Directors’ remuneration report

The report provides the information required by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and describes how the Company applies the principles of the Combined Code in relation to executive directors’ remuneration. The Company confirms that it complies with the requirements of the Code.

The report was approved by the committee on February 8, 2011.

The committee has responsibility for making recommendations to the Board on the Group’s policy regarding executive remuneration. The committee determines, on the Board’s behalf, the remuneration of the Chairman and the remuneration packages of the executive directors and a number of senior executives. A copy of the committee’s terms of reference is available on the Group’s website at www.rolls-royce.com.

The committee consists exclusively of independent, non-executive directors. The members of the committee and their attendance at committee meetings during the year were:

	Meetings eligible to attend	Meetings attended
Helen Alexander CBE (chairman)	7	7
Peter Byrom1	7	5
Peter Gregson	7	6
John McAdam	7	7

1	Peter Byrom retired as a member of the remuneration committee on February 8, 2011.

In 2010, Sir Simon Robertson, Chairman, Sir John Rose, Chief Executive, the Director – Human Resources and the General Counsel and Company Secretary, attended meetings by invitation of the committee but were not present during any discussion of their own emoluments.

During 2010, the committee had access to advice from inside and outside the Group from:

• the Chairman;
• the Chief Executive;
• the Finance Director
• the Director – Human Resources;
• the General Counsel and Company Secretary;
• the Director – Global Reward;
• the Group finance department;
• Deloitte LLP¹;
• Kepler Associates; and
• Freshfields Bruckhaus Deringer LLP, the Company’s lawyers.

1	During the year, Deloitte LLP advised the Group on tax, assurance, pensions and corporate finance and Deloitte MCS Limited provided consulting services.

The main components of remuneration for all executives worldwide comprise base salary, annual incentive arrangements, long-term share-based incentives and benefits. Executives are also entitled to participate in all-employee share plans.

Component	Summary	Timeframe	Main Features
Base salary	Set by the committee at levels required to recruit and retain high quality senior executives with reference to the marketplace for companies of similar size, internationality and complexity and taking account of pay elsewhere in the Group. Set with reference to the median of market practice.	Not applicable	Set annually on March 1. Performance is taken into account.
Annual performance related award plan (APRA)	Annual incentive. Measures set by the committee based on underlying profit, cash flow and individual objectives and performance. Strong link between performance and remuneration. Promotes share ownership and encourages decisions in the long-term interest of shareholders.	One-year plus two-year deferral	Bonus potential: - for on target performance, 75 per cent of salary for executive directors and 81 per cent for Chief Executive. - for maximum performance, 125 per cent of salary for executive directors and 135 per cent for Chief Executive. Bonuses can be increased by up to 20 per cent to reflect exceptional personal performance. Compulsory deferral of 40 per cent of bonus into shares. Shares vest after two years, subject to continued employment.
Rolls-Royce Group plc performance share plan (PSP)	Long-term share-based incentive. Conditional on corporate performance. Measures based on Cash Flow Per Share (CPS), Total Shareholder Return (TSR) and an Earnings Per Ordinary Share underpin (EPS).	Three years	Potential: - for maximum CPS performance, 100 per cent of salary for executive directors and 120 per cent for Chief Executive. - for maximum CPS and TSR performance, 150 per cent of salary for executive directors and 180 per cent for Chief Executive. Shares vest after three years provided performance criteria are met.
All-employee share plans	ShareSave Plan – a savings-related share option plan available to all employees allowing purchase of shares at a discount to the share price at date of grant. ‘Free Share’ element of the Share Incentive Plan (SIP) where UK employees receive shares as part of any bonus paid. ‘Partnership Share’ element of the SIP under which UK employees may make regular purchases of shares from pre-tax income.	Not applicable	ShareSave options may be exercised in three or five years from the date of grant. Shares under the SIP vest after five years free from income tax and national insurance.

In addition to the above, pension and other benefits, which are competitive in local markets, are provided.

Base salaries

The committee has commissioned salary benchmarks from Deloitte LLP. The benchmarks have been prepared using their company size and complexity methodology.

All salary increases must be justified on the basis of performance and are not automatic. The committee is informed of pay and conditions elsewhere in the Group and these are taken into account in determining remuneration for the executive directors.

Annual incentives

Executive directors and selected senior executives participate in APRA. For UK participants, APRA awards do not form part of pensionable earnings.

Target and maximum APRA bonus opportunity

The committee considers that there should be a continuing emphasis on those at-risk elements of remuneration, such as annual and long-term incentives, which directly influence the performance of senior executives. For the Chief Executive, a 162 per cent maximum bonus opportunity means that 62 per cent of combined basic pay and bonus opportunity is directly related to annual financial and personal performance.

