British Land Company PLC

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Remuneration Report

Unaudited information
The Remuneration Committee comprises Lord Turnbull, Chairman of the Committee, Kate Swann and John Gildersleeve. Sir David Michels chaired the Committee until his departure from the Company on 11 July 2008. John Gildersleeve joined the Committee after joining the Company on 1 September 2008. The Committee's Terms of Reference are available on the Company's website.

The Remuneration Committee took advice during the year from Strategic Remuneration, Chris Gibson-Smith, Stephen Hester, Chris Grigg, and Anthony Braine. The Committee has retained Alan Judes as its independent adviser throughout the year via his consultancy, Strategic Remuneration. A copy of the letter of engagement between the Company and Strategic Remuneration is on the Company's website. Strategic Remuneration also gave advice to the Company on personnel and share plan matters.

Statement of Company's policy on directors' remuneration
British Land is an industry leader and ranked in the FTSE100 Companies. The Company's goal is to achieve sustained outperformance for shareholders. The business model is people light and asset heavy - it leverages the work, skill and judgement of a relatively small staff over a large value of assets.

To accomplish British Land's performance goals the Company targets a high performance, open and meritocratic culture where people are motivated individually and as a team to outperform competitors, subject to maintenance of quality and security.

It is important that pay policy reinforces the Company's goals, providing effective incentives for exceptional Company, team and individual performance with significant upward and downward variability.

As well as providing motivation to perform, pay plays an important retention role and hence needs to be competitive with alternative employment opportunities. This is particularly so as British Land's demands on staff are high and there is a scarcity value on proven performers.

It is also important to have strong alignment of management incentives with measures that matter to British Land's shareholders and with shareholder returns via share ownership.

The policy is to set basic salary and benefits at norms broadly consistent with the Company's FTSE position with appropriate variance for specialist positions, but to provide Annual Incentive and Long-Term Incentive levels that would move total pay above median towards upper quartile if performance so merits.

Directors' remuneration packages comprise a fixed part consisting of a basic salary and benefits together with an annual incentive, matching share plan and long-term incentive plans.

The total pay position is analysed by looking across each of the different elements of pay: basic salary and benefits, annual incentive awards and long-term incentives. This provides the Committee with a total remuneration view rather than just the competitiveness of the individual pay elements and may vary widely to correspond to the need of the role and the performance delivered.

In using salary and other remuneration data the Committee is mindful of not unnecessarily ratcheting up the remuneration levels, while properly incentivising performance and being able to attract and retain the best people. The Committee also has regard to economic factors, remuneration trends and the level of pay increases throughout the Company when determining directors' pay.

A new Chief Executive was appointed in January 2009, who is reviewing the strategy of the Company. Depending upon the outcome of that review, the Committee will assess its existing policy for annual and long-term incentive arrangements to ensure that they fully support the corporate strategy. It is possible that changes in remuneration policy will be brought to the attention of shareholders in 2010.

(i) Basic salary and benefits
Basic salary and benefits in kind for each director are reviewed annually by the Remuneration Committee, taking account of the director's performance and responsibilities.

The Committee considers basic salary levels against two peer groups. For roles where corporate size and scope characteristics drive duties, basic pay levels and recruitment sources, a peer group of major UK companies across market sectors with a median market capitalisation broadly comparable to British Land is used to establish basic salary levels.

For other posts, the Committee will look at pay levels in other organisations such as agents, fund managers or with comparably sized support functions to match with roles of comparable speciality, scope and responsibility to those within British Land. This reflects the 'people light and asset heavy' business model.

Basic salaries are targeted around the median of the relevant peer group in both cases. The Company utilises pay surveys from time to time to ensure pay is correctly positioned against the market. Appropriate increases are made to base salary to reflect individual merit and remain competitive with the market.

(ii) Annual incentive plan
The annual incentive plan consists of an amount payable to directors reflecting Company performance and the individual's contribution during the preceding year. One third of the annual incentive is paid in fully vested shares subject to a three year holding requirement under the Company's Matching Share Plan described below.

For 2009/10 the 'On Target' award level for the Chief Executive continues to be 90% of salary with a maximum award of 180% of salary. 'On Target' award levels for the other executive directors are 75% of base salary with a maximum of 150% of salary. The awards are not contractual and are not pensionable. These levels are unchanged from the previous year.

The Remuneration Committee's approach to setting annual incentives is two-fold. Each individual's performance is considered in relation to the goals agreed for their specific areas of responsibility, such as:
- the success of purchases and sales
- the value added from development activity
- lettings and rent reviews
- asset management activities
- capital markets activities
- control over the Group's finances and accounts
- management of administrative services and human resources.

