Annual Report and Accounts 2007

Remuneration Report

Dear Shareholder

On behalf of the Board, I am pleased to present the Directors’ Report on remuneration for 2007 for which we will be seeking approval from shareholders at our Annual General Meeting.

The Remuneration Committee is focused on ensuring the remuneration policy enables the Group to attract, retain and motivate the executive talent required for the successful delivery of our integrated gas strategy.

During 2007, the Committee reviewed BG Group’s approach to executive remuneration and the use of share-based incentives across the Group, against the international oil and gas market in which we compete for talent. The review was prompted by the continued evolution of BG Group and the need to compete with remuneration practices in new geographical areas and markets, at a time when the employment market within the oil and gas industry is becoming ever more challenging.

In order to ensure that BG Group can recruit and retain high quality management in a global market for talent, BG Group needs to offer arrangements that are competitive with all industry participants. Following consultation with our major shareholders, the Committee is seeking formal shareholder approval for a new Long Term Incentive Plan and has made some amendments to the Annual Incentive Scheme for 2008. The Committee is also seeking approval to replace our Share Incentive Plan and Sharesave Scheme which are reaching the end of their ten year lives.

The Committee appreciates your support for these changes, which we believe are in shareholders’ interests.

Baroness Hogg
Chairman of the Remuneration Committee

12 March 2008

AUDIT NOTES

In accordance with Schedule 7A of the Companies Act 1985, as inserted by the Directors’ Remuneration Report Regulations 2002 (the Regulations), the following sections of the report have been audited: Directors’ Remuneration; Directors’ Interests in Shares under the BG Group Long Term Incentive Scheme; Directors’ Interests in ordinary shares; and the table and notes in the Pensions section of the report. The remaining sections are not subject to audit.

REMUNERATION COMMITTEE

The Committee’s principal responsibilities are:

• setting, reviewing and recommending to the Board for approval the Company’s overall remuneration policy and strategy;
• setting, reviewing and approving individual remuneration arrangements for the Chairman, Chief Executive and Executive Directors, including terms and conditions of employment and any changes;
• setting, reviewing and approving individual remuneration arrangements for the Group Executive Committee (GEC) members and the Company Secretary, including terms and conditions of employment and any changes;
• approving the rules, and launch, of any Company share, share option or cash-based incentive scheme, and the grant, award, allocation or issue of shares, share options or payments under any such scheme; and
• approving changes to the BG Pension Scheme rules or changes to funding and management arrangements.

The full terms of reference of the Committee can be found on the BG Group website (www.bg-group.com) and copies are available on request.

The Committee comprises the Chairman and independent non-executive Directors. The Committee meets on at least four occasions each year. The members during the year were:

The members during the year were

Baroness Hogg (Chairman)

Sir Robert Wilson

Paul Collins

Jürgen Dormann

Philippe Varin

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Keith Hubber, Company Secretary (and his predecessors Ben Mathews until July 2007 and Alan McCulloch (acting) until November 2007), attends meetings as Secretary to the Committee.

The following individuals attend meetings by invitation and provide advice to the Committee to enable it to make informed decisions:

• Frank Chapman, Chief Executive; and
• Robert Booker, Head of Performance and Reward.

No Director is present when his or her own remuneration is being discussed.

The Committee also meets without management and receives information and independent executive remuneration advice from Kepler Associates^(a), an external consultancy firm appointed by the Committee. During 2007, Kepler Associates provided advice to the Committee on market trends, incentive schemes and other remuneration issues. Kepler Associates does not advise the Company on any other issues.

Other external advisers also provide support and advice in relation to executive remuneration to the Committee. Towers Perrin^(a) provides general compensation and benefits advice and information to the Committee and to BG Group management. Herbert Smith LLP^(a) provides legal advice and services on share schemes (as well as other legal services to the Group and to the trustees of the Ballylumford Power Pension Scheme^(b)). Linklaters LLP^(a) provides legal advice on employee incentives (as well as other legal services to the Group). Watson Wyatt^(a) provides actuarial advice to the Committee, the Group, and the Trustees of the BG Pension Scheme and the Ballylumford Power Pension Scheme as well as other general consultancy services to the Group. These advisers are appointed by management or the relevant trustees as appropriate.

(a)

Kepler Associates, Towers Perrin, Herbert Smith LLP, Linklaters LLP and Watson Wyatt have given, and not withdrawn, their written consent to the issue of this document with the inclusion of the reference to their respective names in the form and content in which they appear. A copy of each consent letter is available for inspection at BG Group plc, 100 Thames Valley Park Drive, Reading, Berkshire, RG6 1PT. Other than in the provision of the services outlined in this Report, neither Kepler Associates, nor Watson Wyatt provides any services to the Group nor has any connection with the Group. Towers Perrin have been appointed to manage the design and implementation of a Flexible Benefits scheme.

REMUNERATION POLICY

The central premise of BG Group’s remuneration policy is that, while reward arrangements should be market competitive, employees should look to performance-related incentives rather than base salaries to earn above-average reward. Performance-related incentive schemes form a significant proportion of the total reward package for executives and are designed to align their interests with those of shareholders and establish a clear link between pay and performance.

In defining BG Group’s remuneration policy, the Committee takes into account advice received from external consultants and also best practice guidelines set by institutional shareholder bodies, including the principles and guidelines on executive remuneration issued by the Association of British Insurers (ABI).