Under APRA as operated in 2010, executive directors were eligible for awards in accordance with the table below:

	Target bonus (as a % of salary)1	Maximum bonus (as a % of salary)1,2
James Guyette	75	125
Sir John Rose	81	135
Andrew Shilston	75	125
Colin Smith	75	125
Mike Terrett	75	125

1	The target bonuses are 60 per cent of the maximum bonus figure in the table.
2	It is possible for a bonus award to be increased by a further 20 per cent to reflect exceptional personal performance. Therefore the overall maximum was 162 per cent for the Chief Executive and 150 per cent for the other executive directors.

The committee has determined that the bonus in respect of 2011 will be operated on substantially similar terms to 2010. There will be no change to the maximum bonus opportunities for executive directors.

APRA performance measures

The APRA performance measures set by the committee are based on the Group’s annual operating plans. For 2010, the measures for executive directors included underlying profit, cash flow and individual contribution assessed with reference to the achievement of personal objectives and overall personal performance. Forty per cent of any APRA bonus depends on personal performance. In 2010, the level of achievement against the financial measures was sufficient to generate up to 100 per cent of the maximum bonus for individual participants subject to the achievement of their personal objectives.

2011 bonus targets will also be determined with reference to profit, cash flow and personal performance. The committee is mindful of corporate, environmental, social and governance risks when setting personal objectives.

Deferred APRA

For executive directors and selected senior executives 40 per cent of APRA is delivered in the form of a deferred share award in the Company’s shares. For other participants in APRA, 33 per cent is delivered in the form of deferred shares. The deferred share element operated for 2010 will result in share awards as described in the directors’ emoluments table. Details of deferred shares held under the plan are shown in Long-term incentive awards section.

A participant who is granted a deferred share award under APRA must normally continue to remain an employee of the Group for two years from the date of the award in order for the shares to vest, although shares will be released early in certain circumstances including retirement or redundancy.

The value of any deferred share awards is derived from the annual bonus criteria and is therefore dependent on personal and business financial performance. This arrangement provides a strong link between performance and remuneration, promotes a culture of share ownership amongst the Group’s senior management and encourages decisions in the long-term interest of shareholders.

Other annual incentives

The same financial targets, as set for APRA, are used for the Managers’ Bonus and the All-Employee Bonus Scheme (AEBS). The Managers’ Bonus typically enables managers worldwide to receive a bonus of up to ten per cent of pay and the AEBS up to two weeks’ pay, based on corporate and business performance. Participants in APRA or the Managers’ Bonus do not participate in the AEBS.

PSP

The PSP is designed to reward and incentivise selected senior executives who can influence the long-term performance of the Group. The size of awards under the PSP are set taking into account competitive levels within the marketplace for UK companies of a similar size and complexity to the Group. In 2010, Sir John Rose received a conditional award of shares with a market value at the time of grant of 110 per cent of his annual salary. For other executive directors and business heads the grant was 80 per cent, and 65 per cent for other members of the Group Executive.

Under the rules of the PSP selected senior executives are granted conditional share awards entitling them to a number of shares determined by reference to corporate performance over a three-year performance period. The measures of corporate performance are CPS, EPS and TSR. These measures are considered particularly important in generating shareholder value and are explained in more detail below. There is no retesting of the performance criteria and no automatic vesting in the event of a takeover. In the three-year period to December 31, 2010 the Company’s financial and TSR performance generated 125 per cent of the number of shares conditionally granted in 2008.

Performance measures

Vesting Criteria	Purpose of the measure	Performance condition over three-year period
EPS growth	Underpin to ensure any payouts are supported by sound profitability.	If EPS growth exceeds the hurdle, the number of shares vesting will be determined in accordance with the CPS targets. If EPS growth does not exceed the hurdle, zero vesting.
Aggregate CPS	Incentivise generation of cash flow in line with Company’s strategy.	Below threshold cash flow target, zero vesting. Threshold cash flow target, 30 per cent vesting. Vesting will increase on a straight-line basis between 30 per cent and 100 per cent.
TSR performance against FTSE 100 index	Align interests with shareholders by rewarding out performance of FTSE 100 returns.	50th percentile (median) and below, no additional vesting. Above 50th percentile (median) vesting will be enhanced by 25 per cent. For executive directors and selected senior executives, a straight-line basis will operate from 25 per cent to a maximum of a 50 per cent enhancement for upper quartile TSR performance.

The plan rules approved by shareholders in 2004 included a fixed EPS growth hurdle of RPI plus three per cent per annum. The rules permit the committee to make adjustments. Following consultation with major shareholders, the committee agreed that from the 2011 grant it will set a challenging earnings hurdle at the start of each three-year performance period, but, given the uncertain outlook for inflation and the increased proportion of turnover destined for markets outside the UK, the hurdle will not necessarily be RPI plus three per cent per annum. The hurdle for the 2011 grant will require EPS to show real growth by exceeding a composite world inflation figure.

