Committee membership	No. of meetings 2017: 6	Main committee responsibilities
Director	Attendance	Responsibility for setting the remuneration policy for all Executive Directors and the Company's Chairman. Recommend and monitor the level and structure of remuneration for senior management. Review the ongoing appropriateness and relevance of the remuneration policy. Appoint remuneration consultants. Approve the design of and determine targets for Executive Directors and other senior executives' performance-related pay schemes. Review the design of all share incentive plans for approval by the Board and shareholders. Determine whether awards will be made on an annual basis.
E. Lindqvist	6
A.M. Thomson*	4
I.B. Duncan	6
P. Larmon	5
* Resigned membership on 24 July 2017

Chair's letter

As Chair of the Remuneration Committee ("the Committee") and on behalf of the Board of Directors, I am pleased to present our Board report on remuneration for the 2017 financial year, in line with the requirements of the Large and Medium sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.

Structure of report

This year we have restructured our report to support greater transparency and ease of use. We have included a new 'at a glance' section presenting the key outcomes for 2017, and have brought our 'implementation of policy in 2018' section to the front of the report to make it easier for our readers to see our intended approach in 2018. The main body of the report includes the following sections:

• Section A: This describes how the existing policy, approved at the 2016 AGM, was implemented in 2017;
• Section B: This summarises the remuneration policy of the Board with regard to the remuneration of the directors. The full remuneration policy, as approved by shareholders at the AGM in 2016, is also available on our website in the 2015 Annual Report at http://bodycote.annualreport2015.com/governance/board-report-on-remuneration

Wider workforce considerations and approach to remuneration

Our approach to remuneration emphasises simplicity, with strong alignment to our strategic priorities. We recognise that the emerging governance environment places an increased importance on consideration of pay and conditions in the wider workforce. Following the anticipated release of revisions to the UK Corporate Governance Code, the Committee will review its approach to considering wider workforce reward, and how the views of employees and other stakeholders input to our decisions.

Business performance and incentive outcomes for 2017

Bodycote has performed strongly through 2017, with a top line revenue growth of 9.6% at constant currencies. The Group's general industrial markets performed particularly strongly, with a return to growth after a multi-year negative trend.

Annual bonus

Improved profitability alongside tight controls on working capital and a focus on higher value added businesses have enabled us to deliver a headline operating profit of £123.9m (an increase of 24% on 2016) together with a headline operating cash flow of £111.7m. Our bonus is based on these metrics, and therefore performance was above maximum under the profit measure and under the cash flow measure. The annual bonus is also, in part, based upon the achievement of personal objectives which relate to the strategic focus of the Company such as growth in emerging markets and Specialist Technologies, against which the CEO performed at 84% of maximum, and the CFO at 70%.

Overall the bonus therefore paid out at 97.9% of maximum for the CEO and 96.1% of maximum for the CFO, of which 35% and 23% for the CEO and the CFO respectively, will be deferred into shares for three years, in line with our approved policy for bonus deferral.

Long term incentive

The Company's principal long term incentive, the Bodycote Incentive Plan (BIP) is based on performance against return on capital employed (ROCE) and earnings per share (EPS) targets over a three year period. Our ongoing focus on operating efficiency, margins, and targeted investments in high growth markets has supported earnings development over the three year period despite the challenging environment. Strong returns have also been delivered, helped by the focus on capital investment in specialist markets and performance was achieved at 48.2% of maximum.

The 2014 Co-Investment Plan (CIP) is based on absolute total shareholder returns growth, and the TSR CAGR value of 5.4% we have delivered over the three year performance period is reflected in a vesting under this plan of 54.2%. No awards have been made under the CIP since 2015, and so this is the penultimate vesting for this plan.

Note that David Landless, our former Finance Director, will receive pay-outs from these incentives pro-rated for the proportion of the performance period for which he was in the role.

Application of the policy for 2018

The Committee continues to operate within the Remuneration Policy agreed at the 2016 AGM. We set out below a brief overview of how the policy will be applied in the year ahead:

• Base salaries: An increase of 2.9% will be applied to the base salaries of the Group Chief Executive and Chief Financial Officer with effect from 1 January 2018, in line with inflation.
• Benefits and pension: There will be no changes to benefits and pension during 2018.
• Annual bonus: The maximum bonus opportunity remains 200% of salary for the CEO and 150% of salary for the CFO, with 35% of any bonus paid being deferred in shares for three years following conclusion of our transitional deferral arrangements. The measures and weightings used have been reviewed and we believe a bonus consisting of 77% headline operating profit, 10% headline operating cash management and 13% personal objectives continues to enable the annual bonus to be aligned to the Company's strategy and ensures our executives are focussed on delivery of improved profitability and control on working capital.
• Bodycote Incentive Plan (BIP): Award levels will remain 175% of salary for Executive Directors. Similarly, measures and weightings have been reviewed and we believe the equal focus on returns and earnings is strongly aligned with our strategic priorities. The growth of our business and our ability to deliver strong and sustainable returns to investors is based on delivery of an effective deployment of capital in rapid growth areas and bolt-on acquisitions. ROCE and EPS metrics will ensure strong alignment between these strategic goals and the reward of our executives over the longer term.

Non-Executive Director changes

On 30 March 2017, Alan Thomson informed the Board of his intention to retire as Chairman and on 31 October 2017 we announced the appointment of Anne Quinn CBE as Non-Executive Chairman with effect from 1 January 2018. Alan Thomson stepped down as Chairman and retired as a director on 31 December 2017. As of 1 January 2018 we have appointed an additional Non-Executive Director, Lili Chahbazi.

At the March 2017 meeting of the Remuneration Committee, it was agreed that the fee paid to the Non-Executive Chairman would be increased from its 2016 level of £169,125 to £200,000. In determining the appropriate fee level the Committee considered market benchmarking against the FTSE 250 and other companies of comparable size and complexity in line with our approved policy set out in Section B of this report. The Committee sought to ensure the revised fee was sufficiently competitive to support the attraction and retention of a Chairman of suitably high calibre and experience to support our leadership as our Company continues to evolve. The fee agreed as of 1 January 2018 for the new Non-Executive Chairman, Anne Quinn, was £225,000.

I trust the information presented in this report enables our shareholders to understand both how we have operated our remuneration policy over the year and the rationale for our decision making. We remain fully committed to continuing an open and transparent dialogue with our shareholders. I would welcome your views on the content of this report or any other items you would like to discuss and I look forward to meeting you and answering any questions you may have at the AGM.

This report has been structured to support the reader in quickly and easily accessing relevant information.

Main body
Section A: At a Glance
Section A: Implementation of Policy
Section A: Annual Report on Remuneration
Section B: Remuneration Policy

Section A

Remuneration at a glance

This introduction provides a high-level overview of the remuneration received by our Executive Directors. Full details can be found in the Annual Report on Remuneration.

Single figure of remuneration for Executive Directors

Incumbent	Financial year	Total salary/fees (£000)	Total pension (£000)	Total other benefits (£000)2	Annual bonus (£000)	Total BIP3 (£000)	Total CIP (£000)	Dividend equivalent for BIP + CIP	Total (£000)
S.C.Harris	2017	527	132	27	1,031	485	34	44	2,280
	2016	511	128	23	191	–	19	3	875
D.Yates1	2017	380	95	26	548	–	–	–	1,049
	2016	63	16	2	–	–	–	–	81

1. Dominique Yates was appointed as Executive Director on 1 November 2016 and Chief Financial Officer on 2 January 2017 following the retirement of D.F. Landless.
2. Other benefits consist of company car (or allowance), family level private medical insurance, salary supplement in lieu of pension life assurance cover and sick pay. Certain other expenses incurred in pursuit of bona fide business activities are, under UK tax regulations, treated as a taxable benefit in kind, and the director has received grossed up compensation for this in order to leave him in a neutral position.
3. BIP value calculated by reference to the closing share price on 5 March 2018 of £9.11.