The Committee also considers team contributions made by each individual to overall corporate performance, using as external indicators:
- total NAV based return relative to property majors and relevant indices
- property returns relative to IPD
- rental growth from reviews and new lettings relative to ERV and sector norms
- operating costs as a percentage of rents and assets against prior year and property majors
- underlying EPS relative to prior year, to forecast and to other property majors.

These factors are then aggregated by the Committee into individual annual incentive awards on a subjective basis rather than by an over-rigid mathematical formula, though supported by the objective individual data points to provide a fair and appropriate award to each individual.

The performance during the year ended 31 March 2009 against the Company's targets has exceeded that of the previous year in both quantitative and qualitative terms. The quantitative measures are:

• Total Shareholder Return. Relative performance was ahead of all the property majors.
• Accounting Return. This was below median which was disappointing.
• EPS relative to prior year, forecast and other property majors. At the calendar year end British Land's EPS growth was ahead of the major comparator companies and forecast to be above median of our peers for the year as a whole. The Company's returns benefited by having started deleveraging earlier and so sales were at lower yields than others achieved. Higher occupancy rate and lower overheads also contributed.
• Rental income growth above ERV and IPD. Rental income growth on a like-for-like basis was ahead of the IPD and key competitors.
• Operating costs as a percentage of rent and NAV compared with prior year and property majors. Operating costs including property outgoings as a proportion of gross rents were substantially below our nearest competitor. Operating costs were approximately 1% of portfolio value.

The qualitative performance measures assessed by the Committee include the following:

• Degearing and disposals. The past year has been an exceptional year of achievement in qualitative terms for the Company in the context of the strategy for the year and what has been possible in the market. £1.7bn of sales were achieved in a year when there were months when the market went no bid.
• Development Programme. The UK development pipeline is still on target. The Leadenhall decision improved gearing and the risk profile.
• Management Renewal. The extensive process of management renewal continued successfully in 2008/9. The departure of Stephen Hester was sudden and unexpected but there was a seamless transition with Chris Gibson-Smith stepping up to the position of Executive Chairman and overseeing the recruitment of Chris Grigg before stepping down again to his regular non-executive Chairman role.
• Company reputation. It has been a very difficult year in the banking and property markets, but the balance sheet and finances of the Company are in good shape to withstand further market turmoil.

However, this performance was against a background of significant falls in property values across the economy as a whole and during the year the Committee has noted the absolute decline in the share price, even though the Company provided relative outperformance. The Committee determined that in light of the negative total return, a reduction in annual incentives as a percentage of salary and as a percentage of maximum payable was appropriate. Reflecting these factors, the bonus was in aggregate for the executive directors set at 50% of the maximum provided by the scheme (60% in 2007/8).

(iii) The Matching Share Plan
The Matching Share Plan is targeted at Executive Committee members (and, by invitation, other key senior contributors to the Company or members of its Group). It is intended to incentivise and retain senior executives, ensure that such executives are not focused exclusively on short-term performance and, accordingly, increase the alignment of their interests with those of the shareholders.

For those individuals who are eligible to participate in the Matching Share Plan, one third of their after tax annual incentive (or such other after tax proportion as the Committee may agree) is delivered in British Land shares.

Participants are eligible to receive an award of free shares benchmarked by reference to the number of shares equal in value to the gross amount of their Deferred Annual Incentive on the date such Deferred Annual Incentive was declared. The receipt of that Award is subject to (i) the Annual Incentive Shares being held by the Trustees for a three year period, (ii) the participant remaining an employee or officer of a Group company at the end of that time, and (iii) certain performance conditions being satisfied.

The Matching Share Award is divided into two parts. One part is based on total shareholder return (the 'TSR Part'). The other on the growth in the Company's earnings per share (the 'EPS Part').

The combined maximum amount of shares that can be delivered to a participant pursuant to a Matching Share Award cannot exceed 200% of the number of their Notional Annual Incentive Shares for any relevant year.

As regards the TSR Part, if the total shareholder return over the Performance Period is less than the median of a comparator group of UK property companies, no Matching Share Award will vest for participants in relation to the TSR Part. If the TSR is equal to the median, a Matching Share Award equal to 35% of each participant's number of Notional Annual Incentive Shares vests in relation to the TSR Part. For every 1% that the TSR exceeds the median, each participant's Matching Share Award in relation to the TSR Part is increased by an amount equal to 16.25% of that participant's number of Notional Annual Incentive Shares, subject to a maximum amount under the TSR Part equal to 100% of that participant's number of Notional Annual Incentive Shares.

