Directors’ remuneration

The Group recognises that its continuing success depends on the quality and motivation of its employees. The Group aims to ensure that its remuneration practices are competitive, thereby enabling it to attract, retain and motivate executives who have the experience, skills and talents to operate and develop its businesses to their maximum potential.

A summary of the Remuneration Committee's Report for 2007 is below.

Remuneration Policy & Practice

The Committee applies these principles with regard to the executive directors and also reviews the policies underlying the remuneration of senior executives. Directors’ salaries are maintained at competitive levels for comparable positions based on information provided by Kepler Associates reflecting, where appropriate, the international nature of the business. Additional rewards for success are built into the remuneration package through incentives designed to share with these directors any increasing profitability of the Group and increased wealth generated for shareholders. The Company introduced incentive arrangements to achieve this alignment in 2005 and 2007. In considering and determining suitable remuneration packages for the executive directors the Committee has given full consideration to the relevant best practice provisions set out in the Combined Code. The Committee also determines the extent to which all performance targets are met, using research findings as described above.

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Basic Salary & Benefits

Salaries are reviewed annually, on appointment, or on change in position or responsibility. In addition to salary, the executive directors may receive additional benefits covering car allowance, private medical insurance and life cover. Craig Smyth and Ellis Watson who joined the Board during 2007 and Patrick Macdonald, who left the Group during 2007 also received a cash allowance in place of any pension entitlement above the ‘earnings cap’.  Paul Dollman has an unfunded pension undertaking from the Company to provide in total the same level of pension as if the ‘earnings cap’ did not apply.

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Annual Bonus Scheme

The executive directors participate in a discretionary bonus scheme which is subject to the achievement of challenging Group and individual business and personal targets designed to encourage excellent performance. Bonus payments are non-pensionable.

The 2007 bonus scheme contained performance targets that were de-linked from budget, and include threshold and stretch levels derived from a review of the historical and projected performance of the Group and its peers, together with an analysis of city analysts’ expectations. The stretch level represents upper quartile performance.  The calculation of bonus awards was also de-linked from salary, with payment of £Nil on achieving threshold for the executive directors, increasing on a straight line basis to a maximum payment of £150,000 for stretch performance. Up to 20% of any entitlement is dependent on the extent to which identified personal key result areas are achieved.

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Incentive Plan

Following the restructuring of the Board in 2007, and acknowledging the unique set of circumstances and extra responsibility placed upon the executive directors and the Divisional Operating Boards, the Company introduced a 2008 Incentive Plan.  Designed to promote retention and stability during a period of change this one off plan operates over a 1 year period which commenced on 1 January 2008 and runs concurrently with the Company’s accounting year.  Any award from the plan will be paid during 2009, based on the performance in 2008.

The performance conditions are based on the achievement of targeted Divisional Financial Results (“DFR”). The DFR are set at threshold and stretch level; at the stretch level, the performance target has been set by the Remuneration Committee as being suitable and challenging and as being equivalent to achieving upper quartile performance. For Menzies Distribution, the DFR are based on a combination of operating profit, reduction in operating costs and income from new revenue streams.  For Menzies Aviation the DFR are based on the divisions operating profit and for Group Executives, the DFR are based on the Groups operating profit. As disclosure of these targets is commercially sensitive and could be interpreted as a profits forecast the Committee has decided that it will retrospectively disclose the targets in the year following the performance period, when any potential payout is made.  A threshold performance will receive a payout of 25%, rising on a straight-line basis to a maximum payment at stretch level. The maximum potential payout under the plan is capped at £250,000.

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Bonus Co-Investment Plan

Under the Bonus Co-Investment Plan executive directors may elect to invest up to 50% of their annual bonus in shares of the Company which qualify for an award of up to 2:1 matching shares dependent on achieving a performance target set prior to election.

The performance target for the Plan is for real 3%-8% per annum Earnings Per Share (“EPS”) growth above the Group’s EPS over a three year period, with the number of shares vesting being calculated on a straight-line basis from a nil award at 3% to a full award at 8%. Any dividends accrued on shares which vest are paid in cash on vesting. The John Menzies Employee Benefit Trust holds sufficient shares to cover any shares which may vest under the Bonus Co-Investment Plan.

An award of conditional matching shares was made during 2007 at a market price of 515.5p (2006: 530p).  They will vest on the day on which the Company announces its preliminary results for the year to December 2009 (2006 share awards: December 2008, 2005 share awards: December 2007). 

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Performance Share Plan

Executive directors may be awarded a number of conditional shares annually under the Performance Share Plan (“PSP”), as determined by the Committee. The maximum number of conditional shares which may be awarded to any individual under the rules of the PSP in any year is 100,000.  During 2007, the only director to receive an award under the PSP was Paul Dollman who received an award of 35,000 shares.  This was an increase of 5,000 shares over previous years, reflecting his additional responsibility for the Corporate Centre.

The shares awarded in 2007 will vest after three years if the Company’s Total Shareholder Return (“TSR”) is equal to or outperforms the FTSE 250 Index (the “Index”) TSR for the three years to December 2009. The number of shares to vest will be based on the extent of any outperformance, with shares vesting on a straight line basis up to 100% of the award for performance at 30% above the Index’s TSR. Any dividends accrued on shares which vest are paid in cash on vesting.

The John Menzies Employee Benefit Trust holds sufficient shares to cover any shares which may vest under the PSP. 

