Directors' remuneration report

Introduction

This report has been prepared in accordance with the UK Companies Act 2006 and related regulations and describes how Shire has applied the principles relating to Directors’ remuneration set out in both the Combined Code on Corporate Governance issued by the UK Financial Reporting Council in June 2008 and the new UK Corporate Governance Code issued by the UK Financial Reporting Council in May 2010.

Unaudited information

Dear Shareholder

On behalf of the Board, I am pleased to present the Remuneration Committee’s Report for 2010 for which we will be seeking approval from shareholders at our AGM in April 2011.

Since my appointment as Chair of the Remuneration Committee, I have taken time to look at the effectiveness of our current arrangements and also to meet with our largest shareholders to gauge their views on our approach to remuneration. I am comfortable that the current arrangements continue to appropriately reward our high performing management team for delivering strong performance and shareholder value. The Remuneration Committee and management believe that the long-term incentive arrangements (approved at last year’s AGM) are working well within the business and delivering increased alignment to Shire’s strategic goals.

I am grateful to all my fellow Remuneration Committee members for their commitment and global perspectives in the discussions we have had on a wide variety of key issues ensuring that the right outcomes have been achieved for both our senior management and our shareholders.

As highlighted in the Chairman’s review the pharmaceutical industry has faced a tough operating environment in 2010, yet Shire has seen another year of excellent performance and achievement of 28% growth in operating income. Our approach to growth has continued to be through internationalization, acquisition and continuing focus on our niche markets. Value to our patients remains paramount as our best-in-class products focus on meeting the needs in our markets. Our strong performance is reflected in our remuneration outcomes for the year in terms of both our annual bonus achieved for 2010 and long-term performance award; the vesting of the 2008 Portfolio Share Plan award at 88% reflects our strong total shareholder return over the last three years. Our committed management team continues to work together to deliver our innovative, forward thinking business model for which Shire is well respected.

Anne Minto
Chair of the Remuneration Committee

Shire’s 2010 Remuneration Report is grouped into six sections:

1 The Remuneration Committee, (the ‘Committee’) which provides information on the individuals making remuneration decisions and their activities in 2010;
2 Remuneration Policy, which describes Shire’s guiding principles on remuneration for Executive Directors, senior leadership, and the broader employee population;
3 Executive Director Remuneration, which explains the components of Shire’s 2010 executive compensation packages;
4 Non-Executive Directors and the Chairman, which outlines the policy on appointments and fees;
5 The Performance Graph, which provides information on Shire’s Total Shareholder Return performance over a five-year period, compared to its peer group and the FTSE 100 (excluding financial institutions); and
6 2010 Information, which provides details of Executive Directors’ remuneration during 2010 (including emoluments and compensation) and Non-Executive Directors’ fees and share ownership.

Changes to remuneration for 2010

The following changes have been made to our Executive Director remuneration arrangements for 2010 subsequent to the Directors’ remuneration report for 2009.

(i) After the approval of changes to the Group’s remuneration programs at the AGM in April 2010, the performance matrix was introduced for 2010 awards under the long-term incentive plan in order to improve alignment to the core activities and strategy of the business (as referenced in this report). The performance matrix will be retained in its current form for 2011.

(ii) The Group has also updated the approach for calculating the number of shares issued for the 2011 long-term incentive award to align with best practice. The Group will grant awards based on an Expected Value approach and calculate the number of Performance Share Awards (‘PSA’) or Share Appreciation Rights (‘SAR’) based on the average three-day share price at the time of grant (rather than an average share price over the prior twelve month period which has historically been applied). More details on this change is included in the 2011 Awards section.

(iii) To align with the Group’s approach for other share-based plans, the Committee approved the payment of accumulated dividends on Executive Annual Incentive Plan (‘EAIP’) shares deferred in 2011.  

The Committee remains committed to an ongoing dialogue with shareholders and we take account of your views. It is our intention that this report provides helpful context and explanation of the Group’s remuneration policies and practical considerations that influence our decision making.

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1 The Remuneration Committee

To ensure the Group’s reward programs support the Group’s strategy, culture and pay-for-performance philosophy, the Committee reviews compensation and benefit plans for Shire’s Executive Directors, senior leadership (i.e. Leadership Team members), and the broader employee population. Shareholder views are taken into account to ensure reward programs are aligned with shareholder feedback and best practice.

