## DIRECTORS’ REMUNERATION REPORT 

This report has been prepared by the Remuneration Committee (the “Committee”) of Reed Elsevier Group plc and approved by the boards of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV. The report has been prepared in accordance with the UK Directors' Remuneration Report Regulations 2002 (the "Regulations") and serves the requirements for Reed Elsevier NV under the Netherlands Civil Code. The Report also meets the requirements of Schedule A of the Principles of Good Governance and Code of Best Practice, issued by the UK Financial Services Authority and describes how the Principles of Good Governance relating to directors' remuneration have been applied. 

Information relating to the emoluments of the directors on pages 32 to 34 and directors’ interests in share options on pages 36 and 37 has been audited. 

## REMUNERATION COMMITTEE 

The Committee is responsible for recommending to the boards the remuneration (in all its forms), and the terms of the service contracts and all other terms and conditions of employment of the executive directors, and for providing advice to the Chief Executive Officer on major policy issues affecting the remuneration of executives at a senior level below the board. A copy of the terms of reference of the Committee is published on the Reed Elsevier website at www.reedelsevier.com. 

Throughout 2003 the Committee consisted wholly of independent non-executive directors. The current members of the Committee are Rolf Stomberg (Chairman of the Committee), Mark Elliott (appointed in April 2003) and Cees van Lede (appointed in April 2003). John Brock and Roelof Nelissen were members of the Committee until April 2003. At the invitation of the Chairman, the Chief Executive Officer attends meetings of the Committee, except when his own remuneration is under consideration. 

The Committee has appointed Towers Perrin, an external consultancy which has wide experience of executive remuneration in multinational companies, to advise in developing its performance-related remuneration policy. Towers Perrin also provides actuarial and other Human Resources consultancy services direct to some Reed Elsevier companies. 

In addition to Towers Perrin, the following provided material advice or services to the Committee during the year: Jean-Luc Augustin, Human Resources Director; Christopher Thomas, Director, Compensation and Benefits; and Crispin Davis, Chief Executive Officer. 

## REMUNERATION POLICY 

The remuneration policy is set out below: 

The principal objectives of the remuneration policy are to attract, retain and motivate people of the highest calibre 

and experience needed to shape and execute strategy and deliver shareholder value in the context of an ever more competitive and increasingly global employment market. The Committee also has regard to, and balances as far as is practicable, the following objectives: 

(i) to link reward to individual directors’ performance and company performance so as to align the interests of the directors with the shareholders of the parent companies; 

(ii) to ensure that it maintains a competitive package of pay and benefits, commensurate with comparable packages available within other leading multinational companies operating in global markets; 

(iii) to deliver upper quartile total remuneration for clearly superior levels of performance; 

(iv) to ensure that it encourages enhanced performance by directors and fairly recognises the contribution of individual directors to the attainment of the results of Reed Elsevier, whilst also encouraging a team approach which will work towards achieving the long term strategic objectives of Reed Elsevier; and 

(v) to provide a consistent approach towards senior executives, including the directors, irrespective of geographical location. 

In order to meet the above objectives, the remuneration of executive directors comprises a balance between “fixed” remuneration and “variable performance-related” incentives. The policy is that the predominant proportion of reward potential should be linked to performance, and the package composition for 2004 shows that for superior performance some 70% of the total remuneration would be performance related. Effective from January 2003 the Committee adopted a policy of common levels, irrespective of geographical location, for both annual and longer term incentives for executive directors, reflecting the global nature of the role of each director. 

## REMUNERATION ELEMENTS 

Executive directors remuneration consists of the following elements: 

•Base salary, which is based on comparable positions in leading multinational businesses of similar size and complexity. Salaries are reviewed annually by the Committee to take into account both market movement and individual performance. 

•A variable annual cash bonus, based on achievement of three financial performance measures (revenue, profit and cash flow) and individual key performance objectives. Targets are set at the beginning of the year by the Committee and are aligned with the annual budget and strategic business objectives. For 2004, no bonus will become payable in respect of an individual financial performance measure unless 94% of the set target for that measure is achieved. Up to 90% of salary may be earned for the achievement of highly stretching targets 

