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| (iii) |
Annual package – financial year 2005/06 |
The Remuneration Committee does not expect there to be any general increase in base pay for executive directors in the financial year 2005/06.
The Committee believes that, in the increasingly competitive markets for communications and ICT in which BT operates, BT’s present long-term incentive arrangements have not been acting as a sufficiently effective retention tool. This has been reflected in the loss to the business of a number of key senior
executives in the past year. The Committee believes that key to the successful execution of BT’s transformation strategy will be year on year delivery of operational targets. Accordingly, the Committee has decided to modify the emphasis on some of the components making up the remuneration package for
executive directors and OC members.
This involves:
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no further annual grants of options, balanced by; |
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an increase in the maximum award of incentive shares from two-thirds to 100% of base salary; and |
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an increase in annual bonus potential, payable in deferred shares. |
TSR will continue to be measured against a comparator group of companies from the European Telecom Sector.
The Committee determined, with advice from Towers Perrin, that the overall value of long-term incentive awards will not change materially as a result of these proposals.
The change in emphasis will increase the proportion of variable reward linked to annual performance targets. Incentive share awards remain a significant part of the package, and together with deferred shares, these modifications further align management with long term shareholder interests.
The changes have the effect of increasing on-target bonus from 75% to 87.5% of base salary of which the cash element continues to be 50% of salary.
Arrangements for BT Group Chief Executive and the Chief Executive BT Global Services |
The salary of the Chief Executive, Ben Verwaayen, has remained unchanged since joining the company in January 2002. With the announced retirement of the Chairman at the AGM 2007, management continuity through this period is an important issue. The Committee has decided therefore, in order to
make his total package both increasingly retentive and competitive with leaders of the 30 largest companies in the FTSE 100, to increase further the deferred share element of his annual bonus, but not the cash element. Both elements are determined by performance against corporate targets. For the
financial year 2005/06, and subsequent financial years, two-thirds of his bonus will be payable in deferred shares which will vest after three years. This has the effect of increasing his on-target annual bonus to 255% of salary, of which 85% would be payable in cash as currently and 170% of salary payable in
deferred shares. His total bonus – cash and deferred shares – will be subject to an overall cap of 300% of base salary in any one year.
As a retention measure and given competitive market conditions, the Committee has also decided to introduce an additional special bonus arrangement for Andy Green, Chief Executive BT Global Services, linked to performance targets for that line of business, given the critical importance of its
continuing growth and margin improvement to BT’s transformation. This bonus arrangement, payable in retention shares which will vest three years after grant, will be applied to performance in each of the financial years 2005/06, 2006/07 and 2007/08. Awards will be linked to a sliding scale of BT Global
Services’ performance, weighted equally around revenue growth, EBIT and cash generation. The target award will be equivalent to 100% of salary, with a maximum of 150% of salary.
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. In the financial year 2005/06, targets will be linked to corporate
performance only. Previously, 25% of potential bonus for line of business Chief Executives was linked to the performance of their respective line of business. Group performance targets for the financial year 2005/06 are believed to be more challenging than the outturn of the financial year 2004/05 (which
outturned below target), as BT continues its programme of transformation and investment.
Proportion of fixed and variable remuneration |
For the financial year 2005/06, for the achievement of target, performance-related remuneration, comprising annual and long-term incentives, will be approximately 74% of total remuneration (excluding pension) for the Chief Executive, 70% for Chief Executive Global Services and 56% for the remaining
three executive directors. Total remuneration comprises base salary, annual bonus – cash and deferred shares – and the expected value of awards under BT’s long-term incentive plans.
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