Annual performance related bonus

The 2017 annual bonus was based on three elements – headline operating profit, headline cash management and personal objectives. Stretching targets were set in the context of the challenging market conditions we faced and the investments that were planned in the year. Following strong performance in the year the bonus paid out at 97.9% for the CEO and 96.1% for the CFO, 35% and 23% of the award will be deferred in shares for the CEO and the CFO respectively. The performance targets and actual performance are set out below.

	% of award	Threshold	Target	Maximum	Actual performance achieved	Outcome
						S.C. Harris		D. Yates
						% of max	% of salary	% of max	% of salary
Group headline operating profit	77%	£99.6m	£103.6m	£108.8m	£123.9m	100%	154%	100%	116%
Group headline operating cash flow	10%	£91.4m	£96.0m	£96.0m	£111.7m	100%	20%	100%	15%
Personal scorecard	13%					84%	22%	70%	14%
					Total	98%	196%	96%	145%

Bodycote Incentive Plan (BIP)

BIP awards made in 2015 had a three-year performance period ending on 31 December 2017, with 50% of the award subject to satisfaction of a ROCE target and 50% subject to the headline earnings per share (EPS) target. Over this period our share price has increased by 41%, demonstrating the returns we have made to shareholders. This is reflected in the 48.2% of max vesting of the BIP. The threshold and maximum targets along with the vesting schedule are set out in the tables below.

	ROCE		Headline EPS
	Performance target	Vesting of element (% of maximum)	Performance target	Vesting of element (% of maximum)
Threshold performance	18.7%	0%	45.0p	0%
Maximum performance	23.0%	100%	61.3p	100%
Performance achieved	19.8%*	48.3%	49.2p*	48%

*Note: The headline EPS figure and ROCE percentage used to calculate the BIP award exclude the exceptional £6.4m gain from the US Tax Cuts and Jobs Act.

2015 BIP outcome
S.C. Harris	48.2% of maximum opportunity
D. Yates	n/a
D.F. Landless	48.2% of maximum opportunity (to be pro-rated)

Legacy Co-Investment Plan (CIP)

Until 2015 Executive Directors were invited annually to purchase shares up to 40% of basic salary (net of tax) against which performance based matching shares are granted on a 1:1 basis. CIP awards are subject to an absolute TSR target. No further awards will be made under this plan. The CIP awards made in 2014 had a three-year performance period ending on 30 April 2017. The absolute TSR performance targets applicable to this award are set out below.

Absolute TSR performance target	Vesting level
4% CAGR + CPI	50% (0.5:1 match)
10% CAGR + CPI	100% (1:1 match)

Over the three-year period, the Group achieved absolute annual TSR growth of 5.4%, reflecting the value we have delivered to our shareholders over this period. This performance resulted in a vesting of 54.2% under the plan. The number and value of shares which vested for S.C. Harris is set out below. As D.F. Landless is no longer an Executive Director, vesting under this plan to him is set out under payments to past directors.

Shareholding requirements

Executive Directors and other senior executives are expected, within five years of appointment, to build up a shareholding in the Company. For the purposes of this requirement, only beneficially-owned shares and the value of deferred shares under the annual bonus will be counted. The table below sets out the minimum shareholding requirements, as a percentage of salary, for the Chief Executive and for the Chief Financial Officer, noting that Mr Yates has reached his holding requirement.

Shareholding requirements	Minimum shareholding requirement	Current shareholding1
S.C. Harris	200%	303%
D. Yates	150%	481%

1. At the 31 December 2017 share price.

Implementation of the Remuneration Policy in 2018

The table below provides information on how our Remuneration Policy will be implemented in 2018.

Element of pay	Implementation for 2018
Total salary	Base salaries are reviewed on an annual basis. S.C. Harris will receive a salary of £541,923 in 2018, an increase of 2.9% (2017: £526,650). D. Yates will receive a salary of £391,020 in 2018, an increase of 2.9% (2017: £380,000). Note that Non-Executive Director fees will next be reviewed at the March 2018 meeting of the Committee, and the outcome of this review will be disclosed in the following years' report.
Pension and benefits	No changes proposed. Executive Directors receive a salary supplement in lieu of pension at a rate of 25% of base salary.
Annual bonus	No change to maximum opportunity: 200% of base salary for CEO, 150% of base salary for CFO. The performance measures and their relative weightings also remain unchanged: 77% operating profit, 10% operating cash management and 13% personal objectives. The Committee reviews the performance measures and targets on an annual basis to ensure that they remain appropriately aligned to the overall business strategy but do not encourage excessive risk taking. The Committee has determined that performance targets will not be disclosed on a prospective basis for reasons of commercial sensitivity, but will be disclosed on a retrospective basis in next year's Annual Report on Remuneration to the extent that the Committee determines that the measures are no longer commercially sensitive.
Bodycote Incentive Plan (BIP)	No change to maximum opportunity: 175% of base salary for Executive Directors. The performance measures and their relative weightings also remain unchanged: 50% ROCE and 50% headline EPS. The targets for the 2018 BIP awards are disclosed below and ensure that the Committee are able to deliver upper quartile reward for upper quartile performance.
	BIP targets for 2018 award
	Performance metric	Headline EPS	ROCE
	Weighting (% of total award)	50%	50%
	Performance period	3 years	3 years
	Threshold performance	50p	17%
	Vesting level	0%	0%
	Maximum performance	64p	23%
	Vesting level	Full vesting	Full vesting
	EPS underpin	42.5p
	During the year, the Committee reviewed the BIP structure and measures in the context of our strategic priorities over the coming three years. The Committee determined that the current framework continues to appropriately support delivery of our strategic plan.

Illustration of application of remuneration policy for 2018

The remuneration package for the Executive Directors is designed to provide an appropriate balance between fixed and variable performance-related components. The Committee is satisfied that the composition and structure of the remuneration package is appropriate, clearly supports the Company's strategic ambitions and does not incentivise inappropriate risk taking. This is reviewed on an annual basis. The composition and value of the Executive Directors' remuneration packages should they achieve below, at or above target performance are set out in the charts below.

 

For the purposes of the above analysis, the following methodology has been used:

• Fixed elements comprise base salary and other benefits:
  • Base salary reflects the base salary as at 1 January 2018.
  • Benefits reflect benefits received in 2017 (including pension).
• For on-target performance, an assumption of 60% of annual bonus is applied and vesting of 50% of the maximum for the BIP.
• No share price increase has been assumed or dividend reinvestment.
• Fixed elements are salary, benefits and pension.
• Annual variable element is the annual bonus both cash and deferred shares.
• Long-term variable element is the BIP award and dividend equivalents.

Annual report on remuneration

This section provides details of remuneration outcomes for Executive Directors who served during the financial year ending 31 December 2017. This section of the report is audited and subject to an advisory vote by shareholders at the 2018 AGM.

Auditable section

Total single figure table

Incumbent	Financial year	Total salary/ fees (£000)	Total pension (£000)	Total other benefits1 (£000)	Annual bonus (£000)	Total BIP2 (£000)	BIP value at grant price (£000)	Share price gain on vesting of BIP between grant and vest date	Total CIP3 (£000)	Total (£000)
Executive Directors
S.C. Harris	2017	527	132	27	1,031	526	408	77	37	2,280
	2016	511	128	23	191	3	–	–	19	875
D. Yates4	2017	380	95	26	548	–	–	–	–	1,049
	2016	63	16	2	–	–	–	–	–	81
Non-Executive Directors
A.M. Thomson5	2017	200	–	1	–	–	–	–	–	201
	2016	169	–	–	–	–	–	–	–	169
P. Larmon6	2017	54	–	6	–	–	–	–	–	60
	2016	15	–	–	–	–	–	–	–	15
E. Lindqvist	2017	63	–	2	–	–	–	–	–	65
	2016	62	–	–	–	–	–	–	–	62
I.B. Duncan7	2017	72	–	–	–	–	–	–	–	72
	2016	67	–	–	–	–	–	–	–	67