To implement the policy, BG Group has a well-developed, Group-wide performance management system and, during 2007, operated three complementary performance-related incentive schemes for executives:

• the Annual Incentive Scheme (AIS) – designed to focus executives on the business priorities of the financial year and to reinforce the individual and Company performance ethic;
• the Long Term Incentive Scheme (LTIS) – aims to motivate participants to maximise total shareholder return (TSR)^(c) as measured against a comparator group of international oil and gas companies over a period of three years; and
• the Company Share Option Scheme (CSOS) – aims to drive real earnings growth over the long term. The mechanism used for measuring this is the growth in the Group’s earnings per share (EPS)^(d) relative to the growth in the Retail Prices Index, excluding mortgage interest repayments (RPIX).

The three schemes complement each other and enable the measurement and reward of both short- and long‑term performance. The Committee considers that the three year vesting period for the LTIS and the CSOS is appropriate.

(a)

See footnote.

(b)

The Ballylumford Power Pension Scheme is a BG Group pension scheme.

(c)

TSR is defined as the return on investment obtained from holding a company’s shares over a period. It includes dividends paid, the change in the capital value of the shares and other payments to, or by, shareholders within the period. TSR is calculated on a common currency basis to ensure that international comparisons are fair. The Committee believes that TSR is an appropriate measure of relative performance.

(d)

EPS is calculated by dividing the earnings for the financial year (on a Business Performance measure) by the weighted average number of ordinary shares in issue and ranking for dividend during the year. The Committee believes that EPS provides an appropriate measure of company growth. EPS is published quarterly when BG Group reports its results. For grants made on or after 21 July 2004, the Group’s published EPS is adjusted to take into account the volatility of both commodity prices and exchange rates. This adjustment is independently reviewed. See below for further details.

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REVIEW OF REMUNERATION

During the year, the Committee reviewed the remuneration arrangements for Executive Directors and the share-based arrangements used more widely throughout the Group. Remuneration was benchmarked on a total reward basis (i.e. including salaries, incentives and pensions) against the FTSE 30 (excluding financial services companies) and the international oil and gas companies in our current and proposed TSR comparator groups.

As a result of the review, the Committee decided to make and propose certain changes to the incentive arrangements for 2008 in order for BG Group to maintain its competitive position:

• for 2008, GEC annual incentive awards greater than 100% of salary will be deferred into shares that will not be released to the individual for a period of three years;
• for 2008, the maximum annual incentive opportunity for the Chief Executive will be increased from 150% to 200% of salary, and for the Chief Financial Officer from 125% to 150% of salary. Superior levels of performance will be required to achieve these new higher incentive levels;
• shareholder approval is being sought for the new Long Term Incentive Plan 2008 (LTIP) to replace the CSOS and the LTIS. In 2008, LTIP awards to Executive Directors and members of the GEC will be made via Performance Share Awards, subject to a face value limit of six times salary and an Estimated Present Value (EPV) limit of 250% of salary. All other eligible employees will be subject to the EPV limit of 250% of salary and may receive Performance Share Awards, Group Share Awards, or a combination, at the discretion of the Company. In subsequent financial years, Executive Directors and members of the GEC may receive Performance Share Awards, Market Value Options or a combination of these at the discretion of the Company. In addition to the above awards, other eligible employees may also receive Group Share Awards or a combination of these awards at the discretion of the Company. All awards to participants will be subject to an individual EPV limit of 300% of salary. Further details are set out in the Notice of AGM; and
• shareholder approval is also being sought to replace the Share Incentive Plan (SIP) and the Sharesave Scheme, which are reaching the end of their ten year lives.

COMPONENTS OF REMUNERATION

The current remuneration package for Executive Directors comprises performance-related and non-performance-related components. The performance-related components are the incentive schemes referred to above and the non-performance-related components are base salary, taxable benefits and pension entitlements. In addition, the Executive Directors are eligible to participate in the Company’s all-employee share schemes. Pay and employment conditions elsewhere in the Group have been taken into account by the Committee in determining the remuneration packages for Executive Directors. The Committee has also followed the provisions of Schedule A to the Combined Code that relate to the design of performance-related remuneration.

The proportion of each Executive Directors’ total remuneration that is performance-related is significant even for target performance. For stretch performance, the proportion of total remuneration that is performance-related is higher, as is the total amount of remuneration payable.

The average proportion of remuneration (including pension) that was performance-related in 2007 is illustrated by the following chart. In estimating the relative importance of those elements of remuneration that are, and those that are not, performance-related as required by the Regulations, a number of assumptions have had to be made about the Company’s share price growth and TSR, relative to the Company’s comparator group, over the next three years.

See Description Back to top

Base salaries

Executive Directors’ salaries are reviewed each year with any changes normally taking effect from 1 April. This review takes into account individual performance, experience and market competitiveness. Pensionable salary is derived from base salary only.

In line with our remuneration policy, the Committee benchmarks Executive Directors’ salaries against a comparator group, which, for the 2007 salary review, was the FTSE 30 excluding financial services companies. Executive Director salaries are between the median and upper quartile for this comparator group. The Committee believes this positioning is appropriate given the significantly higher total reward levels at other international oil and gas companies with which BG Group competes for talent.

Annual Incentive Scheme (AIS)

The Group operates a cash-based annual incentive scheme, which in 2007 provided an incentive opportunity in the range of 0% to 150% of base salary (0% to 200% for 2008).