An award of conditional shares was made during 2007 at a market price of 576.0p (2006: 530p).  These will vest on the day on which the Company announces its preliminary results for the year to December 2009 (2006 share awards: December 2008, 2005 share awards: December 2007). 

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Divisional Performance Share Plan

The Annual General Meeting in 2007 approved the adoption of the Divisional Peformance Share Plan ("DPSP") recommended by the Committee. It was felt by the Board that the Company’s existing incentive schemes did not operate as well as was intended in motivating directors responsible for the Operating Divisions, and on the Committee’s recommendation, the Company adopted the 2007 Divisional Performance Share Plan, to augment the Company’s existing share incentive plans as part of the Company’s policy of ensuring that its remuneration practices remain competitive.

The DPSP is the same in practically all respects as the PSP, except that the performance conditions are based on the achievement of targeted Divisional Financial Results (“DFR”), rather than Total Shareholder Return. The DFR are set at threshold and stretch level; at the stretch level, the performance target has been externally verified by Kepler Associates as being equivalent to achieving upper quartile performance. For Menzies Distribution, the DFR are based on operating profit, reduction in operating costs and income from new revenue streams, and for Menzies Aviation the DFR are based on operating profit. 

The John Menzies Employee Benefit Trust holds sufficient shares to cover any shares which may vest under this Plan. 

An award of conditional shares was made during 2007 at a market price of 576.0p.  These will vest on the day which the Company announces its preliminary results for the year to December 2009. 

When the DPSP was proposed to shareholders at the 2007 Annual General Meeting it was the Committee’s stated intention that no individual would receive an award from both the PSP and DPSP in any given year.

However, on reflection and after reviewing feedback from shareholders, the Committee has decided that an award split between the two schemes would be appropriate.

The performance criteria set within the PSP is measured against Total Shareholder Return (TSR) and therefore aligns each Divisional Director to the performance of the Group while the performance criteria within the DPSP is set against future divisional profitability and remains appropriate given the structure of the Group and to incentivise each divisional managing director.  It is therefore the intention of the Committee to split the overall award of any future awards to each divisional managing director equally between the two schemes.

For the avoidance of doubt under no circumstances will any individual receive combined awards of more than 100,000 conditional shares (the stated annual maximum for each participant in each scheme) in any one year as a result of awards under both schemes.

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Share Options

Executive Share Option Scheme
Prior to the introduction of the above share schemes, share options were granted to each executive director normally on an annual basis at a level of one times salary. All grants were discretionary, and awards could be varied depending on specific circumstances.  Paul Dollman was granted options at three times salary in 2002, reflecting market conditions at the time of his recruitment, and awards of one times salary in 2004. These awards were subject to EPS-based performance conditions which have now been fully met.

The options are exercisable on a sliding scale if growth in underlying earnings per share exceeds RPI plus 3%-8% per annum in the three years from grant, adjusted to normalise pension and tax charges.  The performance conditions attaching to these options have been met in full.

Savings Related Share Option Scheme
The Company operates a HM Revenue & Customs approved Savings Related Share Option Scheme (the “SAYE Scheme”) available to all UK based employees in the Group, including executive directors.  As currently worded, no further options can be granted under the SAYE Scheme after 8 September 2008.  The Company believes that the SAYE Scheme is an important tool in the motivation and retention of staff, and it is proposed that a resolution be put to the Annual General Meeting in 2008 to continue the SAYE Scheme indefinitely.

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Service Contracts

The executive directors have service contracts with the Company. The Group’s practice on notice periods is that they should be for a period of 12 months’ notice, with any termination payment restricted to the actual loss incurred by the director.  All executive directors who served during the year have or had service contracts on this basis. The Committee considers that the notice periods stated above are reasonable and in the interests of shareholders having due regard to prevailing market conditions and practice among companies of comparable size.

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Non-executive Directors

The Chairman and each of the non-executive directors have letters of appointment.  The letters of appointment do not contain any contractual entitlement to a termination payment and the directors can be removed in accordance with the company's Articles of Association.  The Chairman and all non-executive directors are subject to re-election by shareholders at least every three years, with the exception of any director whose appointment exceeds nine years, in which case there is a requirement for annual re-election.

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External Appointments

During the year, no executive directors had any external non-executive directorships or received fees.  Prior to accepting an invitation to become a non-executive director of another company, an executive director must receive approval from the Chairman.  This approval will not be denied where the Chairman is confident that the appointment will not interfere in any way with the directors ability to perform his duties for the company.  Executive Directors are entitled to retain any fees received under these appointments.  Subsequent to the year end, Paul Dollman accepted an external non-executive appointment with Scottish Amicable Life Association Society. 

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Share Price

The market price for shares in John Menzies plc ranged from 486p to 594p during the 2007 financial year and was 570p at 29 December 2007.

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Pensions

Scheme Benefits
The executive directors are members of the Menzies Pension Fund, a contributory defined benefit scheme which provides pension on retirement at age 60 of up to two-thirds of pensionable earnings, or the ‘earnings cap’ if lower, together with additional benefits. Pensionable earnings are based on salary excluding bonuses.

Unfunded Arrangement
The pensionable salary of Paul Dollman is restricted as a consequence of the ‘earnings cap’.  He has an unfunded pension undertaking from the Company to provide in total the same level of pension as if the ‘earnings cap’ did not apply. This entitlement is effective from his date of appointment as a director.  In the case of Craig Smyth and Ellis Watson they both receive a cash payment equal to 20% of their respective salaries above the earnings cap which is included in other benefits.

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