Remuneration Report

Statutory Disclosures

Audit requirements

The Remuneration Report up to this statement has not been audited. From this point until the end of the Report below, the disclosures, with the exception of the TSR graphs, have been audited by the Company's auditors, PricewaterhouseCoopers LLP.

Directors' emoluments

	Date of appointment	Base pay/fees £000	Cash AIS £000 (i)	Cash payments in lieu of pension £000	Benefits and other cash £000 (ii)	Total emoluments 2011 £000 (iii)	Total emoluments 2010 £000 (iii) (iv)
Each Executive Director has deferred up to 50% of their maximum AIS opportunity on a gross basis and invested in to the DMSS. Any balance paid in cash is included above. Benefits and other cash include: benefits and expenses for Chris Weston made in respect of his relocation to Canada; and employee discounts received by Directors during the year, in aggregate not more than £684 for any one individual (2010: £1,100). The following are excluded from the table above: £101,250 was paid directly by the Company in 2011 into a personal pension plan for Sam Laidlaw and is referred to under Pensions and other benefits Pensions; Share options. No Executive Director exercised executive or Sharesave share options during 2011. Phil Bentley exercised executive options during 2010. The theoretical aggregate gain made was £2,692,697. Sam Laidlaw and Phil Bentley exercised Sharesave options during 2010. The theoretical aggregate gains made were £808 and £553 and the price of a Centrica share at the dates of exercise were 281.50 pence and 274.50 pence, respectively. LTIS and Special Long Term Incentive Scheme (SLTIS). The aggregate value of shares vested to Executive Directors under LTIS and SLTIS was £2,284,993 (2010: £2,435,828); and DMSS. The aggregate value of shares vested to Executive Directors under the DMSS was £4,106,911 (2010: £2,852,299). The 2010 total emoluments figure: in respect of each Executive Director, includes the total cash payment made under the AIS, before voluntary deferral in to the DMSS on a net basis; and in respect of Ian Meakins is for the period from 1 October 2010 to 31 December 2010.
Chief Executive
Sam Laidlaw	1 July 2006	950	–	279	63	1,292	2,045
Executive Directors
Phil Bentley	13 September 2000	635	–	–	46	681	1,299
Mark Hanafin	14 July 2008	575	160	230	34	999	1,427
Nick Luff	1 March 2007	610	66	244	20	940	1,433
Chris Weston	1 July 2009	510	125	–	435	1,070	1,380
		3,280	351	753	598	4,982	7,584
Chairman
Sir Roger Carr	1 January 2001	490	–	–	–	490	470
Non-Executive Directors
Dame Helen Alexander	1 January 2003	85	–	–	–	85	79
Margherita Della Valle	1 January 2011	65	–	–	–	65	–
Mary Francis	22 June 2004	105	–	–	–	105	99
Andrew Mackenzie	1 September 2005	65	–	–	–	65	63
Ian Meakins	1 October 2010	65	–	–	–	65	16
Paul Rayner	23 September 2004	88	–	–	–	88	83
		963	–	–	–	963	810
Total emoluments		4,243	351	753	598	5,945	8,394

Annual Incentive Scheme (AIS)

The annual performance metrics in place for 2011 were designed to reward the delivery of our key strategic priorities for that year. Health, Safety & Environment (HS&E) performance was assessed against a corporate responsibility scorecard that includes HS&E performance indicators and incident rates. If overall business performance is not deemed satisfactory, the individual's bonus for the year may be reduced or forfeited, at the discretion of the Committee.

For 2011, the Committee set AIS targets to drive delivery of the annual operating plan. Delivery of the operating plan in each of the major business units and the Group as a whole would have resulted in AIS awards equivalent to half of the maximum opportunity. Achievement substantially in excess of the level required to meet the targets set would have been required to warrant the maximum award level.

Targets were set against a number of key measures including Group and business unit EP, operational metrics, HS&E performance and individual objectives.

