1. EXECUTIVE REMUNERATION POLICY
The objective of the Development Securities’ remuneration policy is to ensure that Executive Directors and senior managers are rewarded in a way that attracts, retains, motivates and rewards management of the highest quality. The Development Securities PLC Performance Share Plan 2006, together with the various option schemes are designed to encourage Executive Directors and senior managers to align their long-term career aspirations with the long-term interests of the Group, promoting the attainment of both individual and corporate achievements measured against specific performance criteria. They are also designed to ensure a significant proportion of the total remuneration package for those individuals is performance related, thereby correlating with the interests of shareholders through either the attainment of growth in net asset value per share or total shareholder return.

a) Salary
The salaries of the Executive Directors are reviewed each year and are determined by reference to individual performance and in relation to comparable companies of similar size in the same business sector.

b) Annual bonus
The non-pensionable annual bonus is based on the performance of the Company during the year, team achievements and the specific contribution of the individuals concerned.

With the exception of M H Marx, Executive Directors are set a target bonus of 37.5 per cent of salary and an above target maximum of 75 per cent. As M H Marx does not normally qualify for awards under the Development Profit Plan below, his target bonus is 75 per cent of salary, with a maximum of 150 per cent. The annual bonus in respect of the Executive Directors is determined principally by the three main drivers for the creation of shareholder value in our business; namely, accurate reading of the economic and market cycles in which we operate, the pipeline of future development projects and the maintenance of the standards of excellence that are embedded within the Company’s corporate culture. In addition, the Remuneration Committee measures the Company’s relative performance against its peer group companies during the year.

c) Development Profit Plan
The Remuneration Committee reserves the right to make awards under the Development Profit Plan to Executive Directors and other senior managers who have been instrumental in securing development opportunities for the Company.

Awards are eligible on projects where the first phase is likely to produce profits in excess of £2.0 million. No more than 10 per cent of the profits of the development project is awarded in total. When any particular development project becomes unconditional, the Remuneration Committee determines which individuals should receive awards under the Plan and the amount of the award. The bonus is dependent principally upon the amount of profit actually realised upon completion. 20 per cent of the award will be retained until such time as the profit is actually realised whereupon it will be re-evaluated to determine if any additional Executive Directors or senior managers have been instrumental in making a significant and material contribution in progressing the scheme through to completion and if not, this retention would revert back to the original participants.

In awarding annual bonuses and awards under the Development Profit Plan there is no ‘double-counting’. The contribution of any team and individual performance, which leads to awards under the Development Profit Plan are disregarded in assessing the annual bonus.

During the year, the following awards were made to the Executive Directors under the Development Profit Plan:

 
Project C J Barwick
% award		 M S Weiner
% award
PaddingtonCentral Phase II 7 –
CityPark, Manchester 4 4
Colindale, London NW 4 4
Cavendish Walk Shopping Centre, Huyton – 9
Luneside, Lancaster – 10
Hartfield Road, Wimbledon 4 4

Subsequent to the year-end, the only award in respect of Frimley, Surrey and Globeside Business Park, Marlow was three per cent awarded to M S Weiner, both projects having come to a successful conclusion during 2006. A bonus of £87,096 under the Development Profit Plan has consequently been made.

Cavendish Walk Shopping Centre, Huyton achieved practical completion in December 2006 and was subsequently disposed of, realising £24.0 million of proceeds. Accordingly, M S Weiner has received a Development Profit Plan payment of £631,775.

In addition to making awards under the Development Profit Plan in securing development opportunities, the Remuneration Committee retains the discretion to award bonuses to Executive Directors and other executives at any time for making an exceptional contribution towards the Company. Such awards will not be applied in securing any corporate acquisitions. No such awards were made during the year.

d) Investment Growth Plan
The Remuneration Committee reserves the right to award bonuses under the Investment Growth Plan. The performance condition of the award is that the total investment portfolio return must exceed 120 per cent of the All-Fund Universe Index as published by Investment Property Databank if the index is greater than zero, or at least 0.1 per cent if the index is less than or equal to zero and, in addition, represents at least one percentage point above the total return under the index. The total investment portfolio return represents the sum of income return, net of irrecoverable property expenses, together with capital growth.

The Initial Bonus represents a bonus pool of five per cent of the value determined by the excess of the total investment portfolio return over the benchmark index up to a cap of £1 million unless otherwise determined. The award is remitted following the end of the financial year when the award is then determined, with an equivalent amount representing a Deferred Bonus assessed two years thereafter, provided that during the intervening period the total investment portfolio return exceeds a specified proportion of the index.

