REMUNERATION REPORT

Remuneration committee
The committee is composed solely of independent non-executive directors being C J Myatt (chairman), A J H Stewart and N J Donaldson. T H F Kirby and M Sherwin present proposals as and when required and attend meetings at the committee’s request. No external advisers are currently used by the remuneration committee.

Remuneration policy
As well as complying with the provisions of the Combined Code as disclosed in the Company’s corporate governance statements, the board has applied the Principles of Good Governance relating to directors’ remuneration as described below.

Non-executive directors
The remuneration of all non-executive directors is reviewed on an annual basis by the executive directors. A recommendation is made to the board which determines any increase in their remuneration. The nonexecutive directors are only entitled to fees and do not participate in any of the Company’s bonus, pension or share schemes. Non-executive directors do not have service contracts.

Executive directors
The overall policy for executive directors is set out below:

  1. the remuneration of executive directors (consisting of basic salary, pension benefits and benefits in kind) will be competitive with those of other comparable organisations so as to attract and retain high calibre individuals with the relevant experience;
  2. part of the remuneration will be based on the financial performance of the Company using predetermined targets so as to motivate and reward successful business performance which is in the interest of shareholders;
  3. personal reviews of the executive directors will be carried out annually to assess their performance in meeting individual objectives.

The fixed and variable related components of the remuneration packages for executive directors are as follows:

  1. basic salary, including benefits and pension contributions (fixed)
  2. performance related bonus (variable)

There are no plans to change this policy.

Salaries
Salaries are reviewed annually and, in deciding the appropriate salary levels, the committee takes into consideration a number of factors: the executive director’s experience, responsibility and market value. The committee also takes into consideration pay and employment conditions of employees elsewhere in the Group and in addition, from time to time, takes independent advice on salary benchmarking to assist in their review of remuneration packages of the executive directors. Salaries, excluding bonuses, are pensionable.

Bonuses – from 2 June 2003
In order to reward the executive directors for enhancing value to shareholders, the remuneration committee believes that a significant proportion of the remuneration package should be clearly linked to the Group’s performance. This will be in the form of an annual cash bonus which may be earned at up to 100% of salary for T H F Kirby and 50% of salary for M Sherwin. The performance conditions will be based on earnings per share growth as well as individual performance targets.

Bonuses – year to 1 June 2003
Following the appointment of T H F Kirby as chairman and chief executive in September 2000, the following bonus scheme was implemented to secure his services in an executive capacity and to provide the type of leadership that the Group needed at this pivotal time in its development.

The board has linked a significant proportion of his remuneration to the improvement in the Group’s fortunes over the period of his appointment. The performance related bonus arrangement is in two parts: the first is linked to achieving an increase in earnings per share of over 15% per year for three years (“the EPS Bonus”), and the second is linked to the share price (“the SP Bonus”).

The EPS Bonus will be payable if the earnings per share before exceptional items of the Company (“EPS”) increases by at least a cumulative rate of 15% per annum from a base EPS of 20.2 pence (being the EPS of the Company for the financial year ending 28 May 2000) in the three financial years which end on 1 June 2003. If the performance condition is satisfied the EPS Bonus will be £250,000 and, in addition, £125,000 for each 1% by which the EPS growth exceeds a cumulative rate of 15% per annum, provided that the maximum aggregate EPS Bonus will not exceed £1,000,000. This performance condition has been met in full. The EPS Bonus will be payable within 30 days of 29 July 2003 and is payable on one occasion only.

The SP Bonus will be payable if the average closing middle market price of the shares of the Company for the 30 dealing days starting with 29 July 2003 (“Actual Share Price”) is equal to or greater than 250 pence per share (representing an increase of more than 100% over the share price of 123 pence, being the share price on the day of his appointment). It will not be payable in whole or in part if this performance condition is not satisfied. If the performance condition is satisfied the SP Bonus will be £250,000 and, in addition, £2,000 for each one pence that the Actual Share Price is greater than 250 pence. The SP Bonus (if any) will be payable within 10 working days of the determination of the Actual Share Price. The SP Bonus is payable on one occasion only.

