Directors' Remuneration Report

The Remuneration Committee

During the year under review the Remuneration Committee was chaired by Louise Botting, a non-executive director. The committee members during the year were Sir Peter Middleton, Gerry Acher, Julie Baddeley, Michael Clark, Adam Crozier and James Hussey, who are all non-executive directors. The Chief Executive is invited to attend Remuneration Committee meetings to share her views in determining the remuneration for other executive directors of the Company. Neither the Chief Executive nor the Chairman attends any meetings of the committee at which their remuneration is discussed. Further details of the Remuneration Committee are set out in the Report on Corporate Governance

This report contains both audited and non-audited information. As required under sections 421 and 497 of the Companies Act 2006 PricewaterhouseCoopers LLP has audited the following elements of the report:

short-term employee benefits including basic salaries and fees, cash bonuses and non-monetary benefits which are included in the table of directors’ remuneration and its footnotes;
the awards accrued but not paid during 2009/2010 under the Long-Term Incentive Plan; and
the disclosure of directors’ defined contribution pension costs.

Executive remuneration policy

This report sets out the Group’s policy on directors’ remuneration that applies to executive directors for 2010 and, so far as practicable, for subsequent years.

The Group’s executive remuneration policy is designed to attract, retain and motivate key senior executives with the relevant skills to achieve the Group’s business objectives and to align their interests with those of shareholders by recognising and rewarding good performance.

The remuneration package for executive directors incorporates a competitive basic salary, an annual bonus, pension and other benefits. During the year under review the Group put in place a Long-Term Incentive Plan (‘LTIP’) for certain senior staff, including the executive directors. The purpose of the LTIP is to ensure the long-term health of the lottery by rewarding key staff for company performance and ensuring staff retention.

In addition, a Transformation Bonus scheme for key executives has been in operation for an interim period to reward key executives for delivering the ambitious reduction in long-term operating costs set out in our bid for the third Licence. During the year, the Company has successfully achieved this reduction in its cost base – thereby ensuring additional returns to Good Causes.

All bonus schemes and the LTIP are financed by the shareholders and paid out of profits.

In determining the appropriate levels of remuneration for executive directors, the committee takes independent advice from its formally appointed advisors, Watson Wyatt LLP. The use of external consultants and the choice of consultant is a matter reserved for the committee. Mercer Limited provided pension administration and Watson Wyatt LLP and Towers Perrin provided other group-wide remuneration advice to Camelot throughout the financial year.

The shareholders determine the remuneration for the independent non-executive directors, and these are then ratified by the Board. The Chairman of the Remuneration Committee and the Chairman of the Board maintain regular contact as necessary with the shareholders on remuneration matters.

Shareholder-nominated directors do not receive any remuneration from Camelot in respect of qualifying services to the Company.

Policy on external appointments

The Company recognises the benefits to the individual and to the Group of involvement by executive directors of the Company as non-executive directors of other companies and charitable and trade associations. The Board is always consulted over such appointments.

In the year under review Dianne Thompson CBE, Chief Executive, served as a non-executive director of Domino’s Pizza UK & IRL plc and received a fee of £36,500 (2009: £36,000). Dianne is also non-executive Chairman of RadioCentre, for which she receives a fee of £30,000 per annum (2009: £30,000). She is a director of London First and a trustee of the Born Free Foundation for which she receives no remuneration.

Directors' Service Contracts

All executive directors are employed on service contracts with notice periods of 12 months. The contracts contain provisions on confidentiality, non-solicitation and non-competition. These provisions state that if a director leaves he or she will not, normally for a period of one year, be engaged in any competitive activity.

Any executive director whose employment is terminated by the Company, unless dismissed for gross misconduct or serious breach of their contractual terms, will receive payment of 12 months’ base salary, a pro-rated bonus payment and, in addition, certain benefits will be paid for a maximum period of six months. The director may also be entitled to a payment under the Long-Term Incentive Plan (LTIP) scheme.

