Remuneration Committee - Terms of Reference

1. Membership

1.1. Members of the Committee shall be appointed by the Board, on the recommendation of the Nominating Committee and in consultation with the Chairman of the Remuneration Committee. The Committee should be made up of at least three members, all of whom shall be independent non-executive directors. The Chairman of the Board may also be a member of the Committee if he or she was considered independent on appointment as Chairman.

1.2 . Only members of the Committee have the right to attend Committee meetings. However, other individuals such as the Chief Executive, the Group HR Director, the Director Reward and Employee Relations and external advisers may be invited to attend for all or part of any meeting as and when appropriate.

1.3. Appointments to the Committee shall be for a period of up to three years which may be extended for two further three-year periods, provided the director still meets the criteria for membership of the Committee.

1.4. The Board shall appoint the Committee Chairman who shall be an independent non-executive director. In the absence of the Committee Chairman and/or an appointed deputy, the remaining members present shall elect one of themselves to chair the meeting. The Chairman of the Board shall not be Chairman of the Committee.

2. Secretary

2.1. The Company Secretary or their nominee shall act as secretary of the Committee.

3. Quorum

3.1. The quorum necessary for the transaction of business shall be two. A duly convened meeting of the Committee at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions vested in or exercisable by the Committee.

4. Meetings

4.1 The Committee shall meet at least twice a year and at such other times as the Chairman of the Committee shall require.

5. Notice of meetings

5.1 . Unless otherwise agreed, notice of each meeting confirming the venue, time and date, together with an agenda of items to be discussed, shall be forwarded to each member of the Committee, any other person required to attend and all other non-executive directors before the date of the meeting. Supporting papers shall be sent to Committee members and to other attendees as appropriate, at the same time.

6. Minutes of meetings

6.1 The secretary shall minute the proceedings and resolutions of all Committee meetings, including the names of those present and in attendance.

7. Annual general meetings

7.1. The Chairman of the Committee shall attend the annual general meeting prepared to respond to any shareholder questions on the Committee’s activities.

8. Duties

8.1. For the Chairman, all executive directors, members of the Operating Committee and senior executives reporting to the Chief Executive, the Committee shall:

(a) agree the framework and/or broad policy for remuneration, terms of employment and any changes, including service contracts, remuneration, policy for and scope of pension arrangements, basis of bonus and bonus awards and participation in and awards under share, incentive and benefit plans not available to all employees, and the targets for any performance related pay schemes.

(b) agree terms for cessation of employment and ensure that any payments made are fair to the individual and the company, that failure is not rewarded and that the duty to mitigate loss is fully recognised;

(c) authorise execution by the Company of all relevant documents;

(d) determine the policy for and agree appointments as non-executive directors of non-BT Group companies and other organisations.

8.2 within the terms of the agreed policy and in consultation with the chairman and/or chief executive as appropriate, the Committee shall determine the total individual remuneration package of each executive director and other senior executives including bonuses, incentive payments and share options or other share awards.

8.3 . In determining such packages and arrangements, the Committee shall give due regard to any relevant legal requirements, the provisions and recommendations of the Combined Code and the UK Listing Authority’s Rules and associated guidance.

8.4. The Committee shall:

(a) review the ongoing appropriateness and relevance of the remuneration policy.

(b) approve share incentive and benefits plans not available to all employees and which do not require shareholder approval, and recommend to the Board such plans which require shareholder approval. Administer such plans including agreeing or amending the rules, authorising the establishment of trusts and changes, agreeing when to operate such a plan, authorising the giving of financial assistance, the terms of each operation and selecting the people to participate, agreeing performance conditions and whether they have been achieved; and approving and authorising execution of all relevant documents.

(c) ensure that all provisions regarding disclosure of remuneration, including pensions, are fulfilled.

(d) be responsible for establishing the selection criteria, selecting, appointing and setting the terms of reference for any remuneration consultants who advise the Committee.

(e) obtain reliable, up-to-date information about remuneration in other companies.

(f) have full authority to commission any reports or surveys which it deems necessary to help fulfil its obligations; and,

(g) determine the policy for and agree appointments as non-executive directors of non-BT Group companies and other organisations.

8.5. The remuneration of non-executive directors shall be a matter for the chairman and the executive members of the Board. No director or manager shall be involved in any decisions as to their own remuneration.

8.6. The Committee shall, at least once per annum, review the remuneration paid to the Chairman and all the Trustee directors of the BT Pension Scheme (BTPS), taking into account the views of the Chairman of the BTPS on the remuneration of each Trustee, with the exception of his own, either by written submission or attendance at the relevant meeting of the Committee.

9. Reporting responsibilities

9.1 The Committee shall make whatever recommendations to the Board it deems appropriate on any area within its remit where action or improvement is needed.

9.2. The Committee shall produce an annual report of the Company’s remuneration policy and practices which will form part of the Company’s annual report and form 20-F and ensure each year it is put to shareholders for approval at the AGM.

10. Other

10.1. The Committee shall, at least once a year, review its own performance, constitution and terms of reference to ensure it is operating at maximum effectiveness and recommend any changes it considers necessary to the Board for approval.

11. Authority

The Committee is authorised

11.1. through the Company Secretary to seek information it requires from any employee of the company in order to perform its duties.

11.2. in consultation with the Company Secretary, where necessary to fulfil its duties, to obtain any outside legal or other professional advice including the advice of independent remuneration consultants and to secure the attendance of external advisers of its meetings.

11.3. to delegate any of its powers to one or more of its members or the Company Secretary or Deputy or Assistant Secretary.

Members:

Patricia Hewitt - Chairman
Sir Michael Rake
Carl Symon
Eric Daniels

The Chief Executive attends meetings when appropriate. The Company Secretary and the Group HR Director attend every meeting.

The Committee is authorised to administer the BT Group discretionary share plans (BT Group Incentive Share Plan, BT Group Retention Share Plan, BT Group Global Share Option Plan (which comprise the BT Group Equity Incentive Portfolio), the BT Group Deferred Bonus Plan and the BT Group Legacy Option Plan and residual matters for the BT discretionary share plans, BT Executive Share Plan and BT Deferred Bonus Plan.)