Notes accompanying the total single figure table

1. Other benefits consist of company car (or allowance), family level private medical insurance, life assurance cover and sick pay. Certain other expenses incurred in pursuit of bona fide business activities are, under UK tax regulations, treated as a taxable benefit in kind, and the directors have received grossed up compensation for this in order to leave him/her in a neutral position.
2. The 2017 figures relate to BIP awards made in 2015 with performance periods ending on 31 December 2017. Shares vested as the targets were achieved at 48.2%. This includes dividend equivalents. For 2017, dividend equivalents for S.C. Harris were £40,521. The share price of £9.11 at close of markets on 5 March 2018 was used to estimate the value.
3. The 2017 figures relate to CIP awards made in 2014 with performance periods ending 30 April 2017. The shares vested in May 2017 at a share price of 777.5p. This includes dividend equivalents. For 2017, dividend equivalents for S.C. Harris were £3,284.
4. D. Yates was appointed on 1 November 2016 as Group Finance Director designate. D.F. Landless retired on 1 January 2017 as Group Finance Director.
5. A. Thomson announced on 30 March 2017 his intention to retire as Chairman and stepped down on 31 December 2017. A. Thomson's fee was increased from £169k to £200k during the year. In determining the appropriate fee level the Committee considered market benchmarking against the FTSE 250 and other companies of comparable size and complexity in line with our approved policy set out in Section B of this report.
6. P. Larmon was appointed on 13 September 2016 as Non-Executive Director.
7. I.B. Duncan took over as Senior Independent Director from R. Rajagopal on 27 May 2016.

Base salary

The base salaries of the Executive Directors are reviewed in January every year. As described in Section B: Directors' Remuneration Policy, a number of factors are taken into account when salaries are reviewed, including companies of a similar size and complexity, and the individual's role, experience and performance, as well as a consideration of market level salaries payable in FTSE 250. The table below sets out the base salary figures for 2018 along with comparative figures for 2017.

Name	Position	Salary from 1 January 2017	Salary from 1 January 2018	Salary increase
S.C. Harris	Group Chief Executive	£526,650	£541,923	2.9%
D. Yates (appointed as Executive Director on 1 November 2016 and CFO on 2 January 2017)	Chief Financial Officer	£380,000	£391,020	2.9%

Pension

S.C. Harris and D. Yates are entitled to a salary supplement in lieu of pension at a rate of 25% of basic salary. In addition, a death in service benefit of eight times basic salary is payable.

Taxable benefits

The Group provides other cash benefits and benefits in kind to directors as well as sick pay and life insurance. These include the provision of company car (or allowance) and family level private medical insurance.

Name	Car/car allowance	Fuel	Healthcare	Other taxable benefits*
S.C. Harris	£17,560	£2,400	£1,476	£5,307
D. Yates	£12,000	£1,200	–	£12,444

* Certain other expenses incurred in pursuit of bona fide business activities are, under UK tax regulations, treated as a taxable benefit in kind, and the director has received grossed up compensation for this in order to leave him/her in a neutral position

Incentive outcomes for 2017

Annual performance related bonus

The table below provides the details of the annual bonus awards received in respect of the Group and individual performances in the 2017 financial year.

The annual bonus potential for the period to 31 December 2017 for Executive Directors was split 77% in respect of Group headline operating profit, 10% on Group headline operating cash flow and 13% on personal strategic objectives. These performance conditions and their respective weightings reflected the Committee's belief that any incentive compensation should be linked both to the overall performance of the Group and to those areas of the business that the relevant individual can directly influence.

Stretching targets were set in the context of the challenging market conditions we faced and the investments that were planned in the year. Following strong performance in 2017, the bonus paid out at 97.9% for the CEO and 96.1% for the CFO, 35% and 23% of the award will be deferred in shares, for the CEO and the CFO respectively. The performance targets and actual performance are set out below.

	% of award	Threshold	Target	Maximum	Actual performance achieved	Outcome
						S.C. Harris		D. Yates
						% of max	% of salary	% of max	% of salary
Group headline operating profit	77%	£99.6m	£103.6m	£108.8m	£123.9m	100%	154%	100%	116%
Group headline operating cash flow	10%	£91.4m	£96.0m	£96.0m	£111.7m	100%	20%	100%	15%
Personal scorecard	13%					84%	22%	70%	14%
					Total	98%	196%	96%	145%

Note that in the 2016 Directors' Remuneration Report the weighting of annual bonus measures were incorrectly disclosed. The weightings above are the correct weighting for 2017, and are unchanged on those used in 2016.

The Committee assessed the performance of the Group Chief Executive and Chief Financial Officer against their personal objectives. For the CEO these included targets relating to safety, focus on driving growth in emerging markets and in Specialist Technologies, implementation of sales strategy, and maintaining market capitalisation. For the CFO targets included implementation of major IT and finance process projects. The Committee concluded that personal strategic objectives were achieved at a level of 84% of the maximum award for the CEO. The CFO achieved 70% of maximum.

Bodycote Incentive Plan (BIP)

BIP awards made in 2015 had a three-year performance period ending on 31 December 2017, after which they will vest immediately, with 50% of the award subject to satisfaction of a ROCE target and 50% subject to the headline earnings per share (EPS) target.

Over this period our share price has increased by 41%, demonstrating the strength of the returns we have made to shareholders. The threshold and maximum targets along with the vesting schedule are set out in the tables below.

	ROCE		Headline EPS
	Performance target	Vesting of element (% of maximum)	Performance target	Vesting of element (% of maximum)
Threshold performance	18.7%	0%	45.0p	0%
Maximum performance	23.0%	100%	61.3p	100%
Performance achieved	19.8%*	48.3%	49.2p*	48%

* Note: The headline EPS figure and ROCE percentage used to calculate the BIP award exclude the exceptional £6.4m gain from the US Tax Cuts and Jobs Act.

If headline EPS at the end of the performance period was below 41.8p, then no awards will vest. Over the period, ROCE was 19.8% and the headline EPS figure for the year was 49.2p.

The table below sets out the 2015 BIP outcome for S.C Harris. As D.F Landless is no longer an Executive Director, the vesting under this plan to him is set out under payments to past directors.

2015 BIP outcome
S.C. Harris	48.2% of maximum opportunity

The table below sets out a summary of shares vesting for BIP awards made in 2015 for S.C. Harris. The closing share price of £9.11 on 5 March 2018 is used to estimate the value.

Executive	Award type	Grant date	Number of shares granted	End of performance period	% award vesting	Number of shares vesting	Vesting date
S.C. Harris	2015 BIP	13 April 2015	110,687	31 Dec 17	48.2%	53,317	12 Mar 18

Legacy Co-Investment Plan (CIP)

As described in Section B: Directors' Remuneration Policy, CIP awards are subject to an absolute TSR target. Executive Directors were invited to purchase shares up to 40% of basic salary (net of tax) against which performance based matching shares are granted on a 1:1 basis. The CIP awards made in 2014 had a three-year performance period ending on 30 April 2017, and vested on 31 May 2017. The absolute TSR performance targets applicable to this award are set out below.

Absolute TSR performance target	Vesting level
4% CAGR + CPI	50% (0.5:1 match)
10% CAGR + CPI	100% (1:1 match)

Over the three-year period, the Group achieved absolute annual TSR growth of 5.4%. This strong return to shareholders over the period is reflected in the vesting of 54.2% under the CIP. Note that awards are no longer made under the CIP.

The number of shares which vested for S.C. Harris is set out below. As D.F Landless is no longer an Executive Director, vesting under this plan to him is set out under payments to past directors.

Scheme interests awarded in the financial year

CIP awards granted during the year

No awards were made under the CIP – the final award was made in 2015 with vesting occurring in May 2018. This plan no longer features in the Company's policy.

BIP awards granted during the year

Awards consisting of conditional shares were granted to both Executive Directors, equivalent in value to 175% of their base salaries on 18 May 2017, and will vest after three years in March 2020. The performance period will end on 31 December 2019. Details of the awards are set out below. Awards are subject to continued employment and the achievement of ROCE and headline EPS growth performance targets, as summarised in the table below.

