Introduction

This report provides information on directors’ remuneration. As the Company is listed on AIM, it does not have to comply with the Directors’ Remuneration Report Regulations 2002. The Board will, however, continue to follow best practice and comply with the Regulations to the extent we consider reasonable, and a resolution will be put to shareholders at the Company’s Annual General Meeting inviting them to approve this report.

The Remuneration Committee and its role

From 31 July 2006 to 23 January 2007, the Committee consisted of the Company’s two independent non-executive directors, Ian Taylor (Chairman) and Brendan Magee. Following Brendan Magee’s retirement from the Board on 23 January 2007, Will Whitehorn (non-executive Chairman) became a member of the Committee. The Chief Executive attends certain meetings of the Committee by invitation to discuss other executives’ performance as appropriate. During the year the Committee received advice from the Chief Executive in respect of the remuneration of the Finance Director. The Committee has access to professional advice as and when it considers this necessary.  The Company Secretary attends meetings to record the decisions taken and actions arising.

The Remuneration Committee’s principal function is to determine the remuneration packages of the Company’s executive directors. It also makes recommendations to the Board concerning the allocation of bonuses and long-term incentive rewards to executive Directors and senior executives. In addition, it considers the objectives set for each executive and how they have performed against these targets. Its key terms of reference are to:

• determine and agree with the Board a broad policy for the remuneration of the executive directors;
  
• determine the total individual remuneration package of each executive director; and
  
• determine the policy for, and scope of, pension arrangements for executive directors.

It takes into consideration the performance of the executive directors and sets the scale and structure of their remuneration and the basis of their service agreements, with due regard to the interests of shareholders. No executive director may participate in decisions regarding his own remuneration. The Committee’s terms of reference are published on the Company’s website.

Remuneration policy

The Group’s remuneration policy aims are to:

• Attract, develop, motivate and retain talented people at all levels.
  
• Ensure that key executives are appropriately rewarded for their contribution to the Group.
• Encourage the holding of Company shares as an effective way of aligning the interests of employees with those of shareholders.

In framing this policy, the Remuneration Committee and the Board have given consideration to the provision of the Combined Code and the QCA guidelines for AIM companies. In determining remuneration packages, the Remuneration Committee has regard to the importance of attracting, retaining and motivating executive directors of the calibre required to continue the Group’s growth and development. In arriving at its recommendations, the Committee considers salary surveys covering AIM, small-cap, and international PR companies.

Remuneration package for executive directors

The policy for executive directors’ remuneration is to ensure they are fairly rewarded for their individual contribution to the Group’s performance. This is done through a combination of a competitive salary and the opportunity to increase remuneration with short-term and long-term incentives. Executive remuneration packages are reviewed each year. The remuneration package for executive directors consists of a basic salary, benefits, an annual performance-related bonus, pension and participation in a long-term incentive plan. Details for each director are set out below. As the Chief Executive has a large shareholding in the Company, this is also taken into consideration when decisions are made regarding short-term and long-term incentives. The ongoing value of his shareholding is considered to be a long-term incentive for the Chief Executive, and therefore less emphasis is placed on other short-term and long-term incentives for him.

Short-term incentives

Executive directors’ remuneration includes an element of performance-related pay so that directors’ awards can be aligned to improvements in shareholders’ value. The level of bonuses is entirely at the discretion of the Remuneration Committee. These bonuses are based on the performance of the Group as a whole, against budgets, and the Committee’s assessment of the performance of individual directors against personal objectives they have been set.

Long-term incentives

The Remuneration Committee recommends the award of share options and performance shares to executive directors (apart from the Chief Executive) in order to incentivise and retain them. Shareholders approved the Next Fifteen Communications Group plc Long-Term Incentive Plan (“LTIP”) in January 2005 which provides share option and performance share awards to directors and senior employees.

Under the terms of the LTIP, participants are either awarded share options with a grant price equal to the market price on the day before the grant date, or are awarded performance shares in the Company which are released to the participant upon the satisfaction of certain performance conditions and the participant remaining an employee of the Group. During the year the following performance shares were awarded to directors: 

Name of director	Number of shares	Grant date	End of performance period
D Dewhurst	27,918	18 Oct 2006	31 July 2009

 

The share options and performance shares under the LTIP are subject to the following performance conditions:

• The adjusted Earnings per Share (EPS) of the Group must exceed the Retail Prices Index (RPI) by an average of at least 15% per annum in each financial year of the performance period for 100% of the award to vest.
  
• If the adjusted EPS of the Group exceeds RPI by an average of at least 5% per annum, 20% of the award will vest.
  
• Between an average of 5% and 15% EPS growth over RPI, the award will allow between 20% and 100% to vest on a straight line basis. 
  
• If EPS does not grow an average of 5% or more over RPI per annum then none of the award will vest.
  
• The performance period over which the above test is measured is a period of three consecutive financial years of the Group commencing with the financial year in which the award is granted.
  

EPS growth will be calculated from the information published in the Group’s accounts. The awards will vest when audited accounts for the final financial year of the relevant performance period are published.

Various employees and directors still have options that were issued under previous Next Fifteen Executive Share Option Schemes. Under such schemes, share options were issued at the market price on the day before the option was granted (or another date within 30 days prior to the grant date). The share options become exercisable on the following dates:

• The first one-third of the total number granted on the third anniversary of the date of granting.
  