The chart below illustrates the extent to which the targets set were achieved and accordingly the aggregate AIS award for each Executive Director.

Deferred and Matching Share Scheme (DMSS)

Compulsory deferral

Part of the bonus earned under the AIS for the previous year is compulsorily deferred in to Centrica shares (deferred shares). During 2011, 40% of AIS earned in respect of 2010 for the Chief Executive and 30% for the other executives was compulsorily deferred, details of which can be found under DMSS for Executive Directors below.

Voluntary deferral

Executives may make an additional voluntary deferral of AIS into Centrica shares (investment shares). The maximum total deferral that may be made, including the compulsory deferral, is 50% of the maximum AIS opportunity which may be earned for a year.

Share matching

Deferred and investment shares that are held for three years will be matched to the extent that a long-term performance condition is met, details of which can be found under the Total remuneration package.

For awards made from 2010, matching shares were structured as nil-cost options for all UK resident participants.

2012 aggregate deferral amounts

Executive Directors participated in the AIS during 2011 and will defer in aggregate as follows in 2012:

Director	Aggregate value of deferrals at award date £000
Sam Laidlaw	848
Phil Bentley	339
Mark Hanafin	431
Nick Luff	458
Chris Weston	383

Structure of deferrals and performance measures

EP is adjusted operating profit (after share of joint venture interest), less a tax charge based on the tax rate relevant to the different business segments and after deduction of a capital charge. The capital charge is calculated as capital employed multiplied by the Group's weighted average cost of capital. Where appropriate, expenditure on assets (and related costs) that are not yet in use (pre-productive capital) is excluded from capital employed.

Directors' interests in shares (number of shares)

The following table and the tables below show the interests of the Directors who held office at the end of the year in the ordinary shares of the Company and, for the Executive Directors, their interests in the Company's share schemes.

	Shareholdings as at 31 December 2011	Shareholdings as at 1 January 2011	DMSS total matching shares as at 31 December 2011	DMSS total matching shares as at 1 January 2011	LTIS total allocations of shares as at 31 December 2011	LTIS total allocations of shares as at 1 January 2011
Executive Directors' shareholdings shown above include those held in the SIP and the deferred and investment shares held in the DMSS. Shareholdings for Chris Weston include 117,256 notional deferred shares under the DMSS which will remain notional until the end of the three-year deferral period due to local Canadian tax laws. Matching shares held in the DMSS and shares held under the LTIS are conditional and the above numbers indicate the maximum potential opportunity. More detail can be found in their respective tables below.
Chief Executive
Sam Laidlaw (i) (ii)	2,249,985	1,859,419	1,770,346	1,707,182	2,032,379	2,129,974
Executive Directors
Phil Bentley (i) (ii)	1,995,871	2,184,946	769,198	588,285	1,361,477	1,408,432
Mark Hanafin (i) (ii)	488,941	319,259	859,269	599,594	1,209,126	1,229,137
Nick Luff (i) (ii)	639,791	624,534	914,752	865,804	1,280,733	1,322,949
Chris Weston (i) (ii)	591,361	552,344	762,580	652,367	1,086,610	1,043,752
Chairman
Sir Roger Carr	58,361	26,441	–	–	–	–
Non-Executive Directors
Dame Helen Alexander	3,465	3,465	–	–	–	–
Margherita Della Valle	5,000	–	–	–	–	–
Mary Francis	3,500	3,500	–	–	–	–
Andrew Mackenzie	28,875	28,875	–	–	–	–
Ian Meakins	5,000	–	–	–	–	–
Paul Rayner	56,875	56,875	–	–	–	–

From 1 January 2011 to 23 February 2012, none of the Directors had any interests in the securities of the Company's subsidiaries or associated undertakings.

Changes since 1 January 2012

During the period from 1 January to 23 February 2012, the only changes to the Directors' interests in shares were in respect of shares acquired through the SIP: 125 shares in respect of Sam Laidlaw, 126 shares in respect of Mark Hanafin, Nick Luff and Chris Weston and 127 shares in respect of Phil Bentley.