The Committee has reviewed the performance targets and these have been revised appropriately to ensure that they remain stretching targets which underpin the Group's objectives. Our long term targets reflect the continued challenges in the wider commercial environment but the improved growth we expect to see following our emphasis on operational efficiency and the expansion of our footprint in rapid growth territories.

	ROCE		Headline EPS
	Performance target	Vesting of element (% of maximum)	Performance target	Vesting of element (% of maximum)
Threshold performance	15.5%	0%	31.7p	0%
Maximum performance	23.0%	100%	52.0p	100%

If headline EPS at the end of the performance period is below 27.0p, then no awards will vest. The Committee has decided that the ROCE figure of 23% is a robust aspiration for the Group in view of our expected programme of investments, recognising the potential for unintended consequences in terms of short-term capital underinvestment for the business. Dividend equivalents are payable in respect of those shares that vest.

The number of shares that were awarded, at a grant price of £8.02, to the Executive Directors during the year is set out below.

Executive	Award type	Grant date	Number of shares	Market price at date of award	Face value at date of award
S.C. Harris	2017 BIP	18 May 2017	111,569	£7.605	£848,482
D. Yates	2017 BIP	18 May 2017	82,916	£7.605	£630,576

Chairman and Non-Executive Directors' fees

Fees were reviewed against comparable companies of similar size and were effective as of 1 January 2017. The fee payable to the Chairman of the Board and other Non-Executive Directors were as follows:

Individual	Roles	Fee for 2017	Fee for 2016	% increase in NED role fees	% increase in actual fee paid to individual
Eva Lindqvist	Non-Executive Director Chair of Remuneration Committee Member of Audit, Chair and Nomination Committees	£63,345	£61,500	3%	3%
Ian Duncan	Non-Executive Director Chair of Audit Committee Member of Audit, Chair and Nomination Committees Senior Independent Director	£72,318	£66,582	3%*	9%*
Patrick Larmon	Non-Executive Director Member of Audit, Chair and Nomination Committees	£54,372	£52,788	3%	3%
Alan Thomson	Non-Executive Chairman	£200,000	£169,125	18%	18%

Non-Executive Director fees were increased for 2017 based on market benchmarking against Non-Executive Director fees in the FTSE 250 and other companies of similar size and complexity in line with the Policy set out in Section B of this report.

The Chairman fee for Alan Thomson was increased by 18%. In determining the appropriate fee level the Committee considered market benchmarking against the FTSE 250 and other companies of comparable size and complexity in line with our approved policy set out in Section B of this report.

*At the 2016 AGM Ian Duncan was appointed Senior Independent Director (SID). His fee for 2016 therefore represents a pro-rated fee covering SID responsibilities for 7 months of 2016. The 9% increase shown above represents the difference between this pro-rated fee and the total annual fee including the SID role for 2017. His annualised fee was increased by 3% in line with the Company's other Non-Executive Directors.

At 31 December 2017 the aggregate annual fee for all Non-Executive Directors, including the Chairman, was £390,035, which is below the maximum aggregate fee allowed by the Company's Articles of Association of £500,000 p.a.

Board changes in 2017

Payments for loss of office

No payments for loss of office were made in the year. David Landless resigned as an Executive Director as of 1 January 2017. The Remuneration Committee determined that Mr Landless would be treated as a good leaver, and all payments made to Mr Landless were within the approved loss of office policy set out in Section B.

Payments to past directors

In March 2017 David Landless received a bonus payment relating to the year ending 31 December 2016 amounting to £66,128. This was in line with our approved policy and related to his full year of service in 2016, but was paid to Mr Landless in 2017.

Under a consultancy agreement following cessation, David Landless agreed to be available to the Company during January and February 2017 to support Dominique Yates and Stephen Harris through this transitional period and received a fee of £6,000 in exchange for his services during the period. No other cash payments were made to Mr Landless.

In June 2017 David Landless received dividend equivalents in connection with the pro-rated vesting of the 2014 CIP amounting to £3,386.

David's 2015 Bodycote Incentive Plan (BIP) and Co-Investment Plan (CIP) awards are to be pro-rated to his leaving date and are subject to achievement of performance conditions at the end of the three year performance period. The 2016 BIP award has lapsed. No CIP awards were made in 2016 or 2017.

2014 CIP (vested on 31 May 2017)

Over the three-year period, the Group achieved absolute TSR growth of 5.4%. This performance resulted in the TSR targets being achieved at a level of 54.2%. This meant that the number of pro-rated shares which vested for D.F. Landless was 4,497 at a share price of £7.78 at the date of vesting on 31 May 2017.

2015 BIP (to vest on 12 March 2018)

The tables below set out the 2015 BIP award outcome for D.F. Landless and a summary of shares vesting for BIP awards made in 2015. The closing share price of £9.11 on 5 March 2018 is used to estimate the value:

2015 BIP outcome
D.F. Landless	48.2% of maximum opportunity (to be pro-rated)

Executive	Award type	Grant date	Number of shares granted	End of performance period	% award vesting	Number of shares vesting (pro-rated)	Vesting date
D.F. Landless	2015 BIP	13 April 2015	70,691	31 Dec 17	48.2%	22,701	12 Mar 18

He also received dividend equivalents in connection with the 2015 BIP vesting amounting to £17,253.

Directors' shareholdings

As described in Section B: Directors' Remuneration Policy, the Board operates a shareholding retention policy under which Executive Directors and other senior executives are expected, within five years of appointment, to build up a shareholding in the Company. For the purposes of this requirement, only beneficially-owned shares and the net of tax value of deferred shares under the annual bonus (as they are not subject to further performance conditions) will be counted.

The shareholding requirement for the CEO is 200% of salary and for the CFO is 150% of salary.

The interests in ordinary shares of directors and their connected persons as at 31 December 2017, including any interests awarded under the annual bonus, CIP or BIP, are presented below along with whether Executive Directors have met the shareholding guidelines. We note that shares under the annual bonus and the BIP are conditional on continued employment until vesting.

As at 12 March 2018, the interests of the directors were unchanged from those at 31 December 2017.

	Counted towards the shareholding requirement		Outstanding scheme interests (not counted towards shareholding requirement)		Shareholding requirement met2
	Beneficially owned	Deferred shares to be granted under the annual bonus	Shares subject to performance conditions BIP1	Shares subject to performance conditions CIP1
Executive Directors
S.C. Harris (200% minimum holding requirement)	174,980	£360,987	374,023	5,113	Yes
D. Yates (150% minimum holding requirement)	200,000	£127,870	82,916	–	Yes
Non-Executive Directors (No holding requirement)
A.M. Thomson	53,012		–	–	n/a
E. Lindqvist	12,200		–	–	n/a
I.B. Duncan	–		–	–	n/a
P. Larmon	5,000		–	–	n/a
A Quinn (appointed 1/1/18)	1,000		–	–	n/a
L. Chahbazi (appointed 1/1/18)	–		–	–	n/a

1. Figures relate to unvested awards under the BIP and the CIP.
2. At the 31 December 2017 share price.

Summary of outstanding share awards, including share awards granted during the year – Executive Directors

The interests of the Executive Directors in the Company's share schemes as at 31 December 2017 are as follows. Note that no CIP award was made in 2016 or 2017 with the last award being granted in 2015.

		Interests as at 1 January 2017	Awarded in year1	Vested in year2	Lapsed in year	At 31 December 2017	Market price at award date	Market value at date of vesting	Vesting date
Bodycote Incentive Plan (BIP)	S.C. Harris	371,753	111,569	–	109,299	374,023	£7.61	–	March 2020
	D.F. Landless3	237,423	–	–	166,732	70,691	–	–	n/a
	D Yates	0	82,916	–	–	82,916	£7.61	–	March 2020
Legacy Bodycote Co-Investment Plan (CIP)	S.C. Harris	13,160	–	4,361	3,686	5,113	–	£7.78	May 2017
	D.F. Landless3	14,448	–	4,497	3,801	6,150	–	£7.78	May 2017

1. Mid-market closing price of a share on the day before the BIP 2017 grant was £7.89. The face value of the award to S.C. Harris was £879,721. The face value of the award to D. Yates was £653,793.
2. As performance conditions were not met, the 2014 BIP award did not vest. CIP: The awards that vested during the year vested at 54.2% (details of the relevant performance conditions are set in the above)
3. Retired as Group Finance Director on 1 January 2017. D. Yates appointed Chief Financial Officer on 2 January 2017.