The comparator group of UK property companies currently consists of Brixton PLC, Great Portland Estates PLC, Hammerson PLC, Land Securities Group PLC, Liberty International PLC and SEGRO plc.

As regards the EPS Part, if the increase in the underlying earnings per share of the Company during the Performance Period is less than 4% per annum (the 'Growth Requirement'), no Matching Share Award vests for participants in relation to the EPS Part. If the increase in EPS is equal to the Growth Requirement, a Matching Share Award equal to 35% of each participant's number of Notional Annual Incentive Shares will vest in relation to the EPS Part. For every 1% per annum that the EPS exceeds the Growth Requirement, each participant's Matching Share Award in relation to the EPS Part shall be increased by an amount equal to 21.67% of that participant's number of Notional Annual Incentive Shares, subject to a maximum amount under the EPS Part equal to 100% of that participant's number of Notional Annual Incentive Shares.

The TSR and EPS conditions have been selected to complement the net asset based LTIP vesting criteria and ensure a balanced alignment of interest with the key financial measures most used by shareholders. The vesting scales have been designed to reward outperformance - in the case of TSR, by reference to competitors - in the case of EPS, by reference to growth rates achieved and expected to be achieved by major competitors which also represents a premium to expected long-term rental growth rates in the economy from which EPS growth in property companies is derived and challenging in the light of current economic prospects in the Company's core markets.

Hewitt Associates undertakes the TSR performance measurement and submits a report to the Company advising the results for each specific award. The Committee requests external adviser sign-off for performance measures as part of its oversight procedures.

(iv) Long-Term Incentive Plan ('LTIP')
The LTIP permits the award of market value options and/or performance shares, as may suit the Company from time to time. The option section of the Plan comprises an Inland Revenue approved part and an unapproved part. Under the Plan, the Company may award a maximum notional value of 250% of base salary in performance shares each year or the equivalent value of base salary in options each year (the latter under current estimations being valued at 25% of their exercise price). The annual limit is set with both the options and performance shares components of the Plan taken together. The split of the awards made each year between performance shares and options may be varied between 0% and 100% at the discretion of the Remuneration Committee. The Remuneration Committee's current policy is to make awards of up to a maximum of 200% of salary for executive directors and 250% of salary for the Chief Executive.

Grants made under the Plan are subject to a prescribed performance condition upon which the exercise of options and the vesting of performance shares will be contingent except that grants may be made without any performance condition if required to facilitate the recruitment of a new executive.

The performance condition attaching to options and share awards measures the growth in the Company's net asset value per share against the capital growth component of the Investment Property Databank Annual Index, over a performance period of three years commencing the year in which the options and share awards are granted. Growth in the Company's net asset value per share must exceed that of the Index for a minimum proportion of the options to be exercised and/or performance shares to vest. Stretching outperformance is required for the entire award to vest. Growth in the Company's net asset value per share is a key measure of performance over the longer term and highly relevant for LTIP performance measurement.

The performance hurdles for directors' LTIP awards are:

The Committee reviews these performance conditions on a regular basis to ensure they are both sufficiently stretching and remain relevant to the Company's strategic objectives. Hewitt Associates undertakes the performance measurement and submits a report to the Company advising the results for each specific award.

(v) Fund Managers Performance Plan
The Performance Plan is designed to incentivise executives who operate the 'Company advised' Unit Trusts and the British Land owned portfolios. The Performance Plan is intended to incentivise and retain the top fund managers by rewarding outperformance and to align the interests of those executives with investors in the Unit Trusts and the Company. The Company is one of the largest investors in those Unit Trusts.

Following the end of each financial year, up to a maximum of 30% of the annual performance fees earned by the Unit Trusts is set aside to provide incentives under the Performance Plan (the 'Incentive Pool'). As agreed with shareholders in 2008, a comparative notional pool is also calculated for the purposes of incentivising executives managing internal portfolios. At present, the Committee only expects awards to be made equal to 25% of the annual performance fees with the balance representing a reserve to be drawn upon if fund activity expands. The Committee may in its absolute discretion grant, and recommend that the Trustees grant, awards under the Performance Plan.