The performance condition for the 2006 financial year was not satisfied, giving rise to a nil bonus pool. The Deferred Bonus from 2004 has satisfied the additional condition, giving rise to a remittance of £160,622. The amount deferred from 2005 of £211,260 will be retested next year.

e) Long-Term Incentive Plan and Performance Share Plan
The Long-Term Incentive Plan was approved by shareholders at an Extraordinary General Meeting of the Company on 15th December 1999. The Plan, which first became operative in respect of the financial year ended 31st December 2000, permits the Remuneration Committee to award performance-related deferred bonuses. The deferred bonuses vest over a three-year period. The award will be paid in cash, all of which will be used to buy shares in the Company, except where participants are subject to tax and social security in respect of the award, they will, to that extent receive cash only. At the end of each year, the Group’s net asset value per share will be calculated. If the increase in the Group’s net asset value per share is at least equal to that of the median of a group of 17 listed property companies, then the deferred bonus will vest as to one-sixth of the maximum amount which can be awarded. If growth reaches the upper quartile level, the deferred bonus will vest as to one-third of the maximum amount which can be awarded. Between these criteria, the deferred bonus will vest pro rata. If the Group’s net asset value per Ordinary share is below the median for any year, the deferred bonus will not vest at all in respect of that year. The 17 listed property companies comprise: The British Land Company PLC, Brixton PLC, CLS Holdings PLC, Capital & Regional PLC, Daejan Holdings PLC, Derwent Valley Holdings PLC, Great Portland Estates PLC, Hammerson PLC, Helical Bar PLC, Land Securities Group PLC, Liberty International PLC, London Merchant Securities PLC, McKay Securities PLC, Quintain Estates and Development PLC, Rugby Estates PLC, Slough Estates PLC and Warner Estate Holdings PLC. Furthermore, there is an underpin that the increase in the Group’s net asset value per share must also have at least equalled the increase in the retail price index plus 2 per cent for the first performance year, 4 per cent over the first two years for the second year and 6 per cent over all three years for the third year. The primary performance condition is considered appropriate as it measures the Company’s added value against a representative peer group of companies. Normally, once the three years of vestings have been determined by the Remuneration Committee, the deferred bonus is capable of exercise during the period of 42 days from the announcement of the Company’s results.

Development Securities PLC ranked seventeenth against the comparator group of companies in respect of the third year of vesting for the deferred bonus granted under the long-term incentive plan on 7th May 2003, the second vesting of the deferred bonus granted on 30th April 2004 and the first vesting of the deferred bonus granted on 29th April 2005. The value of each of these vestings was £nil.

The deferred bonus award granted on 7th May 2003 matured during the year and had a total vesting to date of £nil.

The Remuneration Committee considered the Long-Term Incentive Plan to be complicated and unmotivational. Accordingly shareholder approval was obtained at the Annual General Meeting held on 11th May 2006 for its replacement by the Development Securities PLC Performance Share Plan 2006.

Awards under the Performance Share Plan will be made on the basis that shares will be acquired subject to the satisfaction of performance conditions over a three-year performance period, with no retesting. The performance is measured by comparing the total shareholder return (‘TSR’) achieved by the Company with the individual constituent members of the FTSE Real Estate Index. There is a sliding scale of vesting as follows:

i) 25 per cent of the award will vest if the Company’s TSR equals the median TSR of the comparator group;
ii) 100 per cent of the award will vest if the Company’s TSR equals or exceeds the 85th percentile TSR of the comparator group;
iii) pro rata vesting will apply in between the above points.

In addition, the Remuneration Committee must be satisfied that there has been a sustained improvement in the Company’s underlying financial performance over the performance period.

On 20th June 2006, awards were made under the Performance Share Plan to M H Marx of 83,293 shares representing 150 per cent of salary, and to C J Barwick of 49,784 shares, P J Willis of 49,784 shares and M S Weiner 44,040 shares each representing 100 per cent of salary. In total, 329,807 shares were, at the discretion of the Remuneration Committee, awarded to 28 employees and four Executive Directors.

The graph below demonstrates Development Securities PLC's total shareholder return as represented by share price growth plus reinvested dividends, against the FTSE Real Estate Index also measured by total shareholder return over the past five financial years. The FTSE Real Estate Index is considered the most appropriate index for comparison of the Company’s business performance against that of its competitors.

f) Option scheme 1993
The option scheme 1993 is a share-based bonus scheme approved by shareholders in that year. It allows individuals to benefit from movements in the price of the Company’s shares over the period between the third and tenth year following grant. The Directors may at the date of grant limit the aggregate notional bonus which may become payable.
No new grants have been made during the year and none are currently outstanding.

g) Share option schemes
The Executive Share Option Scheme 1995 was approved by shareholders in that year. This was replaced by the Executive Share Option Plan 2005 which was approved by the shareholders at the 2005 Annual General Meeting on 12th May 2005. The options under both schemes were granted on the basis that they may only be exercised if a performance condition is satisfied.

Options over 40,000 shares were granted on 28th April 2006 to M S Weiner at 580 pence per share under the Executive Share Option Plan 2005. The performance condition is to measure the average net asset growth of the Company over three consecutive financial years against the growth in the Investment Property Databank Index (All Property). The options will vest on a sliding scale with 50 per cent if average net asset growth is at least equal to that of the Index, 100 per cent if in excess of the Index by 4 per cent per annum and pro rata vesting in-between. The performance condition will not be retested after the end of the performance period. The performance condition is considered appropriate as the Index measures against the Company’s added value.

