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  Annual review and summary financial statement 2003

Summary remuneration report

Introduction
This is a summary of the full Report on directors’ remuneration in the Annual Report and Form 20-F 2003, a copy of which is available on request or at www.bt.com/investorcentre. The full report will be voted on at the 2003 Annual General Meeting.

Remuneration Committee
The Remuneration Committee sets the remuneration policy and individual packages for the Chairman, executive directors, members of the Operating Committee and other senior executives reporting to the Chief Executive. It also approves changes in the company’s long-term incentive plans, recommends to the Board those plans which require shareholder approval and oversees their operation.

Remuneration policy for executives
BT’s executive remuneration policy is to reward employees competitively, taking into account individual and company performance, market comparisons and the competitive pressures in the information and communications technology industry.

The strategy for executive pay, in general terms, is for base salaries to be 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.

Main components of remuneration
Executive benefits packages comprise a mix of performance-related and non-performance-related remuneration, as follows:

Basic salary
This is reviewed annually. Basic salaries remained unchanged during the 2003 financial year and the Committee decided that there should be no increase in base pay for the 2004 financial year.

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.

  • deferred bonus - awards in the form of BT shares granted under the Deferred Bonus Plan are linked to the value of the executive’s annual bonus. The shares are held in trust for three years.

  • long-term incentives - the BT Equity Incentive Portfolio is designed to ensure that equity participation is a significant part of overall remuneration. It comprises:

share options - options granted in the 2003 financial year will be exercisable in three years only if a performance target relating to total shareholder return (TSR) is met. At the end of the three-year period, BT’s TSR performance must be in the upper quartile of FTSE 100 companies for the options to be fully exercisable.

incentive shares - no award of incentive shares was made in the 2003 financial year.

retention shares - these are granted in exceptional circumstances to help recruit or retain individuals with critical skills.

See the tables below for details of directors’ remuneration and interests in shares.

Pension arrangements
Pensions are based on salary alone - bonuses, other benefits and long-term incentives are excluded.

Executive directors and most other senior executives who joined the company prior to 1 April 2001 receive pension benefits of one-thirtieth of final salary for each year of service. Those with longer BT service have undertakings of pension benefits of two-thirds of final salary payable at normal retirement age.

Retirement provision for executive directors and other senior executives who joined BT after 31 March 2001 is generally made on a defined contribution basis - the company agrees to pay a fixed percentage (typically 20-30%) of the executive’s salary each year towards the provision of retirement benefits.

Other benefits
Other benefits include some or all of company car, health insurance in the event of permanent incapacity, personal telecommunications facilities, medical and dental cover, and financial counselling.

BT’s total shareholder return (TSR) performance

TSR performance chart
1 April 1998 = 100. Source: Datastream

The graph above shows our TSR performance (adjusted for the rights issue and demerger of our mobile business in the 2002 financial year) relative to the FTSE 100.

Directors’ remuneration
The remuneration of the directors for the year ended 31 March 2003 and the benefits received under the long-term incentive plans were, in summary, as follows:

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Summary of directors’ interests in shares and share plans
as at 31 March 2003

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