Directors' remuneration report

This report has been prepared in accordance with sections 420 and 421 of the Companies Act 2006 and the relevant requirements of the Listing Rules of the Financial Services Authority (together the Regulations). The report also describes how the Board has applied the Principles of Good Governance relating to Directors’ remuneration. As required by the Regulations, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the financial statements of the Company will be approved.

The Regulations require the auditors to report on the ‘auditable part’ of the Directors’ remuneration report and to state whether, in their opinion, that part of the report has been properly prepared in accordance with the Companies Act 2006. The report has therefore been divided into separate sections for audited and unaudited information.

UNAUDITED INFORMATION

Role of the Remuneration Committee

The Board sets the remuneration policy for the Group. The Remuneration Committee makes recommendations to the Board within its agreed terms of reference, details of which are available at www.aveva.com.

The Remuneration Committee’s principal responsibility is to determine the remuneration package of both the Company’s Executive Directors and its senior management within broad policies agreed with the Board. In addition, it reviews the remuneration policy for the Company as a whole and administers the Company’s share incentive plans for all participants. The remuneration of the Non-Executive Directors is determined by the Executive Directors and the Chairman, not the Committee.

The conclusions and recommendations of the Remuneration Committee were finalised in two formal meetings during the year, but these were preceded by several informal discussions, including some with advisers (none of whom had any other connection with the Company). The members of the Committee were David Mann (Chairman), Nick Prest, Jonathan Brooks and Philip Dayer.

The Chief Executive (Richard Longdon) is invited to submit recommendations to the Remuneration Committee and both he and the members of the Committee take into consideration relevant external market data as well as the reviews of remuneration for employees of the Group generally.

Remuneration policy

The Remuneration Committee aims to ensure that members of the Executive management are provided with appropriate incentives to encourage enhanced performance and are, in a fair and responsible manner, rewarded for their individual contributions to the success of the Group. It also aims for a combination of fixed and variable payments, benefits and share-based awards that will achieve a balance in incentives to achieve short and long term goals. The Company’s policy is that a substantial proportion of remuneration of Executive Directors should be performance-related. The payment of bonuses and the vesting of share incentives are subject to meeting performance conditions established by the Committee at the beginning of each performance period reflecting what, at that time, the Committee considers demanding targets. These targets are set taking account of the market in which the Group operates and the expectations of investment community on the Group’s future potential performance.

The Remuneration Committee has access to detailed external research from independent consultants and during the year engaged Hewitt New Bridge Street to review the remuneration of the Executive Directors and senior management and to benchmark their remuneration against comparable companies. Hewitt New Bridge Street do not provide other services to the Group.

In 2008 the Board introduced the AVEVA Group Management Bonus Deferred Share Scheme 2008 (the Deferred Share Scheme) for Executive Directors and selected employees to enable the bonus scheme to have a deferred component. Subject to the achievement of performance conditions relating to a single financial year, these incentive arrangements are intended to reward the recipient partly in cash, payable on announcement of interim and/or final results, and partly in ordinary shares in the Company to be delivered on a deferred basis under the Deferred Share Scheme.

The Board believes that these incentive arrangements closely align the interests of Executive Directors and employees with shareholders’ interests.

Outside appointments

Executive Directors are entitled to accept appointments outside of the Company provided that Board approval is sought prior to accepting the appointment. Whether or not the Director concerned is permitted to retain their fees is considered on a case by case basis. As noted above, Paul Taylor was appointed a Non-Executive Director of Anite plc during the year. His annual fee on appointment was £37,000. As Mr Taylor performs these services independently of his duties to the Company, he is thus entitled to receive such compensation.

The individual components of the remuneration packages offered are:

Basic salaries/fees

It is the policy of the Committee to pay base salaries to the Executive Directors taking account of the nature and scale of the business of the Group, the performance of the individual in achieving financial and non-financial goals within his areas of responsibility and comparable market data.

In 2009/10, the Remuneration Committee took into account the uncertain market conditions and, in seeking to ensure that remuneration policies remained appropriate, Directors’ salaries were frozen at 2008/09 levels in keeping with the general pay freeze adopted by the Group.