DMSS for Executive Directors

DMSS allocations (number of shares)

	Deferred and investment shares held as at 1 January 2011 (i) (ii)	Deferred and investment shares acquired during the year	Deferred shares released and investment shares transferred during the year	Deferred and investment shares held as at 31 December 2011 (iii)	Conditional matching shares held as at 1 January 2011 (iv)	Conditional matching and dividend shares awarded during the year (iv) (v)	Conditional matching shares vested during the year (vi)	Conditional matching shares held as at 31 December 2011
Sam Laidlaw
2008	182,209	–	(182,209)	–	451,674	66,247	(517,921)	–
2009	282,574	–	–	282,574	701,639	–	–	701,639
2010	246,859	–	–	246,859	553,869	–	–	553,869
2011	–	218,265	–	218,265	–	514,838	–	514,838
	711,642	218,265	(182,209)	747,698	1,707,182	581,085	(517,921)	1,770,346
Phil Bentley
2008	51,312	–	(51,312)	–	105,859	15,526	(121,385)	–
2009	86,099	–	–	86,099	172,198	–	–	172,198
2010	126,745	–	–	126,745	310,228	–	–	310,228
2011	–	111,117	–	111,117	–	286,772	–	286,772
	264,156	111,117	(51,312)	323,961	588,285	302,298	(121,385)	769,198
Mark Hanafin
2009	113,519	–	–	113,519	332,245	–	–	332,245
2010	107,644	–	–	107,644	267,349	–	–	267,349
2011	–	102,358	–	102,358	–	259,675	–	259,675
	221,163	102,358	–	323,521	599,594	259,675	–	859,269
Nick Luff
2008	91,926	–	(91,926)	–	226,536	33,226	(259,762)	–
2009	140,352	–	–	140,352	356,787	–	–	356,787
2010	114,084	–	–	114,084	282,481	–	–	282,481
2011	–	106,324	–	106,324	–	275,484	–	275,484
	346,362	106,324	(91,926)	360,760	865,804	308,710	(259,762)	914,752
Chris Weston
2008	49,927	–	(49,927)	–	120,111	17,616	(137,727)	–
2009	109,241	–	–	109,241	280,040	–	–	280,040
2010	96,912	–	–	96,912	252,216	–	–	252,216
2011	–	88,232	–	88,232	–	230,324	–	230,324
	256,080	88,232	(49,927)	294,385	652,367	247,940	(137,727)	762,580

Dates of allocation, prices and performance periods for outstanding DMSS awards

	Date of allocation of deferred shares	Market price at date of allocation of deferred shares (pence)	Date of allocation of investment shares	Market price at date of allocation of investment shares (pence)	Vesting date	Market price at vesting date (pence)
In 2008, outstanding allocations were adjusted to take account of the dilutive effect of the Rights Issue. In 2009, the voluntary element of the DMSS was delayed until 26 May 2009 due to the executives being subject to dealing restrictions under the Company's Share Dealing Code. In respect of Chris Weston, who is based in Toronto, conditional awards have been allocated and in this respect, 117,256 shares are included above. From 2010, awards of matching shares have been structured as nil-cost options for all UK resident participants. Once vested, nil-cost options will be reported in the Directors' interests in share options disclosure within this report. For the calculation of matching shares before 2012, investment shares were grossed up (to reflect the impact of income tax and employee's National Insurance Contributions (NICs)) so that the deferred and investment shares were matched on the same basis. The number of matching shares released following the satisfaction of the performance condition is increased to reflect the dividends that would have been paid during the three-year performance period and those shares added in respect of the vested 2008 matching shares are detailed above. Dividends are paid on the deferred and investment shares to the participants on the normal dividend payment date. As at 31 December 2010, the Company's cumulative EP growth over the three-year performance period was 39% and as a result the conditional matching shares vested in full.
2008 (i)	13 Oct 08	255.50	13 Oct 08	255.50	4 Apr 11	331.60
2009 (ii)	3 Apr 09	221.75	26 May 09	248.25	3 Apr 12	–
2010	6 Apr 10	296.89	6 Apr 10	296.89	8 Apr 13	–
2011	4 Apr 11	331.60	4 Apr 11	331.60	4 Apr 14	–