At the start of the incentive year (1 January), the Board sets challenging budget and stretch financial performance targets and the Committee endorses other performance measures, notably with respect to health, safety and environmental indicators. Bonuses at the higher end of the range are payable only for demonstrably superior Group and individual performance.

For the Executive Directors, the performance measures for the 2007 incentive year were EPS^(a), return on average capital employed^(b) (ROACE) and performance against a Health, Safety and Environment (HSE) balanced scorecard^(c). The weighting of each of these metrics is illustrated on the next chart:

See Description

(a)

Actual results are adjusted to exclude the volatility of upstream prices, the US$/UK£ exchange rate, the volatility of natural gas prices on contracted LNG cargoes and the Comgas regulatory current account.

(b)

Average capital employed consists of total equity excluding commodity financial instruments (including associated deferred tax) and net funds/borrowings, averaged between the start and the end of the year. Average capital employed is adjusted to exclude the volatility of upstream prices and the US$/UK£ exchange rate. Return on average capital employed represents Business Performance^† profit after tax excluding net finance income/costs on net funds/borrowings, adjusted as in (a), as a percentage of average capital employed.

(c)

The HSE balanced scorecard measures performance across a range of leading and lagging indicators reflecting the Group’s commitment to HSE, and is designed to ensure that HSE performance is explicitly considered within the incentive framework.

The adjustments in (a) and (b) are independently reviewed.

†

For a reconciliation between Business Performance and Total Results, see note 2.

In determining the actual incentive payment, the Committee considers these results against the context of the overall performance of the business and of the individual. The review of the overall performance of the business takes into consideration such factors as operational performance, strategy and business development activities and performance against industry peers. The review of individual performance takes into consideration achievements against the individual’s personal performance contract.

For the 2007 incentive year, financial performance against both the EPS and ROACE targets and performance against the HSE balanced scorecard were rated as stretch. Taking into account these results and overall business and individual performance, the Committee has awarded the Chief Executive an AIS payment of 140% of base salary, the former Deputy Chief Executive an AIS payment of 100% of base salary and the Chief Financial Officer an AIS payment of 110% of base salary. Payments in respect of the 2007 incentive year were made in March 2008.

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Long‑term incentives

The narrative below relates to the current schemes that operated during the 2007 financial year. As noted above, approval is being sought for the introduction of a new LTIP, which will replace these schemes. Further details of the LTIP can be found in the Notice of AGM.

When making the decision on the level of award, the Committee takes into consideration a number of factors including face value, EPV and scheme dilution limits.

The face value of an award is equal to the number of shares, or shares under option, multiplied by the relevant share price. The relevant share price of an LTIS award is the average share price for the 12 months immediately prior to the date of award. The relevant share price for a CSOS award is the average share price for the three dealing days immediately prior to the date of grant.

The rules of the LTIS and CSOS each permit a maximum award with a face value equal to 400% of salary in each year. The maximum combined award granted during 2007 was 400% of salary in LTIS and 400% of salary in CSOS.

EPV is a measure that describes the economic or fair value of an award. The measure takes account of the performance conditions and the risk that grants and allocations may be forfeited. EPV is calculated independently by Kepler Associates.

Long Term Incentive Scheme (LTIS)

A limited number of key employees are allocated Company shares under the LTIS. This allocation marks the beginning of a three year performance period. The Company’s TSR performance against that of a comparator group of companies over the three year period will determine what proportion of the allocated shares will be transferred into the ownership of the employee. There is no retest provision.

In the event of a change of control, vesting of shares under the LTIS is not automatic and would depend upon the extent to which the performance conditions had been met at the time. Time pro-rating will apply if the Remuneration Committee determines that this is appropriate given the circumstances of the change of control.

For the 2004 allocation, the comparator group comprised 21 companies, including BG Group plc. The Committee considered that this group represented an appropriate set of international oil and gas companies against which the performance of BG Group could be compared by shareholders.

For the 2005 allocation, the group was reduced to 19, due to the merger of Royal Dutch Petroleum Co. and Shell Transport and Trading Co. plc to form Royal Dutch Shell plc and the acquisition of Unocal Corporation by Chevron Texaco Corporation (now called Chevron Corporation).

For the 2006 allocation, the group was reduced to 17, due to the acquisition of Burlington Resources Inc. by ConocoPhillips and the acquisition of Kerr-McGee Corporation by Anadarko Petroleum Corporation.

For the 2007 allocation, the group was reduced further to 16, due to the merger of Statoil ASA and Norsk Hydro ASA’s petroleum activities.

The other companies in the comparator group are currently as follows:

Of these companies, nine are headquartered in the USA, one in the UK and five elsewhere in Europe.

The Committee reviews this comparator group prior to making any award under the LTIS.

The Committee has set the following performance conditions for allocations made under the LTIS:

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Performance conditions for allocations made under the LTIS

BG Group’s TSR position in comparator group	% of allocated shares transferred
Top	100
Upper quartile	75
Median	30
Below median	All allocated shares are forfeited

Where performance is between upper quartile (UQ) and top (T) or between median (M) and UQ, the percentage of shares to be transferred is determined on a proportionate basis.

