The Board sets the Company's remuneration policy. The remuneration committee ("the Committee") makes recommendations to the Board, within its agreed terms of reference (available on the Company's website, www.wolseley.com) on the Company's framework of executive remuneration and its cost. It also determines, on behalf of the Board, specific remuneration packages for each of the Executive Directors and for the Chairman. The Committee recommends and monitors the level and structure of remuneration for senior management who report to the Group Chief Executive and whose roles have a significant influence within the Group's business to meet its strategic objectives. The Board itself determines the remuneration of the Non Executive Directors. The Committee also administers the Company's share incentive schemes for employees. The current members of the Committee, all of whom are independent Non Executive Directors within the definition set out in the Code (and the Revised Code), are set out in the corporate governance and the Company Secretary acts as its secretary. The Committee has access to detailed external research on market data and trends from independent and experienced consultants. The Committee has, since March 2003, sought external advice from New Bridge Street Consultants LLP, who also provided certain pensions advice to the Company and has in the past also been provided with advice by Mercer Human Resource Consulting in the USA. The Group Chief Executive, the Chairman and the Director of Human Resources, Peter Buckingham, are normally invited to attend the meetings of the Committee to respond to specific questions raised by members of the Committee. This specifically excludes such matters concerning the details of their own personal remuneration.

The Company has followed the provisions of Schedules A and B of the Code (and the Revised Code) and has complied with the relevant provisions of the Companies Act 1985, as amended by the Directors' Remuneration Report Regulations 2002.

The Directors' report on remuneration has been approved by shareholders at each of the Annual General Meetings held since 2003. Shareholders will again be invited to approve this report at the Annual General Meeting to be held on 29 November 2006.

With the exception of the description of the performance bonus arrangements, service agreement details, performance graph, disclosure of remuneration to other senior executives, executive share ownership and external directorships, the information set out within this report represents the auditable disclosures referred to in the Auditors' report as specified by the UK Listing Authority and under Schedule 7A of the Companies Act 1985.

Policy on remuneration of Executive Directors

Chart showing breakdown of remuneration

The Company's policy now and for the future, is to provide remuneration packages that fairly reward executives for the contribution they make to the business, having regard to the size and complexity of the Group's operations and the need to attract, retain and motivate executives of the highest quality. Remuneration packages comprise competitive salary, performance bonuses, share options, long-term incentives, benefits in kind and pensions. The Company takes a total approach to remuneration, which includes all these elements. None of the long-term awards or options are pensionable. The packages, which link corporate and individual performance with an appropriate balance between short and long-term elements, are designed to be broadly comparable with those offered by other similar international businesses and reflect competitive practices in the countries and markets in which the Executive Directors operate. The policy is designed to incentivise the Executive Directors to meet the Company's financial and strategic objectives, such that a significant proportion of total remuneration is performance related. The Committee considers that the targets set for the different elements of performance related remuneration are appropriate and demanding in the context of the Company's trading environment and the business challenge it faces. The chart above shows the average proportions of salary, target bonus and the estimated value of long-term incentives granted during the financial year to Executive Directors in office at the date of this Report.

Salaries

Basic salaries are determined having regard to competitive market data, the degree of individual responsibility and individual performance. Market data is derived from a group of companies selected on the basis of comparable size, geographic spread and business focus. Due consideration is also given to the wider economic and employment backdrop, including general pay and employment conditions elsewhere in the Group. The target salary is at the median, with the opportunity to go above this level, subject to sustained individual performance. The Committee reviewed the salaries of the Executive Directors with effect from 1 August 2005, having sought the views of both the Chairman and (other than in the case of his own salary) Mr Banks, the Group Chief Executive in office at that time. As a US national, 40% of Mr Banks' salary was currency protected, based on an exchange rate of £1: $1.50. Mr Hornsby will not benefit from such currency protection arrangements.

Benefits in kind

These principally comprise car benefits, life assurance, healthcare insurance and, in the case of Messrs Banks, Hornsby, Marchbank and Webster, relocation and housing allowances following their relocations from the USA to the UK (Messrs Banks, Hornsby and Marchbank) and from Droitwich to Theale (Mr Webster), where the Company's head office is located.