Report on directors’ remunerationSub‐section report on directors’ remuneration

The personnel committee

David Arculus chaired the personnel committee during 2008; the other members were Terry Burns, Ken Hydon and Glen Moreno. David Arculus, Terry Burns and Ken Hydon are independent non-executive directors. Glen Moreno, chairman of the board, is a member of the committee as permitted under the Combined Code.

Marjorie Scardino, chief executive, David Bell, director for people, Robert Head, compensation and benefits director, and Stephen Jones, deputy company secretary, provided material assistance to the committee during the year. They attended meetings of the committee, although no director was involved in any decisions relating to his or her own remuneration.

To ensure that it receives independent advice, the committee has appointed Towers Perrin to supply survey data and to advise on market trends, long-term incentives and other general remuneration matters. Towers Perrin also advised the company on health and welfare benefits in the US and provided consulting advice directly to certain Pearson operating companies.

The Committee’s principal duty is to determine and regularly review, having regard to the Combined Code and on the advice of the chief executive, the remuneration policy and the remuneration and benefits packages of the executive directors, the chief executives of the principal operating companies and other members of the Pearson Management Committee who report directly to the chief executive. This includes base salary, annual and long-term incentive entitlements and awards, and pension arrangements.

The committee’s terms of reference are available on the company’s website.

The committee met four times during 2008. The matters discussed and actions taken were as follows:

25 and 29 February 2008

Reviewed and approved 2007 annual incentive plan payouts

Reviewed and approved 2005 long-term incentive plan payouts

Approved vesting of 2003 and 2005 annual bonus share matching awards

Reviewed and approved proposals for the renewal of the annual bonus share matching plan and operation of plan for 2008

Reviewed and approved increases in executive base salaries for 2008

Reviewed and approved 2008 Pearson and operating company annual incentive plan targets

Reviewed and approved 2008 individual annual incentive opportunities for Pearson Management Committee

Reviewed and approved 2008 long-term incentive awards and associated performance conditions for Pearson Management Committee

Reviewed strategy on 2008 long-term incentive awards for executives and managers

Reviewed and approved 2007 report on directors’ remuneration

Noted company’s use of equity for employee share plans

24 July 2008

Approved 2008 long-term incentive awards for executives and managers

Reviewed policy on executive employment agreements

Reviewed committee’s charter and terms of reference

10 December 2008

Considered Towers Perrin’s report on remuneration for Pearson Management Committee for 2009

Reviewed base salaries for the executive directors and other members of the Pearson Management Committee and decided there would be no increases for 2009

Considered approach to 2009 annual and long-term incentives

Summary of policy changes in 2008

The following changes to remuneration policy took effect during 2008:

Element of remuneration Change in 2008
Annual incentive Individual annual incentive opportunities expressed as absolute cash amounts rather than percentages of salary for all executive directors other than the chief executive
Bonus share matching Shareholders approved renewal of plan with three-year performance period and vesting of matching award on sliding scale based on real growth in earnings per share
Employment agreements Confirmed policy of 12 months’ notice from the company, or pay in lieu, on termination of employment without cause