This report sets out the policy and disclosures in relation to Directors’ remuneration. At the Annual General Meeting of the company to be held on 7 May 2003, this Directors’ remuneration report will be submitted to shareholders for their approval. This Report has been produced in accordance with the Directors’ Remuneration Report Regulations 2002.

Composition and terms of reference of Remuneration Committee
The Remuneration Committee (the Committee) is responsible for determining the remuneration and the terms and conditions of service of the Executive Directors. At the end of the year, the Committee was made up of seven independent Non-Executive Directors. The membership of the Committee comprised Mr R D Lapthorne (the Chairman of the Board) as Chairman, Mr J Fr Odfjell (the Deputy Chairman of the Board and Senior Independent Non-Executive Director), Mr D H Brydon, Prof E Thorsby, Dr J S Patterson and Mr J F Rejeange. Prof M Uhlén joined the Committee in June 2002. The Chief Executive and the Human Resources Director also attend the meetings of the Committee, except when their own remuneration is being considered.

Details of the Directors retiring by rotation at the Annual General Meeting to be held on 7 May 2003 are given in the Report of the Directors. Of the Directors retiring, Prof M Uhlén and Prof E Thorsby are members of the Remuneration Committee. Following the Annual General Meeting, Mr R D Lapthorne will retire from the Board and Dr J S Patterson will assume the role of Chairman of the Remuneration Committee.

In 2002, the Board accepted all the recommendations of the Remuneration Committee without amendment.

Non-Executive Directors
The remuneration of the Non-Executive Directors is reviewed by the Chief Executive who makes recommendations to the Board. The Board determines the remuneration of the Non-Executive Directors within the limits set out in the Articles of Association. The responsibilities of the role and the level of fees paid in UK organisations of a similar size and complexity to Amersham are considered in setting remuneration policy for Non-Executive Directors.

The Report of the auditors (PDF) on the financial statements covers the disclosures contained in this report that are specified for audit by the Financial Services Authority.

Remuneration policy for Executive Directors
In determining the remuneration policy for Executive Directors, the Committee has considered a number of factors including:

To this end, the Remuneration Committee seeks to pay Executive Directors base salaries at a median level and incentives (in the form of bonuses and long term option arrangements) at an upper quartile level when compared to compensation levels and packages in other companies of comparable size and complexity, and also in companies in the same business sector. The total package is aimed to lie between the median and upper quartile. For 2003, the Committee aims to target 50% of total package in the form of fixed remuneration (base salary and benefits) and 50% performance-related remuneration (target annual bonus and Black-Scholes value of annual share option awards). In 2002, the ratio was 55% fixed and 45% performance-related remuneration.

In 2002, the Remuneration Committee considered a valuation of all elements of Executive Directors’ remuneration to ensure that it was aware of the total remuneration within the company and its selected comparators. This valuation approach included the use of the Black-Scholes option valuation technique for assessing the value of long term incentives. The same approach will be used in 2003.

In establishing this policy, the Committee has appointed independent consultants, New Bridge Street Consultants, who provide advice on remuneration and share plans both for Executive Directors and the wider executive population. The Committee has also appointed Watson Wyatt who provide advice on pensions both for Executive Directors and advice to the company as a whole. Neither New Bridge Street Consultants nor Watson Wyatt provide any other services to the company. In addition, the Committee is advised on reward strategy by Mr Malcolm Saffin, Vice President of Compensation and Benefits for Amersham.

The Remuneration Committee believes that the policy adopted in its remuneration of Executive Directors and senior managers has contributed to the sustained financial success and long term growth of the company. This policy has enabled the company both to attract and keep a high calibre management team – essential for a well run and growing business. The strong shareholder returns achieved by the company are a testament to this policy, which reflects best market practice. This policy will continue to be reviewed in the light of changes in market practice and legislation, which impact upon the company.

The current elements of the remuneration packages can be summarised as follows:

Base salary and benefits
Base salaries for Executive Directors are reviewed by the Committee, normally annually, having regard to competitive market practice and individual performance for the financial year.

The general benefits provided to the Executive Directors are a fully-expensed car, pension, life, disability and health insurance and where appropriate relocation expenses.

