34.   Employee share schemes
The company has a share ownership scheme used for employee share allocations (profit sharing), an employee share investment plan, savings-related share option schemes for its employees and those of participating subsidiaries, further share option schemes for selected group employees and an employee stock purchase plan for employees in the United States. It also has several share plans for executives.

Share option schemes
The major share option scheme, the BT Group Employee Sharesave Scheme, is savings related and the share options are normally exercisable on completion of a three or five year Save As You Earn contract. A similar savings related scheme exists for group employees based outside the UK.
     Following the scheme of arrangement and demerger in November 2001, all options under the savings related schemes became exercisable for a period of six months. On expiry of this period, these options lapsed to the extent to which they had not been exercised. Shortly before the scheme of arrangement, 57 million shares were allotted to a special purpose trust to satisfy options which were likely to be exercised during that six month period.
     Participants in the BT Share Option Scheme, the BT US Stock Option Plan, the BT Worldwide Share Option Scheme, and the BT Global Share Option Plan (the Executive Option Plans) were given the opportunity to (i) conditionally on the scheme of arrangement being sanctioned by the Court, release their options over British Telecommunications plc shares in consideration for the grant of options in their employer’s new holding company (BT Group plc or mmO₂ plc); or (ii) if their options were already exercisable, exercise their options over ordinary shares irrespective of whether the scheme of arrangement was sanctioned by the Court; or (iii) if their options were not already exercisable, conditionally on the scheme of arrangement being sanctioned by the Court, exercise their options immediately following that time but prior to the reduction of BT Group’s share capital.
     To the extent that they had not already been exercised, these options lapsed on 16 November 2001, the effective date of the scheme of arrangement.
     The BT Group Legacy Option Plan was operated on 17 December 2001 following the scheme of arrangement and demerger in November 2001. Replacement unapproved options over BT Group shares were granted to all participants in the Executive Option Plans who had released their options over British Telecommunications plc shares. The value of the replacement options was determined by averaging the combined prices of BT Group plc and mmO₂ plc shares over the 20 dealing days following the demerger on 19 November 2001. This resulted in a factor of 1.3198 being applied to the former option over British Telecommunications plc shares in order to give the number of BT Group shares under the new option. The option prices of the original options were also adjusted to take account of the different number of shares under option.
     On the demerger of mmO₂, BT’s share option plans ceased to operate and were replaced by similar BT Group Employee Sharesave schemes and the BT Group Global Share Option Plan.
     In the 2004 financial year, options over 55 million shares were granted under the BT Group Share Option Plan. The options will be exercisable subject to continued employment and meeting corporate performance targets, on the third anniversary of the date of grant. A second award of options over 64 million shares was also granted. This second award will vest in three equal tranches, on each of the first three anniversaries of the date of grant, subject to continued employment.
     Options outstanding under these share option schemes at 31 March 2004 and 2003, together with their exercise prices and dates, were as follows:

The weighted average fair value of share options granted during the year ended 31 March 2004 has been estimated on the date of grant using a binomial option pricing model. The following weighted average assumptions were used in that model: an expected life extending one month later than the first exercise date; estimated annualised dividend yield of approximately 5% (2003 – 5%, 2002 – 5%); risk free interest rates of approximately 4% (2003 – 5%, 2002 – 6%); and expected volatility of approximately 25% (2003 – 40%, 2002 – 34%).
     The weighted average fair value of the share options granted in the year ended 31 March 2004 was 42p (2003 – 55p, 2002 – 55p) for options exercisable three years after the date of grant and 51p (2003 – 72p, 2002 – 55p) for options exercisable five years after the date of grant. The weighted average fair value of options granted under the BT Group Global Share Option Plan has been estimated as 41p. The weighted average fair value of options granted under the Special Incentive Award has been estimated as 42p. The total value of share options granted by BT in the year ended 31 March 2004 was £22 million (2003 – £41 million, 2002 – £88 million).
     In accordance with UK accounting practices, no compensation expense is recognised for the fair value of options granted where the exercise price equals the market price at date of grant or options granted under approved Sharesave schemes. See United States Generally Accepted Accounting Principles – IV Accounting for share options for the treatment under US GAAP .
     Options granted, exercised and lapsed under these share option schemes during the years ended 31 March 2002, 2003 and 2004 and options exercisable at 31 March 2002, 2003 and 2004 were as follows:

Incentive Share Plan and Retention Share Plan
The BT Incentive Share Plan (ISP) and the BT Retention Share Plan (RSP) were introduced for employees of the group in 2000. Under the plans, company shares are acquired by an employee share ownership trust and are conditionally awarded to participants. Under the ISP participants are normally only entitled to these shares in full at the end of a three-year period if the company has met the relevant pre-determined corporate performance measure and if the participants are still employed by the group. If the company has exceeded the pre-determined corporate performance measure the participants may be awarded up to double the shares conditionally awarded. The corporate performance measure is BT’s total shareholder return (TSR) measure against those top 100 companies listed on the London Stock Exchange, as rated by the Financial Times (the FTSE 100 index), at the beginning of the relevant performance period. Awards made under the ISP in 2000 and 2001 did not vest as the company did not meet the corporate performance measure. Under the RSP the length of retention period before awards vest is flexible. Awards may vest in annual tranches. The shares are transferred at the end of a specified period, only if the individual is still employed by the group. During the 2004 financial year 720,472 (2003 –374,039) shares vested in 7 (2003 – 11) participants in the RSP.