In December 2010, the Committee reviewed its terms of reference to reflect the provisions of the new UK Corporate Governance Code. Also in December 2010, the Committee reviewed its effectiveness and concluded that during 2010 it had operated effectively in fulfilling the duties placed upon it by its terms of reference. The revised terms of reference were approved by the Board in February 2011 and are available on the Shire website.

The Board considers all members of the Committee to be independent. The following Directors served as members of the Committee during the year:

The Chairman and the Chief Executive Officer (‘CEO’) attend meetings of the Committee by invitation, but neither is present in any discussions relating to his own remuneration.

The Committee was materially assisted in 2010 by JoAnn Verderese, Vice President, Total Rewards; Ann Judge, Senior Vice President, Human Resources; and Tatjana May, Executive Vice President and General Counsel.

PricewaterhouseCoopers LLP continued to serve as the independent external advisor to the Committee. In addition, PricewaterhouseCoopers LLP provided global consultancy services to Shire in 2010, primarily in respect of tax matters.

Remuneration Committee Activities for 2010

The Committee met six times in 2010. All members attended all meetings they were eligible to attend.

In 2010, the Committee discussed the following key topics and standing agenda items:

Key topics

• assessment of whether the Group’s remuneration plans are compatible with the Group’s risk policies;
• trends in the executive remuneration marketplace;
• performance measures for long-term incentive awards made to the Executive Directors;
• feedback from consultation with the Group’s largest shareholders on proposed changes to EAIP and Long-Term Incentive Plans (‘LTIP’) (e.g. change to allocation of deferred shares for the EAIP and addition of the performance matrix for LTIP); and
• US Healthcare Reform and its potential impact on the Group’s US employee medical plans.

Standing agenda items

• determination of CEO and Chief Financial Officer (‘CFO’) performance, remuneration and objectives for 2010;
• review of Leadership Team members’ performance and remuneration for 2010;
• assessment of 2009 corporate performance against the 2009 Corporate Scorecard and determination of the corporate bonus modifier for all bonus-eligible employees;
• review of the annual compensation process for all employees;
• 2010 Annual Equity Grant;
• annual offerings of Sharesave, Employee Stock Purchase Plans (‘ESPP’) and sub-plans;
• determination of the vesting percentage of the 2007 awards granted under the Portfolio Share Plan (‘PSP’) for Executive Directors;
• 2009 Remuneration Report;
• 2010 Chairman’s fees;
• 2010 Corporate Scorecard;
• peer group review to determine the approach for 2011 benchmarking for Executive Directors;
• updates on regulatory changes and updates to the UK Corporate Governance Code and Dodd-Frank Act;
• Executive shareholdings;
• terms of reference; and
• Committee effectiveness.

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2 Remuneration Policy

Shire’s remuneration policy is designed to balance the needs of shareholders, the Group and its employees. It recognizes the importance of having reward programs that are linked to the Group’s strategy, are focused on performance and delivering long-term shareholder value, but that are also competitive, valued by employees, and which drive top quartile performance in the achievement of both Shire and individual goals. The Committee also takes account of the pay and conditions elsewhere in Shire and the external environment in which the Group is operating.

Total Rewards Guiding Principles:

Simple and understandable

• Each element of the package has a clear purpose
• Plan drivers are easily understood by participants
• Pay decisions are not mechanical
• Plans are simple to implement
• Plans are transparent and easily communicated

Competitive

• Plans are competitive with the external market
• Plans help to attract and retain talent

Strategically and culturally aligned

• Incentive plans support success, and are aligned with the Group’s goals
• Plan designs support Shire’s culture

Performance oriented

• Plans allow for differentiation based on performance
• Plans are linked to overall Group performance

Valued by employees

• Value placed by employees on each element of the package is aligned with cost to the Group
• Plans drive shareholder value
• Plans provide tax efficiencies where possible

Summary of remuneration philosophy for Executive Directors and other members of the Leadership Team:

Benchmarking

• All elements of pay (base salary, annual incentive and long-term incentives) are benchmarked annually.
• Base salary and incentive targets are determined with reference to a blended US/UK market comparison group. The comparison group of companies are of similar size, complexity and international characteristics as Shire.

Total compensation

• Targeted at or around the 50th percentile for median level performance and allow for the achievement of top quartile pay levels to recognize high performance.

Base salary

• Targeted at or around the median of the market and may be positioned below or above the median depending on individual performance.