In the event of any issue of shares or purchase by the Company of its own shares or any capitalisation of profits or reserves or any consolidation or sub-division or reduction of capital or any other variation of capital or any change in accounting reference date, then the terms and conditions of the bonus arrangement may be adjusted in any way that the remuneration committee considers appropriate. If T H F Kirby requires it, the auditors of the Company will be asked by the Company to provide their opinion as to whether the adjustment is fair and reasonable. If the auditors’ view is that the adjustment is not fair and reasonable, the terms and conditions will, at the option of the Company, remain unamended or be altered in such a way as is determined by the Company and which the auditors state is in their opinion fair and reasonable.

The benefits under this bonus arrangement are not pensionable. No amendment to the advantage of T H F Kirby may be made to the provisions of the bonus arrangement relating to the maximum entitlement or the basis of determining the entitlement or to the provisions dealing with any adjustment of the entitlement in the event of a capitalisation issue, rights issue or open offer, sub-division or consolidation of shares or reduction of capital or any other variation of capital without the prior approval of an ordinary resolution of shareholders of the Company (except for minor amendments to benefit the administration of the bonus arrangement, to take account of a change in the legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for T H F Kirby or the Company or any of its subsidiaries).

During the year, M Sherwin participated in an annual bonus scheme related to growth in earnings per share (maximum bonus required growth of 15%) and individual performance targets (specific and measurable objectives set by the remuneration committee), up to a maximum of 50% of salary.

Benefits in kind
Each executive director is provided with fuel, private medical insurance and permanent health insurance.

Share option schemes
Executive directors will only be able to participate in the sharesave scheme which is available to all employees. There are no performance conditions relating to sharesave share options. It is envisaged that no future awards will be made to the executive directors under the executive share option schemes or long-term share incentive plan.

Service contracts
Each of the executive directors has a service agreement which is capable of termination by either party on giving twelve months’ notice. If the Company gives notice then the Company reserves the right to pay salary in lieu of notice. The contract is silent regarding the payment that may be due in the event of early termination by the Company.

The service agreements are also capable of termination by the Company on giving three months’ notice in the event of the executive directors’ absence for ill health in excess of 120 business days in any twelve month period. No compensation is payable in the event of termination of the agreement due to gross misconduct.

Contracts on this basis were entered into by T H F Kirby on 28 September 1994 and M Sherwin on 18 June 1999. The contracts are for an unlimited duration.

Under the letters of appointment of the non-executive directors, the period of appointment is not specified and may terminate at any point without notice and without compensation. However, under normal circumstances the party terminating the agreement will seek to give the other six months’ notice of intention to terminate. Agreements on this basis were entered into by C J Myatt on 16 July 1999 which took effect from 18 April 1999, A J H Stewart on 16 July 1999 which took effect from 12 September 1999 and N J Donaldson on 18 April 2002, which was also the effective date.

The articles provide that at least one third of the directors be subject to re-election by rotation at each general meeting.

Performance graph
The graph below represents the comparative total shareholder return performance of the Company against that of the index of the FTSE 350 companies during the previous five years (i.e. 1 June 1998 to 1 June 2003). The index of the FTSE 350 companies has been used because the constituents of this index appropriately reflect the Company’s size when compared to alternative indices. It is also the index used to measure the Group’s performance under the long-term share incentive plan.

Graph of the FTSE 360 and Games Workshop. Games Workshop has passed the FTSE 360 approximately mid-year 2001. Games Workshop has continued to perform better than the FTSE 360. The Graph ends in the year 2003.

The following sections of the remuneration report have been audited.

Directors’ emoluments for the year ended 1 June 2003

  Fees
2003
£000		 Salary
2003
£000		 Bonus-
annual
scheme
2003
£000		 Bonus-
three year scheme*
2003
£000		 Benefits
in kind
2003
£000		 Total
emolu-
ments
2003
£000		 Total
emolu-
ments
2002
£000		 Pension
contri-butions
2003
£000		 Pension
contri-
butions
2002
£000
A thick, black line.
Executive directors
T H F Kirby - 262 - 1,000 4 1,266 270 26 25
M Sherwin - 187 94 - 4 285 240 19 15
Non-executive directors
N J Donaldson 20 - - - - 20 2 - -
C J Myatt 25 - - - - 25 25 - -
A J H Stewart 20 - - - - 20 20 - -
A thick, black line.
  65 449 94 1,000 8 1,616 557 45 40
A thick, black line.

*The details of the three year scheme for T H F Kirby are described in ‘Bonus – year to 1 June 2003’ above. The payment included in the table above relates to the EPS Bonus and was the maximum payable due to the actual EPS for the three years to 1 June 2003 having grown by a cumulative rate of 22% from 20.2p to 37.0p.

