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(iii) Other matters
Executive share ownership
A shareholding programme
encourages executive directors and OC members to build up a shareholding in the
company by retaining shares received 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). The programme, which is not mandatory, is designed to
encourage executive directors and members of the OC to build up a shareholding
with a value of 100% of their annual salary. Given that a large part of an
executive’s remuneration is already variable, the proposal specifically
excludes the need to make a personal investment should awards not vest.
Pensions
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, 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 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 20-30% of salary. Additionally, a lump sum equal to four
times annual salary is payable on death in service. Pension provision for all
executives is based on salary alone – bonuses, other elements of pay and
long-term incentives are excluded.
Other benefits
Other benefits for the
Chairman and the senior management team include some or all of the following:
company car, fuel and driver, personal telecommunications facilities and home
security, medical and dental cover for the director and immediate family,
professional subscriptions and personal tax 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.
Service agreements
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.
Termination payments
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 Pierre Danon, Andy Green, 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 (but not the Chairman) 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, published in December 2002
by the Association of British Insurers and the National Association of Pension
Funds, and other relevant guidelines, and believes contract terms are generally
in line with best practice. The clause dealing with termination following BT
entering into a scheme of arrangement or becoming a subsidiary of another
company will be reviewed for future appointments and in any contract
renegotiations.
Outside appointments
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. Pierre
Danon receives fees of £35,000 per year as a non-executive director of Emap plc
and Ian Livingston fees of £35,000 per year as a non-executive director of
Hilton Group plc. Pierre Danon has resigned from the Board of Hays plc where he
received fees of £45,000 per year.
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 ago, 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 Pensions 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 |
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. |
|
|
|
|
| B Verwaayen |
14 January 2002 |
|
The agreement was terminable during the first year
by the company giving two years’ notice and thereafter by notice
of not less than one year; terminable by the director on six
months’ notice ending after the first two years. |
|
|
|
|
P Danon
A
Green
Dr P Reynolds |
19 November 2001 |
 |
The contract is terminable by the
company on 12 months’ notice and by the director
on six months’ notice. |
|
I Livingston
|
8 April 2002
|
|
The initial period
was for two years. The contract is terminable on 12 months’
notice by the company and six months’ notice by the director
ending at any time after the initial period.
|
|
|
|
|
| Non-executive
directors |
|
|
|
Sir Anthony
Greener
M van den
Bergh
L R Hughes |
1
October 2000
1
September 2000
1
January 2000 |
|
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. |
|
|
|
|
|
|
C Brendish
Baroness Jay
J Nelson
C G Symon |
1 September
2002
14 January
2002
14 January 2002
14 January 2002 |
|
Letters
of appointment are for an initial period of three years and are
terminable by the company or the director on three months’ notice.
The appointments are
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.
Directors’ interests
The interests of directors
and their families in the company’s shares at 31 March 2004 and 1 April 2003,
or date of appointment if later, are shown below:
| |
No.
of shares |
|
| |
|
| Beneficial holdings |
2004 |
|
2003 |
|
|
|
|
| Sir
Christopher Blandc |
674,062 |
b |
673,876 |
|
| B
Verwaayenc |
387,876 |
|
387,876 |
|
| P
Danonc |
93,508 |
b |
61,228 |
b |
| A
Greenc |
92,351 |
b |
85,729 |
b |
| I
Livingstonc |
209,637 |
b |
110,444 |
|
| Dr P
Reynoldsc |
46,823 |
ab |
43,223 |
b |
| Sir
Anthony Greener |
34,607 |
|
11,167 |
|
| M van den
Bergh |
4,800 |
|
4,800 |
|
| C
Brendish |
23,920 |
|
10,920 |
|
| 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 |
1,640,025 |
|
1,461,704 |
|
|
|
|
|
|
| |
|
| a |
During
the period from 1 April 2004 to 17 May 2004, Paul Reynolds purchased
144 shares under the BT Group Employee Share Investment Plan.
|
| b |
Includes
free shares awarded under the Employee Share Investment Plan
and Employee
Share Ownership Scheme. |
| c |
At
31 March 2004, Sir Christopher Bland and each of the executive
directors, as potential beneficiaries, had a non-beneficial
interest in 30,463,435 shares (2003 – 31,719,402) 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 141,864 shares (2003 – 19,822) held in trust by Halifax Corporate
Trustees Limited for participants in the Employee Share Investment
Plan. |
Performance Graph
This graph illustrates, as required by the
Directors’ Remuneration Report Regulations 2002, the performance of BT Group
plc measured by TSR (adjusted for the rights issue and the demerger of BT’s
mobile business in the 2002 financial year) 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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