Remuneration Report

In 2009, the Remuneration Committee (the Committee) reviewed the remuneration arrangements for Executive Directors. The proposed changes for 2010 are summarised in the letter to shareholders shown on this page.

Letter to shareholders

Introduction to the Report

The Remuneration Committee

Executive Directors’ remuneration policy and framework

The total remuneration package

Non-Executive Directors

Other matters in 2009

Other matters in 2008

Rights Issue adjustments

Under the Rights Issue effective 15 December 2008, for every eight existing Centrica plc shares held on 14 November 2008, shareholders received the right to buy three new Centrica plc shares at 160 pence per share. Existing conditional share awards, including DMSS matching shares and LTIS allocations, were adjusted to reflect the dilutive effect of the Rights Issue and were multiplied by a factor of 1.1233.

The performance conditions under the LTIS, ESOS and the DMSS were also reviewed by the Committee and appropriate adjustments were made to reflect the dilutive effect of the Rights Issue. Previously reported EPS was restated in accordance with IAS 33 and dividends per share for the six months ended 30 June 2008, and the preceding five years, were restated to take account of the bonus element of the Rights Issue. TSR was adjusted by a rate of 0.8902, being the agreed Rights Issue adjustment formula determined by dividing the theoretical ex-rights price (238.36 pence) by the closing share price on the last date the shares traded cum-rights (267.75 pence).

Recruitment to the Board

Mark Hanafin was appointed to the Board on 14 July 2008.

A one-off allocation was made to him under the SLTIS to replace awards from his previous employer, in accordance with the terms of his engagement. The SLTIS rules were based on the existing LTIS rules. An allocation of shares was made to vest in two equal tranches on 28 February 2009 and 2010. The first tranche vested in 2009. In accordance with the rules of the SLTIS, there are no performance conditions attaching to the remaining unvested shares other than continued employment with the Company. In the event of a change of control, the number of shares that vest will not be subject to time-apportionment.

A grant of unapproved options was also made under the SESOS to him in 2008 to replace awards from his previous employer, in accordance with the terms of his engagement. The SESOS rules were based on the existing ESOS rules. However, in accordance with the rules of the SESOS, the grant is not subject to any performance conditions, is exercisable immediately and will remain so until the tenth anniversary of grant.

Statutory disclosures

This Report on remuneration has been approved by the Board of Directors and signed on its behalf by:

Grant Dawson
General Counsel & Company Secretary
25 February 2010