Some 20% of the value of any award under the Performance Plan is paid as a cash bonus. The remaining 80% of the value of any award is delivered in the form of free shares in the Company (the 'Share Award'). The Share Award vests in three equal annual tranches. The first tranche vests, and the shares comprised in that tranche are delivered, on the first anniversary of the award date. The second and third tranches vest, and the shares comprised in those tranches are delivered, annually thereafter. No further performance conditions need to be satisfied in order for a Share Award to vest. However, to the extent that performance fees (by reference to which the Incentive Pool was calculated) are 'clawed back' due to subsequent Fund underperformance, a pro rata proportion of all unvested awards for that year cease to vest. In addition, each tranche of a Share Award will normally only vest if the recipient of that Share Award is an employee or officer of a Group company on the relevant vesting date and has not given notice of intention to resign.

In general, no single award under the Performance Plan will represent more than 25% of the Incentive Pool. However, the Committee may in its absolute discretion grant, and recommend that the Trustees grant, awards with a higher value. In addition, the Committee may in its absolute discretion make, and recommend that the Trustees make, awards to employees who work outside of the fund management group. Such awards would be based on contribution to fund activity and would represent, in total, no more than 20% of the Incentive Pool.

It is important that Performance Plan recipients also remain focused on the Company's overall performance, and indeed many of them have broader responsibilities in that regard. They therefore remain eligible for the Company's other share-based award schemes. However, in line with practice at other companies and in order to avoid excessive overall awards, the combined value of awards in any year for a participant under both the Performance Plan and the LTIP will be the higher of (i) the value of their Performance Plan award plus an award equal to 20% of what would otherwise have been the value of their LTIP award, and (ii) 100% of the value of their LTIP award, or such other combined value as the Committee may determine in its absolute discretion from time to time.

Minimum Shareholding Guideline
The Director's Minimum Shareholding Guideline requires approximately 200% of base salary to be held in vested shares by the Chief Executive and 125% for other executive directors. There is no set timescale required to reach the target but this should be achieved through the regular additions anticipated by Annual Incentive and Long-Term Incentive Plan awards. No purchases are required either to reach the level or to respond to share price falls but directors are expected to increase their holding of shares each year until the target is attained. The number/value of shares required as the target is fixed once a year. Shares included are those beneficially owned, Co-Investment Plan holding, Matching Shares purchased with bonus and Share Incentive Plan holdings. Shown below is the guideline fixed for the year to 31 March 2010:

Fixed/variable pay analysis
The following summarises the annual package and relative importance of its components for each executive director. The analysis prepared by Strategic Remuneration shows the estimated 'expected' value of variable compensation. This takes account of vesting periods and related performance conditions.

Performance graph
The graph below is prepared in accordance with The Directors' Remuneration Report Regulations 2002. It shows the Company's total return and that of the FTSE Real Estate Sector Total Return Index for the five years from 1 April 2004 to 31 March 2009.

The FTSE Real Estate Sector Index was chosen because that is where the shares of the Company are classified. Hewitt Associates prepared the graph based on underlying data provided by Datastream.

Directors' contracts
The policy of the Company is to have service contracts with notice periods of one year. It is sometimes necessary when recruiting a new director to give a service contract with an initial term of longer than one year. In such circumstances it is the policy of the Company that the notice period should reduce to one year after an initial period of service.

The Company applies the principle of mitigation in the event of early termination of service contracts.

Chris Grigg has a service contract dated 19 December 2008, Graham Roberts has a service contract dated 19 November 2001, Andrew Jones has a service contract dated 17 April 2007 and Tim Roberts has a service contract dated 14 November 2006, all of which provide for one year's notice.

Stephen Hester had a contract dated 26 July 2004 which provided for one year's notice. All of his entitlements to outstanding share awards and options lapsed on his departure.

There are no further provisions for compensation payable on termination of service contracts of directors. There has been no compensation paid to departing directors during the year.

Executive directors' fees
Stephen Hester was appointed as non-executive Deputy Chairman of Northern Rock plc on 22 February 2008 and resigned on 1 October 2008. His remuneration from Northern Rock for this role and period was £70,000. Stephen Hester retained his Northern Rock remuneration for his period as non-executive Deputy Chairman.

Graham Roberts was appointed a non-executive director of Balfour Beatty PLC on 1 January 2009. It is intended that Mr Roberts will retain his Balfour Beatty remuneration of £56,000 p.a.

Non-executive directors
The remuneration of the non-executive directors is a matter for the executive members of the Board. Their remuneration comprises a standard director's fee, a fee for additional responsibilities and an attendance fee based on the number of meetings attended during the year. The remuneration provided takes into account the level of responsibility, experience and abilities required and the marketplace for similar positions in comparable companies.

