3. Statement of the Company’s policy on Directors’ remuneration (unaudited information)

The policies operated by the Company during the year and those to be applied over the next two years are set out below:

The Company’s policy on executive remuneration is that the Remuneration Committee and the Board should each satisfy itself that executives, including Executive Directors, are fairly rewarded for their individual contributions to the Group’s performance. The Remuneration Committee has sought to ensure that Executive Directors receive a level of remuneration that is appropriate to their scale of responsibility and performance, and which will attract, motivate and retain individuals of the necessary calibre. The only pensionable element of Executive Directors’ remuneration is basic salary. This policy applies whether or not an Executive Director is a member of the Tomkins Retirement Benefits Plan or has a personal pension arrangement.

B. Annual remuneration for executives

The Board recognises that one of its key objectives is to grow the value of the business for the benefit of shareholders and that such growth is strongly related, amongst other things, to the degree of entrepreneurial spirit in the Group. In order to create the necessary entrepreneurial impetus within an organisation, compensation arrangements are required which are similar to those that an owner of a business would seek. This has led to the adoption of a remuneration policy under which the levels of total remuneration are set in order to attract, retain and motivate executives.

The executive rewards at Tomkins have a standard composition, made up of three principal elements:
– Base salary
– Annual Bonus Incentive Plan (“ABIP”)
– The Performance Share Plan (“PSP”)

These standard elements form part of a carefully-designed system put in place between 2003 and 2006 to create an entrepreneurial focus on value creation. The process had three stages:
– First, we agreed a clear set of principles to guide system design
– Secondly, we drafted system structures which would embody these principles
– Finally we calibrated each element of the system to ensure enhanced rewards for above-target performance – and reduced rewards for below-target performance.

Remuneration is benchmarked against a series of comparable UK companies as well as North American auto-component manufacturers and is provided through a combination of base salaries at median level or below and annual bonuses that have a direct and proportionate link to total value created for shareholders. This provides the incentive for executives to act like owners of the business. The Remuneration Committee and the Board believe that this more closely aligns the interests of shareholders and management whereby executives only receive substantial rewards when they have created exceptional value in the business.

Over time and subject to the achievement of value-creating performance targets, this policy is likely to lead to a realignment of the component parts of total executive remuneration, so that a greater part of the total package received by executives is made up of incentive pay with the remainder coming from base salaries at the median level or below. The performance targets for the Company’s Annual Bonus Incentive Plan and 2006 Performance Share Plan ensure that a substantial proportion of total remuneration is directly related to actual measurable performance. Further details of the Annual Bonus Incentive Plan and the 2006 Performance Share Plan are set out in section 4B below.

C. Non-Executive Directors’ fees and Chairman’s remuneration

The executive members of the Board review the fees of Non-Executive Directors, who play no part in determining their own remuneration. The Chairman’s remuneration is determined by the Remuneration Committee and is approved by the Board. The Chairman takes no part in the discussions and decisions relating to his own remuneration. The review of Non-Executive Directors’ fees and the Chairman’s remuneration takes place every two years.

D. Service contracts

The Company’s policy on Directors’ service contracts is that service contracts and letters of appointment for Executive Directors normally provide for notice periods of no longer than 12 months. On appointment, a longer notice period may apply, but this will reduce over time to the normal 12 months’ notice period. Notwithstanding the provisions in an Executive Director’s service contract or letter of appointment concerning termination payments, the Company will seek to reduce any compensation that may be payable to reflect the departing Director’s obligation to mitigate loss.

E. External appointments

The Company’s policy on external appointments is that, with the approval of the Chairman of the Board, Executive Directors are permitted to hold appointments outside the Company. Any fees payable in connection with such appointments are normally retained by Directors unless otherwise agreed. Further details are set out in section 10 below.

F. Long-term incentives and share options

The Company has operated a number of share-based long-term incentive schemes in the past but, following a review of executive remuneration, the Remuneration Committee and Board expect the number of plans and schemes to reduce over time as they lapse and are not renewed or replaced. As previously reported, the Remuneration Committee and the Board decided not to continue with an executive share option scheme beyond 9 May 2005, the date on which the Company’s Executive Share Option Schemes lapsed. Following shareholder approval, The Tomkins 2006 Performance Share Plan was introduced, a summary of which is set out in section 4B below.

