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Executive share ownership |
A mandatory shareholding programme has
been introduced for the financial year 2005/06 onwards. This is to
encourage executive directors and OC members to build up a shareholding
in the company over time by retaining shares received either as a
result of participating in a BT employee share plan (other than the
shares sold to pay a National Insurance or income tax liability) or
from on-market purchases. The Chief Executive is required to build
up a shareholding of 2 x salary and the remaining executive directors
and OC members 1.5 x salary. Given that a large part of an executive’s
remuneration is already variable, the requirement excludes the need
to make a further personal investment to build up the shareholding
should awards not vest. Current shareholdings
are set out below.
Those executive directors and most other senior executives who joined the company prior to 1 April 2001, have their pension benefits based on service and salary (known as defined benefit arrangements). Those with longer BT service are entitled to pensions at normal retirement age of two-thirds of final
salary, including any cash lump sum entitlement. Those with shorter BT service are entitled to a pension of one-thirtieth of salary for each year of service. In both cases, for most executives, a spouse’s pension of two-thirds of the executive’s pension is provided in the event of death after retirement. Should
the executive die in service, a lump sum equal to four times annual salary is payable together with a spouse’s pension of two-thirds of the executive’s anticipated pension at normal retirement age. BT closed its defined benefit arrangements to new employees with effect from 1 April 2001. From this date
retirement provision is generally made on a defined contribution basis. The company agrees to pay a fixed percentage of the executive’s salary each year towards the provision of retirement benefits, typically this is around 30% of salary. Additionally, a lump sum equal to four times annual salary is payable on
death in service.
The Committee has reviewed the impact of the Lifetime Allowance under tax legislation, as the taxation of approved pension schemes will change from 6 April 2006. As a result, BT will offer to those members affected the option to opt out of the pension scheme and in its place to receive a cash
allowance annually. This will be broadly cash neutral for the company. The Committee will keep this policy under review as best practice develops.
Pension provision for all executives is based on salary alone – bonuses, other elements of pay and long-term incentives are excluded.
Other benefits for the Chairman and the senior management team include some or all of the following: company car, fuel or driver, personal telecommunications facilities and home security, medical and dental cover for the director and immediate family, special life cover, professional subscriptions and
personal tax planning and financial counselling. The company has a permanent health insurance policy to provide cover for the Chairman and executive directors and members of the OC who may become permanently incapacitated.
It is the policy for the Chairman and executive directors to have service agreements providing for one year’s notice. It may be necessary on recruitment to offer longer initial periods to new directors from outside BT, or circumstances may make it appropriate to offer a longer fixed term. All the service
agreements contain provisions dealing with the removal of a director through poor performance, including in the event of early termination of the contract by BT. Sir Christopher Bland’s contract expires at the conclusion of the AGM in 2007. On termination of his contract by BT before that date, he is
entitled to payment of salary and the value of benefits for the period of 12 months from date of termination, or until the conclusion of the company’s AGM in 2007, if that period is shorter. Ben Verwaayen’s contract entitles him on termination of his contract by BT to payment of £700,000. The contracts of
Andy Green, Hanif Lalani, Ian Livingston and Paul Reynolds entitle them on termination of their contract by BT to payment of salary and the value of benefits until the earlier of 12 months from notice of termination or the director obtaining full-time employment. If the contract of a director (other than that
of the Chairman and Hanif Lalani) is terminated by BT within one year of BT entering into a scheme of arrangement or becoming a subsidiary of another company, he will be entitled to receive the higher of that current year’s on-target bonus or the previous year’s bonus, the market value of shares awarded
under an employee share ownership plan or deferred bonus plan that have not vested, together with a year’s salary and the value of any benefits.
The Committee has reviewed contracts taking into account the joint statement of best practice on executive contracts and severance by the Association of British Insurers and the National Association of Pension Funds, and other relevant guidelines, and believes that contract terms are generally in line
with best practice. The clause described above dealing with termination following BT entering into a scheme of arrangement or becoming a subsidiary of another company will be excluded from contracts for new appointments, as was the case for Hanif Lalani.
The Committee believes that there are significant benefits, to both the company and the individual, from executive directors accepting non-executive directorships of companies outside BT. The Committee will consider up to two external appointments (of which only one may be to the Board of a major
company), for which a director may retain the fees. Ben Verwaayen was appointed as a non-executive director of United Parcel Service, Inc. on 17 March 2005 and is entitled to receive an annual fee of US$75,000. On joining the Board, he received 336 shares of restricted UPS common stock amounting to
US$25,000 and will receive an US$85,000 restricted stock grant annually. Ian Livingston receives an annual fee of £38,000 as a non-executive director of Hilton Group plc. Paul Reynolds was appointed a non-executive director of E-Access in Japan on 29 June 2004 and receives an annual fee of ¥3 million
(approximately £15,000). He was granted an option over 250 shares at ¥139,000 (approximately £695) per share on 1 July 2004. Pierre Danon, who resigned on 28 February 2005 as a director of BT, was a non-executive director of EMAP plc and received an annual fee of £35,000.
Non-executive directors’ letters of appointment |
Non-executive directors have letters of appointment. They are appointed for an initial period of three years. During that period, either party can give the other at least three months’ notice. At the end of the period the appointment may be continued by mutual agreement. Further details of appointment
arrangements for non-executive directors are set out in the section dealing with corporate governance issues. The letters of appointment of non-executive directors are terminable on notice by the company without compensation.
Non-executive directors’ remuneration |
Seven of the directors on the Board are non-executive directors who, in accordance with BT’s articles of association, cannot individually vote on their own remuneration. Non-executive remuneration is reviewed by the Chairman and the Chief Executive and discussed and agreed by the Board. Non-executive
directors may attend the Board discussion but may not participate in it.