Variable compensation

• Percentage of pay at risk considers the external market.
• The Committee targets variable compensation to represent over two-thirds of total remuneration.

Shareholding guidelines

• Executive Directors and other members of the Leadership Team are encouraged to own shares in Shire in order to ensure the alignment of their interests with those of Shire’s shareholders.

The Committee will consider in 2011 the use of provisions to enable Shire to reclaim variable components of performance related remuneration following a restatement of financial results or misconduct.

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3 Executive Director Remuneration

The Executive Remuneration Package comprises the following elements:

(i) Base salary
(ii) EAIP
(iii) LTIP
(iv) Pension and other benefits.

The Committee aims to maintain an appropriate balance between fixed and performance-related remuneration and between elements linked to short-term financial performance and long-term shareholder value creation. The EAIP and LTIP are considered performance-related elements, while base salary is essentially ‘fixed’, although performance is considered when determining annual increases. Assuming on-target performance, the CEO’s remuneration for 2011 is 28% fixed and 72% variable, and the CFO’s remuneration is 33% fixed and 67% variable.

(i) Base salary

The Committee reviews the salaries of the Executive Directors annually with reference to market data, performance and the scope of their roles. Market data is provided by independent external consultants and is a blend of US and UK companies of a similar size, complexity and international characteristics to Shire. The large number of comparable companies within the US allows the peer group to be refined further, including companies in the following sectors: pharmaceutical, biotechnology, medical equipment, and medical supplies.

(ii) EAIP

The Executive Directors and Leadership Team participate in an EAIP, which rewards individuals with a bonus based on achievement of pre-defined, Committee-approved corporate objectives and the individual’s contributions toward achieving those objectives. All other non-sales employees participate in an Annual Incentive Plan (‘AIP’); the two programs are essentially the same with the exception that the EAIP requires a portion of the bonus to be paid in shares issued on a deferral basis.

Corporate objectives are established in a scorecard format with four dimensions. The 2010 weightings of each dimension are provided below:

Key performance measures are established for each objective within each dimension. The scorecard is cascaded to each business and corporate function to ensure alignment with corporate goals. Individual goals are also set to align with the Corporate Scorecard and the individual’s business/function scorecard.

EAIP and AIP awards are determined by the Committee based on the level of achievement across all key performance measures, ensuring that both financial and non financial results are considered.

The Committee also considers the impact on the Group’s performance of strategic actions, as well as the Group’s response to external opportunities and events that could not have been predicted at the beginning of the year.

In 2010, Shire implemented a bonus pool approach for the EAIP and AIP. The bonus pool is determined by calculating the sum of all employees’ annual incentive targets multiplied by the corporate bonus modifier. The Committee determines the corporate bonus modifier based on its assessment of the achievement of the scorecard goals in the first quarter of the year following the performance year. The same bonus modifier is used throughout the Group for all bonus-eligible employees. The maximum bonus modifier is 200% of target.

EAIP awards are paid in cash (75%) and Ordinary Shares or American Depositary Shares (‘ADS’) (25%). The cash element is paid in the first quarter of the year following the performance year, and the share-based element is deferred and released on the third anniversary of the date of the award and is not subject to further performance conditions. However, the release of the shares is subject to the participant’s employment not being terminated for cause. Dividends are not paid on the shares during the three-year period, unless determined by the Committee at the date of the award. No dividend was paid on the EAIP awards granted in 2010. To align with the Group’s approach for other share-based plans, the Committee approved the payment of accumulated dividends on shares deferred in 2011.

2010 EAIP

As referenced by other sections in the report, Shire’s accomplishments for 2010 included:

• Total product sales exceeding $3 billion for the first time, with growth of 16% over 2009;
• Non GAAP earnings before interest, tax, depreciation and amortization (‘EBITDA’) of $1,165 million, with growth of 19% over 2009;
• Growth in ROIC of 190 basis points over 2009;
• Product sales from non-US markets grew by 37%; and
• Approval of VPRIV in the US and EU, achievement of market leadership position for REPLAGAL for Fabry disease, the acquisition of Movetis and entering into a collaboration with Acceleron.

As a result of Group and individual performance, the following EAIP awards were granted:

• The 2010 award for the CEO was 117% of base salary and 130% of target.
• The 2010 award for the CFO was 109% of base salary and 136% of target.

