to that date.

The Board as a whole determines the non-executive Directors’ fees and these are reviewed in alternate years. Non-executive Directors make no input to the process when their own fees are being discussed. These fees are set at a level that will attract individuals with the necessary experience and ability to make a significant contribution to the affairs of the Group and are benchmarked with available market data.

W W Forrester received a fixed fee of £100,000 per annum, with all benefits in kind and payments other than existing options ceasing from 1 July 2003 when he became non-executive Chairman. With effect from 1 January 2006 his fixed fee was increased to £110,000 per annum. A differential in the fees paid to Committee Chairmen and other Committee members was established with effect from 29 June 2005. This reflects the additional work and time commitment expected of Committee Chairmen and is now Group policy. Details of the fees paid to non-executive Directors are shown in the table on page 62.

Executive Directors wishing to take up external appointments as non-executive Directors will seek the consent of the Chairman before accepting such an appointment. The Company’s policy is that no more than one such appointment should be held. No executive Director currently holds any external non-executive directorship.

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REMUNERATION COMPONENTS

Basic salary
Salaries for executive Directors and senior executives take account of external market data, the individual’s responsibilities, experience and performance and are reviewed annually. When the Committee reviews these salaries, it assesses performance and personal objectives and sets pay following consideration of external market rates, internal relativities and other factors reflective of the Company and the industry. The Company’s annual pay review for staff (excluding executive Directors) undertaken on 1 January 2006 resulted in an aggregate increase of 4.1% to the pay bill including the cost of promotions.

Benefits in kind and allowances
Benefits in kind comprise membership of private health insurance (provided by BUPA), provision of a fuel card for business and personal purposes, and a car allowance. These benefits are in line with those offered by peer group companies and to other middle and senior managers in the Group. None of these form part of pensionable earnings.

Annual cash bonus arrangements
The executive Directors participate in a performance related scheme that is entirely linked to annual financial objectives for the business and is self-financing. The financial targets are reviewed and set annually by the Committee and are ratified by the Board. The arrangement in 2005 for executive Directors provided A E Friend with maximum bonus potential of 60% and the other executive Directors with maximum bonus potential of 50% of basic salary. One half of their bonus entitlement was related to achievement of pre-determined profit targets. The other half was related to achievement of target growth in the sum of the parts value of the business. For this purpose, the value attributed to PFI/PPP investments will be independently validated and calculated using the methodology described on page 20. Movements in the IAS19 pension deficit will not be taken into account. The Committee feels that this aligns the executives’ incentives with the Group’s strategies. Bonuses earned by the executive Directors are paid in March of the year following the full financial year and after the results have been audited. Details of the payments to executive Directors are included in the Directors’ Remuneration table on page 62.

In respect of 2006, similar bonus arrangements will apply, except that all of the bonus for the executive Directors will be determined by reference to a sum of the parts valuation. The maximum bonus potential for A E Friend has been increased to 70% of basic salary for 2006 onwards reflecting the increased responsibility attached to this role.

The 2005 cash bonus arrangements for the Executive Committee members (except for the main Board Directors and the member from Laing Rail) comprise two equally weighted elements. One half of their bonus entitlement was related to the achievement of pre-determined profit targets and the achievement of target growth in the sum of the parts value of the business. The other half was related to performance against personal objectives. The Company bonus scheme for other staff is related to the achievement of pre-determined profit targets either at Group and/or divisional level and is also based on personal performance.

For the Executive Committee, similar bonus arrangements will apply for 2006 except that one half of the bonus entitlement will be related to the achievement of target growth in the sum of the parts valuation of the business.