Long Term Incentive Scheme (LTIS)

In 2011, LTIS allocations equal to 200% of base pay were awarded to Executive Directors and, at lower levels, to other senior executives. The performance measures attaching to the outstanding LTIS awards are shown in the table below.

Vesting criteria 2010 and 2011	Performance condition over three-year period
EPS is the Group's diluted adjusted earnings per share.
One half on EPS growth against RPI growth(i)	Full vesting for EPS growth exceeding RPI growth by 30% Zero vesting if EPS growth does not exceed RPI growth by 9% Vesting will increase on a straight-line basis between 25% and 100% between these points
One half on TSR measured as a percentage out-performance of the FTSE 100 Index	Full vesting for TSR out-performance of the FTSE 100 Index by 7% per annum Zero vesting if TSR out-performance of the FTSE 100 Index does not exceed 0.1% per annum Vesting will increase on a straight-line basis between 25% and 100% for TSR out-performance of the FTSE 100 Index between these points
Vesting criteria 2009
One half on EPS growth against RPI growth(i)	As above
One half on TSR measured against a comparator group of the FTSE 100 as constituted at the beginning of the performance period	Full vesting for upper-quintile ranking Zero vesting for sub-median ranking Vesting will increase on a straight-line basis between 25% and 100% for ranking between these points

LTIS and SLTIS allocations for Executive Directors (number of shares)

	Vested during 2011			In performance period
Date of allocation	3 Apr 08 (i) (ii) (iv)	1 Sep 08 (i) (iii) (iv)		3 Apr 09	9 Sep 09	6 Apr 10 (v)	4 Apr 11 (v)
As at 31 December 2010, the Company's EPS target for awards made in 2008 had not been achieved and as a result none of the EPS shares allocated vested during the year. At the end of the performance period on 2 April 2011, the Company ranked 38th against the FTSE 100 comparator group and as a result 55% of TSR shares vested. Consequently, overall 27.5% of the original allocations were released on 4 April 2011. At the end of the performance period on 31 August 2011, the Company ranked 34th against the FTSE 100 comparator group and as a result 65% of TSR shares vested. Consequently, overall 32.5% of the original allocations were released on 6 September 2011. Additional shares were released to reflect the value of the dividends that would have been paid over the respective three-year period. From 2010, LTIS awards have been structured as nil-cost options for all UK resident participants. Once vested, nil-cost options will be reported in the Directors' interests in share options disclosure within this report. In respect of Chris Weston, who is based in Toronto, conditional awards have been allocated and are included above.
Sam Laidlaw	214,355	–		806,700	–	643,500	582,179
Phil Bentley	137,515	–		542,208	–	430,129	389,140
Mark Hanafin	–	138,776		467,268	–	389,487	352,371
Nick Luff	131,189	–		493,718	–	413,195	373,820
Chris Weston (vi)	85,039	–		330,614	98,000	345,458	312,538
Market price at allocation date	271.08p	292.00p		221.75p	257.40p	296.89p	331.60p
Vesting date	4 Apr 11	1 Sep 11		3 Apr 12	10 Sep 12	8 Apr 13	4 Apr 14
Market price at vesting date	331.60p	300.50p

In assessing the extent to which the performance conditions have been met, the Committee uses data provided by Alithos Limited (an independent third party) for comparative TSR performance and audited results for EPS performance. The Committee also considers whether the extent to which the performance conditions have been achieved is a genuine reflection of the Company's underlying financial performance. The number of shares released will be increased to reflect the dividends that would have been paid on those shares during the three-year performance period.

