The Remuneration Committee's Terms of Reference

Purpose

The Remuneration Committee (the "Committee") is a sub-committee of the Board of KCOM Group PLC (the "Company"). It supports the Board in the execution of its responsibilities to determine the remuneration of the Executive Directors and other senior executives of the Company. "Remuneration" includes fees, basic salary, performance related payments, whether paid in cash or shares, benefits and pension rights. It does this by recommending actions to the Board. Its full responsibilities and authority levels are set out in this paper.

Membership and Meetings

The Board shall appoint the members of the Committee. It shall comprise a Chairman and at least two other members, all of whom shall be independent non-executive directors of the Company, and free from any business or other relationship which could materially interfere with the results of their independent judgement.

The Board shall appoint the Committee Chairman who shall be an independent non-executive director. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting. The Chairman of the Board shall not be Chairman of the Committee.

In appointing the Chairman and members of the Committee, the Board will have due regard to the Listing Rules of the London Stock Exchange from time to time in force (including, for so long as is applicable or relevant, the Combined Code).

Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chief Executive, the Director of Human Resources and external advisers may be invited to attend for all or part of any meeting as and when appropriate.

Appointments to the Committee shall be for a period of up to three years, which may be extended for two further three-year periods, provided the director remains independent.

The Company Secretary or his nominee shall act as the Secretary of the Committee.

Meetings may be called by the Chairman or at the request of any member of the Committee and notice of meetings shall be given to all members at least five days beforehand. Supporting papers shall be sent to Committee members and to other attendees as appropriate at the same time. Meetings shall be held quarterly and at such other times as the Chairman of the Committee shall require.

The quorum of the Committee shall be at least two members present in person or by telephone.

The Secretary shall minute the proceedings and resolutions of all Committee meetings, including the names of those present and in attendance. Minutes shall be circulated promptly to all members.

The Chairman of the Committee shall attend the Annual General Meeting prepared to respond to any shareholder questions on the Committee’s activities.

Duties and Responsibilities

The principal duty of the Committee is to develop policies for recommendation to the Board that establish the framework within which decisions about the remuneration of executive directors, the Company Secretary and senior executives will be made. These should include:-

Statements about the overall objectives of the remuneration policy
The major elements of the remuneration package including the main design features of any scheme where the level of remuneration is influenced by performance
The principles underpinning the determination of basic salaries for individual executive directors and senior executives
Reviewing the design of all share incentive plans for approval by the Board and shareholders. For any such plans, determine each year whether awards will be made, and if so, the overall amount of such awards, the individual awards to executive directors and other senior executives and the performance targets to be used.
Determining the policy for, and scope of, pension arrangements for each executive director and other senior executives.
Ensuring that contractual terms on termination, and any payments made, are fair to the individual, and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised.
Reviewing and noting annually the remuneration trends across the Group
Overseeing any major changes in employee benefit structures throughout the Group.
Agreeing the policy for authorising claims for expenses from the Chief Executive and Chairman.
Ensuring that all provisions regarding disclosure of remuneration, including pensions, as set out in the Directors’ Remuneration Report Regulations 2002 and the Combined Code are fulfilled.
Being exclusively responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the committee; and to obtain reliable, up to date information about remuneration in other companies. The Committee shall have full authority to commission any reports or surveys, which it deems necessary to help it fulfil its obligations.

The Committee shall have delegated authority to determine on behalf of the Board but within the approved policies referred to earlier, specific remuneration packages for the Chairman, executive directors and senior executives. These will include:

The level of basic salary, both on appointment and at the time of review
The benefits due under any schemes covering areas such as pensions, car and sickness payments
The targets required to be set within the performance-related reward plans and the level of payments due under the scheme
The grant of options over or awards of shares
Any compensation payable in the event of terminating an executive’s appointment for any reason

The remuneration of non-executive directors shall be a matter for the Chairman and the executive members of the Board.

No director or executive shall be involved in any decision as to their own remuneration.

Reporting Responsibilities

The Committee Chairman shall report formally to the Board on it proceedings after each meeting.

The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.

The Committee shall produce an annual report of the Company’s remuneration policy and practices which will form part of the Company’s Annual Report and ensure each year that it is put to shareholders for approval at the AGM.

Other

The Committee shall, at least once a year, review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it consider necessary to the Board for approval.

Authority

The Committee is authorised by the Board to require the provision of such information and access to such personnel as it requires to discharge its responsibilities.

The Committee is authorised by the Board to obtain outside or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it consider this necessary.