End of auditable section

Fees retained for external Non-Executive Directorships

To broaden the experience of Executive Directors, the position of Non-Executive Director may be held in other companies, provided that permission is sought in advance. Any external appointment must not conflict with the directors' duties and commitments to Bodycote plc. S.C. Harris has held the position of Non-Executive Director of Mondi plc since 1 March 2011 and in accordance with Group policy he retained fees for the year of £95,771.

Comparison of overall performance and pay

The chart below shows the value over the last nine financial years of £100 invested in Bodycote plc compared with that of £100 invested in the FTSE All Share Industrial index. The Committee has chosen this index as it is a broad market index of which Bodycote plc is a constituent and reflects the wider sector in which we operate. The points plotted represent the values at each financial year end.

Historical TSR Performance
Growth in the value of a hypothetical £100 holding over nine years
FTSE All Share Industrial Index comparison based on spot values

 

The table below shows how total remuneration for the Group Chief Executive, S.C. Harris, developed over the last nine years.

	2009	2010	2011	2012	2013	2014	2015	2016	2017
Single figure of remuneration £'000	531	906	3,252	3,840	3,089	1,803	771	875	2,280
Annual variable element award (as a % of maximum) opportunity	5%	98%	95%	73%	46%	73%	20%	19%	98%
Long-term incentive vesting (as a % of maximum)	0%	0%	100%	100%	99%	44%	0%	0%	48%

Percentage change in remuneration of Group Chief Executive

The table below sets out the percentage change in the Group Chief Executive's remuneration from the prior year compared to the average percentage change in remuneration for the senior management population. The Remuneration Committee has chosen the senior management population as the wider global employee population operates under an incomparable pay structure. The senior management population is the most relevant and comparable population and is primarily based in the UK.

	Chief Executive Officer			Senior management population
	2017 (£000)	2016 (£000)	% change	Average % change
Salary	527	511	3.0%	3.7%
Annual bonus	1,031	191	439.8%	5.0%*
Total	1,558	702	122.0%	4.0%*

*Average senior management population bonus change is based on the maximum potential bonus payout

Relative importance of pay spend

The table below shows the total expenditure in relation to staff and employee costs and distributions to shareholders in 2016 and 2017.

	2017 £m	2016 £m	% change
Staff and employee costs	283.8	239.5	18.5%
Distributions to shareholders	30.6	48.1	(36.4)%

Committee membership

During 2017 the Committee was chaired by E. Lindqvist. The Committee also comprised A.M. Thomson (retired from the Committee on 24 July 2017), I.B. Duncan and P. Larmon.

The Committee's full terms of reference are available on the Group's website. No Committee members have any personal financial interest (other than as a shareholder), conflict of interest, cross-directorships or day-to-day involvement in the running of the business. We set out below the members of the Committee, the number of meetings each Committee member attended during the year and the main responsibilities of the Committee.

Committee activities

During 2017 the Committee met 6 times to consider, amongst other matters:

Theme	Agenda items
Best practice	The Group's Remuneration Policy, discussions and feedback from the Group's AGM in 2017 and the Corporate Governance Code and Investment Management Association (IMA) guidelines on executive remuneration Review of the current UK corporate governance environment and the implications for the Group
Implementation Report	Consideration and approval of the Implementation Report to be put to shareholders and as summarised in Section A of the Board report on remuneration
Executive Directors' and senior executives' remuneration	Basic salaries payable to each of the Executive Directors The annual bonus and payments for the year ended 31 December 2017 The annual bonus structure and performance targets for the year ended 31 December 2018 The awards and vestings made under the Bodycote Incentive Plan ('BIP') The vesting made under Co-Investment Plan ('CIP') during the year Pension arrangements for senior executives Fee for incoming Chairman
Reporting	Consideration and approval of the Board report on remuneration

Advisers to the Committee

The Committee was advised by PwC during 2017 on remuneration matters including providing advice on matters under consideration by the Committee, updates on good practice, legislative requirements and market practice. PwC were appointed by the Remuneration Committee in July 2015 following a competitive tender process. PwC's fees for the year, based on the quantity and complexity of the work undertaken, amounted to £44,000. PwC also undertakes tax and accounting work for the Company. PwC is a founding member of the Remuneration Consultants Group and voluntarily operates under the code of conduct in relation to executive remuneration consulting in the UK. The Code of Conduct can be found at remunerationconsultantsgroup.com. The Remuneration Committee is satisfied that the advice provided on executive remuneration is objective and independent, and that no conflict of interest arises as a result of these services. The Committee reviews the objectivity and independence of the advice it receives from PwC at a private meeting each year. Legal advice was provided by Eversheds and fees amounted to £0.1m. All fees are based on the quantity and complexity of work undertaken.

The Committee also received assistance from the Group Chief Executive and Group Company Secretary, although they do not participate in discussions relating to the setting of their own remuneration. The Committee in particular consulted with the Group Chief Executive and received recommendations from him in respect of his direct reports.

Statement of shareholder voting

The table below displays the voting results on the remuneration resolution at the 2017 AGM as well as the result of the Remuneration Policy at the 2016 AGM:

	2017 Board report on remuneration (% votes)	2016 Directors' Remuneration Policy (% votes)
Votes cast	86%	83%
For	96%	85%
Against	4%	15%
Number of abstentions	2,034,367	596,122

Section B: Directors' Remuneration Policy

Remuneration Policy

Bodycote's Executive Remuneration Policy is to attract and motivate our senior executive team to execute our strategy and deliver value to our shareholders while ensuring the Group pays no more than is necessary.

In order to ensure continued alignment between remuneration and the evolving strategic direction of our business, a revised policy was approved by our shareholders at the AGM in May 2016. This policy, applicable from the date of the 2016 AGM, is set out below.

Discretion

The Committee has discretion in several areas of policy as set out in this report. The Committee may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set out in those rules. In addition, the Committee has the discretion to amend policy with regard to minor or administrative matters where it would be, in the opinion of the Committee, disproportionate to seek or await shareholder approval.

Executive Remuneration Policy

The table below sets out the key components of Executive Directors' pay packages, including why they are used and how they are operated in practice.