Audited information

Directors' emoluments

a) Directors' interests in the Company's shares
Fully paid ordinary shares, including shares held by spouses, Matching Share Plan Bonus Shares and under the Company's Share Incentive Plan. All interests are beneficial. All directors took up their rights in full in respect of the Rights Issue completed in March 2009.

b) Directors' options and share plan interests
To take account of the effects of the Rights Issue completed in March 2009, adjustments were made to options and awards under the Group's incentive plans in accordance with scheme or plan rules. The Group's auditors performed agreed procedures to calculate the adjustments as required by the rules. Where appropriate, the adjustments were approved by the relevant tax authorities.

(i) Sharesave Scheme
Beneficial interests of the directors under the Sharesave Scheme:

(ii) Long-Term Incentive Plan
Beneficial interests of the directors under the Long-Term Incentive Plan:

Long-Term Incentive Plan 'Performance Shares', Co-Investment Share Plan Shares, Matching Share Plan 'Matching Shares' and Fund Managers Performance Plan Shares, upon vesting, are transferred out of the British Land Share Ownership Plan (the Trust), a discretionary trust established to facilitate the operation of the incentive schemes. The Trustees of the Trust purchase the Company's ordinary shares in the open market. Rights to dividends under the Long-Term Incentive Plan, Fund Managers Performance Plan and Matching Share Plan are retained by the Trust in interest bearing accounts and are payable to employees only on the vesting of the employee's shares; along with, in the case of Long-Term incentive Plan and Fund Managers Performance Plan, interest earned on the accrued dividends. Dividend and interest distributions in the year arising from the above schemes totalled £32,957 to Stephen Hester, £41,412 to Andrew Jones, £17,928 to Graham Roberts and £9,986 to Tim Roberts.

(iii) Co-Investment Share Plan
In connection with the recruitment of Chris Grigg, as Chief Executive of the Company, the need for which arose as a result of Stephen Hester's move to take on the role of Chief Executive at The Royal Bank of Scotland, the Company made him a one-off non pensionable grant, under the Co-Investment Share Plan, of 242,500 British Land shares on 4 March 2009. The market price on that day was £3.305. This award was conditional on the acquisition by him, on the same day, of a matching number of shares and requires the subsequent retention of those shares until 12 January 2012. These shares conditionally vest on 12 January 2012 provided he remains in employment at that time. In the event of a variation of capital, the Trustee (having considered the recommendations of the Board) has discretion to take such action as it considers appropriate. Dividends earned on the Plan shares will be passed on by the Trustee to the awardee following and subject to vesting of the award.

(iv) Matching Share Plan
In respect of their own shares held by the Trustee in accordance with the Matching Share Plan, the Directors took up their full rights for the Rights issue. The Trustee calculated a figure representing the sale of sufficient rights 'nil paid' to enable a resulting balance (equivalent to the Tail Swallow number of shares) to be added to the bonus shares in the Plan.

The resulting shares will be released on the same basis as the awards to which they relate. The following awards have, in accordance with the rules of the Matching Share Plan, been adjusted. For the rights issue adjustment (effective 4 March 2009), the number of shares comprised in each award was multiplied by a factor of 1.20689 and fractions of ordinary shares were disregarded.

(v) Fund Managers Performance Plan

Directors' pension benefits for the year ended 31 March 2009
Two executive directors, Graham Roberts and Tim Roberts, earned pension benefits in schemes sponsored by the Company during the year. Stephen Hester and Chris Grigg receive a sum equal to 35% of basic salary in lieu of pension contributions, which for the year amounted to £186,549 (2008: £287,000) for Mr Hester and £62,575 for Mr Grigg. The Company contributed a sum equal to 15% of Andrew Jones' basic salary to his individual 'money purchase' pension scheme, which for the year amounted to £63,750 (2008: £58,500). From 1 April 2009 the contribution rate for Mr Jones was increased to 35% which is in line with contribution levels at comparable companies for main Board positions.

Graham Roberts is also currently accruing benefits in the Company Funded Unapproved Retirement Benefit Scheme (FURBS).
The benefits provided by the FURBS are defined lump sums.

Non-executive directors do not participate in any Company sponsored pension arrangement.

Since the Directors' Remuneration Report Regulations 2002 came into force, company accounts are subject to two sets of disclosure requirements in relation to directors' pensions rather than one. The extended Companies Act 1985 requirements have to be observed in addition to, not in place of, the current UK Listing Authority requirements. The requirements differ slightly and these Regulations are expected to remain in force for the time being. The three tables shown opposite provide the details of directors' pensions necessary to satisfy the two sets of requirements.

Companies Act 1985 Disclosure Requirements

UK Listing Authority Disclosure Requirements

This report was approved by the Board on 20 May 2009.

Lord Turnbull Chairman of the Remuneration Committee

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