BTPLC Annual Report 2004 - Business review

The review is divided into the following sections:

Remuneration policy (Not audited)
(i)	Packages
(ii)	Annual package – 2005 financial year
(iii)	Other Matters
	Executive share ownership
	Pensions
	Other benefits
	Service agreements
	Termination payments
	Outside appointments
	Non-executive directors’ letters of appointment
	Non-executive directors’ remuneration
	Directors’ service agreements and contracts of appointment
	Directors’ interests
	Performance graph

Remuneration review (Audited)
Directors’ remuneration
Former directors
Loans
Pensions
Share options
Share awards under long-term incentive schemes
Deferred Bonus Plan
Share awards under all-employee share ownership plans
Operating Committee

The Remuneration Committee is made up wholly of independent non-executive directors. Throughout the year, the company has applied the principles in Section 1 of the 1998 version of the Combined Code on Corporate Governance (the Code) and complied with the Code. The Committee also adopted the main principles set out in the Higgs Report, reviewing the role and effectiveness of non-executive directors, and this report explains how the company has complied with the principles and provisions of the new Combined Code on Corporate Governance which will begin to apply for the company in the 2005 financial year. Shareholders will be invited to approve this report at the company’s 2004 AGM.
The Board is ultimately responsible for both the structure and amount of executive remuneration, but it has delegated prime responsibility for executive remuneration to the Committee. The terms of reference of the Committee are available on the company’s website. The Committee’s role is to set the remuneration policy and individual remuneration packages for the Chairman and the senior management team, comprising the executive directors, members of the Operating Committee (OC) and other senior executives reporting to the Chief Executive. This includes approving changes to the company’s long-term incentive plans, recommending to the Board those plans which require shareholder approval and overseeing their operation. In this role the Committee also monitors the structure of reward for executives reporting to the senior management team and determines the basis on which awards are granted under the company’s executive share plans.
The Committee met four times during the 2004 financial year. Sir Anthony Greener has chaired the Committee since 18 July 2001. Other members of the Committee who served during the financial year were:

	Maarten van den Bergh
	Louis Hughes
	Margaret Jay
	Carl Symon

    The Chairman and Chief Executive are invited to attend meetings. They are not present when matters affecting their own remuneration arrangements are considered. No director is involved in any decision relating to his or her remuneration.
    Non-executive directors who are not members of the Committee are entitled to receive papers and minutes of the Committee.
    The Committee has access to professional advisers, both from within the company and externally. Towers Perrin (HR consultants); Ben Verwaayen, Chief Executive; Ian Livingston, Group Finance Director; Alex Wilson, Group HR Director and Larry Stone, Company Secretary, provided advice that materially assisted the Committee in relation to the 2004 financial year. The Committee has agreed that Towers Perrin may advise both the Committee and BT, and should be invited to attend meetings when major remuneration policy issues are being discussed. Towers Perrin provides BT with a range of data and advisory services covering all aspects of executive pay, bonus arrangements, shares and benefits.

Remuneration policy
This part of the Report on directors’ remuneration is not subject to audit.
BT’s executive remuneration policy is to reward employees competitively, taking into account individual performance, company performance, market comparisons and the competitive pressures in the information and communications technology industry. Base salaries are positioned around the mid-market, with total direct compensation (basic salary, annual bonus and the value of any long-term incentives) to be at the upper quartile only for sustained and excellent performance. There are no plans to change this policy.
A significant proportion of the total executive remuneration package is linked to line of business and corporate performance. Remuneration arrangements and performance targets are kept under regular review to achieve this. The Committee has decided to review during the 2005 financial year the company’s current arrangements for executive remuneration, including the structure of the remuneration packages, their constituent parts and their mix.
Where any significant changes are proposed to executive remuneration, these will be discussed with BT’s principal shareholders and the main representative groups of the institutional shareholders.