The following CPS targets will apply to the grants to be made in 2011:

Aggregate CPS over three-year performance period	Percentage of maximum award released
56p	30
83p	100

The committee believes that these CPS targets are challenging and that the performance necessary to achieve awards towards the upper end of the range is stretching. They should not, therefore, be interpreted as providing guidance on the Group’s performance over the relevant period.

PSP awards granted in 2011

For 2011, the size of awards under the PSP will be unchanged from 2010 and will be as follows:

	PSP award (as a % of salary)	PSP award overall maximum (as a % of salary)
James Guyette	100	150
John Rishton1,2	120	180
Andrew Shilston	100	150
Colin Smith	100	150
Mike Terrett	100	150

1	This is the same level as previously granted to Sir John Rose in 2010.
2	In addition, John Rishton will receive a special grant of shares intended to mirror the fair value of shares forfeited on resigning from his current employer detailed in Service contracts.

Share retention policy

The committee believes it is important that the interests of the executive directors should be closely aligned with those of shareholders. The deferred APRA award and the PSP provide considerable alignment. However, participants in the PSP are also required to retain at least one half of the number of after tax shares released from the PSP, until the value of their shareholding reaches 200 per cent of salary for the Chief Executive and 150 per cent for other executive directors. When this level is reached, it must be retained until retirement or departure from the Company. Details of the executive directors’ share interests are set out in the Directors’ share interests (audited) section. The current executive directors have each complied with the minimum shareholding requirement.

All-employee share plans

The committee believes that share-based plans make a significant contribution to the close involvement and interest of all employees in the Group’s performance. Executive directors are eligible to participate in the Group’s all-employee share plans on the same terms as other employees:

• the ShareSave Plan – a savings-related share option plan available to all employees. In the UK, this plan operates within UK tax legislation (including a requirement to finance the exercise of the option using the proceeds of a monthly savings contract) but the key principles are applied globally. The exercise of the option is not subject to the achievement of a performance target;
• the 'Free Share' element of the Share Incentive Plan (SIP) under which UK employees receive shares as part of the Company component of any bonus paid. The SIP attracts tax benefits for UK employees; and
• the ‘Partnership Share’ element of the SIP under which UK employees may make regular purchases of shares from pre-tax income.

The effect of the corporate restructuring on share plans

At the 2011 AGM, shareholder approval will be sought for a revised corporate structure involving the creation of a new holding company. The committee has considered the implications of the restructuring proposal for the Company's share plans and concluded that the new holding company will not advantage or disadvantage participants in any way.

Participants will be able to exchange their rights over Rolls-Royce Group plc shares for rights of an equivalent value over shares in the new holding company, held on the same terms and conditions as the existing rights.

Benefits

Executive directors and senior executives are entitled to a company car or car allowance, private medical insurance and financial counselling. James Guyette is entitled to a housing allowance and the costs of additional housing are met for Mike Terrett.

The committee’s policy is that executive directors appointed to the Board are offered notice periods of 12 months. The committee recognises that in the case of appointments to the Board from outside the Group, it may be necessary to offer a longer initial notice period, which would subsequently reduce to 12 months after that initial period.

The committee has a defined policy on compensation and mitigation to be applied in the event of a UK director’s contract being terminated prematurely. In these circumstances, steps are taken to ensure that poor performance is not rewarded. When calculating termination payments, the committee takes into account a range of factors including the director’s obligation to mitigate his or her own loss.

The following table summarises the terms of the executive directors’ service contracts:

	Date of contract	Unexpired term	Notice period Company	Notice period individual
James Guyette	29 September 1997	Indefinite	30 days1	30 days
Sir John Rose	4 December 1992	12 months	12 months2	6 months
Andrew Shilston	5 November 2002	12 months	12 months	6 months
Colin Smith	1 July 2005	12 months	12 months	6 months
Mike Terrett	1 September 2007	12 months	12 months	6 months

1	James Guyette has a contract with Rolls-Royce North America Inc., drawn up under the laws of the State of Virginia, US. It provides that, on termination without cause, he is entitled to 12 months’ severance pay without mitigation and, in addition, appropriate relocation costs.
2	In the event of the service contract being terminated by the Company, other than in accordance with the contract’s terms, Sir John Rose is entitled to receive a liquidated sum of 12 months’ salary and benefits. Performance-related payments are not covered under this arrangement, although an annual bonus may be paid if he is in post at the end of the performance year.

Retirement of Sir John Rose and terms of engagement
for John Rishton as Chief Executive

No compensation payment will be made to Sir John Rose on his retirement from the Board on March 31, 2011. He will receive the deferred elements of his 2009 and 2010 bonuses. He will also retain an interest in the 2009 and 2010 PSP grants. To the extent the performance conditions are satisfied at the end of each three-year performance period (ie December 31, 2011 in relation to the 2009 grant and December 31, 2012 in relation to the 2010 grant) he will be entitled to shares, prorated to his service in that performance period.

