• Board of Directors and Company Secretary
• Summary Directors’ Report
• Summary Corporate Governance Report
• Summary Directors' Remuneration Report
• Remuneration Committee
• Remuneration Policy
• Directors’ Emoluments
• Directors’ Interests
• Auditors’ Statement

REMUNERATION POLICY

Remuneration of Non Executive Directors

The fees of the Non Executive Directors are set by the Board as a whole following an annual review. The review takes account of fees paid for similar positions in the market, the time commitment required from the Director (estimated to be 100 days per year for the Chairman and 20 days per year for the other Non Executive Directors) and any additional responsibilities undertaken, such as acting as Chairman to one of the Board committees or Senior Independent Director. Non Executive Directors are not eligible to receive pension entitlements or bonuses and may not participate in share option schemes. For 2006 the basic fee for acting as a Non Executive Director was £40,000 a year. An additional fee of £5,000 was paid for chairing one of the Board Committees. An extra fee of £5,000 is paid to the Senior Independent Director. The Chairman, David Ross, has elected to take all of his fees as National Express Group shares.

Remuneration Policy for Executive Directors

Remuneration policy is based on the following broad principles set by the Committee:

• to provide a competitive remuneration package to attract and retain quality individuals;
• to align remuneration to drive the overall objectives of the business;
• to align the interests of management with the interests of shareholders; and
• to provide the foundation for overall reward and remuneration beyond the specific roles governed by the Remuneration Committee.

In implementing its policy, the Committee gives full consideration to the principles set out in the Combined Code on Corporate Governance with regard to Directors’ remuneration.

Remuneration policy is reviewed on an ongoing basis against the Committee’s broad principles and in light of emerging best practice in corporate governance. During the year consideration was given to a new performance appraisal system. As a result of the review a new appraisal system was introduced for the Executive Directors. This has also been cascaded down to senior management throughout the Group.

Fixed versus variable remuneration A substantial proportion of the Executive Directors’ pay is performance related. The table opposite shows the balance between fixed and performance related pay at target and maximum performance levels. Maximum performance assumes achievement of maximum bonus and full vesting of shares under the LTIP.

Summary of the Components of the Executive Directors’ Remuneration

(i) Basic salary

The salary of individual Executive Directors is reviewed at 1 January each year. Account is taken of the performance of the individual concerned, together with any change in responsibilities that may have occurred and the rates for similar roles in a comparator group of companies. The comparator group for the 2006 financial year was made up of two groups of companies. These were a group of transport sector companies with a median market capitalisation of £1,280m and a group of companies from the FTSE Mid 250 drawn from all sectors with a median market capitalisation of £1,389m which reflects that of National Express following its merger with Alsa. For 2007 the comparator groups will be based on similar groups of transport/leisure and general sector companies drawn from the FTSE 250.

(ii) Performance-related bonus

The maximum potential bonus payable to Executive Directors was 100% of salary for 2006. 70% of the bonus payable was based on financial targets and 30% based on non-financial targets. The non-financial targets encompass customer, operational excellence and people objectives. No bonus is payable unless the Group’s normalised profit budget is achieved. Normalised profit is profit before tax, goodwill impairment, intangible amortisation and exceptional items. Directors receive 50% of that part of the bonus referable to financial targets upon achieving budget and 100% of that part upon achieving a stretch target, which for 2006, was 107% of budget. The stretch financial targets for 2006 have been met in full. The balance of the 2006 bonus payable to individual Directors was, therefore, dependent on individual performance against the Director’s personal objectives. For 2007 bonus payments will be based on a similar structure.

(iii) Pensions

Under the terms of their service agreements, Executive Directors are entitled to become members of one of the Group pension schemes or, if preferred, to receive payment of a fixed percentage of salary.

Adam Walker is a member of the National Express Group Staff Pension Plan (the Plan) which is an HM Revenue & Customs (HMRC) approved defined benefit scheme. The benefits from this Plan are subject to HMRC limits. Spouses’ pensions are provided in accordance with the terms of the Plan. Ray O’Toole was a member of this Plan until 7 April 2006 and he now receives a salary supplement of 44% in lieu of pension contributions. Richard Bowker is not a member of a company pension scheme and receives a 25% salary supplement in lieu of pension contributions.

(iv) Incentive scheme

Long term incentive arrangements

The National Express Group Long Term Incentive Plan (LTIP) was approved by shareholders at the 2005 Annual General Meeting and operates as the Company’s sole type of executive long term incentive arrangement. The LTIP consists of annual awards of performance and matching shares. Details of the plan are provided below.

