Report of the Directors

Remuneration Report

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Michael Roney
Chairman of the Management Development
and Remuneration Committee

Introduction to the Remuneration Report

The year ended 31st March 2013 was a challenging year for Johnson Matthey and a challenging year for many companies operating in global markets.

At the start of the year, the board set ambitious targets, ahead of the prevailing industry analysts’ consensus, but as the year unfolded, short term performance fell below that determined when setting the budget. As a result, no executive director bonuses will be paid this year, even though underlying earnings per share fell by just 2%.

The Long Term Incentive Plan (LTIP) looks at performance over a longer period and as a result of the very successful years in 2010/11 and 2011/12, the maximum vesting will be released in 2013. As is the intention with long term plans, future payments will require that strong growth now be re-established.

As set out in the Chief Executive’s Statement, Johnson Matthey expects to return to growth this year. The medium and long term prospects are encouraging and therefore the annual bonus and LTIP targets should continue to provide a strong incentive for good management performance.

As a committee we remain focused on ensuring that remuneration remains aligned with strategy. In particular, we continue to focus on long term value creation and this requires that we reconsider the detailed structure of remuneration and directors’ pay. We have therefore commissioned a full remuneration review which will be carried out during the course of this year, including consultation with leading shareholders and representative bodies. The review aims to continue to create the structure that achieves the best value for shareholders, providing appropriate incentives for managers whilst seeking to align reward with strategy and to stimulate stability, growth and sustainability in a volatile world.

The year ahead is challenging but the variable elements of executive remuneration will remain focused on the simple and transparent measures of profit before tax and earnings per share. However, as noted in the Chairman’s Statement, Johnson Matthey continues to invest significant sums in longer term development. In the coming year, investment in R&D and business development will also be increased. We still plan for long term success and that remains a key element of Johnson Matthey’s culture.

Structure of this Report

The UK government has issued draft regulations which will require changes in the content and structure of remuneration reports.

The Management Development and Remuneration Committee (MDRC) supports the aims of the draft regulations which reflect the wishes of stakeholders for greater transparency in the reporting of directors’ pay. We have therefore sought to produce a remuneration report which moves further towards full compliance with these regulations.

In compliance with the draft regulations this report is split into two sections.

The first section gives a detailed summary of the 2012/13 remuneration outcomes, including the single figure total remuneration of each director and variable pay awarded in the year.

The second section focuses on the remuneration policy for 2013/14, including the objectives and operation of each element of pay, and the context in which decisions for this policy were made. We also include greater disclosure of termination payment provisions and we plan to fully review service contracts and exit payments as part of the remuneration review this year.

However, we are still bound by the current reporting regulations and this report remains in compliance with the current regime. The addendum includes those items which are required to be disclosed under current reporting regulations and which are not disclosed elsewhere in the report.

Michael Roney

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