The details of the service contracts of those who served as directors during the year are:

Member	Initial appointment date	Re-appointment/ Service Agreement¹ date	Unexpired term (as at 31 March 2010)	Notice
Chairman
Sir Peter Middleton	23 September 2004	23 September 2010	1 year 6 months	Reasonable notice

Executive directors
Dianne Thompson	3 February 1997	1 April 2005	N/A	1 year
Nigel Railton	1 January 2006	1 October 2007	N/A	1 year
Martin Pugh	1 October 2007	1 October 2007	N/A	1 year

Independent non-executive directors
Gerry Acher	11 September 2002	1 September 2008	1 year 5 months	Reasonable notice
Louise Botting²	1 March 1999	See note 2 below	See note 2 below	Reasonable notice
Tim Robinson	15 February 2006	15 February 2009	1 year 10 months	Reasonable notice
Julie Baddeley	1 October 2008	1 October 2008	1 year 6 months	Reasonable notice
1 Service Agreements are revised periodically to ensure terms and conditions are in accordance with legislation and best practice. 2 Louise Botting is no longer considered to be an independent non-executive director under the Combined Code as she has served on the Board for more than three terms. Her contract has been extended until completion of the share sale.

Currently there is no policy in respect of notice periods and termination payments for the independent non-executive directors who are engaged under contracts of service.

Directors' emoluments

The table below details directors’ emoluments, excluding amounts qualified for under the Long-Term Incentive Plan which amounts are shown in the table under Long Term Incentive Plans.

Members	Salary/Fees£'000	Benefits Buyout¹ £'000	Pension Supp. £'000	Bonuses² £'000	Benefits in kind £'000	2010 Total £'000	2009 Total £'000	2010 Pension Cont.³ £'000	2010 Grand Total⁴ £'000	2009 Grand Total⁴ £'000

Chairman
Sir Peter Middleton	245	-	-	-	-	245	259	-	245	259

Executive directors
D Thompson	551	1	193	606	17	1,368	1,069	-	1,368	1,069
N Railton	306	8	44	306	15	679	566	40	719	606
M Pugh	292	5	-	292	14	603	435	80	683	511

Non-executive directors
G Acher	80	-	-	-	-	80	98	-	80	98
L Botting	56	-	-	-	-	56	76	-	56	74
T Robinson	51	-	-	-	-	51	70	-	51	70
J Baddeley	50	-	-	-	-	50	25	-	50	25
Total	1,631	14	237	1,204	46	3,132	2,596	120	3,252	2,712
1 Benefit buyouts include amounts paid to compensate the executive directors for changes to their benefits arrangements. Changes were made to the benefits arrangements as a part of the Company’s reduction to its long-term operating costs for the third Licence. All staff received compensation payouts due to changes in their benefits arrangements. 2 Bonuses comprise annual bonuses and the Transformation Bonus. Annual bonuses are payable in relation to performance during the year and Transformation Bonuses are payable for delivering the ambitious reduction in long-term operating costs for the third Licence. The bonuses, included above, were earned and paid during the year. 3 Contributions to money purchase schemes. 4 Grand total including Company contributions to money purchase schemes. The 2009 amounts include pension contributions of £40k for N Railton and £76k for M Pugh.

Shareholder-nominated directors do not receive any remuneration from Camelot in respect of qualifying services to the Company.

The total emoluments of the directors including pension contributions were as follows:

Emolument	2010 £'000	2009 £'000
Executive directors' salaries and benefits	1,566	1,524
Executive directors' performance-related payments¹	1,204	622
Non-executive directors' fees	237	267
Chairman's salary and benefits	245	259
Total	3,252	2,712
1 Including the 2009/10 annual bonus and Transformation Bonus which were earned and paid during the year.

These amounts are consistent with the detailed table above, and exclude amounts qualified for under the LTIP which are shown in the table below.

Directors' remuneration

The emoluments of the executive directors are determined by a Remuneration Committee consisting exclusively of non-executive directors. Non-executive directors (and their alternates) nominated by the shareholder companies do not receive any emoluments from Camelot in respect of their services to Camelot. The emoluments of the other non-executive directors are determined by the shareholders. All emoluments are paid to the directors out of the amount retained by Camelot under the terms of the Section 5 Licence after paying all prizes, duties and contributions to the National and Olympic Lottery Distribution Funds.

Benefits in Kind

Executive directors are entitled to car-related, home office, medical and gym-related benefits, which are included in the amounts disclosed in the table above.

Pension supplements

Nigel Railton’s benefits include a supplement of £43,995, representing the difference between 27.5% of his basic salary pension entitlement and the contributions made by the Company. Martin Pugh utilised his full pension entitlement during the year of 27.5% in employer contributions paid into his money purchase pension scheme. Dianne Thompson did not utilise any of her full pension entitlement during the year, choosing instead to receive a pension supplement of £192,780, amounting to 35% of basic salary which is included in the main table in the Directors’ Emoluments section.