Annual performance-related bonus
The annual performance-related bonus is dependent upon a number of factors. The level of bonus is payable on a sliding scale between 0% and 100% of the base salary. Bonus payments totalling £1,135,930 (2001 – £1,125,420) have been achieved, based on the financial performance measures attained for 2002, namely sales and operating profit, cash flow, growth in earnings per share and performance against a number of personal objectives for each Executive Director. In addition, the company has agreed to pay Mr P Loescher an amount equivalent to the bonus he would have received from his previous company had he not joined Amersham. The precise amount is not yet known, but is expected to lie within the range of euros 300,000 to euros 650,000.

In respect of the year ended 31 December 2003, it is proposed to pay a bonus on a sliding scale of 0% to 150% of base salary. The actual payment will be based on the same financial performance measures as used in 2002. Two-thirds of the bonus shall be paid in cash and one-third in the form of restricted shares, which will vest 50% on the second anniversary of the bonus payment date and 50% on the third anniversary of the bonus payment date.

In conjunction with the increased annual bonus opportunity, the company has introduced Share Ownership guidelines, which will require the Executive Directors to hold shares equivalent in value to two times their base salary. This holding must be acquired within five years.

Share option schemes
Tax approved and unapproved Executive Share Option Schemes (ESOS) are available to Executive Directors and senior managers.

Options granted to Executive Directors prior to 2001 under the terms of the 1993 Executive Share Option Scheme are subject to the attainment of growth in the group’s earnings per share of at least 6% more than the increase in the Retail Prices Index over any three consecutive financial years prior to the exercise of the option.

Options granted to Executive Directors from 2001 under the terms of the 2001 Executive Share Option Scheme are not normally exercisable until the third anniversary of the date of grant and to the extent that the performance conditions specified prior to the grant of the option have been satisfied. For options granted to Executive Directors in 2001 and 2002 (which are detailed in the Interests in share options table on page 49), 50% of each option grant will vest if the company’s normalised earnings per share growth (as determined by the Remuneration Committee) matches or exceeds the growth in the Retail Prices Index plus 3% per annum. The entire option grant will vest if the company’s normalised earnings per share growth matches or exceeds the growth in the Retail Prices Index plus 5% per annum. There is proportionate vesting between 3% and 5%. Performance is always measured from the end of the financial year prior to the grant of the option. 25% of the options may vest after one year with a further 25% after two years and a further 50% after three years. To the extent that these targets are not achieved by those times, the performance period will be extended, one financial year at a time. To the extent that the performance conditions have not been met by the fifth anniversary of the grant, the option lapses. Option grants made to Dr A Carr in 2001 and 2002 are not subject to performance conditions as he was not an Executive Director at the date of grant. Option grants made to all Executive Directors in 2003 are subject to the same performance conditions as applied to Executive Director option grants in 2001 and 2002.

Although performance conditions are not a common feature of option plans operated by our international competitors, we recognise that as a company with our primary listing in the UK, it is appropriate that options granted to our Executive Directors are subject to performance conditions. The performance conditions we have chosen mean that options will only vest when there has been a correspondingly good return for our shareholders. More demanding performance conditions would mean that the Black-Scholes valuation of share options awarded would be lower and therefore in order to maintain the same Black-Scholes value of award, higher option grants would need to be given.

The beneficial interests of the Executive Directors in share options are shown in the Directors' remuneration report.

The following graph shows the value by the end of 2002 of £100 invested in Amersham on 31 December 1997 compared with the value of £100 invested in the FTSE 100 index. Amersham has been a constituent of this index for most of this period and therefore this index is deemed to be the most appropriate comparator.

Executive Directors are also entitled to participate in the UK Inland Revenue approved Sharesave (SAYE) share option scheme which is available to all UK employees. The scheme is subject to a cumulative maximum investment of £250 per month for each individual. The share option runs for three, five or seven years. At the end of the chosen period the shares may be purchased by the employee at a 20 per cent discount to the share price at the start of the period.

Pensions
Sir William Castell is entitled to a total target pension upon retirement at age 60 of 60% of the average of the last three years' basic salary. The pension payable by the company will be this target pension, less pension benefits earned in previous employments. This pension will also include the pension which could be notionally secured by Sir William Castell from past remuneration supplements.