The Company operates an employee savings related share option scheme, the Tomkins 2005 Sharesave Scheme, which applies to all UK employees.

G. Retirement benefits

The Company’s defined benefit pension plan was closed to new members in April 2002 and, since that time, the Company’s policy has been that new employees, including Executive Directors and senior executives, will receive a payment from the Company to enable them to make contributions to pension plans of their choice on behalf of themselves and their dependants. No change to this policy is expected over the next two years.

4. Elements of remuneration (audited information)

Executive remuneration is comprised of base salary, a bonus (in three parts: cash, bonus shares and deferred shares) and benefits-in-kind. Non-Executive Directors are paid a basic fee and fees for their work on Board Committees. The table below sets out the remuneration paid to each Director.

A. Base salary, fees, bonuses and benefits-in-kind for year ended 29 December 2007

Chairman’s remuneration
With the assistance of PA Consulting, and having taken into consideration comparative remuneration data, the contribution made by the Chairman to the Company’s affairs, the time he devotes to the Company’s business, and the extra responsibilities placed upon him arising from the changes in corporate governance requirements in the UK and the US, the Remuneration Committee recommended to the Board that his remuneration should be increased from £185,000 plus 2,000 Tomkins plc shares per annum, to £205,000 plus 5,000 Tomkins plc shares per annum with effect from 1 January 2008. These recommendations were approved by the Board.

Non-Executive Directors’ fees
With the assistance of PA Consulting, the executive members of the Board reviewed the fees paid to Non-Executive Directors and having taken into consideration comparative remuneration data, the contribution made by individual Non-Executive Directors to the Company’s affairs, the time they devote to the Company’s business, and the extra responsibilities placed upon them arising from the changes in corporate governance requirements in the UK and the US, approved an increase in the fees, to the following with effect from 1 January 2008, which represents an RPI increase over the period since the last review:

Basic fee
£45,815 p.a. (previously £42,500 p.a.); plus
2,000 Tomkins’ shares p.a. (unchanged)

Additional fees
Audit Committee
Chairman: £16,170 p.a. (previously £15,000 p.a.)
Other members: £8,085 p.a. (previously £7,500 p.a.)

Remuneration Committee
Chairman: £10,780 p.a. (previously £10,000 p.a.)
Other members: £5,390 p.a. (previously £5,000 p.a.)

CSR Committee
Chairman: £13,475 p.a. (previously £12,500 p.a.)
Other members: £5,390 p.a. (previously £5,000 p.a.) plus £1,617 per meeting day (previously £1,500 per meeting day)

Senior Independent Director
£16,170 p.a. (previously £15,000 p.a.)

B. Current schemes

Annual bonus incentive plan
The Executive Directors and senior executives participate in the Company’s Annual Bonus Incentive Plan (“ABIP”). Each participant in the ABIP receives a percentage of “bonusable profit” of the business for which he or she has responsibility. Bonusable profit is based on operating profit less a charge for tax, certain exceptional items and a charge for invested capital. The objective of the ABIP is to reward the senior executives for increasing the overall value created in the business, based on the margin of the after-tax return on invested capital in excess of the weighted average cost of capital. Accordingly, bonusable profit may increase at a faster rate than operating profit where the margin of the return over the cost of capital increases. This aligns the interests of management and shareholders. In arriving at bonusable profit, adjustments may be made for restructuring charges relating to strategic manufacturing initiatives to match the costs of the strategic manufacturing initiatives to the benefits over a period of up to three years. The charge for taxation reflects the ongoing charge for tax excluding any benefit from exceptional adjustments to tax provisions. The charge for invested capital is based on applying the estimated weighted average cost of capital to the average invested capital in the Group. The estimated weighted average cost of capital takes into account the capital structure of the Group and the costs associated with each element of capital. The method of calculation has been agreed by the Remuneration Committee and is subject to review each year. The invested capital is based on the book value of the Group’s assets, excluding goodwill relating to acquisitions made prior to 30 December 1999. The cost of capital used in the calculation of bonusable profit for the year under review was 8.35%.