2011 EAIP

The 2011 EAIP and AIP will continue to use a scorecard approach for setting and evaluating objectives. The key performance measures for 2011 have been updated to have more balance between the Customers, People & Capabilities, and Operational Excellence dimensions.

Examples of key performance measures for 2011 include:

• Growth in product sales;
• Growth in Non GAAP EBITDA;
• Growth in ROIC;
• Increase in product sales outside the US; and
• Demonstrate the delivery of value to the healthcare system, including assessment of physician feedback and market share gain.

(iii) LTIP

The Group uses the PSP to grant long-term incentives to motivate, reward and retain employees and to align the interests of employees with those of Shire’s shareholders. Annual participation in the PSP is at management discretion and is approved by the Committee

The PSP is comprised of two parts, which can be operated separately.

• Part A—A SAR Award is the right to receive Ordinary Shares or ADSs linked to the increase in value of a specified number of Ordinary Shares or ADSs over a period between one and seven years from the date of grant. SAR Awards granted to Executive Directors will vest three years after the date of grant, subject to the satisfaction of certain performance conditions, described below. SAR Awards can be exercised up to the seventh anniversary of the date of grant.
• Part B—A PSA Award is the right to receive a specified number of Ordinary Shares or ADSs between one and three years from the date of grant. PSA Awards granted to Executive Directors will vest three years from the date of grant, with vesting subject to the satisfaction of certain performance conditions, described below. Upon vesting of the PSA Award, Ordinary Shares or ADSs will be released to the participant automatically without any action on the part of the participant.

Awards granted to Executive Directors are subject to certain performance conditions which must, in normal circumstances, be met before the award vests. These conditions are measured over a period of not less than three years. Awards will only vest if the Committee determines that the performance conditions have been satisfied and that the underlying performance of the Group is sufficient to justify the vesting of the award. Certain rules apply if the participant’s employment terminates early or on a change in control of the Group.

2010 Awards

In 2010, following consultation with Shire’s largest shareholders, the vesting criteria for SAR and PSA Awards granted to Executive Directors under the PSP were changed to require the achievement of Non GAAP EBITDA and ROIC targets. These new vesting criteria provide increased alignment to the core activities and strategy of the Group as Shire believes that growth in Non GAAP EBITDA and achievement of ROIC above the weighted average cost of capital are key drivers of value creation. The two performance measures are combined in a performance matrix (included below) designed to reward the Group’s executive management for delivering balanced growth in these measures while pursuing Shire’s strategic objective of delivering mid-teens year-on-year sales growth over the performance period.

For the purposes of the matrix, EBITDA growth will be defined as the compound annual growth rate (‘CAGR’) of Non GAAP EBITDA, as derived from the Group’s Non GAAP financial results included in its full year earnings releases, over the three year vesting period. Adjusted ROIC reflects the definition used by Shire in its Corporate Scorecard. This definition aims to measure true underlying economic performance of the Group, by making a number of adjustments to ROIC as derived from Shire’s Non GAAP financial results including:

• adding back to Non GAAP operating income all R&D expenses, intangible asset impairment charges and operating lease costs incurred in the period;
• capitalizing on the Group’s balance sheet historic, cumulative R&D, IPR&D, intangible asset impairment charges and operating lease costs which previously have been expensed;
• deducting from Non GAAP operating income an amortization charge for the above capitalized costs, based on the estimated commercial lives of the relevant products;
• excluding the income statement and balance sheet impact of non-operating assets (such as surplus cash and non-strategic investments); and
• taxing the resulting adjusted operating income at the underlying Non GAAP tax rate.

The ROIC performance as determined by the above definition will be disclosed in the Remuneration Report at the end of the performance period.

The Committee reserves the right to make adjustments to the matrix to reflect significant one time items which occur during the vesting period. The Committee will make full and clear disclosure of any such adjustments in the Remuneration Report at the end of the performance period.

Concurrent with the introduction of the performance matrix, the Committee changed the granting approach for the PSP. Awards under the PSP are split between a base award (being one quarter of the total award made) and a performance award. Multiples of the base award (up to a maximum of four times) will then vest at the end of the performance period depending on the achievement of performance against the matrix.

