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.

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.

• 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.

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

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.

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:

	Total 2003
	£’000
Salaries (includes amounts in note (2) below)	3,212
Performance-related and special bonus	2,309
Deferred bonus in shares	1,484
Other benefits	644
	7,649
Payments to non-executive directors	294
Total emoluments (excludes amounts in note (4) below)	7,943
Gain on the exercise of share options	-
Value of shares vested under the Executive Share Plan	411
Retirement benefits are accruing to three directors under defined contribution arrangements and to three directors under a defined benefit scheme.

Pensions
Sir Christopher Bland is not a member of any of the company’s pension schemes but the company matches his contributions, up to 10% of the earnings cap, to a personal pension plan. B Verwaayen and I Livingston are not members of any of the company’s pension schemes but the company has agreed to pay an amount equal to 20% and 30% of salary, respectively, towards pension provision. The aggregate value of contributions paid, or treated as paid, to defined contribution schemes in the 2003 financial year was £53,460. P Danon, A Green and P Reynolds are members of the BT Pension Scheme. As he is subject to the earnings cap, the company has agreed to increase P Danon’s benefits by means of a non-approved, unfunded arrangement. Additional days of pensionable service are being purchased for A Green and P Reynolds to bring their pensionable service at age 60 up to 40 years.

	Basic salary and fees	Annual bonus	Benefits excluding pension	Sub-total	Other (2)(3)(4)	Total 2003
	£’000	£’000	£’000	£’000	£’000	£000
Sir Christopher Bland	500	-	12	512	-	512
B Verwaayen(1)(2)	700	849	485	2,034	140	2,174
P Danon(1)	450	338	41	829	-	829
A Green(1)	425	306	30	761	-	761
I Livingston(1)(2)(3)	445	338	27	810	306	1,116
Dr P Reynolds(1)	400	288	44	732	-	732
Sir Anthony Greener	90	-	-	90	-	90
M van den Bergh	40	-	-	40	-	40
C Brendish	20	-	-	20	-	20
L R Hughes	37	-	-	37	-	37
Baroness Jay	35	-	-	35	-	35
J F Nelson	35	-	-	35	-	35
C G Symon	37	-	-	37	-	37
P Hampton(4)	36	-	5	41	242	283
	3,250	2,119	644	6,013	688	6,701	(1)

Notes

(1) In addition, deferred bonuses payable in shares in three years’ time were awarded to B Verwaayen (£849,000), P Danon (£169,000), A Green (£153,000), I Livingston (£169,000) and P Reynolds (£144,000).

(2) Part of the pension allowance of 20% of salary for B Verwaayen (£140,000) and 30% of salary for I Livingston (£116,000) was paid to them direct.

(3) I Livingston received the sum of £190,000 in lieu of the bonus to which he would have been entitled had he remained with his previous employer.

(4) On the terms of his leaving the company on 30 April 2002, a termination payment of £217,500 was made to P Hampton, equivalent to the balance of the initial period of his service contract, together with a sum of £9,000 in respect of benefits for that period. He also received £15,500 in lieu of holiday entitlement.

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

	Beneficial shareholdings	(a)	Number of shares under option	(b)	Share awards	(c)	Retention shares	(d)	Deferred bonus awards	(e)
Sir Christopher Bland	673,876		314,244		318,308		-		-
B Verwaayen	387,876		2,618,451		-		799,754		76,996
P Danon	61,228		962,580		278,897		53,253		98,275
A Green	85,729		912,005		341,144		-		106,757
I Livingston	110,444		969,870		-		618,093		-
Dr P Reynolds	43,223		860,175		219,354		-		82,822
Sir Anthony Greener	11,167		-		-		-		-
M van den Bergh	4,800		-		-		-		-
C Brendish	10,920		-		-		-		-
L R Hughes	6,800		-		-		-		-
Baroness Jay	5,572		-		-		-		-
J F Nelson	50,000		-		-		-		-
C G Symon	10,069		-		-		-		-
	1,461,704		6,637,325		1,157,703		1,471,100		364,850

Executive directors are also able to participate in BT’s all-employee share investment plan.

Notes

(a) Beneficial shareholdings include shares held in the director’s own name or by close family members.

(b) Options granted under the Global Share Option Plan are normally exercisable in full between the third and tenth anniversaries of their date of grant only if a corporate performance target has been met. Option prices range between 187p and 318p.

(c) Share awards granted under the Incentive Share Plan and the Executive Share Plan vest in full after three, or five, years only if a corporate performance target has been met.

(d) Retention shares are used as a recruitment and retention tool. They are held in trust for up to three years and are transferred to participants, if they are still employed by the company.

(e) Awards of shares are linked to the value of annual bonuses. The shares are held in trust for three years and are transferred to participants, if they are still employed by the company.