As Chairman of the Remuneration Committee ("the Committee") and on behalf of the Board of Directors I am pleased to present our Board report on remuneration, based on the policy and disclosure requirements on directors' remuneration, as required by the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 ("the Regulations").

Last year saw significant change to the public disclosure of remuneration for executive directors. At the 2014 AGM, Bodycote put forward its Remuneration Policy for a binding shareholder vote and received overwhelming support, with 96% of shareholders voting in favour of our policy.

Consistent with last year, this report consists of two sections. The first part (Section A) summarises the policy of the Board with regard to the remuneration of the directors and is a re-statement of the Remuneration Policy that was approved at the 2014 AGM. The second part (Section B) describes how the policy was implemented in 2014 and how it will be implemented in 2015. Section B will be subject to an advisory vote.

It is intended that Section A will be put forward to shareholders again at the 2017 AGM and Section B will continue to be put to the AGM each year on an advisory basis.

2014 performance and remuneration outcomes

2014 has been another successful financial year for Bodycote. While Group revenue decreased by 1.7%, there was an increase of 4.0% at constant exchange rates. Headline operating profit grew by 3.4% and headline earnings per share increased by 6.3% in 2014, compared to an indicative increase of 3.9% in the FTSE 250 as a whole.

2014 base salary increases for the Executive Directors in the year were 3.0% for the Group Chief Executive and 3.0% for the Group Finance Director. These increases compare to average 2014 salary increases across the Group of 2.9%.

Annual bonuses for the Executive Directors, which are based on a mix of Group headline operating profit, Group headline operating cash flow and personal strategic objectives, paid out at 94.3% and 71.1% of base salary for the Group Chief Executive and Group Finance Director respectively (equivalent to 72.5% and 71.1% of maximum opportunity).  Return On Sales Headline Operating Cash Flow

Awards under the Co-investment Plan (CIP) made in May 2011 vested in May 2014 at 100% of maximum based on absolute Total Shareholder Return (TSR) growth in the three financial years ending April 2014.

Awards under the Bodycote Incentive Plan (BIP) made in February 2012 are due to vest in March 2015 at 44.3% of maximum based on a combination of return on capital employed (ROCE) and headline earnings per share (EPS) growth for the three financial years ended December 2014.  Return On Capital Employed Headline Earnings Per Share

Changes to remuneration arrangements

Following a contractual review of pension provision during 2013, the Committee decided that the level of salary supplement in lieu of pension for Stephen Harris should be adjusted to 25% of salary. For David Landless, the salary supplement in lieu of pension was adjusted to 25% of basic salary, up to the defined benefit pension scheme cap. The amount paid above that cap remained at 16% of basic salary. The changes came into effect on 1 April 2014.

Our Chairman, Alan Thomson, elected to forgo an inflationary increase in fees in 2013. Therefore, Mr Thomson's fees have remained unchanged at £150,000 for the past two years. It was decided that with effect from 1 January 2014, the Chairman's fee would be increased to £160,000. This decision was taken so that Mr Thomson's fees reflect the full scope of his role and responsibilities.  

During the year, the Committee considered the revisions made to the UK Corporate Governance Code produced by the Financial Reporting Council in September 2014. At this time, the Committee is satisfied that Bodycote's existing Remuneration Policy continues to comply with the Code. The Committee will continue to review ongoing developments in UK corporate governance and how these might impact Bodycote's Remuneration Policy.

As the Remuneration Policy for Executive Directors was approved at the 2014 AGM, no changes have been made to the remuneration framework and policy this year. The decisions that we have taken this year have been within the framework of our existing Remuneration Policy, as approved by our shareholders.

E. LindqvistChairman of the Remuneration Committee
26 February 2015