• The second one-third of the total number granted on the fourth anniversary of the date of granting.
  
• The final one-third of the total number granted on the fifth anniversary of the date of granting.

The share options will lapse on the date of cessation of the participant’s employment with the Group or ten years after the date on which the options were granted.

For all options granted after 30 November 1999 there is a performance criterion that the options may not be exercised unless the Group’s earnings per share has, over a three-year period beginning not earlier than the financial year in which the option is granted, grown by at least 30%. Options granted before this date did not have specific performance criteria. Share price growth was expected to be derived EPS growth but without a hurdle-rate for exercise.

Directors’ service contracts

All executive directors have rolling contracts that are terminable on six months’ notice. There are no contractual entitlements to compensation on termination of the employment of any of the directors other than payment in lieu of notice. The executive directors are allowed to accept appointments and retain payments from sources outside the Group provided such appointments are approved by the Board in writing. Details of the executive directors’ current service contracts are:                  

Executive director	Date of current letter of contract	Notice period
Tim Dyson	1 June1997	6 months
David Dewhurst	7 July 1999	6 months

Non-executive directors

The executive directors are responsible for setting the non-executive directors’ fees. All non-executive directors are engaged under letters of appointment terminable on three months’ notice at any time. Brendan Magee retired as a non-executive director on 23 January 2007. Owing to his length of service as a non-executive director, Ian Taylor has a letter of appointment that is renewable by the Company annually after each Annual General Meeting. Non-executive directors cannot participate in the Group’s share option schemes or LTIP and are not entitled to any pension benefit or any payment in compensation for any early termination of their appointment. Details of the date of the current letters of appointment for non-executive directors’ are:

Non-executive directors The executive directors are responsible for setting the non-executive directors’ fees. All non-executive directors are engaged under letters of appointment terminable on three months’ notice at any time. Brendan Magee retired as a non-executive director on 23 January 2007. Owing to his length of service as a non-executive director, Ian Taylor has a letter of appointment that is renewable by the Company annually after each Annual General Meeting. Non-executive directors cannot participate in the Group’s share option schemes or LTIP and are not entitled to any pension benefit or any payment in compensation for any early termination of their appointment. Details of the date of the current letters of appointment for non-executive directors’ are:

Non-executive director	Date of current letter of appointment	Notice period
Will Whitehorn	23 January 2007	3 months
Ian Taylor	23 January 2007	3 months

 

Directors' remuneration (audited)		Salary and fees £'000	Performance related bonus £'000	Pension contributions £'000	Taxable benefits £'000		2007 Total £'000		2006 Total £'000
Executive directors
T Dyson		240	-	33	6		279		269
D Dewhurst		173	12	17	2		204		182
Non-executive directors
W Whitehorn		100	-	-	-		100		100
B Magee		15	-	-	-		15		30
I Taylor		37	-	-	-		37		37

Directors' share options (audited) At 31 July 2007, the following directors held options to purchase 2.5p ordinary shares:

Name of director	Unexercised Options at 1 August 2006		Granted during year		Exercised during year		Unexercised options at 31 July 2007		Exercise Price		Date from which exercisable
D Dewhurst	50,000		-		50,000		-		47.25p		30.7.2002
	90,000		-		90,000		-		23.5p		23.10.2004
	200,000		-		-		200,000		30.0p		22.10.2005

Directors' share options (audited) As at 31 July 2007, the following directors held the following performance share awards over ordinary shares of 2.5p each under the LTIP described above:

Name of director	Number of Shares at 1 August 2006		Number of Shares at 31 July 2007		Grant Date		End of Performance Period
D Dewhurst	28,036		28,036		16.6.2005		31.7.2007
	29,438		29,438		11.11.2005		31.7.2008
	-		27,918		18.10.2006		31.7.2009

Directors' interests in the shares of Next Fifteen Communications Group plc

The interest of the directors in the share capital of the Company at 1 August 2006 and 31 July 2007 are detailed below:

Ordinary shares

Share options

LTIP performance share awards

	1 August 2006		31 July 2007 or date of retirement		1 August 2006		31 July 2007		1 August 2006		31 July 2007
Executive directors
D Dewhurst	189,000		200,000		340,000		200,000		57,474		85,392
T Dyson	5,745,304		5,782,804		-		-		-		-
Non-executive directors
W Whitehorn	631.126		831,126		-		-		-		-
I Taylor	40,000		40,000		-		-		-		-
B Magee1	502,900		502,900		-		-		-		-

1 Brendan Magee retired as a director on 23 January 2007

Performance graph

The following graph illustrates the Group’s total shareholder return since 31 July 2002 relative to the FTSE Media Index.

Since March 2005, the Company has been listed on AIM in the Media sector, but there is no five-year historical data for this sector. The Committee considers that a comparison of the Company’s total shareholder return to that of similar businesses on the full list is more relevant than a comparison with the FTSE AIM All-Share index.

– Data points are as at 31 July of each year.

The graph looks at the value, by the end of July 2007, of £100 invested in the Company compared with £100 invested in the FTSE Media Index.

On behalf of the Board

Ian Taylor
Chairman of the Remuneration Committee
13 November 2007