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Report of the Remuneration Committee

Shareholding guideline

A shareholding guideline has been adopted, linked to the two share-based incentive schemes introduced in 2005, the Deferred Share Plan and the Performance Share Plan. Executives are expected to retain no fewer than 50 per cent of the shares (net of tax) which vest from these two schemes until they have invested an amount in a personal shareholding equivalent to 100 per cent of basic salary. This policy aims to further align the interests of executives and shareholders.

British Airways Deferred Share Plan 2005

The British Airways Deferred Share Plan (DSP) was adopted by the Board in September 2005 and is the mechanism for delivering the deferred element of the annual bonus. Awards were made under the DSP in November 2006 and August 2008. In each case, an award of deferred shares to the value of one half of the bonus earned was made to qualifying executives. Other than on retirement or redundancy, the shares will be subject to forfeiture if the executive leaves during the three-year deferral period. On vesting, executives will receive the benefit of any dividends paid over the deferred period.

For further information regarding these schemes, see the report of the Remuneration Committee which contains details of awards to executive directors during 2008/09 and in prior years under current and historic share incentive schemes and also see note 34 to the financial statements.

British Airways all-employee share ownership plans

In July 2000, the Company obtained shareholders’ approval to implement any aspect of the new all-employee share plans now known as share incentive plans. The approval permits the Company to operate a partnership share plan which would allow employees in the UK to buy shares from their pre-tax salary and would allow the Company to give matching or free shares to those participants in the share plan. Financial limitations would apply to any new plan. No plans are currently in operation, but this will be kept under review.

Service contracts

Each of the executive directors serving at March 31, 2009, has a rolling contract with a one-year notice period. As a matter of policy, in the event of new external appointments, the length of service contracts would be determined by the Remuneration Committee in the light of the then prevailing market practice. However, the Remuneration Committee recognises that, in some cases, it may be necessary to offer a contract with a notice period in excess of one year in order to attract a new executive director. In these circumstances, the Remuneration Committee acknowledges that the notice period should reduce to one year after the initial period in accordance with paragraph B.1.6 of the Combined Code.

The service contracts for the serving directors include the following terms:

Executive director Date of contract Unexpired term/notice period
Willie Walsh March 8, 2005 terminable on 12 months’ notice
Keith Williams January 1, 2006 terminable on 12 months’ notice

There are no express provisions for compensation payable upon early termination of the executive directors’ contracts other than normal payments due during the notice period. In the event of early termination, the Company’s policy is to act fairly in all circumstances and the duty to mitigate would be taken into account. The executives’ contracts include a pay in lieu of notice provision and are subject to mitigation provisions during the second six months of the notice period. Neither of the contracts provides for compensation to be paid in the event of a change of control of the Company. Copies of the two service contracts can be viewed on the Company’s investor relations website.

External non-executive directorships

The Board encourages executive directors to broaden their experience outside the Company by taking up non-executive appointments from which they may retain any fee. The Company’s consent is required before an executive can accept such an appointment and permission will only be given in appropriate circumstances. During the year in question, Keith Williams earned fees of £13,097 as a non-executive director of Transport for London.

Pension schemes

The Company has three main pension schemes. Two of these, Airways Pension Scheme (APS) and New Airways Pension Scheme (NAPS), are defined benefit schemes and are closed to new members. The third scheme, the British Airways Retirement Plan (BARP), has been available to new joiners since April 1, 2003, and is a defined contribution scheme. Willie Walsh is a member of BARP and receives a contribution of 12 per cent of salary. Keith Williams is a member of both NAPS and an unfunded unapproved retirement scheme. Provision for payment of a surviving dependant’s pension on death and lump sum payments for death in service is also made. Only basic salary is pensionable. The Company operates a SmartPension arrangement, which allows individuals to make their pension contributions in a more tax-efficient way. Further details of pension provisions are set out under directors’ remuneration.

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