The Remuneration Committee carries out a detailed review of the computations involved and ensures that the rules are applied consistently. Furthermore, the independent auditors are asked to perform agreed-upon procedures on behalf of the Remuneration Committee on the calculations which underlie the computation of the bonusable profit. The incentive bonus of the Executive Directors is based on a percentage of the bonusable profit of the Group which, for the year ended 29 December 2007, was £96.0 million (2006: £111.3 million) and the respective bonusable profit percentages were: James Nicol (0.85%), Ken Lever (0.4%) and John Zimmerman (0.4%). James Nicol received the sum of £1,142,000 (2006: £1,324,000), and, while serving as Executive Directors, Ken Lever received the sum of £362,000 (2006: £623,000) and John Zimmerman received the sum of £99,000 (2006: £nil). Although there is no limit to the bonusable profit on which bonuses are calculated, inordinate growth in bonusable profit in any one year is unlikely to arise due to the nature of the Group’s business.

The bonus awards are payable to senior participants, including Executive Directors, as to four-sevenths in cash, one-seventh in bonus shares and two-sevenths in deferred shares. The bonus awards payable to the remaining participants are as to three-quarters in cash, one-twelfth in bonus shares and one-sixth in deferred shares. The bonus is paid at the end of June, September and December based on 75% of the bonus earned to the end of the previous quarter, with the balance of the full entitlement to the bonus for the calendar year paid at the end of March following the calendar year-end. Bonus shares are restricted and vest only after a period of three years from the initial bonus award. Dividends are paid on the bonus shares. Deferred shares are awarded at the time of the initial bonus award but the vesting of the shares is conditional on continued employment with the Group for three years after the award. Dividends are not paid on the deferred shares until they have vested. On leaving the Company, the bonus shares will normally vest in full. In good leaver circumstances the deferred shares will vest on a pro-rata basis.

As a condition of continued participation in the ABIP, senior participants, including Executive Directors, are required to retain shares with a purchase cost equivalent to one year’s total after-tax remuneration including bonus, based on an average of the previous three years. Remaining participants are required to hold shares with a purchase cost equivalent to one-half of one year’s total after-tax remuneration including bonus, based on an average of the previous three years. Increases in annual base salary of all participants, including Executive Directors, are restricted to the equivalent rate of increase in the Retail Prices Index (in the UK) or equivalent index in the country in which a participant works. The restrictions on the increases in salary, together with the growth in bonus, assuming increases in bonusable profit, will result in the incentive pay element of remuneration increasing over time. The share awards will increase the investment each of the participants, including Executive Directors, has in Tomkins plc shares.

The Tomkins 2006 Performance Share Plan
The Tomkins 2006 Performance Share Plan (the “PSP”) is a long-term incentive plan. The purpose of the PSP is two-fold. First, to provide a share-based long-term incentive arrangement for senior executives that more closely aligns the interests of executives with shareholders. Secondly, the PSP is in substitution of the Company’s legal obligation to the Chief Executive to provide annual grants of options, which had previously been satisfied by the Executive Share Option Scheme that lapsed in May 2005. The Remuneration Committee considered the alternatives and, with the agreement of the Chief Executive and the assistance of PA Consulting Group, devised a plan that achieves those aims. The PSP will provide rewards in future years only if shareholders have seen value created over the preceding three years. The Remuneration Committee and Board believe that this creates a better alignment between executive reward and the creation of shareholder value than a standard executive share option scheme. The PSP has four key features: (i) the performance baseline is established which is equal to the cost of equity and if the total shareholder return (comprising dividends and increase in the share price) over three years does not exceed the cost of equity over the same three-year period, no award of shares will be made; (ii) the award of shares will be proportional to the degree of performance over the baseline; (iii) there is a “cap” on the quantum of share awards; and (iv) subject to performance, awards will be made at the end of each three-year performance period. The following maximum awards of Tomkins shares have been made to James Nicol, Ken Lever and John Zimmerman under the PSP:

The Tomkins 2006 Performance Share Plan

The net value of outstanding awards based on the share price as at year end 2007 was £nil (2006: £nil).

Share options
The Tomkins 2005 Sharesave Scheme
This is a standard HM Revenue & Customs-approved savings related share option scheme, which is open to employees who are resident for tax purposes in the UK.

C. Closed schemes

The following schemes are now closed.