• SAR Awards: For 2010 the face value of the base awards were 100% of base salary for the CEO and 75% of base salary for the CFO with the opportunity to receive a maximum of four times the original award for superior performance against the matrix.
• PSA Awards: For 2010 the face value of the base awards were 75% of base salary for the CEO and 55% of base salary for the CFO with the opportunity to receive a maximum of four times the original award for superior performance against the matrix.

Awards made to Executive Directors under the PSP in 2010 are set out in the 2010 information below.

In 2010, shareholders also approved a change enabling the Committee to determine the date or dates on which SAR and PSA Awards under the PSP for employees (excluding the Executive Directors and Leadership Team) will vest, provided that the first vesting cannot take place before the first anniversary of the date of grant.

2011 Awards

The performance matrix will be retained in its current form for 2011. The Committee will review it annually to ensure it reflects Shire’s long-range plans and strategy.

Two operational changes will be made to PSP awards for 2011 to improve alignment with best practice and ensure consistency of approach throughout Shire.

Firstly, Shire will move all participants in the PSP to an Expected Value approach to calculating awards. As with our previous policy the Target Expected Value will be determined each year based on external market data. The Committee will review the quantum each year to ensure this is still in line with the stated philosophy and if any changes are proposed these will be included in the Remuneration Report in the year ended prior to the awards being made. The Target Expected Value for Executive Directors for 2011 will remain at the 2010 level. The Committee will have the authority to award a grant within the range of 80–120% of the Target Expected Value, based on performance. The maximum under the PSP awards will remain unchanged as set out in the PSP Rules (six times base salary for SAR Awards and four times salary for PSA Awards).

Secondly, Shire will move to calculating the number of PSA Awards or SAR Awards to an approach based on the average three-day share price at the time of grant (rather than an average share price over the prior twelve month period which has historically been applied). This is intended to improve the alignment of Shire’s PSP with best practice.

• SAR Awards: For 2011 the face value of the base awards, the quantum of which is determined by the Committee on an Expected Value basis, will be 105% of base salary for the CEO and 78% of base salary for the CFO with the opportunity to receive a maximum of four times the original award for superior performance against the matrix.
• PSA Awards: For 2011 the face value of the base awards the quantum of which is determined by the Committee on an Expected Value basis will be 79% of base salary for the CEO and 58% of base salary for the CFO with the opportunity to receive a maximum of four times the original award for superior performance against the matrix.

2007–2009 Awards

The 2007, 2008 and 2009 awards under the PSP which were made to Executive Directors include a market condition based on relative Total Shareholder Return (‘TSR’) measured against two comparator groups. In determining the vesting percentage of a SAR Award or PSA Award granted to Executive Directors, 33% weighting will depend upon the Group’s TSR performance relative to the performance of FTSE 100 constituents, excluding financial institutions, and 67% weighting will depend upon Shire’s TSR performance relative to the performance of a group of international companies from the pharmaceutical sector (see below). Vesting is determined as follows:

TSR performance between median and upper quartile versus the comparator companies and the FTSE 100, excluding financial institutions, is calculated from 33% to 100% on a straight-line basis.

The Committee has the discretion to amend the companies in the comparator group to ensure that the group stays both relevant and representative; however, the change must not have the effect of making the performance criteria either materially easier or materially harder to achieve, in the opinion of the Committee, than they were immediately before the change.

The table below sets out the comparator group for the 2007–2009 awards:

Comparator group of international companies from the pharmaceutical sector		2007 Awards	2008 Awards	2009 Awards
Actelion Pharmaceuticals Ltd		–	–
Allergan, Inc.				–
Amgen Inc.		–	–
Atlana AG.				–
BioMarin Pharmaceutical Inc.		–	–
Biogen Idec Inc.		–	–
Biovail Corporation.
Celgene Corporation.		–	–
Endo Pharmaceuticals Holdings Inc.		–	–
Forest Laboratories Inc.
Genzyme Corporation.		–	–
Gilead Sciences Inc.		–	–
Ipsen Ltd.		–	–
King Pharmaceuticals Inc.
KOS Pharmaceuticals Inc.				–
H. Lundbeck A/S.
Medicis Pharmaceutical Corporation.				–
Novo Nordisk A/S.
Schering AG.				–
Sepracor Inc.				–
Merck Serono S.A.				–
UCB S.A.
Valeant Pharmeuticals International Inc.				–
Watson Pharmaceuticals Inc.				–

TSR performance will be measured using an averaging period of three months. In addition, the Committee will have regard to the same calculation using an averaging period of six months as part of a fairness review to ensure that vesting properly reflects underlying performance.