In keeping with a general review of salaries for the Group as a whole, the salaries for Executive Directors were reviewed in March 2010 with any adjustment to take effect from 1 April 2010. As a result the Executive Directors received salary increases of 3% set slightly below the average increase across the Group. As of the date of this report, the fees for the Non-Executive Directors had not been reviewed and will be reviewed during the course of the year. Details of the current salaries and fees are as follows:

	£
Nick Prest	85,000
David Mann	33,000
Jonathan Brooks	35,000
Philip Dayer	30,000
Hervé Couturier*	39,000
Richard Longdon	335,265
Paul Taylor	216,300

*From date of appointment (1 April 2010).

Fees for the Chairman and the Non-Executive Directors are determined taking account of the individual’s responsibilities, time devoted to the role and prevalent market rates.

Benefits

Executive Directors are provided with a Company car or a mobility allowance and a fuel allowance. Non-Executive Directors do not receive any benefits.

Bonus payments

The Executive Directors participate in annual performance-related bonus arrangements determined by the Committee. As noted above, these arrangements include a component using the Deferred Share Scheme. Under these incentive arrangements, depending on the extent to which performance conditions are achieved, an overall bonus amount is determined. Part of this overall bonus amount is payable in cash; an amount equal to the balance is used to calculate the number of ordinary shares which the bonus recipient is eligible to receive on a deferred basis. This is calculated by identifying the number of ordinary shares which could be purchased with the balance at the mid-market closing price of an ordinary share on the dealing day immediately preceding the preliminary announcement of the Company’s results for the financial year in which the bonus was earned.

The arrangements are based substantially or entirely on the performance of the Group as a whole geared towards exceeding internal and external expectations of normalised profit before tax with 10% based on achievement for the six months to 30 September and 90% based on the full year results.

For the annual performance bonus arrangements for 2009/10, the targets were set after considering the Group’s budgeted normalised profit before tax and market expectations. The agreed targets were considered to be appropriate and stretching against the budgeted profit for 2009/10 and market conditions prevailing at that time. For 2009/10, the maximum bonus amount which an Executive Director could earn was 100% of basic salary. Performance targets were achieved in full resulting in a cash bonus equal to 60% (2009 – 60%) of basic salary with the remaining 40% (2009 – 40%) of the bonus amount being used to calculate the number of deferred shares for which each Executive Director was eligible.

Pensions

During the year, the two Executive Directors (Richard Longdon and Paul Taylor) were members of AVEVA Solutions Limited’s defined benefit pension scheme. It is a contributory, funded, occupational pension scheme registered with HM Revenue and Customs (HMRC) and, since 1 October 2004, Career Average Revalued Earnings benefits apply. Under this scheme they are entitled to a pension on normal retirement, or on retirement due to ill health, equivalent to two-thirds of their pensionable salary provided they have completed (or would have completed in the case of ill health) 25 years’ service. A pension earnings cap (in line with historic HMRC’s earning cap) applies to Paul Taylor when calculating pensionable salary. Similarly, a scheme-specific earnings limit applies to the benefits earned by Richard Longdon. A lower pension is payable on earlier retirement after the age of 50 by agreement with the Company and subject to HMRC guidelines. Pensions are payable to dependants on the Director’s death in retirement and a lump sum is payable if death occurs in service. No other Directors were members of a pension scheme during the year (2009 – nil).

On 31 August 2009, Mr Longdon had accrued the maximum benefits that he was entitled to under the rules of the pension scheme and as a result left the pension scheme. Mr Longdon was paid a one-off sum of £25,000 on leaving the pension scheme.

Share awards

The Remuneration Committee considers that periodic grants of share-related incentives should constitute an important element of the remuneration of the Company’s senior Executives, in line with common practice in comparable companies. The Company’s share schemes have therefore been used to provide long term incentives to assist in creating and sustaining growth in share value.

There are four schemes in existence, the AVEVA Group plc Executive Share Option Scheme (the ability to grant shares under this scheme has now expired), the AVEVA Group Management Bonus Deferred Share Scheme 2008, the AVEVA Group plc Long Term Incentive Plan and the AVEVA Group plc Executive Share Option Scheme 2007. No awards have been made under the AVEVA Group plc Executive Share Option Scheme 2007 and the performance conditions that would apply to them remain to be determined. The Company would consult with major shareholders before setting any performance conditions.