The share price element of the bonus will be defined by reference to the share price during August 2003. If this were to be the same as the share price prevailing on 2 June 2003 (561.5p) the payment would be £872,000 on account of the increase of 357% from 123p on the date of T H F Kirby’s appointment. On this basis the total amount of the bonus payable under both elements of the scheme would be £1,872,000.

Pensions
The executive directors are members of the Warhammer Pension Scheme. The scheme is a defined contribution scheme and accordingly, the Company’s contributions set out above reflect the full cost during the year of providing pension benefits to these directors.

Directors’ interests in shares of the Company
The directors’ interests (including their families) in the shares of the Company were as follows

  As at
1 June 2003
Ordinary shares
of 5p each 		As at
2 June 2002
Ordinary shares
of 5p each
Beneficial Non-
beneficial		 Beneficial Non-
beneficial
A thick, black line.
T H F Kirby 1,487,509 354,000 1,487,509 354,000
M Sherwin 37,519 - 37,519 -
C J Myatt 66,500 - 66,500 -
A J H Stewart 935,000 - 935,000 -
N J Donaldson 10,000 - - -

Share options of the directors were as follows:

Number
as at 2 June 2002 		Granted Number
as at 1 June 2003 		Exercise dates Exercise
price
Commencement Expiry
A thick, black line.
M Sherwin 4,130 - 4,130 Nov 2003 Apr 2004 106p
- 1,408 1,408 Nov 2005 Apr 2006 335p

These options were granted under the Games Workshop Group PLC 1995 Sharesave scheme. This scheme is open to all eligible UK employees and directors who satisfy a service qualification of at least one year.

Awards under the Games Workshop Group PLC Share Incentive Plan were as follows:

  Award
date		 Awards held
as at 2 June
2002 		Number
awarded
[matching award] 		Market price
at date of
original award 		Awards held
as at 1 June
2003 		Earliest
vesting		 Expiry Exercise
price
A thick, black line.
M Sherwin 1 June 2000 31,908 7,519 146.7p 39,427 2 June 2005 - -

The long-term share incentive plan has a performance period of three years from June 2000, with a maximum award of 60% annually made up of a basic share award of up to 36% of salary and a matching share award of up to 24% of salary (subject to the annual bonus being invested in shares at the end of the bonus period). Both the basic and the matching share awards are in the form of a promise that at the end of a three year period an option will be granted, subject to performance criteria being satisfied, over a number of shares. The exercise price of an option will be nil and the option will not normally be exercisable until five years after the date of the basic or matching share awards. 25% of the total award will only vest if the Company’s share price growth is equal to or greater than the share price growth of the top one third of companies in the FTSE 350 at the end of the performance period. None of that part of the award will vest if it is not. The remaining 75% of the total award will depend on the Company’s cumulative EPS growth over the three year performance period. Cumulative EPS growth must reach 15% per annum for the EPS related condition to be satisfied in full. If cumulative EPS growth is less than 10% per annum, the EPS related condition is not satisfied. If cumulative EPS growth is between 10% and 15% per annum, then the award will vest proportionately.

There were no other movements in directors’ share options during the year. No other directors have been granted share options in the shares of the Company.

There was no movement in directors’ interests in shares of the Company between 1 June 2003 and the date of this report.

The mid-market price of the Company’s shares on 1 June 2003 was 546.5p and the range of the market prices during the year was 407.5p to 587.5p.

Apart from the interests disclosed above, no directors had any interest at any time in the year, in the share capital of the Company or other group companies.

Awards to former directors
A former director, D M Hosie, during the year exercised his option over 35,000 shares in the Company at an exercise price of 208p per share. The market price on the date of exercise was 438.5p. In addition, Mr Hosie exercised his option over 15,000 and 15,380 shares at an exercise price of 208p and 301p respectively. The market price on the date of exercise was 436p. C J Prentice, a former director, exercised his option over 90,000 and 15,380 shares in the Company at an exercise price of 208p and 301p respectively. The market price on the date of exercise was 516.5p. The right to exercise these options, after ceasing to be employees of the Group, was as a result of the exercise of a discretion by the committee.

By order of the board

C J Myatt
Chairman,
Remuneration Committee
28 July 2003

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