John Rishton will join Rolls-Royce on March 1, 2011 as an executive director and will be appointed as Chief Executive with effect from March 31, 2011 under similar terms and conditions as
Sir John Rose. He will be entitled to a base salary of £875,000 and a maximum bonus entitlement of 135 per cent which may be increased by 20 per cent to reflect exceptional personal performance. He will also be eligible to receive an annual grant of performance shares under the PSP which would equate to a maximum of 120 per cent of base salary. The proportion of these shares released after a three-year performance period would depend on the extent to which profit, cash and TSR performance conditions are met.

John Rishton will also receive pension and other benefits consistent with standard Rolls-Royce terms and conditions for senior executives. He will be entitled to 12 months' notice of termination and required to give six months' notice to the Company. The contract includes mitigation provisions in the event of early termination by the Company. In addition to his remuneration package he will, on joining the Company, receive a special grant of shares in Rolls-Royce intended to mirror the fair value and vesting profile of the incentives forfeited on resigning from his current employer. The fair value of these shares is currently assessed as £2.8 million, attributed 56 per cent to performance and 44 per cent to restricted shares respectively. These proportions mirror his existing arrangements.

James Guyette was a director of The PrivateBank and Trust Company of Chicago, Illinois and of priceline.com Inc., and retained the relevant fees from serving on the boards of these companies, as shown in the table below:

External directorship fees

	Payment received £000
James Guyette1,2	100

1

James Guyette was paid in US dollars translated at £1 = US$1.543.

2

In addition to an annual fee, James Guyette received 3,693 Restricted Stock Units (RSUs) at US$13.54 per share in PrivateBank. During 2010, 2,503 RSUs vested at US$19.98 per share. Also during 2010, 500 shares of restricted stock vested at US$204.20 per share and 1,048 shares of restricted stock vested at US$233.12 per share in priceline.com. He was granted 466 shares of restricted stock at US$235.82 per share.

The Company's TSR performance over the previous five years compared to a broad equity market index is shown in the graph opposite. The FTSE 100 has been chosen as the comparator index because it contains a broad range of other leading UK listed companies.

The graph shows the growth in value of a hypothetical £100 holding in Rolls-Royce Group plc ordinary shares over five years, relative to the FTSE 100 index. The values of the hypothetical £100 holdings at the end of the five-year period were £168.80 and £126.30 respectively.

The total amounts for directors’ remuneration were as follows:

	2010 £000	2009 £000
Emoluments	7,902	5,237
Gains on exercise of share options	713	51
Value of shares vested under long-term incentive awards	3,379	1,586
Money purchase pension contributions	539	524
	12,533	7,398

The individual executive directors’ emoluments are analysed as follows:

		Annual Performance Related Award plan (APRA)
	Basic salary £000	Cash bonus £000	Deferred shares1 £000	Total APRA £000	Pension payments2 £000	Taxable benefits3 £000	2010 Aggregate emoluments excluding pensions contributions4 £000	2009 Aggregate emoluments excluding pensions contributions4 £000
James Guyette5	506	336	224	560	–	54	1,120	764
Sir John Rose	864	843	562	1,405	–	30	2,299	1,270
Andrew Shilston	559	438	292	730	–	19	1,308	787
Colin Smith	419	290	194	484	105	19	1,027	659
Mike Terrett	508	398	265	663	–	99	1,270	898
	2,856	2,305	1,537	3,842	105	221	7,024	4,378

1	Shares forming part of the bonus under APRA have been valued at the date of award. An investment is expected to be made by March 31, 2011 when the trustee will acquire the required number of shares at the prevailing market price.
2	Colin Smith received a cash allowance in lieu of future pension accrual.
3	Taxable benefits may include the following: a car or car allowance; private medical insurance and financial counselling. In the case of James Guyette, a housing allowance and appropriate club membership fees. In the case of Mike Terrett, the figure in the above table includes additional housing costs paid on his behalf and the tax charge on that benefit paid by the Company. Amounts charged during the year to UK income tax in respect of the use of chauffeur services provided for the years 2005 to 2010 for Sir John Rose were £46,216. Only the amount for 2010 of £7,210 is included in the taxable benefits column in the above table.
4	Details of the directors’ pensions are set out in the Pensions (audited) section.
5	James Guyette was paid in US dollars translated at £1 = US$1.543.

John Cheffins retired from the Board on September 30, 2007. He was appointed on March 25, 2009 as acting President, Energy on a part-time basis and retired from this role on June 21, 2010.
John Cheffins has continued in his role as Chairman of Rolls-Royce Fuel Cell Systems Limited and provided non-executive advice to the energy business. He was paid £130,223 and benefits totalling £1,767 in 2010. (He was paid in Canadian dollars translated at £1 = CAD$1.589.)

