The remuneration package is made up of some or all of the following:

Basic salary
Salaries are reviewed annually. Salary increases are made only where the Committee believes that adjustments are appropriate to reflect contribution, increased responsibilities and/or market pressures.

Long-term incentives
The BT Equity Incentive Portfolio (the Portfolio) is designed to ensure that equity participation is a significant part of overall remuneration. It comprises three elements: share options, incentive shares and retention shares. Share options were the main element of equity participation in the 2004 financial year. Retention shares are used as a recruitment and retention tool.
    Under his service agreement, the Chairman is not entitled to participate in the annual operation of the Portfolio.
    Generally, awards vest and options become exercisable only if a predetermined performance target has been achieved. Normally, the performance measure for outstanding awards and options is TSR (total shareholder return) compared with the FTSE 100 companies. TSR links the reward given to directors with the performance of BT against the shares of other major UK companies.
    For 1999, 2000, 2001 and 2003 awards, the base price at the beginning of the performance period has been calculated by averaging the BT share price over the six months to 31 March in the year of award. For the 2002 awards, the period was from 19 November 2001 (the date of the mmO₂ demerger) to 31 March 2002. The end price is the average of the share price over the six months to the end of the performance period. The end price is adjusted for all capital actions and dividend payments that occur during the performance periods.

Share options
The price at which shares may be acquired under the Global Share Option Plan (GSOP) is the market price at the date of grant. Other than for new recruits, the size of option grant is based on corporate and individual performance, and market relativity.
    Options granted will be exercisable in three years, subject to the performance target being met. The Committee would not normally expect the initial value of annual grants of options, based on the market price of a BT share, to exceed three times salary.
    For options granted subject to a TSR measure, BT’s TSR at the end of the three-year period must be in the upper quartile for all of the options to be exercisable. At median, 30% of the options will be exercisable. Below that point, none of the options may be exercised. If the performance measure is not met at the first measurement, it may be re-tested against a fixed base in years four and five for options granted in 2002. If TSR has not reached the median at the end of the fifth year, previously unexercisable options will lapse. This was reduced to one re-testing in year five for options granted in 2003.
    The one-off grant of options in 2002 to the seven senior executives most responsible for delivering BT’s strategic plan is subject to an earnings per share test. The Committee believes that earnings per share was the most appropriate measure for this grant as BT embarked on a radical business transformation that will require exceptional performance in exceeding business goals. For these options to become exercisable, there must be a 35% compound annual growth in BT’s earnings per share over three years (equivalent to 22 pence per share at the end of the 2005 financial year). There will be no opportunity to re-test. Earnings per share is calculated as basic earnings per share before goodwill amortisation and exceptional items.
    The option granted to Sir Christopher Bland on 22 June 2001 as part of his recruitment package is not subject to a performance measure as it matched a personal investment in BT shares of £1 million.
    The details of the options held by Sir Christopher Bland, Ben Verwaayen, Pierre Danon, Andy Green, Ian Livingston and Paul Reynolds at the end of the 2004 financial year are contained in the following table.

Incentive shares
There were no awards under the Incentive Share Plan (ISP) in the 2004 financial year. A number of awards made in previous years were, however, still outstanding at the beginning of the 2004 financial year, and are contained in the following table.
    Participants are entitled to shares at the end of a three-year performance period if the company has met the relevant predetermined performance target and participants are still employed by the group. At the end of the three-year period, BT’s TSR must be in the upper quartile for all the shares to vest. At median, 25% of the shares under award vest. Below that point, none of the shares vest.
    None of the awards of incentive shares granted in 2001 vested as BT’s TSR was at 83rd position on 31 March 2004, the end of the performance period.

Retention shares
Retention shares are granted under the Retention Share Plan (RSP) to individuals with critical skills, as a recruitment or retention tool. As a result, shares currently under award are not linked to a corporate performance target. The length of the retention period before awards vest is flexible. The shares are transferred at the end of the specified period if the individual is still employed by BT.
    Retention shares are used only in exceptional circumstances and, in the 2004 financial year, five awards were made for recruitment purposes and a further two were made for retention purposes, one of which was to Sir Christopher Bland under his new contract securing his services for the company until 2007.
     The awards under the RSP held by Sir Christopher Bland, Ben Verwaayen and Ian Livingston at the end of the 2004 financial year are contained in the following table.

Executive Share Plan (ESP)
The last awards under the ESP were granted in 1999. Participants are generally only entitled to the shares at the end of a five-year performance period if the company has met the relevant predetermined performance target and participants are still employed by the group. At the end of the five-year period, if BT’s TSR reaches 30th position, all the shares vest. If BT is at 70th position starting from the top of the list, none of the shares vest. Between those points, the shares vest on a straight line pro rata basis.
    None of the awards of shares granted under the ESP in 1999 vested as BT’s TSR was at 90th position on 31 March 2004, the end of the performance period.

Other share plans
The executive directors and the Chairman may participate in BT’s Inland Revenue approved all-employee share plans, the Employee Sharesave Scheme and Employee Share Investment Plan (which replaced the Employee Share Ownership Scheme), on the same basis as other employees. There are further details of these plans in note 34 to the accounts.