In respect of LTIS awards from 2010 these were structured as nil-cost options for all UK resident participants.

The TSR graph for the three-year performance of the LTIS awards that vested in April 2011 is shown below, together with a comparison of the Company's TSR performance with that of the FTSE 100 Index for the five years ended 31 December 2011.

• These graphs have been provided by Alithos Limited (an independent third party) and have not been audited by the Company's auditors, PricewaterhouseCoopers LLP.
• The five year comparator graph is required by Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. A rolling definition of the FTSE 100 has been used. This is not the same as the definition used for the purposes of the LTIS.

Directors' interests in share options

Full details of the options over ordinary shares in the Company held by Executive Directors who served during the year, and any movements in those options in the year, are shown below.

	Options held as at 1 January 2011	Options granted during the year	Options exercised during the year	Options lapsed during the year	Options held as at 31 December 2011	Exercise price (pence) (i)	Date from which exercisable	Expiry date
Where appropriate, exercise prices were adjusted to take account of the dilutive effect of the Rights Issue in 2008.
Sam Laidlaw
Sharesave	3,977	–	–	–	3,977	228.16	Jun 13	Nov 13
Phil Bentley
Sharesave	3,977	–	–	–	3,977	228.16	Jun 13	Nov 13
Mark Hanafin
SESOS	336,012	–	–	–	336,012	255.94	Sep 08	Sep 18
Sharesave	4,727	–	–	–	4,727	193.54	Jun 12	Nov 12
	340,739	–	–	–	340,739
Nick Luff
Sharesave	7,392	–	–	–	7,392	227.24	Jun 13	Nov 13
Chris Weston
ESOS	112,330	–	–	–	112,330	130.50	Mar 06	Mar 13
ESOS	120,379	–	–	–	120,379	199.36	Mar 07	Mar 14
ESOS	130,187	–	–	–	130,187	203.55	Apr 08	Mar 15
ESOS	267,920	–	–	–	267,920	253.80	Apr 09	Apr 16
Sharesave	4,727	–	–	–	4,727	193.54	Jun 12	Nov 12
	635,543	–	–	–	635,543

Executive Share Option Scheme (ESOS)

• Outstanding ESOS options held by Chris Weston were granted on 24 March 2003, 18 March 2004, 1 April 2005 and 3 April 2006.
• No options have been granted under the ESOS since 2006.
• The performance criteria have now been met in respect of all of the outstanding grants under ESOS and Chris Weston has a 10 year period from each date of grant during which he can exercise his options.

Special Executive Share Option Scheme (SESOS)

• Outstanding SESOS options held by Mark Hanafin were granted on 26 September 2008.
• The grant is not subject to any performance conditions and Mark Hanafin has a 10 year period from the date of grant during which he can exercise his options.

Nil-cost share options

• Nil-cost options were granted to the Executive Directors excluding Chris Weston on 6 April 2010 and 4 April 2011 and are disclosed under DMSS for Executive Directors.
• Grants under the LTIS are subject to TSR and EPS performance, as outlined under Total remuneration package and under Long Term Incentive Scheme (LTIS).
• Grants under the DMSS are subject to EP performance, as outlined under Total remuneration package and under DMSS for Executive Directors.
• Recipients will have a 10 year period from each date of grant during which to exercise any such options that may vest.
• Once vested, share options will be disclosed in the table above.

Sharesave Scheme

• Outstanding Sharesave options held by the Executive Directors were granted on 3 April 2008, 7 April 2009 and 6 April 2010.

Share Price

• The closing price of a Centrica ordinary share on the last trading day of 2011, which was 30 December 2011, was 289.30 pence. The range during the year was 278.80 pence and 345.80 pence.

Retirement benefits

Phil Bentley and Chris Weston are members of the CPP. Sam Laidlaw, Mark Hanafin and Nick Luff, who all joined the Company in recent years, are not members of any of Centrica's pension schemes.