These performance conditions are illustrated by the graph below:

LTIS performance conditions

% of allocated shares transferred

See description

The performance period for the 2004 allocation ended on 2 September 2007. BG Group’s final TSR for this period relative to the TSRs of companies in the relevant comparator group was measured by the independent TSR monitoring service of Alithos Limited and reviewed by Kepler Associates. This analysis placed BG Group in sixth position. The Committee therefore decided, in accordance with the performance condition for the 2004 allocation, that 75% of the original allocation of shares had vested and, accordingly, these shares were transferred to the participating employees on 6 September 2007.

Company Share Option Scheme (CSOS)

Approximately 2 800 employees are currently eligible to participate in the CSOS, including all UK payroll employees and those overseas employees above a certain grade.

The Company grants an option over its shares to each eligible employee and the option price is set at the fair market value at the time of the grant. As described below, the CSOS measures performance according to EPS growth relative to the growth in the RPIX. The Committee considers that an EPS performance measure ensures that employees receive rewards only when the Company has achieved sustained earnings growth during the performance period. The calculation of EPS growth for grants made on or after 21 July 2004 has been made using constant commodity prices and constant exchange rates.

During the transition to the International Financial Reporting Standards (IFRS), EPS growth figures are being calculated on a consistent basis by restating prior years’ results in compliance with IFRS.

To the extent that the performance target has been met three years from the date of grant, the option may be exercised (in whole or in part) at any time up to the expiry of ten years from the date of grant. There is no retest provision.

As in prior years, the levels of grant made to individual employees in 2007 were differentiated based on each individual’s performance to date and expectation of future contributions. For the 2007 grant, the Committee set the following performance targets:

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For the 2007 grant, the Committee set the following performance targets

% EPS growth over RPIX (over 3 years)	% of options that are exercisable
30 or greater	100
15	50
Less than 15	Options are forfeited

A proportion of between half and all of the options will be exercisable if the Company achieves EPS growth over three years of RPIX plus between 15% and 30%, respectively.

These targets are the same as those that apply to the 2005 and 2006 grants (and applied to the 2004 grant) and are considered by the Committee to be particularly demanding.

These performance targets are illustrated by the graph below:

CSOS performance conditions

% of options exercisable

See description

Over the three year performance period for the 2004 CSOS grant, the Company’s EPS growth above the growth in the RPIX exceeded 30%. As a result, 100% of the shares under the option granted to employees in September 2004 are exercisable prior to September 2014.

In the event of a change of control, exercise of an option under the CSOS is not automatic and would depend upon the extent to which the performance condition had been satisfied at the time.

All-employee share schemes

In order to encourage share ownership, the Company currently provides two all-employee share schemes for its UK employees, the Share Incentive Plan and the Sharesave Scheme.

Share Incentive Plan (SIP)

The BG Group SIP is approved by HM Revenue & Customs. There are two parts to the SIP – the Partnership Shares Plan and the Free Shares Plan.

(a) Partnership Shares

Eligible employees are offered the opportunity to buy Company shares from pre-tax earnings as part of a regular share purchase plan. Shares are currently purchased every six months using employees’ accumulated deductions and are placed in trust.

At 31 December 2007, 63.6% of eligible employees were participating in this plan. Of those participating, 75% were contributing the maximum of £125 per month.

(b) Free Shares

A Free Shares award of a maximum of 410 shares, representing the value of the £3 000 statutory limit, was made on 25 April 2007 to all eligible employees in the UK, based on the Group’s performance during 2006. These shares will be held in trust for up to five years.

For 2008, the Committee may approve the award of Free Shares in the Company up to the statutory limit for each individual. This number will be determined based on the Group’s performance during 2007.

Sharesave Scheme

The Company continued to operate the BG Group Sharesave Scheme in 2007. The scheme is approved by HM Revenue & Customs and enables eligible employees to acquire the Company’s shares with the proceeds of a monthly savings contract. The contract period is three years. At 31 December 2007, 74.4% of eligible employees were participating in the Sharesave Scheme, contributing an average monthly payment of £221.22. Of those participating, 75.3% were contributing the statutory maximum of £250 per month.

PENSIONS

The pension arrangements for Executive Directors are detailed in Pensions.

As detailed in note 29, BG Group operates a number of pension plans across the Group. Outside the UK, these plans are generally defined contribution (or money purchase) arrangements. In April 2007, a defined contribution plan was introduced in the UK for new hires. Employees who were already members of the defined benefit scheme continue to accrue benefits in that scheme.

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DILUTION

The ABI has published guidelines relating to the disclosure of commitments to issue new shares or re-issue Treasury shares under a company’s share-based schemes. In the event of all options and awards outstanding as at 31 December 2007 under BG Group’s CSOS (under which options are currently satisfied by the issue of new shares) and LTIS (under which awards are currently satisfied by the re-issue of Treasury shares) becoming exercisable/vesting respectively, the resulting issue of new shares and re-issue of Treasury shares would amount to 2.03% of the issued share capital at that date.

In the event of all options outstanding as at 31 December 2007 under BG Group’s Sharesave Scheme (which involves the issue of new shares) becoming exercisable, the resulting issue would represent 0.07% of the issued ordinary share capital at that date.

Partnership and Free Share awards made under the SIP during 2007 were satisfied by the re-issue of Treasury shares. These awards represented 0.002% of the issued share capital as at 31 December 2007.

The Company’s intention is to continue to satisfy the future exercise of options and vesting awards under the above schemes by the issue of new shares and re-issue of Treasury shares as described above.