The fees paid to non-executive directors were increased with effect from 1 January 2004 to reflect their increasing responsibilities and time commitments. Non-executive directors’ fees were last changed five years previously, on 1 January 1999.
The basic fee for non-executive directors is £40,000 per year. An additional fee for membership of Board committees is £5,000 per year, other than for the Pension Scheme Performance Review Group for which no fee is paid. Sir Anthony Greener, Deputy Chairman and senior non-executive director,
who also chairs both the Remuneration Committee and the Audit Committee, receives total fees of £115,000 per year.
To align further the interests of the non-executive directors with those of shareholders, the company’s policy is to encourage these directors to purchase, on a voluntary basis, £5,000 of BT shares each year. The directors are asked to hold these shares until they retire from the Board. This policy is not
mandatory.
No element of non-executive remuneration is performance-related. Non-executive directors do not participate in BT’s bonus or employee share plans and are not members of any of the company pension schemes.
Directors’ service agreements and contracts of appointment |
The dates on which directors’ initial service agreements/letters of appointment commenced and the current expiry dates are as follows:
|
Chairman and executive directors |
|
|
Commencement date |
|
|
Expiry date of current service agreement or letter of appointment |
Sir Christopher Bland |
|
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1 May 2001 |
|
|
Sir Christopher Bland entered into a new service agreement on 29 August 2003 which terminates at the
conclusion of the 2007 AGM, terminable on 12 months’ notice by either the company or the director before
that date. |
|
|
|
|
|
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B Verwaayen
A Green
H Lalani
I Livingston
Dr P Reynolds
P Danon (resigned
28 February 2005) |
|
|
14 January 2002
19 November 2001
7 February 2005
8 April 2002
19 November 2001
19 November
2001
|
 |
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The contract is terminable by the company on 12 months’ notice and by the director on six months’ notice. |
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|
|
|
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Non-executive directors |
|
|
|
|
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Sir Anthony Greener
M van den Bergh
L R Hughes
Baroness Jay
J Nelson
C G Symon
|
|
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1 October 2000
1 September 2000
1 January 2000
14 January 2002
14 January 2002
14 January
2002 |
|
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Letters of appointment were for an initial period of three years. Appointments were extended for a further
three years and are terminable by the company or the director on three months’ notice. |
| |
|
|
|
|
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|
C Brendish |
|
|
1 September
2002 |
|
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Letter of appointment is for an initial period of three years and is terminable by the company or the director
on three months’ notice. The appointment is renewable by mutual agreement. |
|
There are no other service agreements or material contracts, existing or proposed, between the company and the directors. There are no arrangements or understandings between any director or executive officer and any other person pursuant to which any director or executive officer was selected to serve.
There are no family relationships between the directors.
The interests of directors holding office at the end of year and their families in the company’s shares at 31 March 2005 and 1 April 2004, or date of appointment if later, are shown below:
| |
|
No. of shares |
|
| |
|
|
|
Beneficial holdings |
|
|
2005 |
|
|
2004 |
|
|
|
Sir Christopher Blandc |
|
|
674,183 |
b |
|
674,062 |
|
B Verwaayenc |
|
|
902,001 |
|
|
387,876 |
|
A Greenc |
|
|
120,002 |
b |
|
92,351 |
b |
H Lalanicd |
|
|
5,733 |
ab |
|
– |
|
I Livingstonc |
|
|
313,054 |
b |
|
209,637 |
|
Dr P Reynoldsc |
|
|
67,768 |
ab |
|
46,823 |
b |
Sir Anthony Greener |
|
|
60,007 |
|
|
34,607 |
|
M van den Bergh |
|
|
7,540 |
|
|
4,800 |
|
C Brendish |
|
|
23,920 |
|
|
23,920 |
|
L R Hughes |
|
|
6,800 |
|
|
6,800 |
|
Baroness Jay |
|
|
5,572 |
|
|
5,572 |
|
J Nelson |
|
|
50,000 |
|
|
50,000 |
|
C G Symon |
|
|
10,069 |
|
|
10,069 |
|
|
|
Total |
|
|
2,246,649 |
|
|
1,546,517 |
|
|
|
| a |
During the period from 1 April 2005 to 15 May 2005, Paul Reynolds and Hanif Lalani each purchased 125 shares under the BT Group Employee Share Investment Plan. |
| b |
Includes free shares awarded under the Employee Share Investment Plan and/or Employee Share Ownership Scheme. |
| c |
At 31 March 2005, Sir Christopher Bland and each of the executive directors, as potential beneficiaries, had a non-beneficial interest in 27,733,138 shares (2004 – 30,463,435) held in trust by Ilford Trustees (Jersey) Limited for allocation to employees under the employee share schemes. They each also had a non-beneficial interest in 139,029 shares (2004 – 141,864) held in trust by Halifax Corporate Trustees Limited for participants in the Employee
Share Investment Plan. |
| d |
At date of appointment – 7 February 2005. |
This graph illustrates, as required by the Companies Act 1985, the performance of BT Group plc measured by TSR (adjusted for the rights issue and the demerger of BT’s mobile business in the financial year 2001/02) relative to a broad equity market index over the past five years. The FTSE 100 is
considered to be the most appropriate index against which to measure performance for these purposes, as BT has been a constituent of the FTSE 100 throughout the five-year period and the index is widely used. TSR is the measure of the returns that a company has provided for its shareholders, reflecting
share price movements and assuming reinvestment of dividends.
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