Remuneration report

1. Introduction
This report sets out the policy and disclosures on directors’ remuneration as required by the Directors’ Remuneration Report
Regulations 2002 (‘the Regulations’) contained in schedule 7A of the Companies Act 1985. In accordance with the Regulations, a resolution to approve this report will be proposed at the forthcoming annual general meeting of the Company. The vote will have advisory status in respect of the remuneration policy and overall remuneration packages and will not be specific to individual levels of remuneration. KPMG Audit Plc has audited the report to the extent required by the Companies Act, being the sections entitled ‘Directors’ remuneration’, ‘Long-term incentives’, ‘Directors’ pensions’ and ‘Directors’ share options’.

2. The Remuneration committee
The Remuneration committee is responsible to the board for determining the remuneration policy for executive directors, together with the specific terms and conditions of employment of each individual director, and for reviewing the overall policy for executive remuneration.

Committee composition

The Remuneration committee consists of five non-executive directors. The members of the committee are Martin Adamson (chairman), Lord MacGregor, Mike Alexander, Jeff Harris and Tim Clarke.

Consultants

The committee has retained Towers Perrin to provide independent market information and remuneration advice on an ongoing basis. Towers Perrin does not provide any other consulting services to the Company.

In addition to Towers Perrin, the following people provided material advice or services to the committee during the year:

George Weston – Chief Executive
Mark Goodridge – Interim Group Human Resources Director (until December 2005)
Des Pullen – Group Human Resources Director (from January 2006)
Both the HR Directors named above provided support and liaison with Towers Perrin.

3. Directors’ remuneration policy
The remuneration policy of the Company aims to:

• Provide alignment between remuneration and the Company’s business objectives
• Attract and retain high calibre directors
• Motivate directors to achieve challenging performance levels
• Recognise both individual and corporate achievement
• Align executive rewards with shareholder value.

The total remuneration of executive directors comprises base salary, annual and long-term incentives, pension provisions and other benefits.

Over the past year the Remuneration committee has undertaken a detailed review of the total remuneration package of executive directors and other senior executives of the Company, both in relation to the level of potential payouts and in relation to the targeting and monitoring of appropriate performance measures.

It has been agreed that a substantial element of executive compensation should be ‘at risk’ in order to reward and drive increased performance, reflect the market trend and to better align the interests of executives with those of shareholders. Although the proportion of variable pay to fixed pay has increased over the past few years, this proportion will increase further with the new annual and long-term incentive arrangements which have been put in place from September 2006.

Base salary

Base salaries are reviewed in relation to median market data for comparable companies in terms of size, market sector and complexity. Other considerations are individual experience, performance and scope of responsibility. Base salaries are normally reviewed on an annual basis, or following a significant change in responsibilities.

Annual performance bonus

Each executive director is eligible to participate in an annual cash-based bonus scheme with payments based on the achievement of stretching financial targets and personal performance against individual short and medium-term objectives. Targets are set by the Remuneration committee at the beginning of the financial year. In 2005/6, the scheme provided an incentive opportunity in the range of 0% to 65% of base salary for executive directors with an expected value of around 40% for ‘on target’ performance.

Following the review of incentives mentioned above, the Remuneration committee has determined that with effect from the
beginning of the new financial year the annual incentive opportunity for executive directors will be in the range 0 to 100% of base salary, with an ‘on target’ value of around 53%.

Long-term incentives

The Associated British Foods Executive Share Incentive Plan 2003 (‘the Share Incentive Plan’) was established for executive directors and other key executives for the three year period ending 16 September 2006. The plan rewards superior growth in profits and cash flow and encourages investment in suitable growth opportunities.

Awards under the Share Incentive Plan are in the form of a conditional allocation of shares, which will be released if, and to the extent that, the performance targets are satisfied over the specified three year period. Allocations of Company shares to a maximum value of 150% of salary were made in December 2003 following shareholder approval at the 2003 annual general meeting, and shares to meet these obligations have been acquired on the market.

The face value of this long-term incentive was 150% of base salary over three years and was subject to testing at the end of the performance period, in 2006, against a pre-determined operating profit target range modified by return on capital employed. These targets were demanding, but awards were also subject to a further performance hurdle whereby no awards would be made to participants if earnings per share were below RPI + 4% per annum on average over the three year period of the plan.

The directors’ interests in shares under the Share Incentive Plan are as follows:

	Award date	Market price at date of award	End of performance	Vesting date	Shares vested during the year	Value vested	Conditional allocations of shares as at 18.09.05	Conditional allocations of shares as at 16.09.06
George Weston	17.12.03	565p	16.09.06	17.12.06	-	-	70,354	70,354
John Bason	17.12.03	565p	16.09.06	17.12.06	-	-	110,177	110,177

Following the end of the 2003-2006 performance period, it has been determined that under the rules of the scheme, 65.1% of the conditional shares allocated in December 2003 will vest in December 2006.