SHAREHOLDING GUIDELINES

The Committee has adopted guidelines for Executive Directors, GEC members and certain other senior employees to encourage substantial long‑term share ownership. These require that, over a period of five years from the introduction of the guidelines in 2002 (or date of appointment, if later), Executive Directors build up, and then retain, a holding of shares with a value equivalent to 200% of base salary. The required holding for other members of the GEC is 100% of base salary and for certain other senior employees is 50% of base salary. The guidelines require that, in relation to the 2002 and later LTIS allocations, vested shares (net of tax) should be retained by the individual until the required shareholding level is reached.

SERVICE CONTRACTS

The Executive Directors’ service contracts, including arrangements for early termination, are carefully considered by the Committee and are designed to recruit, retain and motivate Directors of the quality required to manage the Company. The Committee considers that a rolling contract with a notice period of one year is appropriate.

In line with the Company’s policy, the Executive Directors’ service contracts contain change of control provisions. Should the Directors’ employment be terminated within 12 months of a change of control, they are entitled to liquidated damages. The amount of liquidated damages is equal to one year’s gross salary and a credit of one year’s pensionable service (less any deductions the employer is required to make), which the Committee considers to be a genuine pre-estimate of loss. The Committee considers that these provisions assist with recruitment and retention and that their inclusion is therefore in the best interests of shareholders.

Other than change of control, the Executive Directors’ service contracts do not contain provisions for compensation in the event of early termination. When calculating termination payments, the Committee takes into account a variety of factors, including individual and Company performance, the obligation for the Director to mitigate his or her own loss (for example, by gaining new employment) and the Director’s length of service. Further details of the Executive Directors’ service contracts can be found in Directors’ Service Contracts.

SENIOR EXECUTIVES BELOW THE EXECUTIVE DIRECTORS

The policy and practice with regard to the remuneration of senior employees below the Executive Directors is entirely consistent with that for the Executive Directors. These senior executives all have a significant portion of their reward package linked to performance. They all qualify for AIS, CSOS and LTIS, and their financial targets are the same as, or cascaded from, the targets for the Executive Directors. The Committee reviews and approves the individual remuneration packages for the GEC members and the Company Secretary in accordance with the overriding objectives of our remuneration policy. Their individual performance is reviewed and their increases in base salary, AIS payments, and CSOS and LTIS awards are subject to approval by the Committee each year. Under the proposed new LTIP, senior employees will continue to be treated consistently with the Executive Directors and members of the GEC, with the exception that a portion of the LTIP may additionally be made other than in Performance Shares, but still subject to the overall plan limits.

NON-EXECUTIVE DIRECTORS

The Board aims to recruit non-executive Directors of a high calibre, with broad commercial, international or other relevant experience. Non-executive Directors are appointed by the Board on the recommendation of the Nominations Committee. Their appointment is for an initial term of three years, subject to election by shareholders at the first AGM following their appointment. Upon the recommendation of the Nominations Committee, they are generally re-appointed for a second term of three years, subject to re-election by shareholders. There is no notice period and no provision for termination payments.

The terms of engagement of the non-executive Directors are set out in a letter of appointment.

The basic annual fee paid to non-executive Directors is £65 000. Additional fees are also payable, for example, for membership of, or chairing, a committee of the Board or acting as Senior Independent Director. Fees are reviewed every two years, taking into account time commitment, competition for high quality non-executive directors and market movements. The next review will be effective 1 July 2008.

Non-executive Directors are not eligible to participate in any of the Company’s share schemes, incentive schemes or pension schemes.

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CHAIRMAN

Sir Robert Wilson was initially appointed as Chairman with effect from 1 January 2004 and was re-appointed with effect from 1 January 2007. In line with the non-executive Directors, Sir Robert’s re-appointment is for a three year term and there is no notice period and no provision for payment in the event of early termination. The fee paid to Sir Robert Wilson is £625 000 per annum, which is next subject to review effective 1 January 2009.

PERFORMANCE GRAPH

The graph below shows BG Group’s TSR performance for the five year period ended 31 December 2007 (calculated in accordance with the Regulations) against the performance of the FTSE 100.

The FTSE 100 was chosen because this is a recognised broad equity market index of which the Company is a member.

See Description

The following section of this report provides details of the remuneration, service contracts or letters of appointment and share interests of all the Directors for the year ended 31 December 2007.

DIRECTORS’ REMUNERATION

Individual remuneration for the year to 31 December

	Salary/fees		Taxable benefit (a)		Bonus		Total
	2007 £	2006 £	2007 £	2006 £	2007 £	2006 £	2007 £	2006 £
Sir Robert Wilson	625 000	550 000	2 394	2 945	–	–	627 394	552 945
Ashley Almanza(c)(d)(e)	604 493	544 500	3 910	2 892	660 000	540 000	1 268 403	1 087 392
Frank Chapman(c)(d)(e)	996 593	901 600	4 161	4 154	1 400 000	900 000	2 400 754	1 805 754
Peter Backhouse(b)	75 000	76 250	108	331	–	–	75 108	76 581
Sir John Coles(b)(f)	80 000	83 750	244	331	–	–	80 244	84 081
Paul Collins(b)	95 000	91 250	244	331	–	–	95 244	91 581
Jürgen Dormann(b)	75 000	71 250	108	331	–	–	75 108	71 581
Baroness Hogg(b)	85 000	78 750	244	331	–	–	85 244	79 081
Dr John Hood(b)	48 645	–	108	–	–	–	48 753	–
Lord Sharman(b)	85 000	78 750	244	331	–	–	85 244	79 081
Philippe Varin(b)	75 000	44 469	244	331	–	–	75 244	44 800
Former Directors
William Friedrich(c)(d)(e)(g)	713 897	682 379	25 025	46 388	745 000	690 000	1 483 922	1 418 767
Sir Richard Giordano(h)	–	–	20 915	49 628	–	–	20 915	49 628

(a)

Taxable benefits include items such as company car, driver, financial advice, gifts and medical insurance.