The number of shares which may be allocated on exercise of any options granted under any of the Company’s share option schemes (including employee schemes) shall not, when aggregated with the number of shares which have been allocated in the previous ten years under these schemes, exceed 10% of the ordinary share capital of the Company in issue immediately prior to that date. The share schemes are used to provide incentives to Senior Managers as well as Executive Directors. As recipients of these awards, Executive Directors and Executive Board members are required to hold or use the schemes to build share ownership with a value of at least 100% of their then current salary. Details of the awards made under these schemes are as follows:

Long Term Incentive Plan (LTIP)
The Company established the AVEVA Group plc Long Term Incentive Plan (LTIP) which was approved at the Extraordinary General Meeting held in 2004. Under the LTIP, options are granted to selected individuals to acquire ordinary shares at an exercise price equal to the nominal value of the shares; these options will be exercisable only if stringent performance criteria are met. There are no rules under the LTIP scheme which govern the maximum awards that can be made to participants. However in 2009/10 the market value of awards under the LTIP awarded to Richard Longdon and Paul Taylor amounted to 50% of basic salary (2009 – 50%). It is not expected that material changes will be made to the level of awards under the LTIP without consultation with shareholders.

Details of the outstanding awards under the LTIP are as follows:

2006/07 awards
In 2006/07 a total of 42,588 share options were awarded to the Executive Directors under the LTIP. The performance conditions were based on average growth in earnings per share (EPS) achieved over the three years from 2006/07 to 2008/09. If average EPS growth was greater than 15% per annum then all of the shares would vest. If average EPS growth was less than 7.5% per annum none of the shares would vest. If average EPS growth was between 7.5% and 15% then the number of shares that would vest would be determined by linear interpolation. The Remuneration Committee considered that these were challenging performance conditions in the context of the Company’s budget and market expectations at the time of the awards.

The performance conditions were measured in accordance with the terms of the grant and all awards vested in full.

2007/08 awards
In 2007/08, a total of 18,234 share options were awarded to the Executive Directors under the LTIP. The performance conditions are based on average growth in EPS over the years from 2007/08 to 2009/10. If average EPS growth is greater than 11.5% per annum then all of the shares shall vest. If average EPS is less than 9% per annum then none of the shares shall vest. If average EPS growth is between 9% and 11.5% per annum then the number of shares that shall vest shall be determined by linear interpolation. The Remuneration Committee considered that these were challenging performance conditions in the context of Company’s budget and external expectations at the time of the awards.

Although the vesting date has not yet been reached, it is anticipated that the performance conditions attached to this award will be met following finalisation of the 2009/10 financial results. However this is still subject to the approval of the Remuneration Committee at the time of announcement of the results.

2008/09 awards
In 2008/09, a total of 17,929 share options were awarded to the Executive Directors under the LTIP. The performance conditions are based on average growth in EPS over the years from 2008/09 to 2010/11. If average EPS growth is greater than 14% per annum then all of the shares shall vest. If average EPS is less than 10% per annum then none of the shares shall vest. If average EPS growth is between 10% and 14% per annum then the number of shares that shall vest shall be determined by linear interpolation. The Remuneration Committee considered that these were challenging performance conditions in the context of internal and external expectations at the time of the awards.

2009/10 awards
In 2009/10, a total of 36,628 share options were awarded to the Executive Directors under the LTIP. In view of the general economic background, the Remuneration Committee gave especially careful consideration to what performance conditions would be appropriate and finally agreed that they should be based on average diluted EPS over the three years from 2009/10 to 2011/12. All shares under this option shall vest if average diluted EPS for the three years ending 31 March 2012 is equal to or above 52.14 pence. Should average diluted EPS for the period be below 52.14 pence, then no shares will vest and the option will lapse. The Remuneration Committee considered that these were challenging performance conditions in the context of internal and external expectations at the time of the awards.

