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The
Remuneration Committee has decided that there should be no
increase in base pay for executive directors in the 2005 financial
year, which reflects the restraint being exercised across the company.
Salaries have now been held flat for three years. There is no change
either to on-target and maximum bonus
levels. The annual bonus plan will continue to focus on annual
objectives and to reward the achievement of results against those
objectives. Performance will again be against earnings per share,
free cash flow and customer satisfaction measures. Performance targets
for the 2005 financial year are more challenging than the outturn
of the 2004 financial year, as BT continues its transformation. For the achievement of target, performance-related remuneration is approximately 63% of total remuneration (excluding pension) for the Chief Executive and 55% for the other executive directors. Total remuneration comprises base salary, annual bonus and awards under the DBP, and the expected value of share options and awards under BT’s long-term incentive plans. The Committee has decided that a combination of performance-linked share options and incentive shares will be granted in the 2005 financial year. For the last two years, only share options have been granted. The combination of share options and share awards creates, in the Committee’s view, a better balance of remuneration in the light of BT’s business strategy, including the development of new wave business and the achievement of operating efficiencies. In the 2005 financial year, the maximum grant of options will reduce from three times base salary to 1.5 times base salary, and the maximum share award will be equivalent to two-thirds of salary. The overall value of long-term incentive awards will not change as a result of these proposals, which were determined by the Committee with advice from Towers Perrin. The performance measure will be relative TSR for both elements but the FTSE 100 is being replaced by the FTSE E300 Telecommunication Services index as the comparator group. Performance against an appropriate industry sector is considered a more appropriate test of executive capability in driving absolute performance. At 1 April 2004, the index contained the following companies, excluding BT:
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