(b)

Each non-executive Director was paid a fee of £57 500 per annum until 30 June 2006. From 1 July 2006, this increased to £65 000 per annum. A fee of
£5 000 per annum is also paid for membership of each of the Audit, Corporate Responsibility and Remuneration committees, other than for the chairmen of those committees. The chairmen of the Audit, Corporate Responsibility and Remuneration committees received additional fees of £15 000, £10 000 and
£10 000 per annum respectively until 30 June 2006. From 1 July 2006, these fees increased to £20 000 per annum for chairing the Audit Committee and
£15 000 per annum for chairing the Corporate Responsibility and Remuneration committees. Paul Collins received a fee of £20 000 per annum as Senior Independent Director.

(c)

Bonus figures for 2006 represent payments under the AIS in respect of the 2006 incentive year that were made in March 2007. Bonus figures for 2007 represent payments under the AIS in respect of the 2007 incentive year that will be made in March 2008.

(d)

Salary figures for Executive Directors include Free Shares to the value of £3 000 received under the SIP in April 2006 and £2 993 in April 2007. In 2008, Ashley Almanza, Frank Chapman and William Friedrich will be eligible to receive up to a further £3 000 worth of Free Shares under the SIP.

(e)

Salary figures for Ashley Almanza and Frank Chapman for both 2006 and 2007, and for William Friedrich for part of 2006 and all of 2007, include a cash allowance in lieu of a company car.

(f)

In 2006, Sir John Coles received a payment of £5 000 in respect of an overseas trip.

(g)

William Friedrich, who is a US citizen and retired as a Director on 13 December 2007, is covered by long-term care insurance if he returns to the USA. The value of the taxable benefit for 2007 was £7 895. Cover is being paid by ten instalments, the first of which was paid in 2002.

(h)

Sir Richard Giordano retired as Chairman and Director on 31 December 2003. Sir Richard continues to be entitled to private medical insurance and long-term care insurance. The long-term care insurance is being paid by ten instalments, the first of which was paid in 2002.

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DIRECTORS’ SERVICE CONTRACTS

EXECUTIVE DIRECTORS

Details of the service contracts of the Executive Directors who served during the year are set out below:

Details of the service contracts of the Executive Directors who served during the year

	Contract date	Unexpired term	Notice period	Compensation payable upon early termination (a)
Ashley Almanza	01 Aug 02	rolling 1yr	1yr	n/a
Frank Chapman	14 Sep 00	rolling 1yr	1yr	n/a
William Friedrich(b)	14 Sep 00	rolling 1yr	1yr	n/a

(a)

Other than the change of control provisions, the Executive Directors’ service contracts do not contain provisions for compensation payable upon early termination.

(b)

William Friedrich retired as a Director on 13 December 2007.

Change of control

As described in Service Contracts, the Executive Directors’ service contracts contain change of control provisions.

For the purposes of these provisions, a change of control is deemed to occur if the Company becomes a subsidiary of another company; or if 50% or more of the voting rights of the Company or the right to appoint or remove the majority of the Board of the Company become vested in any individual or body or group of individuals or bodies acting in concert; or if all or substantially all of the business, assets and undertakings of the Company become owned by any person, firm or company (other than a subsidiary or associated company). A change of control is also deemed to occur if the whole of the issued capital of BG Energy Holdings Limited or a substantial part of the undertaking of that company (including its subsidiaries) is transferred to another company, unless that transferee company is a subsidiary of the Company, or a company ultimately owned by substantially the same shareholders as are the ultimate owners of the Company.

However, a change of control does not occur if (and only if) through a process of reconstruction the Company becomes a subsidiary of another company owned by substantially the same shareholders as are the shareholders of the Company. The Executive Directors’ service contracts provide that any payments made pursuant to these provisions will be made, less any deductions the employer is required to make. Any such payments shall be in full and final settlement of any claims the Executive Director may have against the employer or any associated company arising out of the termination of employment, except for any personal injury claim, any claim in respect of accrued pension rights, or statutory employment protection claims.

Chairman and Non-Executive Directors

	Date of letter of appointment or re-appointment	Unexpired term
Sir Robert Wilson(a)	14 Dec 06	1yr 9mths
Peter Backhouse	3 Jan 07	2yrs 2mths
Sir John Coles	24 Jan 07	1yr 2mths
Paul Collins	5 Feb 07	2yrs 2mths
Jürgen Dormann	23 May 05	1yr 2mths
Baroness Hogg	9 Feb 05	2mths
Dr John Hood(b)	28 Apr 07	3yrs 2mths
Lord Sharman	8 Jan 07	2yrs 2mths
Philippe Varin	2 May 06	1yr 2mths

The non-executive Directors’ letters of appointment do not contain any notice period or provision for compensation in the event of early termination of their appointment.

