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The
remuneration package for the executive directors, members
of the OC and certain other senior executives reporting
to the Chief Executive comprises:
Basic
salary
Salaries are reviewed annually.
Salary increases are made where the Committee believes
that adjustments are appropriate to reflect contribution,
increased responsibilities and/or market pressures.
Performance-related
remuneration
Annual bonus
The
annual bonus plan is designed to reward the achievement
of results against set objectives. Targets, set at the
beginning of the 2003 financial year for each objective,
were based on earnings per share, cash flow and customer
satisfaction. Specific weights were attached to each
objective. On-target and maximum bonus levels, as a
percentage of salary, were unchanged at 50% and 75%
(Chief Executive 85% and 130% under his service agreement).
The
Committee retains the flexibility to enhance or reduce
bonus awards in exceptional circumstances.
Deferred
bonus
Awards
in the form of BT shares, granted under the Deferred
Bonus Plan (DBP), are linked to the value of annual
bonuses. The shares are held in trust and transferred
to the executive if still employed by the company in
three years’ time. There are no additional performance
measures for the vesting of DBP awards.
Awards
are generally equivalent in value to 50% of the executive’s
gross annual bonus, except in the case of the Chief
Executive whose award in respect of the 2003 financial
year is 100% of gross annual bonus in accordance with
his service agreement.
The
awards under the DBP held by Ben Verwaayen, Pierre Danon,
Andy Green and Paul Reynolds at the end of the 2003
financial year are contained in the table on the Deferred
Bonus Plan awards section. The awards this year
include an award for Ian Livingston. The amounts are
in note f in the Directors'
remuneration section.
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 are currently the main element of equity
participation, replacing incentive shares in the 2003
financial year. Retention shares are used primarily
as a recruitment tool.
No
individual receives awards under all elements of the
Portfolio in any one year.
Generally,
awards vest and options become exercisable only if a
predetermined performance target has been achieved.
The performance measure is TSR (total shareholder return)
compared with the FTSE 100 companies. The Remuneration
Committee chose TSR as it links the reward given
to directors with the performance of BT against the
shares of other major UK companies in which investors
have the opportunity to invest.
For
1998, 1999, 2000 and 2001 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 only if a
performance target has been 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.
In
the 2003 financial year, as BT embarked on a radical
business transformation and rejuvenation programme,
the initial value was four times salary in the case
of the senior executives most responsible for delivering
BT’s strategic plan. The grants comprised options
with an initial value of 2.5 times salary relative to
a TSR test and 1.5 times salary relative to an earnings
per share test.
For
those options that were 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. If TSR has not reached the median at the end
of the fifth year, previously unexercisable options
will lapse.
To
provide an additional incentive for exceptional performance
in exceeding business goals, further options were granted
to seven senior executives. 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.
An
option was granted to Sir Christopher Bland on 22 June
2001 as part of his recruitment package. This was 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 2003 financial year
are contained in the table under
Share options.
Incentive
shares
There
were no awards under the Incentive Share Plan (ISP)
in the 2003 financial year. A number of awards made
in previous years are, however, still outstanding.
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 2000 will
vest as BT’s TSR was at 85th position on 31 March
2003, the closing date of the performance period.
The
awards under the ISP held by Sir Christopher Bland,
Pierre Danon, Andy Green and Paul Reynolds at the end
of the 2003 financial year are contained in the table
under Share awards.
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, awards
of shares currently in place are not linked to the satisfaction
of 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 2003 financial year, six awards were made for
recruitment purposes (one of which was made to an executive
director) and a further six were made for retention
purposes.
The
awards under the RSP held by Ben Verwaayen, Pierre Danon
and Ian Livingston at the end of the 2003 financial
year are contained in the table under
share awards.
Executive
Share Plan (ESP)
The last awards under the ESP were granted in 1999.
Participants will generally only be entitled to 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
will vest on a straight line pro rata basis.
In
1994, 1995 and 1996 ESP participants could invest 50%
of their annual bonus in the ESP for the purchase of
shares. These invested shares were matched by the company.
The
vesting date of 1998 ESP awards is in August 2003. None
of the shares will vest as BT’s TSR was at 83rd
position on 31 March 2003, the closing date of the performance
period.
The
awards under the ESP held by Andy Green and Paul Reynolds
at the end of the 2003 financial year are contained
in the table under Share
options.
Other
share plans
The
executive directors 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.
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