Retirement benefits
The executive Directors are members of a contributory senior executive pension scheme which is a funded, tax approved and defined benefit pension arrangement. Employee contributions to the defined benefit pension arrangement were re-commenced from 1 January 2004 at a rate of 2% of salary and rose to 4% from 1 January 2005 and 6% from 1 January 2006. With the exception of R Weston, the executive Directors’ pensionable pay has been limited by the earnings cap provisions of the Finance Act 1989. In such cases, the Group pays the Director a taxable salary supplement above the pensions cap to reflect the loss of pension coverage. This supplement is recorded in the executive Directors’ remuneration and is not taken into account in calculating bonuses or any other form of remuneration. The Committee has reviewed the pension arrangements in light of the planned changes in taxation of pension benefits and the Company continues to apply a self-imposed pensions cap increasing in line with RPI. Currently this level is £105,600. On his appointment to the Board, R Weston agreed that his pre-Board appointment salary of £140,000 per annum would be used for the purposes of calculating final pensionable salary subject to escalation at 2.5% per annum. Details of the individual executive Directors’ pension arrangements are shown on page 63. The Committee does not envisage any significant changes to its pension policy (and specifically does not envisage any increase in costs) in the light of the introduction of the new pension rules in April 2006.

Service contracts
The Group’s policy is for all executive Directors to have contracts of employment that terminate on the attainment of the normal retirement age of 60. The contracts do not provide for liquidated damages and the Committee fully recognises the duty to mitigate in determining any arrangements for a departing executive. In order to mitigate its liability on early termination, the Group’s policy is that it should be able to terminate such contracts on no more than 12 months notice, and that payments for loss of executive office are restricted to the value of salary and other contractual entitlements for the notice period. A E Friend and A J H Ewer had 12 month notice periods during 2005. D Potts and R Weston had six month notice periods during 2005.

The non-executive Directors do not have service contracts but letters of appointment. The terms of such letters are available for inspection on request and may be found on the Company’s website. They do not participate in the Group’s annual cash bonus scheme, its LTIP or Share Option Plan (except W W Forrester who retained share options granted during his executive Chairman tenure), nor its pension arrangements and they do not receive any benefits in kind. The Group is obliged to give three months notice to terminate the appointment of a non-executive Director.

Share plan strategy
On 19 July 2005 the Group successfully concluded a rights issue, full details of which are set out on page 28. On 23 November 2005 the Committee ratified the adjustment of existing awards under the Group’s LTIP and the outstanding options (and the related option price) under the Option Plan and the John Laing Senior Executive Share Option Scheme in accordance with HM Revenue and Customs guidelines.

During 2005, awards of up to 1 x salary were made under the Group’s LTIP that was approved by shareholders in 2001. In addition, the awards made in 2002 vested and full details are set out on pages 65 and 66. The performance conditions for all share plans are set by the Committee so as to be challenging and include incentivising performance hurdles. For conditional share awards made in 2005 under the Group’s LTIP, the performance condition was relative to Total Shareholder Return (‘TSR’).

The Group has completed, prior to 2005, its strategic change in direction and is now listed in the Support Services Sector of the FTSE All Share Index. As a consequence, TSR against the Support Services Sector had been considered an appropriate measure for conditional awards. On the advice of New Bridge Street, the Committee decided that, from 2005 onwards, the comparator group for the LTIP would be the FTSE Mid 250 Index (excluding investment trusts) which, it is believed, has a closer correlation to the Group’s TSR than the Support Services Sector of the FTSE All Share Index. In addition, awards will only be made where the Committee certifies that TSR performance was also reflective of the Group’s underlying financial performance. The TSR calculations are independently calculated by Towers Perrin and verified by the Committee.

For the conditional awards made in 2005, the TSR performance condition compares the Group’s performance against the TSR’s of all the companies in the comparator group, set out above, over a performance period from 1 January 2005 to 31 December 2007. The percentage of share award vesting is calculated as follows:

Ranked in top quartile: 100% of the total award
Ranked between median and top quartile: straight line apportionment
Ranked at median: one third of the total award
Ranked below median: zero

The Group policy is to use new issue shares to satisfy awards and currently has 4.41% capacity within the 5% limit under the ABI guidelines.

The John Laing plc Executive Share Option Plan 2002 (the ‘Option Plan’)

No options were granted under the Option Plan in 2005.