From the beginning of the 2006/7 financial year, under the revised incentive plan arrangements, executive directors will receive annual grants of conditional shares, with overlapping three year performance periods. Grants will continue to be made under the Associated British Foods Executive Share Incentive Plan 2003 with the face value of these grants at 125% per annum. Long-term performance under this plan will be based on compound growth in adjusted earnings per share, in a range of 5% to 11% per annum.

Share option schemes

There are two schemes under which options may be granted as both Inland Revenue approved and unapproved options.

• The Associated British Foods plc 1994 Share Option Scheme (‘the 1994 Scheme’) under which options may be granted to
purchase ordinary shares in the Company to selected qualifying employees over the ten years from November 1994. Options
granted must be held for five years before they become exercisable at which point they are not subject to any performance criteria.

Until December 2000, the 1994 scheme was the only share option scheme operated by ABF. Following approval by shareholders in December 2000 of the 2000 scheme (described below), which contained performance criteria, no further options have been granted under the 1994 Scheme other than options required to be granted to John Bason under pre-existing contractual arrangements, which have now been satisfied.

• The Associated British Foods 2000 Executive Share Option Scheme (‘the 2000 Scheme’) requires that options granted under this scheme become exercisable by participants after an initial three year performance period to the extent that performance
criteria have been satisfied. Performance criteria are based on robust levels of business performance over the period. Options under this scheme may be granted to selected employees over the ten years from 15 December 2000.

The committee confirmed last year that although share options may continue to be granted on a selective basis, share option
awards will not form part of the normal ongoing remuneration package for executives.

Other benefits

Executive directors are also entitled to the provision of a fully expensed company car, private medical insurance, life assurance, home and mobile telephone costs and the reimbursement of reasonable business expenses. The taxable value of these benefits is included in the table of Directors’ remuneration below.

4. Directors' Remuneration


Non-executive directors
	For the year to 16 September 2006
	Salary or fees £'000	Bonus £'000	Benefits £'000	2006 Total £'000	2005 Total £'000
Martin Adamson	229	-	-	229	190
Galen Weston	-	-	-	-	-
Lord MacGregor	51	-	-	51	43
Mike Alexander	44	-	-	44	38
Jeff Harris	51	-	-	51	43
Tim Clarke	44	-	-	44	33
Executive directors
George Weston	647	74	13	734	691
John Bason	472	251*	24	747	670

*This figure includes a special bonus of £200,000 awarded by the Remuneration committee for his exceptional contribution during a time of transition. This bonus will be paid in December 2006.

5. Directors’ pensions
The Remuneration committee aims to ensure that retirement benefits should be in line with best practice standards adopted by major companies in Continental Europe and the United Kingdom.

In accordance with this policy, executive directors are covered by final salary defined benefit pension arrangements and can retire at their normal retirement age with retirement benefits, broadly equivalent to two thirds of final pensionable salary. The Company pension schemes are Inland Revenue approved.

Directors’ pension disclosure for year ended 16 September 2006

The table below shows the defined benefit pension entitlements from the Associated British Foods Pension Scheme (‘the ABF Scheme’), and unfunded unapproved arrangements where appropriate, of executive directors of Associated British Foods plc who were members of the ABF Scheme during the year ending 16 September 2006.

Pension entitlements and corresponding transfer values increased as follows during the year:

	Increase in accrued pension £'000 pa (A)	Increase in accrued pension net of inflation £'000 pa (B)	Total accrued pension at 16.09.06 £'000 pa (C)	Director's contributions during period £'000 (D)	Value of net increase in accrual over period £'000 (E)	Value of accrued pension at 16.09.06£'000 (F)	Value of accrued pension at 17.09.05 £'000 (G)	Total change in value during period £'000 (H)
George Weston	54	51	150	16	353	1,091	700	375
John Bason	19	17	92	16	187	1,097	739	342

Notes:

1. Pension accruals (A) and (C) are the amounts which would be paid annually on retirement based on service to the end of year or earlier retirement.

2. The pension values (E), (F) and (G) are transfer values calculated in accordance with version 9.2 of guidance note GN11 issued by the actuarial profession.

3. The value of net increase in pension (E) represents the incremental value to the director of his pension benefits during the year, resulting from additional service and increases in salary. It is based on the increase in accrued pension net of inflation (B) after deducting the director’s contribution during the year (D).

4. The change in the transfer value (H) includes the effect of fluctuations in the transfer value due to factors beyond the control of the Company and directors, such as stock market movements. The directors’ contributions during the year (D) are excluded from this value.

5. Both directors opted out of the ABF Scheme on 5 April 2006, and from then on earned benefits in the Employer Financed Retirement Benefit Scheme.

6. Voluntary contributions paid by directors and resulting benefits are not shown.

7. Pension benefits include a 50% spouse’s pension. Pensions are guaranteed to increase in payment in line with RPI limited each year to 5%.

