Annual report and accounts 2008

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

Bonus share matching

In 2008, shareholders approved the renewal of the annual bonus share matching plan first approved by shareholders in 1998.

Invested and matching shares
The plan permits executive directors and senior executives around the company to invest up to 50% of any after-tax annual bonus in Pearson shares.

If the participant’s invested shares are held, they are matched subject to earnings per share growth over the three-year performance period on a gross basis up to a maximum of one matching share for every one held i.e. the number of matching shares is equal to the number of shares that could have been acquired with the amount of the pre-tax annual bonus taken in invested shares.

One matching share for every two invested shares held i.e. 50% of the maximum matching award, is released if the company’s adjusted earnings per share increase in real terms by 3% per annum compound over the three year performance period. One matching share for every one invested share held i.e. 100% of the maximum matching award, is released if the company’s adjusted earnings per share increase in real terms by 5% per annum compound over the same period.

For real growth in adjusted earnings per share of between 3% and 5% per annum compound, the rate at which the participant’s invested shares is matched is calculated according to a straight-line sliding scale.

Real earnings per share growth per annum	Proportion of maximum matching award released
Less than 3%	0%
3%	50%
Between 3% and 5%	Sliding scale between 50% and 100%
5% or more	100%

Performance condition
Earnings per share growth is calculated using the point-to-point method. This method compares the adjusted earnings per share in the company’s accounts for the financial year ended prior to the grant date with the adjusted earnings per share for the financial year ending three years later and calculates the implicit compound annual growth rate over the period.

Real growth is calculated by reference to the UK Government’s Retail Prices Index (All Items). We choose to test our earnings per share growth against UK inflation over three years to measure the company’s financial progress over the period to which the entitlement to matching shares relates.

Dividend shares
Where matching shares vest in accordance with the plan, a participant also receives ‘dividend’ shares representing the gross value of dividends that would have been paid on the matching shares during the holding period and reinvested.

Outstanding awards
Details of awards made, outstanding, held or released under the annual bonus share matching plan are as follows (subject to audit):

Date of award	Share price on date of award	Vesting	Status of award
4 June 2008	670.7p	4 June 2011	Outstanding subject to 2007 to 2010 performance
22 May 2007	899.9p	50% on 22 May 2010	Outstanding subject to 2006 to 2009 performance
		100% on 22 May 2012	Outstanding subject to 2006 to 2011 performance
12 April 2006	776.2p	50% on 12 April 2009	Performance condition met. Real compound annual growth in earnings per share for 2005 to 2008 of 15.5% against target of 3.0%
		100% on 12 April 2011	Outstanding subject to participants not electing to call for 50% of shares that vest on 12 April 2009 and subject to 2005 to 2010 performance
15 April 2005	631.0p	50% on 15 April 2008	Target met as reported in report on directors’ remuneration for 2007. Shares held pending release on 15 April 2010
		100% on 15 April 2010	Outstanding subject to 2004 to 2009 performance
16 April 2004	652.0p	100% on 16 April 2009	Performance condition met. Increase in adjusted earnings per share for 2003 to 2008 of 109.1% against target of 31.0%. Shares held pending release on 16 April 2009
17 April 2003	541.0p	100% on 17 April 2008	Target met as reported in report on directors’ remuneration for 2007. Shares released on 17 April 2008

All of the executive directors hold or held awards under this plan in 2008. Details are set out in table 4 and itemised as a or a*.