(a)

Sir Robert Wilson was re-appointed as Chairman with effect from 1 January 2007. This is subject to his re-election by shareholders at the 2009 AGM.

(b)

The unexpired term is subject to election by shareholders at the 2008 AGM.

(a)

As a result of the performance criteria measured in September 2007, 75% of the September 2004 notional allocation was transferred to the Executive Directors on 6 September 2007.

(b)

The transfer of shares is dependent on the achievement of performance criteria at the end of a three year performance period. The performance conditions for the scheme are set out above.

(c)

The market price on the date of vesting, 3 September 2007, was £7.815 and on the date of transfer, 6 September 2007, was £8.245.

(d)

William Friedrich stepped down from the Board and Board Committees on 13 December 2007 but remains an employee of the Group.

The Executive Directors also have a deemed beneficial interest in 154 978 shares as potential beneficiaries in the BG Group New Employees Share Trust.

DIRECTORS’ INTERESTS IN ORDINARY SHARES

OPTIONS

The number of share options held by the Directors under the BG Group Sharesave Scheme was as follows:

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Options under the BG Group Sharesave Scheme

	Options as at 1 Jan 2007	Exercised in year	Granted in year	Lapsed in year	Options as at 31 Dec 2007	Exercise price	Earliest normal exercise date	Expiry date
Ashley Almanza	3 458	3 458(a)	1 340	–	1 340	£7.16	Feb 2011	Aug 2011
Frank Chapman	2 398	–	–	–	2 398	£3.95	Nov 2008	May 2009
William Friedrich(b)	1 606	–	–	–	1 606	£5.82	Nov 2009	May 2010

(a)

The market price on 1 November 2007, the date of exercise, was £8.81. The total gain on exercise was £20 990. This option was exercisable from
1 November 2007 to 30 April 2008 at an option price of £2.74.

(b)

William Friedrich stepped down from the Board and Board Committees on 13 December 2007 but remains an employee of the Group.

The number of share options held by the Directors under the BG Group CSOS was as follows:

Options under the BG Group CSOS

	Options as at 1 Jan 2007	Exercised in year	Granted in year	Lapsed in year	Options as at 31 Dec 2007	Exercise price	Earliest normal exercise date	Expiry date
Ashley Almanza	204 066	204 066(a)	–	–	–	£2.7050	Sep 2006	Sep 2013
	250 000	250 000(a)	–	–	–	£3.4733	Sep 2007	Sep 2014
	337 892	–	–	–	337 892	£4.9942	Sep 2008	Sep 2015
	308 228	–	–	–	308 228	£6.8983	Sep 2009	Sep 2016
	–	–	303 030	–	303 030	£7.9200	Sep 2010	Sep 2017
Frank Chapman	156 424	–	–	–	156 424	£2.6850	Nov 2003	Nov 2010
	382 304	–	–	–	382 304	£2.5634	Nov 2004	Nov 2011
	409 136	–	–	–	409 136	£2.5175	Sep 2005	Sep 2012
	440 406	–	–	–	440 406	£2.7050	Sep 2006	Sep 2013
	500 000	–	–	–	500 000	£3.4733	Sep 2007	Sep 2014
	612 711	–	–	–	612 711	£4.9942	Sep 2008	Sep 2015
	521 868	–	–	–	521 868	£6.8983	Sep 2009	Sep 2016
	–	–	505 050	–	505 050	£7.9200	Sep 2010	Sep 2017
William Friedrich(b)	155 307	155 307(c)	–	–	–	£2.6850	Nov 2003	Nov 2010
	378 403	378 403(c)	–	–	–	£2.5634	Nov 2004	Nov 2011
	343 435	–	–	–	343 435	£2.5175	Sep 2005	Sep 2012
	362 292	–	–	–	362 292	£2.7050	Sep 2006	Sep 2013
	380 000	–	–	–	380 000	£3.4733	Sep 2007	Sep 2014
	437 007	–	–	–	437 007	£4.9942	Sep 2008	Sep 2015
	393 847	–	–	–	393 847	£6.8983	Sep 2009	Sep 2016
	–	–	376 262	–	376 262	£7.9200	Sep 2010	Sep 2017

(a)

The market price on 6 September 2007, the date of exercise, was £8.245. The total gain on exercise was £2 323 451.

(b)

William Friedrich stepped down from the Board and Board Committees on 13 December 2007 but remains an employee of the Group.

(c)

The market price on 15 May 2007, the date of exercise, was £7.63. The total gain on exercise was £2 685 210.

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The performance measure for the CSOS.

The closing price of an ordinary share on 31 December 2007 was £11.50. The range during the year was £11.52 (high) and £6.325 (low). All market price figures are derived from the Daily Official List of the London Stock Exchange.

ORDINARY SHARES

The Directors’ beneficial interests in ordinary shares of the Company at the end of the financial year were as follows:

The Directors’ beneficial interests in ordinary shares of the Company at the end of the financial year

	Beneficial interests in ordinary shares (a)
	As at 1 Jan 2007 (b)	As at 31 Dec 2007 (c)
Sir Robert Wilson	80 000	80 000
Ashley Almanza	176 591	320 914
Frank Chapman	435 815	718 320
William Friedrich(d)	619 593	626 872
Peter Backhouse	20 500	20 500
Sir John Coles	5 829	5 829
Paul Collins(e)	100 000	100 000
Jürgen Dormann	22 000	22 000
Baroness Hogg	5 904	6 585
Dr John Hood (appointed 26 April 2007)	–	–
Lord Sharman	1 956	1 956
Philippe Varin	5 000	5 000

(a)

Beneficial interests including shares acquired pursuant to the BG Group SIP.