The Tomkins Executive Share Option Scheme No. 3 (“ESOS 3”) and The Tomkins Executive Share Option Scheme No. 4 (“ESOS 4”)
ESOS 3 and ESOS 4 lapsed for grant purposes on 9 May 2005 and the Remuneration Committee and the Board decided not to continue with an executive share option scheme beyond that date.

ESOS 3 was an HM Revenue & Customs-approved scheme. ESOS 4 was not approved by HM Revenue & Customs. The options under both schemes mature after three years. All outstanding ESOS 4 options were granted to participants within the limit of four times their annual earnings. The performance condition for all outstanding options under ESOS 3 and ESOS 4 required that the growth in Tomkins’ earnings per share must exceed the growth in the Retail Prices Index by an average of 2% per annum over a three-year period before an option can be exercised, which was in accordance with contemporary practice when the schemes were introduced in 1995.

The Tomkins Savings Related Share Option Scheme No. 2 (“SAYE 2”)
This was a standard HM Revenue & Customs-approved savings related share option scheme, which lapsed for grant purposes on 9 May 2005.

The Tomkins Share Matching Scheme (“SMS”)
Awards which had been made under a now expired scheme known as The Tomkins Restricted Share Plan and which had vested, were eligible for matching awards for the same number of shares under the SMS. Such awards could be for up to two conditional share matching awards vesting a further two years and four years respectively after the end of the original restricted period. The final grant of SMS awards vested during the year and the SMS has therefore now expired. With shareholder approval, this share scheme was introduced in 1996 with no performance conditions attached and, accordingly, it did not comply with Schedule A of the Combined Code.

Tomkins Premium Priced Option
This was an option specifically and solely granted to James Nicol as part of the incentive package to ensure he joined Tomkins. No performance conditions were attached to this option and it therefore does not comply with Schedule A of the Combined Code. It consists of a non-transferable option to acquire 5,076,142 shares. The exercise price was 197p per share in respect of 2,538,072 shares (A option shares), 276p per share in respect of 1,522,842 shares (B option shares) and 345p per share in respect of 1,015,228 shares (C option shares). The options have all vested and will lapse on 11 February 2012 or earlier in certain circumstances.

Ongoing option
This is an option specifically and solely granted to James Nicol on 11 February 2002 as part of the incentive package to attract him to the Company. It consists of a non-transferable option to acquire 1,522,842 shares at 197p per share, which became exercisable on 18 February 2005 provided the rate of increase of earnings per share over any three-year period was equal to or greater than the rate of increase of the Retail Prices Index plus 9%. This performance condition was met and the option has been exercised in respect of 972,842 shares. The option will lapse on 11 February 2012 or earlier in certain circumstances. If there is a variation in the share capital of the Company, the Remuneration Committee may adjust the number of shares in either the Tomkins Premium Priced Option or the Ongoing Option as it reasonably deems appropriate to take account of the variation.

Movements in Directors' Share Options during the year

The closing mid-market price of a Tomkins share as at 29 December 2007 was 179.75p with a range of closing prices during the year 31 December 2006 to 29 December 2007 of 172.50p to 302.50p.

Options included in the above table at 29 December 2007 relate to the Tomkins Executive Share Option Scheme No. 4 (J Nicol 3,775,486 shares, J Zimmerman 225,000 shares and K Lever 450,000 shares) and, in the case of James Nicol, the Tomkins Savings Related Share Option Scheme No. 2 (8,014 shares), the Premium Price Option (5,076,142 shares) and the Ongoing Option (550,000 shares).

Directors’ interests in Tomkins shares at 29 December 2007
The Directors’ current interests in Tomkins shares are set out in the Principal Risks and Uncertainties section under Financial Review  and, in the case of the Executive Directors, where appropriate these included shares held through their participation in the SMS.

The interests of the Directors in Tomkins ordinary shares held within the SMS that are yet to vest and yet to be included in Directors’ remuneration were as follows:

Directors' interests in Tomkins shares at 29 December 2007

The value of entitlements held under the SMS for current Directors at 29 December 2007 was £nil (2006: £4,000). No shares were awarded to Directors during the year (2006: nil).

During the year, 4,061 shares worth £7,000 vested under the SMS (2006: nil).