Current Remuneration Policy table

Element and how it supports our strategy	Operation of the element	Maximum opportunity under the element	Performance measures
Base salary To award competitive salaries to attract and retain the talent required to execute the strategy while ensuring the Group pays no more than is necessary.	Base salaries for Executive Directors are typically reviewed annually (or more frequently if specific circumstances necessitate this) by the Committee in December each year. Salary levels are set and reviewed taking into account a number of factors including: Role, experience and performance of the executive. The Company's guidelines for salaries for all employees in the Group for the forthcoming year. The competitiveness of total remuneration assessed against FTSE 250 companies and other companies of similar size and complexity, as appropriate.	Whilst the Committee has not set a maximum level of salary, ordinarily, salary increases will not exceed the average increase awarded to other Group employees. Increases may be above this level in certain exceptional circumstances, which may, for example, include: Increase in scope or responsibility. A new Executive Director who is being moved to market positioning over time.	None.
Benefits Provides market-competitive benefits at an appropriate cost.	The Company provides a range of cash benefits and benefits in kind to Executive Directors in line with market practice. These include the provision of company car (or allowance), private medical insurance, short- and long-term sick pay and death in service cover. This will also extend to the reimbursement of taxable work-related expenses, such as travel and relocation. The provision of other benefits payable to an Executive Director is reviewed by the Committee on an annual basis to ensure appropriateness in terms of the type and level of benefits provided. The Company provides a long-term savings vehicle into which the Executive Directors may elect to waive a proportion of pension allowance. In the case of non-UK executives, the Committee may consider providing additional allowances in line with relevant market practice.	The Committee has not set a maximum level of benefit, given that the cost of certain benefits will depend on the individual's particular circumstances. However benefits will be set at an appropriate level against market practice and needs for specific roles and individual circumstances.	None.
Pension Provides a market-competitive benefit in order to attract the talent required to execute the strategy and provide a market-competitive level of provision for post-retirement income.	The Group operates a defined contribution scheme. Executive Directors are provided with a contribution to this scheme or a cash allowance of equivalent value. Base salary is the only pensionable element of remuneration. The same general approach applies to all employees, although contribution levels vary by seniority.	Company contribution (or cash equivalent) of up to 30% of salary.	None.
Annual bonus To incentivise delivery of corporate strategy on an annual basis and reward delivery of superior performance. The deferred portion of the bonus supports longer-term shareholder alignment.	The level of bonus paid each year is determined by the Committee after the year end based on performance against targets. A portion of the annual bonus is paid in cash shortly after the financial year end with the remaining portion deferred for three years in Bodycote shares (see details below). Vesting of the deferred shares is not subject to further performance conditions (please see the 2016 AGM Notice for a summary of the Plan). Dividend equivalents are payable in respect of the shares which vest. From 2018 onwards, 35% of any bonus earned is deferred into shares for three years, conditional on continued employment until vesting date. Transitional treatment applies to deferral for 2016 and 2017. For 2016, any bonus earned over 130% of base salary is deferred into shares. For 2017, 15% of any bonus paid up to a value of 130% of base salary is deferred, with bonus earned over 130% also deferred in full. The deferral above 130% of salary would be capped so that no more than 35% of the total bonus is deferred. Malus provisions apply for the duration of the performance period and to shares held under deferral. Clawback provisions apply to cash amounts paid for three years following payment. Malus and/or clawback may be applied in the following scenarios: Discovery of a material misstatement resulting in an adjustment in the audited accounts of the Group or any Group Company; The assessment of any performance condition or condition was based on error, or inaccurate or misleading information; The discovery that any information used to determine the cash payment under the bonus or the number of shares subject to deferral was based on error, or inaccurate or misleading information; or Action or conduct of a participant which amounts to fraud or gross misconduct. The Committee believes that the rules of the Plan provide sufficient powers to enforce malus and clawback where required.	The maximum potential is 200% of base salary for the CEO and 150% of base salary for the CFO and other Executive Directors. At the threshold performance level there will normally be no more than 30% vesting. Awards commence vesting progressively from this point with maximum performance resulting in awards vesting in full.	The Committee considers the performance conditions selected for the annual bonus to appropriately support the Company's strategic objectives and provide a balance between generating profit and cash to enable the Group to pay a dividend, reward its employees and make future investments; and achieve other strategic goals to drive long-term sustainable return. The weighting of the measures and specific targets are reviewed on an annual basis to ensure alignment to strategy and are set to be in line with budget. Information on measures and weights that will apply for specific years will be included in the relevant year's Annual Report on Remuneration. At least 70% of the bonus will be based on the achievement of Group financial targets. The Committee retains discretion in exceptional circumstances to change performance measures and targets and the weightings attached to performance measures part-way through a performance year if there is a significant and material event which causes the Committee to believe the original measures, weightings and targets are no longer appropriate. Discretion may also be exercised in cases where the Committee believe that the bonus outcome is not a fair and accurate reflection of business performance. The exercise of this discretion may result in a downward or upward movement in the amount of bonus earned resulting from the application of the performance measures. Any adjustments or discretion applied by the Committee will be fully disclosed in the following year's Remuneration Report. The Committee is of the opinion that given the commercial sensitivity arising in relation to the detailed financial targets used for the annual bonus, disclosing precise targets for the annual bonus plan in advance would not be in shareholder interests. Actual targets, performance achieved and awards made will be published at the end of the performance periods so shareholders can fully assess the basis for any pay-outs under the annual bonus.
Bodycote Incentive Plan (BIP) 2016 To incentivise delivery of long-term strategic goals and shareholder value and aid retention of senior management.	Awards will be granted annually under the Bodycote Incentive Plan (please see the 2016 AGM Notice for a summary of the Plan) subject to a three year vesting period and stretching performance conditions measured over three years. Dividend equivalents are payable in respect of the shares which vest. The Committee retains the discretion in exceptional circumstances to adjust the vesting outcome or the targets for awards as long as the adjusted targets are no less stretching. In such an event the Committee will consult with major shareholders and will clearly explain the rationale for the changes in the report on remuneration. Discretion may also be exercised in cases where the Committee believes that the outcome is not a fair and accurate reflection of business performance. The exercise of this discretion may result in a downward or upward movement in the amount of the LTIP vesting resulting from the application of the performance measures. Malus provisions apply for the duration of the performance period. Clawback provisions apply to amounts for two years following vesting. Malus and/or clawback may be applied in the following scenarios: Discovery of a material misstatement resulting in an adjustment in the audited accounts of the Group or any Group Company; The assessment of any performance condition or condition was based on error, or inaccurate or misleading information; The discovery that any information used to determine the number of shares subject to an award was based on error, or inaccurate or misleading information; or Action or conduct of a participant which amounts to fraud or gross misconduct. The Committee believes that the rules of the Plan provide sufficient powers to enforce malus and clawback where required.	The maximum face value of an award which may be granted under the plan in any year is up to 175% of base salary for the Executive Directors. At the threshold performance level there will normally be no more than 0% vesting. Awards commence vesting progressively from this point with maximum performance resulting in awards vesting in full.	Awards vest based on performance over three years against performance measures chosen by the Committee to align with business and strategic priorities. The measures for Executive Directors are: 50% ROCE 50% headline EPS In addition, the vesting of awards may only occur if headline EPS is above a defined hurdle level. The Committee considers these performance conditions selected for the BIP to currently appropriately underpin the Company's strategic objectives. Due to the nature of the Company's activities the Committee consider ROCE to provide shareholders with an appropriate measure of how well the Company is performing and is being managed, while EPS provides a measure of the level of value created for shareholders. ROCE and EPS are our top two KPIs as shown in the Measuring progress section. The Committee may adjust the performance measures attaching to awards and the weighting of these measures if it feels this will create greater alignment with business and strategic priorities. A significant change to the measures used would only be adopted following consultation with major shareholders. The targets for the performance measures are reviewed on an annual basis to ensure alignment to strategy and are set to be in line with budget. Details of performance targets will be included in the relevant year's Annual Report on Remuneration.
Shareholding requirement To provide alignment of interest between participants and shareholders.	The Board operates a shareholding retention policy under which Executive Directors are expected, within five years from appointment, to build up a shareholding in the Company.	The CEO and CFO (and other Executive Directors) are required to build up a holding of 200% and 150% of base salary respectively.	None.
Legacy awards – Co-Investment Plan (CIP) To provide a link between short- and long-term incentive arrangements and to provide further alignment with shareholders. Final award made in 2015.	The CIP provides for the grant of awards of performance based matching shares to participants on an annual basis in a maximum ratio of 1:1 to the gross investment made in deferred shares. The deferred shares must be held for at least three years. The vesting of matching shares will be based on share price related performance conditions as determined by the Committee. Dividend equivalents are payable in respect of the matching shares which vest.	Executive Directors are invited annually to purchase shares up to 40% of basic salary (net of tax) against which performance based matching shares are granted on a 1:1 basis.	The matching shares are subject to an absolute Total Shareholder Return (TSR) performance measure which is expressed as percentage Compound Annual Growth Rate (CAGR) in excess of CPI: Threshold performance results in a 0.5:1 match Maximum performance results in a 1:1 match.
Legacy awards - Bodycote Incentive Plan (BIP) 2006 To incentivise delivery of long-term shareholder value. Aids retention of senior management. Final award made in 2015.	Awards are granted annually under the Bodycote Incentive Plan subject to a three year vesting period and stretching performance conditions measured over three years. Shares delivered following the vest of an award attract additional dividend shares calculated on the basis of the re-investment back into shares of the dividend that would have been received had the shares been beneficially held. The Committee retains the discretion in exceptional circumstances to adjust the vesting outcome or the targets for awards as long as the adjusted targets are no less stretching. In such an event the Committee will consult with major shareholders and will clearly explain the rationale for the changes in the report on remuneration. Malus provisions apply for the duration of the performance period and to shares held under deferral.	The maximum face value of an award which may be granted under the plan in any year is up to 175% of base salary for the Executive Directors. At the threshold performance level there will normally be no more than 0% vesting. Awards commence vesting progressively from this point with maximum performance resulting in awards vesting in full.	Awards vest based on performance over three years against performance measures chosen by the Committee to align with business and strategic priorities. For recent grants, the measures for Executive Directors have been: 50% ROCE 50% headline EPS In addition, the vesting of awards may only occur if headline EPS is above a defined hurdle level.