If the market conditions based on TSR performance are not met, awards will lapse.

Vesting of the 2007 Awards

For the 2007 PSP award which vested in February 2010, Shire’s TSR was 14.1% for the three-month averaging period, which placed it 23rd among the FTSE 100 (excluding financial institutions) and 5th among its peer group. This resulted in a vesting of 84% of the award.

Vesting of the 2008 Awards

For the 2008 PSP award which vested in February 2011, Shire’s TSR was 31.7% for the three-month averaging period, which placed it 20th among the FTSE 100 (excluding financial institutions) and 5th among its peer group. This resulted in a vesting of 88% of the award.

At-a-glance changes to Executive Director remuneration arrangements—2010 to 2011

CEO

CFO

Share ownership guidelines

The Committee believes that Executive Directors and other members of the Leadership Team should be encouraged to own shares in Shire in order to ensure the alignment of their interests with those of Shire’s shareholders.

The Executive Share Ownership Guidelines are administered by the Committee and reviewed annually. The ownership guidelines are based on the following principles:

• the Committee believes that share ownership is an important element of an Executive’s role in leading the Group and represents both a commitment by the Executive as well as an alignment of the Executive’s interests with those of shareholders;
• the Committee believes that share ownership by Executives should be strongly encouraged, but not mandated;
• the Committee understands that, depending on personal and other circumstances, an Executive may not be able to achieve the desired level of share ownership;
• the Committee believes that Executives should understand the importance of share ownership in the stewardship of the Group, and both appropriate time and latitude will be provided to Executives to achieve desired share ownership levels, where possible; and
• Executive Directors and other members of the Leadership Team are encouraged, within a five-year period following the later of either the initiation of these guidelines, or their appointment or election, to attain and hold an investment position no less than the multiples of base salary set forth below. Share ownership levels will be reviewed annually for each Executive.

The following are the guideline share ownership levels for the Executive Directors:

All shares beneficially owned by an Executive count towards achieving these guidelines.

(iv) Pension and other benefits

The Group’s policy is to ensure that pension benefits are competitive in the markets in which Shire operates

Mr Russell participates in the Supplemental Employee Retirement Plan (‘SERP’) and 401(k) Plan in the US. The SERP is an unfunded defined contribution scheme; the benefits are payable to certain senior US employees as lump sums on leaving Shire’s employment or earlier due to death or disability. The amount of benefit is based on the value of notional contributions adjusted for ‘earned’ investment returns as if they were invested in investments of the employees’ choice. Shire contributes 30% of Mr Russell’s annual salary to these plans.

Mr Hetherington participates in a UK HM Revenue and Customs registered defined contribution scheme, which Shire operates for UK employees. In 2010, Shire contributed 25% of Mr Hetherington’s annual salary to this scheme. In addition to pension benefits, the Executive Directors receive certain benefits in kind, principally a car or car allowance, life insurance, private medical insurance and dental cover (US only). These benefits are not pensionable.

Under his service contract Mr Russell is entitled to receive a pension contribution equivalent to 30% of his base salary. It was not possible for his full 2009 payment to be made to Shire’s UK pension scheme without significant tax liabilities arising. As a result, a cash payment of £17,050 (equal to $26,324 based on the exchange rate at the time of payment) was paid to Mr Russell to enable him to make his own pension arrangements.

Mr Russell was no longer eligible to participate in the Sharesave Scheme following his transfer to the United States. The Committee has approved a cash payment for Mr Russell, to be made in November 2011, equivalent to the amount of gain that he would have made had he been permitted to remain in the plan for the full five years. The estimated value of the payment at year end 2010 was £19,766.

Service contracts

The Group’s policy is that Executive Directors should be employed on a rolling term, with a notice period not exceeding twelve months and that in the event of early termination, they should be treated fairly but paid no more than is necessary. It is Shire’s policy that there should be no element of reward for failure.

Notice period

• Twelve months by Shire or by the individual (not applicable if termination for cause).
• Shire retains the right to make payment in lieu of notice.

Termination payment

• The contracts contain phased payment provisions which entitle Shire to terminate an Executive Director’s employment and mitigate the cost by making any severance payment in monthly instalments over the notice period but only until a new post is obtained.
• The amount of annual bonus payable upon termination of employment in any circumstances, other than for change in control, is at the discretion of the Committee and is capped at the contractual target level.
• No annual bonus is payable upon termination for cause.

