REMUNERATION REPORT

Remuneration and nomination 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 retained by the committee.

Remuneration policy
Throughout the year the Company complied with the provisions of the Combined Code relating to the design of performance related remuneration. In preparing this report the board has followed the provisions of the Combined Code. The Company is aware of the requirements of the New Code and will review its compliance throughout the current financial year, with additional disclosures being made, if appropriate, in its next annual report. The contents of this report also comply with the Directors’ Remuneration Report Regulations 2002.

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 non-executive directors are only entitled to fees and do not participate in any of the Company’s bonus, pension or share schemes. As disclosed in the corporate governance report, non-executive directors do not have service contracts.

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

a. 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;

b. part of the remuneration will be based on the financial performance of the Group using predetermined targets so as to motivate and reward successful business performance which is in the interest of shareholders;

c. 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:

a. basic salary, including benefits and pension contributions (fixed)

b. 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 takes the form of an annual cash bonus which may be earned at up to 100% of salary for T H F Kirby and 75% of salary for M Sherwin (50% in the year to 30 May 2004). In the year to 30 May 2004 the performance conditions were based on earnings per share growth and individual performance targets, while in the year to 29 May 2005 the conditions relate to the growth in operating profit.

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 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 was in two parts: the first was linked to achieving an increase in earnings per share of over 15% per year for three years (‘the EPS Bonus’), and the second was linked to the share price (‘the SP Bonus’). The EPS bonus was shown in the remuneration report for the year ended 1 June 2003.

The EPS Bonus was payable if the earnings per share before exceptional items of the Company (‘EPS’) increased 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 ended on 1 June 2003. If the performance condition was satisfied the EPS Bonus would be £250,000 and, in addition, £125,000 for each 1% by which the EPS growth exceeded a cumulative rate of 15% per annum, provided that the maximum aggregate EPS Bonus would not exceed £1,000,000. This performance condition was met in full and was paid within 30 days of 29 July 2003. It was payable on one occasion only.

The SP Bonus was payable if the average closing middle market price of the shares of the Company for the 30 dealing days starting with 30 July 2003 (‘Actual Share Price’) was 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). On satisfaction of the performance condition, the SP Bonus would be £250,000 and, in addition, £2,000 for each one pence that the Actual Share Price was greater than 250 pence. The SP Bonus was paid within 10 working days of determination of the Actual Share Price and was payable on one occasion only. The SP Bonus was paid in September 2003 and amounted to £1,158,000.

The benefits under this bonus arrangement were not pensionable.

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

Share option schemes
In the future 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.

The committee has agreed that, in the event that either executive director earns fees in respect of any non-executive appointment, he will retain those fees.

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 1999 to 1 June 2004). 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 Games Workshop shareholder return performance vs the FTSE 350 from 1999 to 2004. At 1999 GW and the FTSE match up. Between 1999 and 2000, GW fell below the FTSE. From 2000 to 2001 GW increased against the FTSE meeting it at 2001. From 2001 to 2004 GW has performed above the FTSE. At 2004 GW is in excess of twice the FTSE.

The following sections of the remuneration report have been audited.

Directors’ emoluments for the year ended 30 May 2004

  Fees
2004
£000		 Salary
2004
£000		 Bonus-
annual
scheme
2004
£000 		Bonus-
three
year
scheme*		 Benefits
in kind
2004
£000 		Total
emolu-
ments
2004
£000		 Total
emolu-
ments
2003
£000		 Pension
contri-
butions
2004
£000		 Pension
contri-
butions
2003
£000
A thick, black line.
Executive directors
T H F Kirby - 300 199 1,158 4 1,661 1,266 30 26
M Sherwin - 210 100 - 3 313 285 21 19
 
Non-executive directors
N J Donaldson 20 - - - - 20 20 - -
C J Myatt 25 - - - - 25 25 - -
A J H Stewart 20 - - - - 20 20 - -
A thin, black line.
65 510 299 1,158 7 2,039 1,616 51 45
Gains on exercise of share options 26
A thin, black line.
65 510 299 1,158 7 2,065 1,616 51 45
A thick, black line.

*The details of the three year scheme for T H F Kirby are described in the unaudited section ‘Bonus – year to 1 June 2003’ above. The payment of £1,158,000 included in the table above relates to the SP Bonus and was payable as the average share price over the 30 days following the announcement of the results for 2003 was 704p.

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
30 May 2004
Ordinary shares
of 5p each		 As at
1 June 2003
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 41,000 - 37,519 -
C J Myatt 66,500 - 66,500 -
A J H Stewart 935,000 - 935,000 -
N J Donaldson 10,000 - 10,000 -

Share options of the directors were as follows:

          Exercise dates  
Number as at
1 June 2003		 Granted Exercised Number as at
30 May 2004		 Commencement Expiry Exercise
price
A thick, black line.
M Sherwin 4,130 - (4,130) - Nov 2003 Apr 2004 106p
1,408 - - 1,408 Nov 2005 Apr 2006 335p
- 763 - 763 Nov 2006 Apr 2007 580p
- 39,427 - 39,427 June 2005 July 2008 -

The options above with exercise prices of 106p, 335p and 580p 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.

The options that were granted at nil cost were granted under the Games Workshop Group PLC Share Incentive Plan. This 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 30 May 2004 and the date of this report.

The mid-market price of the Company’s shares on 30 May 2004 was 649p and the range of the market prices during the year was 560.5p to 767.5p.

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.

By order of the board

C J Myatt
Chairman,
Remuneration and nomination committee
26 July 2004

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