Performance Shares

Executive Directors are eligible to receive a conditional award of shares up to an equivalent of 1 x their annual basic salary. The vesting of the award is conditional on meeting the performance conditions set out below.

Matching shares

Executive Directors are also eligible to receive awards of matching shares that are based on a personal investment in National Express Group shares funded either through a personal investment (for example using an annual bonus award) or through pledging of shares already held but not already allocated to the LTIP. The maximum ‘investment/pledge’ is 30% of gross salary per annum. Matching awards are based on the ratio of 100 shares for every 30 shares purchased. This is a two for one ratio on a grossed up for income tax basis. Matching share awards are also conditional on the performance conditions set out below.

Performance conditions

There are two distinct performance conditions applying to awards made. First, the performance condition attached to one-half of an award (Part “A”) is based on the Company’s normalised diluted earnings per share (“EPS”) growth performance in excess of inflation over a fixed three year period (three financial years commencing with the financial year in which the award is made). The performance condition attached to the other half of an award (Part “B”) is based on the Company’s TSR performance over the same fixed three year period relative to the TSR of a comparator group of over 20 transport companies taken predominantly from the FTSE Industrial Transportation and FTSE Travel & Leisure sectors. The companies comprising the comparator group have been chosen on the basis of their comparability to National Express Group (based on their size and scope of business operations). There is no ability to retest either performance condition.

For awards made in 2005 and 2006 Parts A and B will vest in accordance with the tables below:

*Normalised diluted earnings per share are before tax, goodwill impairment, intangible amortisation and exceptional items.
**CPI is a weighted measure of inflation calculated to reflect the scope of the Group’s international operations and is currently based two-thirds on UK CPI and one-third on US CPI.

EPS and TSR were chosen for the LTIP as the most appropriate measures of National Express’s long term performance since EPS remains an important growth measure and driver and TSR improves shareholder alignment and is consistent with Company objectives of providing long term returns to shareholders.

Performance Graphs

The following graphs show a comparison of National Express Group PLC total cumulative shareholder return against that achieved by the FTSE All-Share Travel & Leisure Index and the FTSE 250 Index. These graphs have been selected because the Company is a constituent of each index and the Committee, therefore, feels that these are the most appropriate indices to represent the Company’s relative performance.

Graph 1 looks at the value, by the end of 2006, of £100 invested in National Express Group on 31 December 2001 compared with £100 invested in the FTSE All-Share Travel & Leisure Index. The other points plotted are the values at intervening financial year-ends.		Graph 2 looks at the value, by the end of 2006, of £100 invested in National Express Group on 31 December 2001 compared with the value of £100 invested in the FTSE 250 Index. The other points plotted are the values at intervening financial year-ends.

Directors’ Service Contracts, Notice Periods and Termination Payments

Executive Directors

The contract dates and notice periods for the Executive Directors are as follows:

It is the Committee’s general policy for the notice periods of Executive Directors to be no longer than 12 months. However, the Committee approved a notice period of 24 months for Ray O’Toole on the appointment of a new Chief Executive to try to ensure continuity of management during this time of change. The notice period reduces on a daily basis between 1 September 2006 and 31 August 2007 such that on 1 September 2007 the notice period will be 12 months.

The service contracts of Richard Bowker and Adam Walker contain a provision, exercisable at the option of the Company, to pay an amount on early termination of employment equal to one year’s salary. In the case of Ray O’Toole the early termination payment will fall from two years as at 1 September 2006 to one year’s salary by 1 September 2007. The Company will use the payment in lieu of notice provisions when the speed, certainty and protection of restrictive covenants afforded by such clauses are thought to be in the best interests of the Company and the circumstances surrounding the departure of the relevant Director justify their use. The service contracts of Ray O’Toole and Adam Walker have a further provision that, where the Company initiates a termination, other than for cause, within six months of a change of control taking place the Company will exercise its option to make a payment in lieu of notice of an amount equal to the salary and benefits that the Director would have received during the notice period. In any event the Committee’s policy is that payments to Directors on termination should reflect the circumstances that prevail at the time, also taking account of the Director’s duty to mitigate if appropriate.

Non Executive Directors

The Non Executive Directors do not have service contracts with the Company but are appointed for fixed three-year terms. All Directors are required to stand at least once every three years for reappointment by shareholders.