It is the intention of the Remuneration Committee that no further grants be made to Executive Directors except under exceptional circumstances, for example a new appointment or an acute retention requirement. Grants to senior managers may continue in the future as appropriate.

Following the declaration of a 28.5 pence special dividend on 19th February 2003, the Remuneration Committee have resolved that option holders may receive a cash bonus upon exercise of those options then outstanding, equivalent to the special dividend as equitable compensation.

h) Savings related option scheme
The Savings Related Option Plan 1995 was replaced by the Save As You Earn Option Plan 2005 at the 2005 Annual General Meeting held on 12th May 2005, following the expiry of the earlier scheme’s 10-year life. The first grant under the Save As You Earn Option Plan 2005 was made on 22nd May 2006 for a total of 25,368 options over shares at 464 pence per share to 23 members of staff, including C J Barwick for 2,015 and M S Weiner for 1,410 options over shares. The Option Plan was open to all employees who had been employed by the Group in excess of three months. The options may be exercised after three years at a price not less than 80 per cent of the market value of the shares at the time of invitation. The options granted on 20th May 2004 at 289 pence per share may also be exercised after three years.

i) Directors’ contracts
The contracts of employment in relation to M H Marx dated 24th June 1994, of C J Barwick dated 12th May 1998, and M S Weiner dated 17th March 2004 may all be terminated upon 12 months’ notice by either party. The contracts do not specify an expiry date. Severance payments are based upon the service contract terms, whilst bearing in mind a duty to mitigate, where appropriate. In the event of early termination, the contractual entitlement includes salary, pension, benefits in kind and any awards outstanding under the sections described above, subject to the rules of the individual schemes and plans. P V S Manduca, V M Mitchell and M S Soames serve for fixed terms expiring at the date of the Annual General Meetings to be held in 2008, 2009 and 2009 respectively. D S Jenkins will be standing for election at the 2007 Annual General Meeting and if elected will then stand for re-election at the Annual General Meeting to be held in 2010. D S Jenkins’ letter of appointment may be terminated with 12 months’ notice by either party and those for P V S Manduca, V M Mitchell and M S Soames may be terminated with six months’ notice by either party. R M Dantzic will be standing down at the 2007 Annual General Meeting which coincides with the end of his fixed term.

Following the departure of M R Landau as an Executive Director of the Company as at 31st December 2002, a consultancy service agreement was executed with Executive Services Overseas Inc for the provision by M R Landau, of services on a non-exclusive basis. This includes in broad terms the payment by the Company of 10 per cent of the development profits on completed projects, with a deduction of £675,000 from any profit entitlement in respect of future development at Broughton Park, near Chester. The agreement has been extended for a further period to 31st December 2007.

The fees of the Non-executive Directors are determined by the Board within the aggregate limit set by the Articles of Association. No Director participates in any discussion about their own particular remuneration. The fees of the Non-executive Directors were reviewed with effect from 1st July 2006 based on advice received from Towers Perrin. The basic fee of a Non-executive Director was increased from £25,000 to £30,000 per annum, with £7,500 per annum for chairmanship of the Audit and Remuneration Committees and £2,500 per annum for membership of those two Committees and with £2,500 per annum awarded to the Senior Independent Director.

The fees of the Chairman were reviewed at the same date by the Remuneration Committee, being increased from £50,000 to £60,000 per annum. The Chairman’s fees had previously been reviewed in 1999.

Executive Directors may accept appointment to an external Non-executive Directorship to gain experience, provided this does not create any conflict of interest and for which they may retain any attributable fees. The only Executive Directors to have received any external Non-executive Directorship fees during the year were M H Marx, who received £9,200 from FIBI Bank (UK) PLC and £15,000 from Nationwide Accident Repair Services PLC and C J Barwick, who received £45,000 from London & Continental Railways Limited.

j) Retirement benefits
Qualifying members of staff are invited to join the Development Securities PLC retirement benefits scheme, which is a contracted-in money purchase scheme, including appropriate life assurance. Since the Company’s policy is to render pension payments on a defined contribution basis, this avoids the uncertainty of pension liabilities to the Company, which would be the case had a defined benefit scheme been adopted. M H Marx has a separate personal pension arrangement, whilst C J Barwick and M S Weiner are members of the Company scheme. Funded unapproved retirement benefits schemes (FURBS) have been established for both M H Marx and C J Barwick. The maximum contributions by the Company towards the approved Company scheme, or personal pension arrangements, together with the FURBS, may not exceed a total of 17.5 per cent of salary.

k) Executive Directors’ shareholding requirement
During 2003, it was determined that Executive Directors should align themselves with shareholders’ interests, with any new Executive Director obliged to establish a beneficial shareholding to the value of one-half of their basic salary within two years of appointment, rising to an amount equivalent to basic salary after four years. M H Marx and C J Barwick, the two Executive Directors then in position at the time of resolution, were required to secure and maintain a beneficial shareholding to an amount equivalent to basic salary by 1st April 2006. Both Directors have met this objective. The Remuneration Committee retains the discretion to reduce this requirement in the event of corporate or personal constraints.