Approximately two-thirds of the total target pension is being funded, through a combination of approved and unapproved arrangements. With effect from December 2002, this proportion will be increased over time with the objective that at retirement, the whole of the target pension will be funded. Details of the accrual of his pension are provided below.

Mr G W Battersby, Mr G F B Kerr and Mr P Loescher accrue pension benefits through a combination of approved defined benefit arrangements and unapproved defined contribution arrangements. Dr J M Padfield also accrued pension benefits through a combination of approved defined benefit arrangements and unapproved defined contribution arrangements up to his retirement on 31 December 2002. Details are shown below of the defined benefit accrual. The contribution to the Funded Unapproved Retirement Benefits Scheme ('FURBS') element is identified in the column headed 'pension contributions' in this table. Dr A Carr accrues a defined benefit pension through both UK and US pension arrangements.

In previous years' accounts, disclosures of the accrual of defined benefits have been made under the requirements of the Stock Exchange Listing Rules. These Rules are still in place, but it is now also necessary to make disclosure in accordance with the Directors' Remuneration Report Regulations 2002. The information below sets out the disclosures under the two sets of requirements.

Name	Age	Accrued pension at 31.12.02 £ pa	Increase in accrued pension during the year £ pa	Increase in accrued pension during the year (net of inflation) £ pa	Transfer value of accrued pension at 31.12.02 £	Transfer value of accrued pension at 31.12.01 £	Director’s contribution during the year £	Increase in transfer value over the year, net of director’s contribution £
W M Castell	55	202,987	44,887	42,199	2,747,681	2,272,171	–	475,510
G W Battersby	56	3,764	1,662	1,626	54,093	31,523	4,838	17,732
A Carr	43	89,233	15,189	14,093	479,131	554,573	–	(75,442	)
G F B Kerr	43	26,233	5,212	4,855	189,651	186,208	4,838	(1,395	)
P Loescher	45	275	275	275	2,081	–	405	1,676
J M Padfield	55	5,377	1,700	1,637	74,857	54,060	4,838	15,959
Notes: 1 The accrued pensions are the amounts which would be paid if the Director left service at the relevant date, but ignoring any vesting periods. 2 The transfer value represents the lump sum capital value of the Director’s pension benefits as at the year end, calculated using assumptions certi.ed by our actuary in accordance with actuarial guidance note GN11 published by the Institute of Actuaries and Faculty of Actuaries. These assumptions include a link to current stockmarket levels for younger members and bond markets for older members. Stockmarkets have fallen during the year and the transfer values for younger Directors have fallen accordingly.

Further information about the Directors’ pension benefits is given below.

Name	Normal retirement age	Early retirement terms	Dependant’s pension	Pension increases
W M Castell	60	Reduced by 4% for each year earlier than 60	66% of Member’s Pension	RPI up to 5%
G W Battersby	63	Unreduced from age 60 and between age 50 and 60 reduced by 4% each year earlier than 60 (pro-rata for months)	50% of Member’s Pension	RPI up to 7.5% plus 50% of RPI in excess subject to maximum of 8.75%
A Carr US	65	Unreduced from age 62 and between age 55 and 62 reduced by 4% each year earlier than 62	Any dependant’s pension is provided by reducing the Director’s own pension by an actuarially equivalent amount	Nil
A Carr UK	63	Unreduced from age 60 and between age 50 and 60 reduced by 4% each year earlier than 60 pro-rata for months)	50% of Member’s Pension	RPI up to 7.5% plus 50% of RPI in excess subject to maximum of 8.75%
G F B Kerr	63	Unreduced from age 60 and between age 50 and 60 reduced by 4% each year earlier than 60 (pro-rata for months)	66% of Member’s Pension	RPI up to 7.5% plus 50% of RPI in excess subject to maximum of 8.75%
P Loescher	63	Unreduced from age 60 and between age 50 and 60 reduced by 4% each year earlier than 60 (pro-rata for months)	50% of Member’s Pension	RPI up to 7.5% plus 50% of RPI in excess subject to maximum of 8.75%
J M Padfield	63	Unreduced from age 60 and between age 50 and 60 reduced by 4% each year earlier than 60 (pro-rata for months)	50% of Member’s Pension	RPI up to 7.5% plus 50% of RPI in excess subject to maximum of 8.75%