Executive Share Plan and Deferred Bonus Plan
The BT Executive Share Plan (ESP) was introduced for employees of the group in 1994. Under the ESP, company shares are acquired by an employee share ownership trust and are conditionally awarded to participants. Participants are only entitled to these shares in full at the end of a five-year period under the ESP if, at the end of the period, the company has met the relevant pre-determined corporate performance measure. Awards of shares were granted in each of the years from 1994 to 1999 under the ESP.
     The corporate performance measure is BT’s total shareholder return (TSR) measure against those top 100 companies listed on the London Stock Exchange, as rated by the FTSE 100 index, at the beginning of the relevant performance period.
     The sixth five-year performance cycle of the ESP ended on 31 March 2004 and on the basis of the corporate performance measure, the company’s Total Shareholder Return (TSR) target relative to other companies in the FTSE 100, no shares vested. The fifth five-year performance cycle of the ESP ended on 31 March 2003 and on the basis of the corporate performance measure, no shares vested. The fourth five-year performance cycle of the ESP ended on 31 July 2002 and on the basis of the corporate performance measure, 32.5% of the shares vested on 1 August 2002 in 65 participants and 1.0 million shares were transferred to those participants.
     The BT Deferred Bonus Plan (DBP) was established in 1998 and awards are granted annually to employees of the group. Under this plan, shares in the company are acquired by an employee share ownership trust and transferred to participants at the end of three years if he or she has continued to be employed by the group throughout that period. On 1 August 2003, 653,899 shares (1 August 2002 – 657,592) were transferred to 225 participants (1 August 2002 – 223) at the end of the three-year deferred period.
     At 31 March 2004, 30.5 million shares (2003 – 31.7 million shares) in the company were held in trust for employee share schemes, of which no shares (2003 – 15.5 million shares) were held for the ISP, 3.0 million shares (2003 – 2.9 million shares) were held for the RSP, no shares (2003 – 2.3 million shares) were held for the ESP and 6.5 million shares (2003 – 4.2 million shares) were held for the DBP. Dividends or dividend equivalents earned on the shares during the conditional periods are reinvested in company shares for the potential benefit of the participants.
      Additional information relating to the plans is as follows:

Of the total BT Group plc shares held, 21.0 million shares were held at 31 March 2004 in trust for future awards under employee share schemes. These shares had a nominal value of £1 million and a market value of £37.2 million at 31 March 2004.
     The values of possible future transfers of shares under the plans were based on the BT Group plc share price at 31 March 2004 of 177p (2003 – 157p). The provisions for the costs of the ISP, RSP and ESP were based on best estimates of the company’s performance over the plans’ conditional periods, relating to those portions of the plan conditional periods from commencement up to the financial year end.

Employee Share Investment Plan
From December 2001 the BT Group Employee Share Investment Plan (ESIP) was in operation. The ESIP, which has been approved by the Inland Revenue, gives UK employees an opportunity to purchase shares (partnership shares) monthly out of pre-tax salary up to a maximum value of £1,500 per year. During the 2004 financial year, 6.0 million shares (2003 – 5.3 million shares) were purchased by the Trustee of the ESIP on behalf of 13,974 (2003 – 12,092) employees at a total cost of £11.1 million (2003 – £10.6 million). The free shares element of the ESIP allows BT to provide free shares to UK employees which are held in trust for at least three years. A phantom plan, which delivers cash awards equivalent to the value of the free shares, operates for employees outside the UK. In 2004, 1% of pre-tax profits, amounting to £20 million, was set aside for the ESIP and the phantom plan for employees outside the UK (2003 – £36 million). The allocation of this sum was subject to two performance targets, one of increasing earnings per share by 15% and the other of reducing customer dissatisfaction by 25%, with only the first target being achieved. The ESIP replaced the BT Employee Share Ownership Scheme which operated for employee profit sharing until 2001.

Employee Stock Purchase Plan
The BT Group Employee Stock Purchase Plan (ESPP) for employees in the US enables participants to purchase ADSs quarterly at a price (the Base Option Price) which is 85% of the market price of an ADS at the start of the offer (and in the case of employees who have joined the ESPP after the start of the offer, 85% of the market price on the date of joining, whichever is higher). Up to 15 May 2004, 69,164 new shares have been issued and 226,218 shares have been transferred to participants out of treasury under the ESPP. As the ADS price was less than the Base Option Price of US$31.72 from July 2002 to April 2003, the ESPP was suspended in accordance with the rules of the ESPP from April 2003 until the end of the first offer in December 2003. A second offer was launched in December 2003, with a Base Option Price of US$25.61 and will run until December 2004.

<< Previous   back to top    Next >>