Deferred annual bonus share plan
As described above, part of the annual bonus earned by Executive Directors in the year is used to determine eligibility for an award of deferred shares under the Deferred Share Scheme. In order to deliver shares under the Deferred Share Scheme, an Employee Benefit Trust (EBT) was established following shareholder approval at the 2008 Annual General Meeting. Awards of deferred shares are made by the trustee of EBT using shares purchased in the market. The awards, which take the form of nil-cost options, will normally deliver the deferred shares to participants in three equal tranches, one in each of the three years following the year in which an award is made by the EBT. These awards are made solely in respect of performance in the financial year immediately prior to their grant. Delivery of the deferred shares is not subject to further financial performance conditions provided that the participant remains an employee or Director of the Group. If the participant ceases to be an employee or Director, entitlement to all outstanding tranches would fall away unless the cessation occurs by reason of his or her death. Following the death of a bonus participant, or on a takeover, reconstruction or amalgamation, or voluntary winding up of the Company, the period for which the participant must remain an employee or Director would be reduced below the normal three years and entitlement to delivery of the shares would be accelerated. There are no arrangements for the delivery of additional matching shares to a participant in any circumstances.

On 27 May 2009 the EBT awarded 22,487 and 14,508 deferred shares to Richard Longdon and Paul Taylor respectively in respect of the bonus arrangements for the year ended 31 March 2009.

Following the achievement of the objectives for 2009/10, it is anticipated that 12,471 and 8,046 deferred shares will be awarded to Richard Longdon and Paul Taylor respectively in respect of the bonus arrangements for the year ended 31 March 2010.

Total shareholder return performance graph

The Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 require the presentation of a performance graph of total shareholder return compared with a broad equity market index for a period of five years. The following graph shows the Company’s performance, measured by total shareholder return, compared with the performance of the techMARK All-Share Index. Total shareholder return is the share price plus dividends reinvested compared against the techMARK All-Share Index, rebased to the start of the period.

Total shareholder return v techMARK All-Share Index 2005–2010

— AVEVA Group plc

— techMARK All-Share Index

The Directors consider the techMARK All-Share Index to be an appropriate choice as the Index includes AVEVA Group plc.

Service contracts

The service contracts and letters of appointment of the Directors include the following terms:

	Date of contract	Date of appointment	Expiry/review date of current contract	Notice period Months
Nick Prest	10 January 2006	11-Jan-06	11-Jan-12	3
David Mann	17 May 2000	8-Jun-99	Rolling	3
Jonathan Brooks	12 July 2007	12-Jul-07	12-Jul-10	3
Philip Dayer	27 December 2007	7-Jan-08	7-Jan-11	3
Hervé Couturier*	18 March 2010	1-Apr-10	1-Apr-13	3
Richard Longdon	28 November 1996	28-Nov-96	Rolling	12
Paul Taylor	17 October 1989	1-Mar-01	Rolling	9

The Committee considers that the notice periods of the Executive Directors are in line with those in other companies of a similar size and nature and are in the best interests of the Group to ensure stability in senior management.

There are no predetermined special provisions for Executive or Non-Executive Directors with regard to compensation in the event of loss of office. The Remuneration Committee would be responsible for considering the circumstances of the early termination of an Executive Director’s contract and determining whether in exceptional circumstances there should be compensation payments in excess of the Company’s contractual obligations.

AUDITED INFORMATION

Directors’ remuneration

The total amounts for Directors’ emoluments and other benefits were as follows:

	Basic salary £000	Fees £000	Cash bonus* £000	Benefits in kind £000	2010 Total £000	2009 Total £000
Nick Prest	—	85	—	—	85	85
David Mann	—	33	—	—	33	33
Jonathan Brooks	—	35	—	—	35	35
Philip Dayer	—	30	—	—	30	30
Richard Longdon	326	—	220**	22	568	541
Paul Taylor	210	—	126	17	353	353
Aggregate emoluments	536	183	346	39	1104	1077

*In addition to the cash bonus award noted above, it is anticipated that Richard Longdon and Paul Taylor will be awarded 12,471 and 8,046 deferred shares respectively (2009 – 22,487 and 14,508 deferred shares were awarded respectively) under the Deferred Share Scheme. The estimated monetary value of these awards was £130,000 (2009 – £130,000) for Richard Longdon and £84,000 (2009 – £84,000) for Paul Taylor.
**Includes a payment of £25,000 after leaving the AVEVA Solutions Limited defined benefit pension scheme (see Directors' remuneration report).

Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors.

Share options

The interests of Directors in options to acquire ordinary shares were as follows:

	Scheme	As at 1 April 2009 Number	Granted Number	Exercised Number	As at 31 March 2010 Number	Gain on exercise £	Exercise price Pence	Earliest date of exercise	Date of expiry
Richard Longdon	LTIP	25,548	—	(25,548)	—	252,368	3.33	28.06.09	28.06.13
	LTIP	11,083	—	—	11,083	—	3.33	02.07.10	02.07.14
	LTIP	10,891	—	—	10,891	—	3.33	07.07.11	07.07.15
	LTIP	—	22,264	—	22,264	—	3.33	07.07.12	07.07.16
	Deferred Share Scheme (2008)	12,282	—	—	12,282	—	0	26.05.09	Note
	Deferred Share Scheme (2009)	—	22,487	—	22,487	—	0	26.05.10	Note
Paul Taylor	LTIP	17,040	—	(17,040)	—	168,325	3.33	28.06.09	28.06.13
	LTIP	7,151	—	—	7,151	—	3.33	02.07.10	02.07.14
	LTIP	7,038	—	—	7,038	—	3.33	07.07.11	07.07.15
	LTIP	—	14,364	—	14,364	—	3.33	07.07.12	07.07.16
	Deferred Share Scheme (2008)	7,923	—	—	7,923	—	0	26.05.09	Note
	Deferred Share Scheme (2009)	—	14,508	—	14,508	—	0	26.05.10	Note

Note: The last date of the exercise is the end of the 42-day period following the announcement of the financial results of the Group in the third calendar year following that in which the option was granted or (if applicable) such later date as the Remuneration Committee may specify.

The market price as at 31 March 2010 was £11.85 (31 March 2009 – £5.64) with a high–low spread for the year of £5.35 to £11.92.

During the year Richard Longdon and Paul Taylor exercised options over 25,548 and 17,040 ordinary shares respectively at an exercise price of £0.03. The market price on the date of exercise was £9.91 which resulted in an aggregate gain on exercise of £252,368 for Richard Longdon and £168,325 for Paul Taylor. Mr Longdon retained 14,970 and Mr Taylor 9,984 of the resultant shares arising.

At 31 March 2010, Mr Longdon owned 364,970 ordinary shares (2009 – 350,000 ordinary shares) and options over 79,007 ordinary shares (2009 – 59,804 options). Mr Taylor owned 59,984 ordinary shares (2009 – 50,000 ordinary shares) and options over 50,984 ordinary shares (2009 – 39,152 options).

Options under the LTIP are normally exercisable in full or in part between the third and tenth anniversaries of the date of grant. Details of the performance conditions of share option awards are set out on Directors' remuneration report page.

Pensions

The Directors had accrued entitlements under the pension scheme as follows:

	Accumulated accrued pension at 31 March 2010 £	Accumulated accrued pension at 31 March 2009 £	Increase in accrued pension during year £	Increase in accrued pension during the year, after removing the effects of inflation £	Transfer value of increase, after removing the effects of inflation, less Directors’ contributions £
Richard Longdon	143,964	135,536	8,428	1,651	17,141
Paul Taylor	54,868	49,269	5,599	3,136	18,462

The pension entitlement shown is that which would be paid annually, based on service to the end of the year.

The transfer value as at date of retirement of each Director’s accrued benefits at the end of the financial year is as follows:

	31 March 2010 £	31 March 2009 £	Movement, less Directors’ contributions £
Richard Longdon	2,097,351	1,720,009	371,926
Paul Taylor	615,644	470,242	136,141

The transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. Members of the scheme have the option to pay Additional Voluntary Contributions. Neither the contributions nor the resulting benefits are included in the above table.

By order of the Board

Signature: Paul Taylor, Company Secretary

Paul Taylor

Company Secretary
26 May 2010

High Cross
Madingley Road
Cambridge CB3 0HB

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