Notes to the Remuneration Policy table

The Committee reserves the right to make any remuneration payments and payments for loss of office notwithstanding that they are not in line with the policy set out below where the terms of the payment were agreed (i) before the policy came into effect or (ii) at a time when the relevant individual was not a director of the Company and, in the opinion of the Committee, the payment was not in consideration for the individual becoming a director of the Company. For these purposes "payments" include the Committee satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment being "agreed" at the time the award is granted.

Executive Directors' remuneration is reviewed annually and takes into account a number of factors. The Company adopts a policy of positioning fixed pay for all its employees at a level which is competitive to market but which does not require the Company to pay any more than is necessary. Senior and high performing individuals at all levels and across all functions within the organisation are invited to participate in both annual and long-term incentive arrangements, which are similar to those offered to the Executive Directors to ensure reward strategy is calibrated to provide substantive reward only on achievement of superior performance.

Non-Executive Director (NED) fee policy

The policy on Non-Executive Director (NED) and Chairman fees is set out below.

Element and how it supports our strategy	Operation of the element	Maximum opportunity under the element	Performance measures
Fees for Non-Executive Directors To attract NEDs who have a broad range of experience and skills to oversee the implementation of our strategy.	The fees for the non-executives are determined by the Chairman and the Group Chief Executive. The fee for the Chairman is reviewed by the Board in the absence of the Chairman. The Chairman and non-executive fees are reviewed on an annual basis. When reviewing fees, the primary source of comparative market data is FTSE 250 companies and other companies of similar size and complexity, as appropriate. The fees for the Chairman and non-executives are set at a level that will attract individuals with the necessary experience and ability to make a significant contribution to the Group's affairs. The fees reflect the time commitment and responsibilities of the roles. The Chairman and Non-Executive Directors are not entitled to any pension or other employment benefits or to participate in any incentive scheme. Appropriate benefits may be provided to non-executives and the Chairman from time to time. The Company will pay reasonable expenses incurred by the Non-Executive Directors and Chairman and may settle any tax incurred in relation to these.	Fees for Non-Executive Directors for the following year are set out in the statement of implementation of policy. The Company's policy is that the Chairman and Non-Executive Directors receive a fixed fee for their services as members of the Board and its Committees. The fee structure may also include additional fees for chairing a Board Committee and/or further responsibilities (for example, Senior Independent Directorship). In line with the Articles of Association, accumulative total fees for Non-Executive Directors are capped at £500,000 p.a.	None

Fees retained for external Non-Executive directorships

To broaden the experience of Executive Directors, they may hold positions in other companies as Non-Executive Directors provided that permission is sought in advance. Any external appointment must not conflict with the directors' duties and commitments to Bodycote plc.

Statement of consideration of employment conditions elsewhere in the Group

The Company adopts a policy of positioning fixed pay for all its employees at a level which is competitive to market but which does not require the Company to pay any more than is necessary. Senior and high-performing individuals at all levels and across all functions within the organisation are invited to participate in both annual and long-term incentive arrangements, similar to the Executive Directors to ensure reward strategy is calibrated to provide substantive reward only on achievement of superior performance.

The Committee does not consult directly with employees when formulating Executive Director pay policy. However, it does take into account information provided by the Human Resources function on pay and conditions across the Company, and considers these as part of its discussions and decision making, along with feedback from employee satisfaction surveys.

In formulating Executive Director pay policy, the Committee receives information on all employee pay conditions throughout the Group. The Committee does not use any remuneration comparison metrics.

We recognise the Government's recent commentary in this area, and will ensure that our approach to consideration of employee views and pay and conditions across the Company reflect appropriate legislative and corporate governance requirements.

Statement of consideration of shareholders' views

The Committee always welcomes the views of shareholders in respect of pay policy as well as those views expressed on behalf of shareholders by their respective proxy advisers. The Committee documents all remuneration related comments made at the Company's AGM and feedback received during consultation with shareholders throughout the year. Any feedback received is fully considered by the Committee.

In developing the proposed Remuneration Policy for 2016 and beyond the Remuneration Committee engaged extensively with the Company's key shareholders and their representative bodies. Through this process the Remuneration Committee took on board the feedback received and refined the proposed Remuneration Policy as appropriate to ensure it meets the expectations of our shareholders.

Approach to recruitment remuneration

When recruiting new Executive Directors, the Company's policy is to pay what is necessary to attract individuals with the skills and experience appropriate to the role to be filled, taking into account remuneration across the Group, including other senior executives, and that offered by other FTSE 250 companies and other companies of similar size and complexity. New Executive Directors will generally be appointed on remuneration packages with the same structure and pay elements as described in the pay policy table. Each element of remuneration to be included in the package offered to a new director would be considered separately and collectively in this context.

Component	Policy
General	The Company's policy is to pay what is necessary to attract individuals with the skills and experience appropriate to the role to be filled. The initial notice period may be longer than the Company's one year policy (up to a maximum of two years). However, this will reduce by one month for every month served, until the Company's policy position is reached.
Base salary	Base salary levels will be set at an appropriate level to recruit the best candidate in consideration of the new recruit's existing salary, location, skills and experience and expected contribution to the new role, the current salaries of other Executive Directors in the Company and current market levels for the role.
Other benefits	Other benefits will be considered in light of the provision in place for the other Executive Director(s). If it is in the best interests of the Company and shareholders, the Committee may consider providing additional benefits, potentially including relocation costs, tax equalisation or advisers' fees.
Pension	Pension will be considered in light of the retirement arrangements which are in place for the other Executive Director(s) with a contribution level considered by the Committee to be appropriate in light of the new recruit's package as a whole, market practice at the time and on a broadly equivalent basis to existing provisions for other executives.
Annual bonus	Normal awards will be made under the annual bonus plan in line with the Remuneration Policy. The Executive Director may be invited to participate in the bonus on a pro-rated basis in the first year of appointment.
Long-term incentives	Normal awards will be made under the BIP in line with the Remuneration Policy. The Executive Director may be invited to participate in 'in flight' BIP awards on a pro-rated basis when appointed. The Company is required to set out the maximum amount of variable pay which could be paid to a new director in respect of his/her recruitment. In order to provide the Company with sufficient flexibility in a recruitment scenario, the Committee has set this figure as 450% of base salary. This covers the maximum annual bonus and the maximum face value of any long-term incentive awards. This level of variable pay would only be available in exceptional circumstances, and in order to achieve such a level of variable pay, stretching targets would need to be met. For the avoidance of doubt, this 450% variable pay limit excludes the value of any "buyout" payments or awards associated with forfeited awards.
Replacement awards	For an external appointment, although there are no plans to offer additional cash and/or share-based payments on recruitment, the Committee reserves the right to do so when it considers this to be in the best interests of the Company and shareholders. Such payments may take into account remuneration relinquished when leaving the former employer and would reflect the nature, time horizons and performance requirements attached to that remuneration. Shareholders will be informed of any such payments at the time of appointment. The Committee may make awards on hiring an external candidate to "buyout" awards which will be forfeited on leaving the previous employer. Our approach to this is to carry out a detailed review of the awards which the individual will lose and calculate the estimated value of them. In doing so, we will consider the vesting period, the option exercise period if applicable, whether the awards are cash or share based, performance related or not, the Company's recent performance and payout levels and any other factors we consider appropriate. If a buyout award is to be made, the structure and level will be carefully designed and will generally reflect and replicate the previous awards as accurately as possible. We will make the award subject to appropriate malus and clawback provisions in the event that the individual resigns or is summarily terminated within a certain timeframe. An explanation will be provided at the time of recruitment of why a buyout award has been granted.
Internal promotions	For internal promotions any commitments made prior to appointment may continue to be honoured as the executive is transitioned to the new remuneration arrangements.