Dr Mike Howse retired from the Board on June 30, 2005. Following his retirement, he has continued to be retained by the Company for his expertise in engineering. He was paid £23,310 in 2010.

The Group’s UK pension schemes are funded, registered schemes and were approved under the regime applying until April 5, 2006. They are defined benefit pension schemes providing, at retirement, a pension of up to two-thirds of final remuneration, subject to HM Revenue & Customs limits.

Andrew Shilston is a member of the Group’s UK pension scheme. He is also a member of the Rolls-Royce Supplementary Retirement Scheme (Scheme). The purpose of the Scheme is to fund pension provision above the pensionable earnings cap which was imposed on approved pension schemes by the 1989 Finance Act. Membership of the Scheme is restricted to executive directors and to a limited number of senior executives. Employer contributions to the Scheme during 2010 have been added to the increase in transfer value over 2010 for the registered defined benefit plans, and are therefore included in the figures shown in the final two columns of the first table below.

Sir John Rose opted out of future pension accrual with effect from February 1, 2008 and started to receive his pension immediately. Mike Terrett opted out of future pension accrual with effect from April 1, 2006 and started to receive his pension from November 1, 2009. The transfer value for
Mike Terrett as at December 31, 2009 was calculated using market gilt yields on that date and included cash taken on retirement whereas the transfer value as at December 31, 2010 is the value of benefits in payment calculated using gilt yields applicable on that date. Since starting to receive their pensions, neither Sir John Rose nor Mike Terrett accrues any further pension benefit or allowance in lieu of pension benefit from their ongoing employment with the Group.

Colin Smith opted out of future pension accrual with effect from April 1, 2006. He receives a cash allowance in lieu of future pension accrual. Had he elected to continue to accrue pension the estimated cost of that accrual would be higher than the cash allowance to be paid in lieu.

James Guyette participates in pension plans sponsored by Rolls-Royce North America Inc. He is a member of two defined benefit plans in the US, one qualified and one non-qualified. He accrues a retirement lump sum benefit in both of these plans. The aggregate value of the retirement lump sums accrued in these two plans, and the transfer values of these benefits, are shown in the second table below. In addition, James Guyette is a member of two 401(k) Savings Plans in the US, one qualified and one non-qualified, to which both he and his employer, Rolls-Royce North America Inc., contribute. He is also a member of an unfunded non-qualified deferred compensation plan in the US, to which his employer makes notional contributions. Employer contributions to these three plans during 2010 have been added to the increase in transfer value over 2010 for the defined benefit plans, and are therefore included in the figures shown in the final two columns of the second table below.

The transfer values in the tables below have been calculated on the basis of actuarial advice.

Details of the pension benefits, which accrued over the year in the Group’s registered UK defined benefit pension schemes¹, are given below.

	Increase in accrued pension year ended Dec 31, 2010 £000pa	Increase in accrued pension during the year ended Dec 31, 20102 £000pa	Total accrued pension entitlement at the year ended Dec 31, 20103 £000pa	Transfer value of accrued pension as at Dec 31, 20104 £000	Transfer value as at Dec 31, 2009 of accrued pension at that date4 £000	Increase/ decrease in transfer value over 2010 net of the member’s own contributions5 £000	Transfer value of increase in accrued pension over 2010 net of the member’s own contributions5 £000
Sir John Rose	3	3	453	8,828	8,542	286	85
Andrew Shilston	2	2	17	412	354	216	206
Colin Smith	2	2	260	4,467	3,837	630	535
Mike Terrett	1	1	240	4,739	5,188	(449)	16

	Increase in accrued retirement lump sum during the year ended Dec 31, 2010 £000pa	Increase in accrued retirement lump sum during the year ended Dec 31, 20102 £000pa	Total accrued retirement lump sum entitlement at the year ended Dec 31, 20106 £000pa	Transfer value of accrued retirement lump sum as at Dec 31, 2010 £000	Transfer value as at Dec 31, 2009 of accrued retirement lump sum at that date £000	Increase in transfer value over 2010 net of the member’s own contributions £000	Transfer value of increase in accrued retirement lump sum over 2010 net of the member’s own contributions5 £000
James Guyette7	93	64	833	833	740	461	432

1	Members of the schemes have the option to pay Additional Voluntary Contributions. Neither the contributions nor the resulting benefits are included in the above table.
2	This column shows the increase in pension/retirement lump sum during the year ended December 31, 2010 but in this case excluding the effect of inflation.
3	The pension entitlement shown is that which would be paid annually on retirement, based on service to the end of the year, or to April 1, 2006 for members with enhanced protection from ‘A’ day. For Sir John Rose and Mike Terrett, the pension shown is the annual pension in payment at December 31, 2010.
4	The transfer values stated represent liabilities of the Rolls-Royce sponsored pension schemes and are not sums paid to the individuals. The transfer values of the accrued pensions as at December 31, 2009 and December 31, 2010 have been calculated on a basis adopted by the Trustee on October 6, 2008 following receipt of actuarial advice.
5	This column shows the transfer value of the increase in pension/retirement lump sum during the year ended December 31, 2010 excluding the effect of inflation, and net of the member’s own contributions.
6	The lump sum entitlement shown is that which would be paid on immediate retirement based on service to the end of the year.
7	Benefits are translated at £1 = US$1.566.

