Directors’ remuneration report

This report has been prepared by the remuneration committee on behalf of the Board. In writing it, the committee has adopted the governance principles relating to directors’ remuneration as set out in the Combined Code. This report complies with the Companies Act 1985, as amended by the Directors’ Remuneration Report Regulations 2002 and the Listing Rules of the Financial Services Authority.

Chairman’s statement

I am pleased to present the report on directors’ remuneration. In our first full year as an independent plc, we have considered a wide range of issues to maintain the most appropriate and competitive remuneration arrangements for our executive directors and the members of the Operating Board.

A company’s remuneration should enable it to recruit, retain and motivate its employees. We have therefore identified a number of underlying principles to ensure that our remuneration policy promotes the continued success of Home Retail Group:

• The remuneration strategy should help to support corporate objectives
• Remuneration arrangements should support the alignment of interests of shareholders and employees
• Remuneration packages should be competitive and contain performance-related elements which increase with seniority
• All employees should be encouraged to participate in Home Retail Group as shareholders via our share plans.

During the past year, we have taken the following steps to apply these principles in relation to each of the executive directors and members of the Operating Board:

• Ensured that we have a balance of stretching performance conditions in incentive plans that are appropriate, support corporate objectives and are aligned with shareholder interests
• Agreed the performance conditions which are aligned to our three-year business plan for the co-investment plan that will operate for the first time in respect of bonuses earned in 2007/08
• Reviewed base salaries in the context of our performance, the external market and the general economic environment
• Granted awards under the performance share plan
• Agreed the bonus range for 2008/09
• Commissioned a comprehensive benchmarking review of reward for these roles
• Conducted a review of the remuneration committee’s performance and terms of reference.