Shareholders will be informed of any director appointment and the individual's remuneration arrangements as soon as practicable following the appointment via an announcement to the regulatory news services.

Fee levels for a new Chairman or new Non-Executive Directors will be determined in accordance with the policy set out above.

Service contracts

All directors' service contracts and letters of appointment are available for inspection at the Company's registered office.

A summary of the key terms of the Executive Directors' service contracts is set out below. Note that this section has been revised to include the service contract of D Yates.

	S.C. Harris, Group Chief Executive	D.F. Landless, Group Finance Director (retired 1 January 2017)	D. Yates, Group Finance Director designate – appointed Chief Financial Officer on 2 January 2017
Date of service contract	6 October 2008	26 September 2001	1 November 2016
Notice period	12 months	12 months	12 months
Remuneration	Annual base salary Potential for cash in lieu of pension Reimbursement of expenses (if satisfactory evidence provided) Private medical insurance Company car allowance Entitlement to receive an annual performance-related bonus award	Annual base salary Potential for cash in lieu of pension Reimbursement of expenses (if satisfactory evidence provided) Private medical insurance Company car allowance Entitlement to receive an annual performance-related bonus award Entitlement to one year's remuneration if employment is terminated on a change of control	Annual base salary Potential for cash in lieu of pension Reimbursement of expenses (if satisfactory evidence provided) Private medical insurance Company car allowance Entitlement to receive an annual performance-related bonus award Entitlement to a reasonable relocation package if D.Yates relocates within 30 months of starting date of 1 November 2016
Termination	Company has right to terminate on payment of a termination payment with agreement of executive	Company has right to terminate on payment of a termination payment	Company has right to terminate on payment of a termination payment
Non-competition	During employment and for 12 months thereafter	During employment and for 12 months thereafter	During employment and for 12 months thereafter

Other than the contents of the contracts, there are no obligations that may give rise to remuneration.

Director	Date of appointment	Notice period
A.M. Thomson	1 December 2007	6 months
P. Larmon	13 September 2016	6 months
E. Lindqvist	1 June 2012	6 months
I.B. Duncan	17 November 2014	6 months
A. Quinn	1 January 2018	6 months
L. Chahbazi	1 January 2018	6 months

The Non-Executive Directors of the Company (including the Chairman) do not have service contracts. The Non-Executive Directors are appointed by letters of appointment. Each independent Non-Executive Director's term of office runs for a maximum three year period.

The initial terms of the Non-Executive Directors' positions are subject to their re-election by the Company's shareholders at the next AGM and to re-election at any subsequent AGM at which the Non-Executive Directors stand for re-election.

All directors will be put forward for re-election by shareholders on an annual basis.

Termination remuneration policy

It is the Company's policy that Executive Directors have service contracts with a one-year notice period and terminable by one year's notice by the employer at any time, and by payment of one year's basic salary and other fixed benefits in lieu of notice by the employer. All future appointments to the Board will comply with this requirement. This section of the report has been revised to reflect the service contract of Dominique Yates, Group CFO, which operates under different terms to that of the CEO and the former FD.

The Committee will honour Executive Directors' contractual entitlements. Service contracts do not contain liquidated damages clauses. If a contract is to be terminated, the Committee will determine such mitigation as it considers fair and reasonable in each case. There are no contractual arrangements that would guarantee a pension with limited or no abatement on severance or early retirement. There is no agreement between the Company and its Executive Directors or employees, providing for compensation for loss of office or employment that occurs because of a takeover bid.

Component	Policy
Compensation for loss of office in service contracts	Currently, under the terms of the Chief Executive's contract, the Company may at its choice, in lieu of giving notice, terminate an Executive Director's service contract by making a payment equivalent to; one year's annual base salary, 25% of base salary in respect of all other remuneration and benefits (other than annual bonus and incentives) and annual bonus equal to the average bonus paid up to three years prior to the date of notice. Under the terms of the Chief Financial Officers' contract, the contract is terminable by one year's notice by the employer at any time, and by payment of one year's basic salary and other fixed benefits in lieu of notice by the employer.
Treatment of cash element of the bonus under Plan rules	If termination is by way of death, injury, illness, disability, redundancy, retirement or any other circumstances the Committee determines (a "good leaver"), the level of bonus will be measured at the bonus measurement date. Bonus will normally be pro-rated for the period worked during the financial year. The Committee retains the discretion: to determine that an executive is a good leaver. It is the Committee's intention to only use this discretion in circumstances where there is an appropriate business case which will be explained in full to shareholders; not to pro-rate the bonus to time. The Committee's policy is that it will pro-rate bonus for time. It is the Committee's intention to use its discretion to not pro-rate in circumstances where there is an appropriate business case which will be explained in full to shareholders. Under all other circumstances no bonus will be earned on cessation of employment (other than set out above in the legacy arrangements for current Executive Directors).
Treatment of unvested deferred bonus awards under Plan rules	If termination is by way of death, injury, illness, disability, redundancy, retirement or any other circumstances the Committee determines (a "good leaver"), deferred shares may be released to the participant at the normal vesting date. Under all other circumstances unvested awards will lapse on cessation of employment. The Committee has the following elements of discretion: to determine that an executive is a good leaver. It is the Committee's intention to only use this discretion in circumstances where there is an appropriate business case which will be explained in full to shareholders; to vest deferred shares at the end of the original deferral period or at the date of cessation. The Committee's policy is that shares will vest on the original date of vesting. The Committee will make this determination depending on the type of good leaver reason resulting in the cessation.
Treatment of unvested BIP 2016, BIP 2006 and CIP awards	On cessation of employment, awards under the BIP and CIP will lapse in full, unless the Committee determines that the individual is a good leaver (see above for definition). In instances where the Committee determines that awards should not lapse in full, awards will normally vest at the normal vesting date, pro-rated for time served and subject to the achievement of the original performance conditions. The Committee has the following elements of discretion: to determine that an executive is a good leaver. It is the Committee's intention to only use this discretion in circumstances where there is an appropriate business case which will be explained in full to shareholders; to measure performance over the original performance period or at the date of cessation. The Committee will make this determination depending on the type of good leaver reason resulting in the cessation; and to pro-rate the maximum number of shares to the time from the date of grant to the date of cessation. The Committee's policy is that it will pro-rate awards for time. It is the Committee's intention to use discretion to not pro-rate in circumstances where there is an appropriate business case which will be explained in full to shareholders.
Exercise of discretion	In the event that an Executive Director leaves the Company, the Committee's policy for exit payments is to consider the reasons for cessation and consequently whether any exit payments other than those contractually required are warranted. Further, in the event of a compromise or settlement agreement, the Committee may agree payments it considers reasonable in settlement of legal claims. This may include an entitlement to compensation in respect of their statutory rights under employment protection legislation in the UK or in other jurisdictions. The Committee may also include in such payments reasonable reimbursement of professional fees in connection with such agreements.
Change of control	Our policy is not to have a change in control clause in Executive Directors' service contracts. Neither S.C. Harris nor D. Yates' contract have a change of control clause. To the extent that executive contracts are renewed, or new appointments made, the Committee will continue to adopt a policy of not having change of control clauses in service contracts. In any case, legally appropriate factors would be taken into account to mitigate any compensation payment, covering basic salary, annual incentives and benefits, which may arise on the termination of employment of any Executive Director, other than payments made on a change in control or for payments in lieu of notice. On change of control the awards under the Company's incentive plans will generally vest subject to performance and time apportionment as determined by the Committee and in accordance with the rules of the relevant Plan.