The directors who held office at December 31, 2010 and their connected persons had the following interests in the ordinary shares and C Shares¹ of the Company in respect of which transactions are notifiable to the Company under DTR 3.1.2R of the Disclosure Rules and Transparency Rules as shown in the following table:

					Ordinary shares	C Shares
	January 1, 2010	Net changes in 2010	December 31, 2010	January 1, 2010	Net changes in 2010	December 31, 2010
Helen Alexander CBE	1,043	28	1,071	–	–	–
Peter Byrom	211,952	6,065	218,017	–	–	–
Iain Conn	15,379	2,539	17,918	–	–	–
Peter Gregson	2,511	896	3,407	–	–	–
James Guyette	423,192	(98,961)	324,231	–	–	–
John McAdam	619	505	1,124	13,899	102,870	116,769
John Neill CBE	22,521	2,093	24,614	–	350,100	350,100
John Rishton	6,707	2,289	8,996	–	–	–
Sir Simon Robertson	39,710	1,162	40,872	–	–	–
Sir John Rose2	1,217,154	(302,676)	914,478	–	–	–
Andrew Shilston	442,900	82,527	525,427	–	–	–
Colin Smith	153,294	21,885	175,179	–	–	–
Ian Strachan	11,500	–	11,500	–	–	–
Mike Terrett	433,991	(5,696)	428,295	–	–	–

1	Non-cumulative redeemable preference shares of 0.1p each.
2	Sir John Rose had a non-beneficial interest in nil (2009: 45,191) ordinary shares.

Directors’ interests in the Company’s share plans are shown separately below, Share options (audited) section and Long-term incentive awards. No director had any other interests, beneficial or otherwise, in the share capital of the Company or any of its subsidiaries as at December 31, 2010.

Changes in the interests of the executive directors and non-executive directors between December 31, 2010 and February 9, 2011 are listed below. The ordinary share purchases were made pursuant to either their participation in the C Share Reinvestment Plan (CRIP) and/or the SIP. C Shares were allotted under the ‘Partnership’ and ‘Free’ share elements of the SIP.

		Ordinary shares	C Shares
	January 7, 2011	February 7, 2011	January 4, 2011
James Guyette	3,116	–	–
Sir John Rose	19	19	–
Andrew Shilston	5,070	20	253,132
Colin Smith	1,703	19	253,068
Mike Terrett	4,137	19	37,003

The following non-executive directors purchased ordinary shares either under arrangements made for them to purchase shares on a monthly basis using a percentage of their after tax fees and/or pursuant to their participation in the CRIP.

		Ordinary shares	C Shares
	January 7, 2011	February 7, 2011	January 4, 2011
Helen Alexander CBE	–	–	68,544
Peter Byrom	2,097	–	–
Iain Conn	319	153	–
Peter Gregson	90	60	–
John McAdam	36	37	66,880
John Neill CBE	150	153	–
John Rishton	233	153	–
Sir Simon Robertson	392	–	–

‘Partnership Shares’ held in trust under the SIP¹

					Ordinary shares	C Shares
	January 1, 2010	Net changes in 2010	December 31, 2010	January 1, 2010	Net changes in 2010	December 31, 2010
Sir John Rose2	2,009	(275)	1,734	–	–	–
Andrew Shilston2	2,011	(277)	1,734	239,096	143,614	382,710
Colin Smith2	2,009	(275)	1,734	232,566	149,967	382,533
Mike Terrett2	2,008	(275)	1,733	232,363	149,878	382,241

‘Free Shares’ held in trust under the SIP¹

					Ordinary shares	C Shares
	January 1, 2010	Net changes in 2010	December 31, 2010	January 1, 2010	Net changes in 2010	December 31, 2010
Sir John Rose	1,253	(1,253)	–	–	–	–
Andrew Shilston	4,143	(762)	3,381	540,454	298,714	839,168
Colin Smith	4,012	(631)	3,381	521,722	317,446	839,168

‘Unrestricted Shares’ held under the SIP¹

					Ordinary shares	C Shares
	January 1, 2010	Net changes in 2010	December 31, 2010	January 1, 2010	Net changes in 2010	December 31, 2010
Sir John Rose	7,844	1,794	9,638	–	–	–
Andrew Shilston	4,404	1,794	6,198	64,779	25,812	90,591
Colin Smith	2,315	1,662	3,977	337,345	(247,047)	90,298
Mike Terrett	3,645	541	4,186	527,595	(437,095)	90,500