On 11 March 2005 the Committee recommended to the Board that the performance criteria in respect of the options granted on 1 July 2002 had been met and that 44.1546% of the grant could be exercised by the participants from the maturity date of 1 July 2005. From that date options over 58,198 Ordinary Shares of 25 pence each in the share capital of the Company became exercisable under the Option Plan at an option price of 168.00 pence per share. However, as described in note 29 on page 112, the options under the Option Plan and awards under the LTIP were adjusted following the completion of the rights issue in accordance with HM Revenue and Customs guidelines. This resulted in those options exercisable in respect of the 2002 grant increasing to 60,850 with the related option price falling to 160.67 pence per share.

In addition to the Option Plan, the Company has also operated the John Laing Senior Executive Share Option Scheme since 1987. No grants have been made to Directors or senior executives since 1996 and there is no current intention to seek shareholder approval to renew the Scheme. However, there are still grants totalling 13,402 (after rebasing as described above) which are capable of being exercised by one Director and one senior executive at an option price of 283.80 pence. The options cease to be exercisable on 21 April 2006.

In 1996 the shareholders approved The John Laing Savings-Related Share Option Scheme aimed at encouraging all employees to participate in the Group as shareholders by offering share options funded by a Save-As-You-Earn contract. The Group has only made one invitation to participate which was in 1996 and which has run its course. The Company has no current intention to introduce an all-employee share scheme in the short-term as it prefers to incentivise staff through a Company-wide bonus scheme.

Long-Term Incentive Plan
Under the LTIP, conditional share awards were made to the executive Directors and other senior executives in April 2005. In respect of the conditional awards made in April 2002, the Committee recommended to the Board that the performance conditions described above had been met to the extent of 44.1546%. As a consequence 264,865 new Ordinary Shares of 25 pence each in the share capital of the Company were vested to the Directors and other senior executives participating in the LTIP at nil cost.

In respect of the conditional awards made in April 2003, the Committee has recommended to the Board that the performance conditions described above have been met in full. As a consequence 600,356 new Ordinary Shares of 25 pence each in the share capital of the Company were vested to the Directors and other senior executives participating in the LTIP at nil cost.

Full details of the LTIP share awards made to the executive Directors and the awards that have vested are set out on pages 65 and 66.

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TSR PERFORMANCE GRAPHS

Owing to major corporate restructuring and a strategic change in business direction, the Group has not remained in the same sector of the FTSE All Share Index over the last five years. From 2005 onwards, the Group considers it more appropriate to use the FTSE Mid 250 Index (excluding investment trusts) in preference to the FTSE All Share Index of the Support Services Sector, to provide a more appropriate basis for performance assessment.

The following graph charts the total cumulative shareholder return of the Group over the past five years using both comparator groups.

FIVE YEAR HISTORICAL TSR PERFORMANCE
Source: Datastream

The highest and lowest prices of the Company’s Ordinary Shares during the year were 341.00 pence and 224.74 pence respectively. The price of the Company’s Ordinary Shares at the year end was 332.00 pence.

The Group’s Register of Directors’ Interests contains full details of Directors’ shareholdings, LTIP awards and options to subscribe.

LONG-TERM INCENTIVE SCHEMES
Under the LTIP approved by shareholders in 2001, further conditional share awards were made to the executive Directors and other senior executives during the year. Details of the entitlements of those Directors who served during the year are set out below:

The awards made to the executive Directors in 2003 vested on 26 January 2006 when the share price was 319.50 pence, the Committee having resolved that the performance criteria had been met in full.

On 28 February 2005, the Committee resolved to rebase the EPS performance criteria against which the conditional awards made during 2002 were ranked in recognition of the Group completing its strategic change of direction and for consistency with awards made in subsequent years. The effect of this is set out in the table on page 65. There are currently no proposals to further vary the terms and conditions of the LTIP.

Further details of the interests of the Directors in the Group’s share capital can be found on pages 48 and 49.

Approved by the Board and signed on its behalf by

P M C Meredith
Chairman, Remuneration Committee
13 March 2006