As no SMS awards remain outstanding, no current Director was required to retain shares in this respect at 29 December 2007 (2006: 3,618 shares required to be retained by Ken Lever in order to allow the SMS award that vested in 2007 to vest).

5. Performance graph (unaudited information)

The graph below plots Total Shareholder Return on a holding in the Company’s shares for each of the past five years ended 31 December, measured against the performance of the FTSE Industrial Engineering Index.

This index was chosen because its major constituents are, like Tomkins, moderately diversified engineering groups with significant manufacturing operations outside the home UK market.fd

Total shareholder return (%)
January 2003–December 2007

6. Retirement benefits (audited information)

James Nicol and Ken Lever were not entitled to any retirement benefits defined in terms of final or average salary but they received a payment at an annual rate of 37.5% of their basic salary to enable them to make contributions to retirement benefit schemes of their choice on behalf of themselves and their dependants. For the year ended 29 December 2007, this amounted to £330,000 (2006: £318,000) for James Nicol and £119,000 (2006: £153,000) for Ken Lever while he served as an Executive Director of the Company. At the time he joined the Company, Ken Lever was given the option to elect at any time to become a member of the Tomkins Retirement Benefits Plan or any other replacement pension scheme nominated by the Company, but did not do so during the period to 31 October 2007 when his employment ceased with the Company.

Payments totalling £21,000 were made to defined contribution pension plans on behalf of John Zimmerman from 1 October 2007 to the end of December 2007. In 2008, both James Nicol and John Zimmerman will receive a payment equal to 37.5% of their basic salary.

A summary of the service contract or letter of appointment of each of the Directors is as follows:

James Nicol – Chief Executive Officer.
The Company and James Nicol entered into a contract dated 11 February 2002, which set out the terms and conditions under which he joined the Company as Chief Executive Officer on 18 February 2002. The contract remains in force until terminated by either party giving notice of not less than 12 months.

Ken Lever – Finance Director (to 1 October 2007).
On 1 November 1999, Ken Lever and the Company entered into a Memorandum which set out the terms and conditions of employment under which Ken Lever joined the Company as Finance Director on that date. The terms of the Memorandum set a notice period of 51 weeks on termination by either party and remained in force until the cessation of his employment on 31 October 2007.

John Zimmerman – Finance Director (from 1 October 2007).
John Zimmerman’s contract was signed on 18 February 2008 with an effective start date of 1 October 2007. The contract can be terminated by John Zimmerman by giving six months’ notice or by the Company with immediate effect. Termination by the Company would under normal circumstances result in the equivalent of 12 months’ salary and bonus being due to Mr Zimmerman in lieu of a notice period.

Non-Executive Directors
None of the Non-Executive Directors has a service contract with the Company, their terms of engagement being set out in a letter of appointment. Ordinarily, Non-Executive Directors serve for a period of two years but subject to agreement with the Board, a Non-Executive Director can be reappointed for a further term of up to three years. The appointment of Non-Executive Directors may be terminated before the conclusion of their two-year term by, and at the discretion of, either party upon two weeks’ written notice.

In the case of David Newlands, the appointment is for a term of two years and may be terminated at any time by either party giving one month’s written notice. None of the Non-Executive Directors is entitled to compensation for loss of office. The dates from which the respective letters of appointment are effective are as follows: Richard Gillingwater: 20 December 2007; David Newlands: 18 February 2007; John McDonough: 14 June 2007; Leo Quinn: 6 July 2007; Iain Napier: 14 June 2007 (left 13 December 2007); David Richardson: 1 March 2006 and Struan Robertson: 20 December 2007.

8. Payments made to and interests of former Directors (audited information)

Ken Lever stood down from the Board as Finance Director on 1 October 2007, but agreed to remain in the Company’s employment until 31 October 2007 to assist with an orderly transition of responsibilities. Following his resignation from the Board on 1 October 2007, he was paid the sum of £76,000, representing entitlements due in respect of his employment for the month of October 2007, comprising salary, pension contributions, bonus and benefits. The amounts paid to Ken Lever while serving as an Executive Director and in respect of compensation for loss of office are set out in the Remuneration Table above.

No other payments were made to former Directors during the year (2006: £nil).

9. Sums paid to third parties in respect of a Director’s services (audited information)

No amounts are paid to third parties in respect of a Director’s services to the Company or any company within the Group.