1	Under the SIP ‘Free Shares’ and ‘Partnership Shares’ held in trust for more than five years are classified as ‘Unrestricted’ and are no longer subject to income tax or national insurance contributions on withdrawal. ‘Unrestricted Shares’ can be held in Trust under the SIP for as long as the participant remains an employee of the Company.
2	On January 9, 2011 and February 7, 2011 the ordinary shares held as Partnership Shares by Sir John Rose 31 and 29; Andrew Shilston 31 and 28; Colin Smith 31 and 29; and Mike Terrett 29 and 29 were classified as ‘Unrestricted Shares’.

Mike Terrett held an option under the Rolls-Royce 1999 Executive Share Option Plan (ESOP), which had vested and was capable of exercise. Colin Smith held an option under the Rolls-Royce Group plc ShareSave Scheme 1997 and James Guyette held an option under the Rolls-Royce Group plc International ShareSave Plan 2007 (ShareSave).

		January 1, 2010	Granted in 2010	Lapsed in 2010	Exercised in 2010	December 31, 2010	Exercise price	Market price at date exercised	Aggregate gains 2010 £000	Aggregate gains 2009 £000	Exercisable dates
James Guyette	ShareSave	683	–	–	–	683	416p	–	–	–	2011
Colin Smith	ShareSave	1,233	–	–	–	1,233	298p	–	–	51	2011
Mike Terrett	ESOP1	180,556	–	–	180,556	–	216p	611p	713	–	–

1

Granted in 2001 under the ESOP with additional performance and personal shareholding requirements. Vesting of the Supplementary option was subject to attainment of significant personal shareholding targets and the requirement that the growth in EPS exceeded an average of six per cent year-on-year as well as exceeding the UK RPI by three per cent per year over a rolling three-year period. The increases were measured from the year 2000 or the base year of the rolling three-year period, whichever was the more stringent. The option was granted at the market value on the date of issue and no discount was applied. No option was varied during the year and no consideration was paid for the grant of the option. The market price of the Company’s ordinary shares ranged between 473.40p and 654.50p during 2010. The closing price on December 31, 2010 was 623.00p.

The directors as at December 31, 2010 had the following share awards arising out of the operation of the APRA¹ plan:

	January 1, 2010	Vested during 2010	Granted during 2010	December 31, 2010
James Guyette	38,930	(12,805)	16,272	42,397
Sir John Rose	78,790	(34,771)	29,785	73,804
Andrew Shilston	44,524	(20,313)	16,798	41,009
Colin Smith	29,381	(12,045)	12,480	29,816
Mike Terrett	37,329	(14,888)	15,555	37,996

1

Under APRA, shares vest after two years. Shares went into trust in 2008, 2009 and 2010 at prices of 440.03p, 289.65p and 537.20p respectively. At December 31, 2010, the amounts stated in the emoluments table representing the 2010 APRA deferred shares had not yet been applied by the Trustee to purchase shares. The market value per share which vested under APRA during 2010 was 558.00p.

Conditional awards, granted under the PSP to executive directors are set out below. The number of shares released will be dependent upon the achievement of the EPS and CPS targets over the three-year performance period. In respect of awards made up to and including 2008, the number of shares released will be increased by 25 per cent if the TSR exceeds the median for the FTSE 100 index over the three-year performance period. For the 2009 and 2010 grants, if the Company’s TSR is above the median of the FTSE 100 index, the number of shares due to be released to an executive will be increased by between 25 per cent and 50 per cent. This increase is on a straight-line basis between the median and upper-quartile TSR performance in the performance period.