Change in control

Where employment terminates following a change of control compensation payable is:

• One year’s salary and the cash equivalent of one year’s pension, car allowance and other contractual benefits; and
• Annual bonus payment is at the discretion of the Committee and is capped at the contractual maximum level.

Contract dates

• Angus Russell—dated July 2, 2008 (amended to reflect US legal requirements as a result of his relocation to the US on January 1, 2010).
• Graham Hetherington—dated July 1, 2008.

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4 Non-Executive Directors and the Chairman

Non-Executive Directors are appointed by the Board ordinarily for a term of two years. At the expiration of the two year term Non-Executive Directors are not required to be re-elected by shareholders (unless the expiration of the term coincides with a particular Non-Executive Director’s turn to retire by rotation), but may be re-appointed by the Board. Non-Executive Directors are not entitled to compensation for loss of office.

Details of the unexpired terms of the letters of appointment are as follows:

Each Non-Executive Director is paid a fee for serving as a Non-Executive Director and additional fees are paid for membership or chairmanship of the Audit, Compliance & Risk, Remuneration, Nomination and Science & Technology Committees. The Chairman of Shire receives an inclusive fee. Fees are determined by the Executive Directors and the Chairman, with the exception of the Chairman’s fee which is determined by the Remuneration Committee. Fees are benchmarked against Chairman and Non-Executive Director fees of comparable companies. The fees paid to the Chairman and Non-Executive Directors are not performance-related. No increase was made for 2010 for fees payable to the Chairman or to the Non-Executive Directors. Details of fees paid to the Chairman and Non-Executive Directors, effective January 1, 2011 are set out in the table below.

The Non-Executive Directors are not eligible to join the Group’s pension scheme. Non-Executive Directors do not participate in any of the Group share schemes or other employee benefit schemes and no options have been granted to Non-Executive Directors in their capacity as Non-Executive Directors of Shire plc.

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5 The Performance graph

The graph below sets out Shire’s TSR performance for five years ending December 31, 2010, comparing the TSR performance of a hypothetical £100 holding of Shire plc’s shares with that of a holding of shares in the FTSE 100 Index (excluding financial institutions) and with a holding in the most recent comparator group listed above. This comparator group is a blend of US and UK companies with sector, size, complexity and international characteristics similar to those of Shire. Shire plc is a member of the FTSE 100 Index and consequently, for the purpose of the graph set out below, we have selected the FTSE 100 Index (excluding financial institutions) as the appropriate index.

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6 2010 Information

Audited information

Summary of Executive Directors’ remuneration

The following table gives details of the remuneration received during the year by each Executive Director individually.

The aggregate Directors’ remuneration is disclosed in Note 33 to the consolidated financial statements.

Summary of Non-Executive Directors’ fees

The following table gives the total fees received during the year by each Non-Executive Director.

Directors’ share options

The following share options over Ordinary Shares under the Shire Pharmaceuticals Executive Share Option Scheme (Parts A and B) (‘Executive Scheme’), the Shire 2000 Executive Share Option Scheme (Parts A and B) (‘2000 Executive Scheme’) and the Shire Sharesave Scheme (‘Sharesave Scheme’) were outstanding, exercised or lapsed during the year.

Details of options exercised during the year are as follows:

Directors’ share awards

The following SAR Awards under Part A of the Portfolio Share Plan were outstanding, awarded, lapsed or exercised during the year:

Details of the SAR Awards exercised during the year are as follows:

The following PSA Awards under Part B of the Portfolio Share Plan were outstanding, awarded, lapsed or released during the year:

Details of the PSA Awards released during the year are as follows:

The market price of the Ordinary Shares at December 31, 2010 was £15.43 and the range during the year was £12.20 to £15.67. The market price of the ADSs at December 31, 2010 was $72.38 and the range during the year was $57.64 to $74.12.

EAIP

The following restricted awards were outstanding, awarded or released during the year:

Directors’ interests in Shire shares⁽¹⁾ (unaudited)

Interests in the share capital of Shire plc as at December 31, 2010:

There were no changes to the Directors’ interests since December 31, 2010 and the date of this report.

Approval

This report was approved by the Board of Directors on February 23, 2011 and signed on its behalf by:

Anne Minto
Chair of the Remuneration Committee

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