(b)

Or on date of appointment if later.

(c)

Or on date of retirement if earlier.

(d)

William Friedrich stepped down from the Board and Board Committees on 13 December 2007 but remains an employee of the Group. At that date, he held 77 740 ordinary shares in the form of 15 548 American Depositary Shares (ADSs). Each ADS represents five ordinary shares.

(e)

Paul Collins’ holding is in the form of 20 000 ADSs.

There have been no changes in the interests of the Directors in the share capital of the Company or any of its subsidiary undertakings between 1 January 2008 and 12 March 2008.

As of 12 March 2008, the Directors’ interests in the share capital of the Company represent less than 1% of the issued share capital of the Company.

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PENSIONS

The basis on which retirement benefits are calculated for Frank Chapman, William Friedrich and Ashley Almanza has not changed during the year. They receive an accrual of benefits designed to target a pension of two-thirds of their final 12 months’ salary on retirement from BG Group at age 60, inclusive of retained benefits. As is the case for all other UK employees who became pension scheme members before 6 April 2006, they cannot be paid an immediate pension before age 60 on a non-actuarially reduced basis unless they have attained age 55 and completed ten years’ service with the Group (including pensionable service transferred from previous employment) and the Company expressly agrees to payment on an unreduced basis, or they are over the age of 50 and have been made redundant, or in the event of incapacity. UK employees who became pension scheme members on or after 6 April 2006 cannot be paid a non-actuarially reduced pension until age 60, other than in the event of incapacity. Pensions in payment are increased in line with retail price inflation. An adult dependant’s pension is payable on death in service, equal to two-thirds of that payable to the pension scheme member based on potential service to age 65. On death in retirement, an adult dependant’s pension is payable equal to two-thirds of the member’s pension prior to exchanging any of it for a cash lump sum.

All the Executive Directors were members of the BG Pension Scheme (BGPS) and the BG Supplementary Benefits Scheme (BGSBS) throughout the year. The BGPS is a funded, registered pension scheme and the BGSBS is an unfunded, unregistered pension scheme. The allocation of the Executive Directors’ benefits between the registered and unregistered schemes changed after 6 April 2006, when a new pensions taxation regime came into force. Their BGPS benefits are limited to the “lifetime allowance” and the balance of their benefits is provided by the BGSBS. Frank Chapman elected “enhanced protection” under the new regime and therefore has a personal lifetime allowance that is based on the value of his accrued BGPS benefits at 6 April 2006.

A provision has been made in the Company’s accounts in respect of the obligations for unfunded post-retirement benefits.

As part of the changes made in response to the new pensions taxation regime, the “earnings cap” was removed in 2006 as a limit on BGPS benefits for all members including the Executive Directors. The Company made two additional contributions to the BGPS to cover the consequential increase in BGPS liability and the second of these payments was made in January 2007. There has been a corresponding reduction in the provision in the Company’s accounts.

Directors’ pension provisions were as follows:

Directors’ pension provisions

	Director’s contributions in year to 31 Dec 2007 £000	Age at 31 Dec 2007	Increase in accrued annual pension in year to 31 Dec 2007 £000 pa		Total accrued annual pension at 31 Dec 2007 £000 pa	Retirement age
			(a)	(b)
Ashley Almanza	17	44	30	25	155	60
Frank Chapman	17	54	73	57	510	60
William Friedrich(c)	17	58	65	52	451	60

Directors’ pension provisions (transfer values)

	Transfer value of accrued pension as at 31 Dec 2006(d) £000	Transfer value of accrued pension as at 31 Dec 2007(d) £000	Increase in transfer value over the year less Director’s own contributions £000
Ashley Almanza	1 296	1 637	324
Frank Chapman	7 233	8 755	1 505
William Friedrich(c)	7 895	9 683	1 771

(a)

Actual increase.

(b)

Increase net of price inflation.

(c)

William Friedrich stepped down from the Board and Board Committees on 13 December 2007 but remains an employee of the Group and continues to accrue pension.

(d)

The transfer values shown at the end of 2006 and 2007 represent the value of each Executive Director’s accrued pension based on total service completed to the relevant date. The accrued pensions are the amounts that would have been paid if the Executive Director had left service at the relevant date. The transfer values are calculated in accordance with guidance note GN11 issued by the Board for Actuarial Standards.

EXTERNAL APPOINTMENTS

To broaden the experience of Executive Directors, it is Company policy to allow each of them to accept one external appointment as a non-executive director of another company, the fees for which would be retained by the individual Director. William Friedrich is a non-executive director of The Royal Bank of Scotland Group plc (RBS) and is a member of its audit committee. In this capacity he receives a total annual fee of £100 000, which he retains. RBS is one of a number of relationship banks providing a variety of commercial banking and other financial services to BG Group.

By order of the Board
Baroness Hogg
Chairman of the Remuneration Committee

12 March 2008

Registered office:
100 Thames Valley Park Drive
Reading
Berkshire RG6 1PT
Registered in England & Wales No. 3690065

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