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Summary report on directors' remuneration

Introduction
This is a summary of the full Report on directors’ remuneration in the Annual Report and Form 20-F 2004, a copy of which is available on request or at www.bt.com/sharesandperformance. The full report will be voted on at the 2004 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 basic salary and performance-related remuneration, as follows:

Basic salary
This is reviewed annually. Basic salaries remained unchanged during the 2003 and 2004 financial years and the Remuneration Committee decided that there should be no increase in base pay for the 2005 financial year.

Performance-related remuneration

bulletpoint annual bonus – the annual bonus plan is designed to reward the achievement of results against set objectives. Targets, set at the beginning of the 2004 financial year for each objective, were based on earnings per share, free cash flow and customer satisfaction.
bulletpoint deferred bonus – awards in the form of BT shares granted under the Deferred Bonus Plan are directly linked to the value of the executive’s annual bonus and to performance. The shares are held in trust for three years and act as a retention tool.
bulletpoint 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 2004 financial year will be exercisable in three years only if a performance target is met. For options granted subject to a total shareholder return (TSR) measure, BT’s TSR at the end of the three-year period 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 2004 financial year.
     
  retention shares – these are granted in exceptional circumstances to help recruit or retain individuals with critical skills.

In the 2005 financial year, the Remuneration Committee has decided to reduce the number of share options granted, but also to grant incentive share awards, to create a better balance of remuneration. The overall value of long-term incentive awards will not change as a result of these proposals. The performance measure for share options and incentive shares will change from relative TSR against the FTSE 100, to relative TSR against the FTSE E300 Telecommunication Services Index as a more appropriate test.

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 are entitled to 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.

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

BT’s total shareholder return (TSR) performance over 
five financial years to 31 March 2004

TSR Graph

1 April 1999 = 100. Source: Datastream
The graph 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 2004 and the benefits received under the long-term incentive plans were, in summary, as follows:

  Total 2004   Total 2003  
  £’000   £’000  


 
 
Salaries (includes amounts in note (2) below) 3,150   3,212  
Performance-related and special bonus 2,074   2,309  
Deferred bonus in shares 1,037   1,484  
Other benefits 467   644  


 
 
  6,728   7,649  
Payments to non-executive directors 337   294  


 
 
Total emoluments 7,065   7,943  


 
 
Gain on the exercise of share options    
Value of shares vested under the executive share plans 412   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 2004 financial year was £59,400. 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
£’000
     

Annual
bonus
£’000

    Benefits
excluding
pension
£’000
      

 

Sub-total
£’000
      

 

Other
£’000
   

Total
2004
£’000

    

Total
2003
£’000

   
(2) 












 
 
Sir Christopher Bland 500     32   532     532   512  












 
 
B Verwaayen(1)(2) 700   859   299   1,858   110   1,968   2,174  












 
 
P Danon(1) 450   259   41   750     750   829  












 
 
A Green(1) 425   336   30   791     791   761  












 
 
I Livingston(1)(2) 450   325   23   798   115   913   1,116  












 
 
Dr P Reynolds(1) 400   295   42   737     737   732  












 
 
Sir Anthony Greener 96       96     96   90  












 
 
M van den Bergh 44       44     44   40  












 
 
C Brendish 39       39     39   20  












 
 
L R Hughes 40       40     40   37  












 
 
Baroness Jay 39       39     39   35  












 
 
J F Nelson 39       39     39   35  












 
 
C G Symon 40       40     40   37  












 
 
  3,262   2,074   467   5,803   225   6,028   6,418  












 
 
Notes
(1)
  
In addition, deferred bonuses payable in shares in three years’ time were awarded to B Verwaayen (£429,500), P Danon (£129,500), A Green (£168,000), I Livingston (£162,500) and P Reynolds (£147,500).
(2) Part of the pension allowance of 20% of salary for B Verwaayen (£110,300) and 30% of salary for I Livingston (£115,200) was paid to them direct.

Summary of directors’ interests in shares and share plans
as at 31 March 2004
       Number of                
  shares   Deferred
Beneficial under Retention bonus
shareholdings  (a) option (b) shares (c)  awards

(d)









 
Sir Christopher Bland 674,062   314,244   286,100    








 
B Verwaayen 387,876   3,671,083   832,869   523,421  








 
P Danon 93,508   1,639,272     190,271  








 
A Green 92,351   1,551,103     179,457  








 
I Livingston 209,637   1,646,562   468,355   88,088  








 
Dr P Reynolds 46,823   1,461,679     156,687  








 
Sir Anthony Greener 34,607        








 
M van den Bergh 4,800        








 
C Brendish 23,920        








 
L R Hughes 6,800        








 
Baroness Jay 5,572        








 
J F Nelson 50,000        








 
C G Symon 10,069        








 
  1,640,025   10,283,943   1,587,324   1,137,924  








 
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) 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.
(d) Awards of shares are directly 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.
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BT Group plc 2004

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