Centrica Pension Plan (CPP)

The CPP is a funded, HMRC-registered, final salary, contributory occupational pension scheme. Its rules have the following main features:

• normal retirement at age 62;
• right to an immediate, unreduced pension on leaving service after age 60 at own request with employer consent or on leaving service at the Company's request after age 55;
• life assurance cover of four times base pay for death in service;
• spouse's pension on death in service payable at the rate of 50% of the member's prospective pension and, on death after retirement, half of the accrued pension. Children's pensions on death are also payable at 25% of the member's prospective pension at normal retirement age;
• members' contributions payable at the rate of 6% of pensionable earnings. Contributions made by the Executive Directors who are also members of the CUPS are payable at the rate of 6% of their total pensionable earnings above the scheme earnings cap;
• pension payable in the event of retirement due to ill health;
• pensions in payment guaranteed to increase in line with the increase in RPI (a maximum of 6% applies to pension accrued after 1 April 2002 or the date of joining the CPP if later) and in deferment pensions are increased in line with statutory requirements (broadly CPI from January 2011 with a maximum of 2.5% per annum) but with a maximum rate of 6% per annum in respect of benefits accrued prior to 29 February 2012; and
• no discretionary practices are taken into account in calculating transfer values.

Centrica Unfunded Pension Scheme (CUPS)

All registered scheme benefits are subject to HMRC guidelines. As a result of the changes introduced by Centrica following the 2004 Finance Act, benefits at 6 April 2006 from the registered scheme, the CPP, could not exceed the Lifetime Allowance after taking account of retained benefits from all other sources notified to Centrica at this time. The CUPS provides any additional benefits in excess of the maximum amount that could be provided through the CPP on the members' uncapped pensionable earnings. The benefits that arise under CUPS are treated as being subject to the same rules as apply in respect of the registered portion of members' benefits. No individuals will receive benefits from Centrica which, when added to their retained benefits elsewhere at 6 April 2006, exceed two-thirds of their final pensionable earnings. CUPS is unfunded but the benefits are secured by a charge over certain Centrica assets. An appropriate provision in respect of the accrued value of these benefits has been made in the Company's balance sheet. Pensionable pay increases will be limited to pay reviews up to a maximum of 2% per annum with effect from 1 March 2012 for members of the CPP and CUPS.

Pension benefits earned by Directors in the CPP and CUPS

	Accrued pension as at 31 December 2011 £	Accrued pension as at 31 December 2010 £	Increase in accrued pension less inflation £	Transfer value as at 31 December 2011 £	Transfer value as at 31 December 2010 £	Contribution paid in 2011 £	Difference in transfer value less contributions £	Transfer value of increase in accrued pension excluding inflation £
The accrued pension is that which would be paid annually on retirement at age 62, based on eligible service to, and pensionable earnings at, 31 December 2011. The pension accrual rates for 2010 for Phil Bentley and Chris Weston were 2.65% and 2.22% of final pensionable earnings respectively. The increase in accrued pension has been adjusted to exclude inflation by revaluing the accrued pension as at 31 December 2011 by the rate of inflation (5.6%) and deducting this from the accrued pension as at 31 December 2011. The rate of inflation used for pension increases under both the CPP and CUPS was 5.6%, the annual rate to 30 September 2011. A change in the transfer value calculation basis was also introduced in February 2011. Had the transfer value been calculated on the accrued pension at 31 December 2011 but using the calculation basis in force at 31 December 2010, the transfer value of the accrued pension would have amounted to £3,813,100 for Phil Bentley and £1,723,400 for Chris Weston. The difference in the transfer value less contributions would have amounted to £650,400 for Phil Bentley, and £340,300 for Chris Weston.
Phil Bentley	209,500	191,500	7,276	3,641,900	3,124,600	38,100	479,200	83,500
Chris Weston	114,300	102,500	6,060	1,574,300	1,352,500	30,600	191,200	52,600

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

Grant Dawson
General Counsel & Company Secretary
23 February 2012