Bonus schemes

The executive directors are eligible for an annual bonus based on the performance of the Group against two key performance criteria: sales and profitability. The purpose of the scheme is to motivate employees to generate higher sales and thus higher returns to the Good Causes, and to ensure the business is run efficiently. Therefore, based upon on-target performance, 60% of the potential bonus is linked to sales, to drive maximum returns for the Good Causes and 40% of the potential bonus is linked to profits to ensure the business is run efficiently. For 2009/10, the annual bonus for achieving all of the targets is 40% of base salary for the Chief Executive and 33% for other executive directors, with a maximum bonus equal to 60% of base salary for the Chief Executive and 50% for other executive directors for achieving maximum sales and profit targets. The 2009/10 annual bonus was paid in March 2010. The 2010/11 annual bonus scheme will reflect the same percentage structure as 2009/10.

A scheme has been established during the year by the shareholders to reward the executive directors for their participation in the share sale process. All amounts payable to the directors will be funded by the selling shareholders and therefore there is no impact on the results of Camelot or to the amounts payable to the Good Causes. The scheme consists of two elements: a bonus paid on completion of the sale process and a discretionary bonus. Both elements are contingent upon the conclusion of the sale process and therefore no amounts have become payable in relation to the year ended 31 March 2010.

Following the end of the 2008/2009 Long-Term Incentive Plan (LTIP) scheme, see Executive Remuneration Policy section, a Transformation Bonus scheme for key executives was introduced to recognise delivery of the ambitious reduction in long-term operating costs for the third Licence. Payments under this scheme were linked to salary, up to a maximum of 50%, and were dependent on certain business and strategic objectives for the Group. These objectives included financial measurements relating to the performance of the Company, the long-term operating cost reductions and Licence compliance. In addition, the scheme’s objectives included non-financial measurements in relation to retailer satisfaction, call centre service standards and IT system performance, as well as the delivery of the operating model needed for the third Licence. The scheme closed in March 2010 and the amounts payable for executive directors have been included in the amounts disclosed in the main table in the Directors' Emoluments section. The amounts were paid on 27 March 2010.

During the year a new LTIP scheme commenced. Further details of the scheme are given below.

Long-Term Incentive Plans

The executive directors, along with certain key members of the senior management team, participate in a Long-Term Incentive Plan (LTIP) which commenced during the year under review – although no payments were made. The purpose of the LTIP is to motivate key executives to deliver the challenging targets for the third Licence and consequently encourage the growth of cumulative returns to the Good Causes – and to ensure staff retention. The principal determinant of the award payment is the total cumulative returns to the Good Causes over the four years of the plan and the Group meeting its Olympic and Paralympic Games funding commitments.

The executive directors earned the following LTIP amounts in the first of four years of the scheme.

Member	Interest in scheme at 1 April 2009 £'000	Amounts earned during 2010 £'000	Amounts paid during 2010¹ £'000	Interest in scheme at 31 March 2010 £'000
Win related
Dianne Thompson	-	234	-	234
Nigel Railton	-	108	-	108
Martin Pugh	-	103	-	103
1 Amounts vest on the payment date. No amounts vested during the year. Vesting is contingent on achievement of targets.

Chairman and highest-paid director

The emoluments of Sir Peter Middleton, the Chairman, comprised his fee of £245,000 (2009: £238,750). The emoluments of the Chief Executive, Dianne Thompson, who was the highest paid director, comprise salary of £550,800 (2009: £540,000), Company pension contributions of £nil (2009: £nil), benefits of £18,050 (2009: £16,322), pension supplement of £192,780 (2009: £189,000) and total bonus amounts of £605,880 (2009: £324,000). Dianne Thompson is eligible to receive cash payments under the LTIP, as detailed above.

Waiver of emoluments

No director waived any emoluments for the year ended 31 March 2010.

Shareholder return

Section 421 of the Companies Act 2006 requires the disclosure of total shareholder return over the last five years, compared to similar groups or indices. Camelot is not a listed or quoted company and its shares are not traded on any financial exchange and accordingly this information is not presented. The directors have no interest in the shares of the Company.

On behalf of the Board

Gill Marcus Company Secretary 25 June 2010

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