6. Directors’ share options

At 16 September 2006 the market value of the Company’s ordinary shares was 835p. During the previous 12 months the price ranged from 699.5p to 880.5p.

The number of share options held by the directors under the 1994 Scheme and the 2000 Scheme was as follows:

	Options as at 17.09.05	Lapsed in year	Exercised during year	Options as at 16.09.06	Exercise price	Earliest normal exercise date	Expiry date	Exercise date	Price on exercise
George Weston	15,000*	-	-	15,000	561.50p	28.04.2003	27.04.2008	-	-
	22,500**	-	-	22,500	484.00p	17.01.2004	16.01.2011	-	-
John Bason	50,000**	-	-	50,000	484.00p	17.01.2004	16.01.2011	-	-
	50,000*	-	-	50,000	497.00p	07.12.2006	06.12.2011	-	-
	50,000*	-	-	50,000	564.00p	09.12.2007	08.12.2012	-	-

*Granted under the Associated British Foods 1994 Executive Share Option Scheme.
**Granted under the Associated British Foods 2000 Executive Share Option Scheme.

7. Performance review
The performance graph illustrates the performance of the Company over the past five years in terms of total shareholder return compared with that of the companies comprising the FTSE 100 index. This index has been selected because it represents a cross-section of leading UK companies.

Year on Year TSR - ABF v FTSE 100 (2001=100)

8. Directors’ service contracts
It is the Company’s policy that all executive directors have rolling contracts with 12 month notice periods. The Articles of Association of Associated British Foods plc require that all directors retire from office at every third annual general meeting. The details of the directors’ contracts of service as at 16 September 2006 are set out below:


	Date of appointment	Effective date of current contract	Notice period from company	Notice period from director
Martin Adamson	11.10.99	11.12.02	6 months	6 months
George Weston	19.04.99	01.06.05	12 months	12 months
John Bason	04.05.99	16.03.99	12 months	12 months
Lord MacGregor	09.12.94	16.11.99	6 months	6 months
Mike Alexander	16.01.02	16.01.02	6 months	6 months
Jeff Harris	21.05.03	21.05.03	6 months	6 months
Tim Clarke	03.11.04	03.11.04	6 months	6 months

The board has not considered it appropriate to enter into a formal letter of appointment with Galen Weston in view of his relationship with the ultimate holding company of Associated British Foods plc, Wittington Investments Limited. He receives no fees for performing his role as a non-executive director and Associated British Foods plc does not reimburse him for any expenses incurred by him in that role.

The committee takes a view that the entitlement of the executive directors to the security of 12 months’ notice of termination of employment is in line with practice of many comparable companies.

The Remuneration committee’s aim is always to deal fairly with cases of termination whilst taking a robust line in minimising any compensation. The Remuneration committee has given due consideration to the recommendations contained in the Combined Code regarding inclusion of explicit provisions in directors’ service contracts for compensation commitments in the event of early termination. The committee will continue to keep under review its current practice, which is not to include such provisions in order to enable it to respond appropriately to particular circumstances.

9. Directors’ beneficial interests

The directors of the Company as at 16 September 2006 had the following beneficial interests in the shares and debentures of the Company, its holding company and fellow subsidiary undertakings.

Martin Adamson
As at	16 September 2006	17 September 2005
Associated British Foods plc, ordinary shares of 5¹⁵/₂₂p	50,000	50,000
George Weston
Wittington Investments Limited, ordinary shares of 50p	5,862	5,862
Associated British Foods plc, ordinary shares of 5¹⁵/₂₂p	3,146,761	3,146,761
John Bason
Associated British Foods plc, ordinary shares of 5¹⁵/₂₂p	9,735	9,621
Galen Weston
Wittington Investments Limited, ordinary shares of 50p	37,953	37,953
Associated British Foods plc, ordinary shares of 5¹⁵/₂₂p	5,672,560	5,672,560

Lord MacGregor	2,045	2,045
Mike Alexander	1,205	1,205
Jeff Harris	2,000	2,000
Tim Clarke	3,000	1,500

In addition to the above, George Weston and John Bason were allocated a conditional grant of shares under the Associated British Foods Executive Share Incentive Plan 2003, details of which are shown here.

10. Non-executive directors
The board reviews non-executive directors’ fees periodically in the light of fees payable in comparable companies and the importance attached to the retention and attraction of high calibre individuals as non-executive directors. Fees are paid on a per annum basis and are not varied for the number of days worked. The chairman of the Audit committee and the senior independent director are paid an additional fee. Non-executive directors do not participate in the Company’s annual or long-term incentive plans, and take no part in any discussion or decision concerning their own fees.

11. Executive directors serving as non-executive directors
The Remuneration committee has determined that executive directors serving as non-executive directors of other companies
may retain any fees earned. During the year, George Weston served as a non-executive director of Wittington Investments
Limited, for which he received no compensation.

Paul Lister, Company Secretary
7 November 2006