	January 1, 2010	Granted during 2010	TSR uplift at vesting1	Total vested during 2010	December 31, 2010	Performance period	Date of grant	Market price at date of grant
James Guyette	60,669	—	9,859	(70,528)	—	Jan 1, 2007 to Dec 31, 2009	March 1, 2007	501.00p
	70,672	—	—	—	70,672	Jan 1, 2008 to Dec 31, 2010	March 3, 2008	439.20p
	207,845	—	—	—	207,845	Jan 1, 2009 to Dec 31, 2011	March 10, 2009	260.42p
	—	91,383	—	—	91,383	Jan 1, 2010 to Dec 31, 2012	March 1, 2010	544.70p
	339,186	91,383	9,859	(70,528)	369,900
Sir John Rose	175,649	—	28,543	(204,192)	—	Jan 1, 2007 to Dec 31, 2009	March 1, 2007	501.00p
	212,888	—	—	—	212,888	Jan 1, 2008 to Dec 31, 2010	March 3, 2008	439.20p
	391,675	—	—	—	391,675	Jan 1, 2009 to Dec 31, 2011	March 10, 2009	260.42p
	—	191,005	—	—	191,005	Jan 1, 2010 to Dec 31, 2012	March 1, 2010	544.70p
	780,212	191,005	28,543	(204,192)	795,568
Andrew Shilston	81,438	—	13,234	(94,672)	—	Jan 1, 2007 to Dec 31, 2009	March 1, 2007	501.00p
	100,183	—	—	—	100,183	Jan 1, 2008 to Dec 31, 2010	March 3, 2008	439.20p
	211,198	—	—	—	211,198	Jan 1, 2009 to Dec 31, 2011	March 10, 2009	260.42p
	—	102,993	—	—	102,993	Jan 1, 2010 to Dec 31, 2012	March 1, 2010	544.70p
	392,819	102,993	13,234	(94,672)	414,374
Colin Smith	59,881	—	9,731	(69,612)	—	Jan 1, 2007 to Dec 31, 2009	March 1, 2007	501.00p
	70,356	—	—	—	70,356	Jan 1, 2008 to Dec 31, 2010	March 3, 2008	439.20p
	148,319	—	—	—	148,319	Jan 1, 2009 to Dec 31, 2011	March 10, 2009	260.42p
	—	78,025	—	—	78,025	Jan 1, 2010 to Dec 31, 2012	March1, 2010	544.70p
	278,556	78,025	9,731	(69,612)	296,700
Mike Terrett	61,693	—	10,026	(71,719)	—	Jan 1, 2007 to Dec 31, 2009	March 1, 2007	501.00p
	91,075	—	—	—	91,075	Jan 1, 2008 to Dec 31, 2010	March 3, 2008	439.20p
	191,998	—	—	—	191,998	Jan 1, 2009 to Dec 31, 2011	March 10, 2009	260.42p
	—	93,630	—	—	93,630	Jan 1, 2010 to Dec 31, 2012	March1, 2010	544.70p
	344,766	93,630	10,026	(71,719)	376,703

1	Under the rules of the PSP, the number of shares vesting in 2010 was increased by 25 per cent as the TSR exceeded the median of the FTSE 100 index during the three-year performance period to December 31, 2009.The market value per share, which vested under the PSP during 2010, was 558.00p.

Policy

The committee determines, on the Board’s behalf, the remuneration of the Chairman. The Board determines the remuneration of the other non-executive directors.

The Chairman and the non-executive directors have letters of appointment rather than service contracts. No compensation is payable to the Chairman or to any non-executive director if the appointment is terminated early.

	Appointment date	Current letter of appointment start date	Current letter of appointment end date
Helen Alexander CBE	Sep 1, 2007	Sep 1, 2010	Aug 31, 2013
Peter Byrom	Jan 1, 1997	Jan 1, 2011	Dec 31, 2011
Iain Conn	Jan 20, 2005	Jan 20, 2011	Jan 19, 2014
Peter Gregson	Mar 1, 2007	Mar 1, 2010	Mar 1, 2013
John McAdam	Feb 19, 2008	Feb 19, 2008	Feb 18, 2011
John Neill CBE	Nov 13, 2008	Nov 13, 2008	Nov 12, 2011
John Rishton	Mar 1, 2007	Mar 1, 2010	Feb 28, 2013
Sir Simon Robertson	Jan 1, 2005	Jan 1, 2011	Dec 31, 2013
Ian Strachan	Sep 19, 2003	Sep 19, 2009	Sep 18, 2012

Non-executive directors’ fees

The Board takes account of independent market surveys in determining the fees payable to the Chairman and the non-executive directors.

The fees payable to the non-executive directors are reviewed periodically by the Board. The fees were increased with effect from February 1, 2011 as shown below:

	From February 1, 2011 £000	From February 1,2010 £000
Chairman	370	370
Other non-executive directors	60	55
Chairman of audit committee	20	15
Chairman of remuneration committee	15	12
Chairman of ethics committee	15	12
Senior Independent Director	12	10

Remuneration of non-executive directors

	2010 £000	2009 £000
Helen Alexander CBE	67	67
Peter Byrom	55	55
Iain Conn	65	65
Peter Gregson	55	55
John McAdam	55	55
John Neill CBE	55	55
John Rishton	69	70
Sir Simon Robertson1	386	370
Ian Strachan	71	67
	878	859

1	Amounts charged during the year to UK income tax in respect of the use of chauffeur services provided for the years 2005 to 2010 for Sir Simon Robertson were £72,788. Only the aount for 2010 of £15,683 is included in the above table.

The Chairman and the non-executive directors are not eligible to participate in any of the Group’s share schemes, incentive arrangements or pension schemes. A facility is in place which enables non-executive directors to use some or all of their fees, after the appropriate statutory deductions, to make market purchases of shares in the Company on a monthly basis.