Annual Review and summary financial statement

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Highlights
Chairman's message
Chief Executive's statement
Growth through transformation
Report of operations and financial review
Auditors' statement
Summary financial statement
Summary report on directors' remuneration
Summary directors' report
Corporate governance
Board of directors
Information for shareholders

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 2005, a copy of which is available on request or at www.bt.com/annualreport. The full report will be voted on at the 2005 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 (OC) 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, line of business and company performance, market comparisons and the competitive pressures in the information and communications technology industry.

The policy 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 2004 and 2005 financial years with the exception of increases agreed for Andy Green and Ian Livingston on 1 January 2005 to align their packages with their revised responsibilities in a highly competitive market.

Performance-related remuneration

Annual bonus – the annual bonus plan is designed to reward the achievement of results against set objectives. Targets in respect of corporate performance, set at the beginning of the financial year 2004/05 for each objective, were based on earnings per share, free cash flow and customer satisfaction. One-third of any total bonus is payable in the form of deferred shares under the Deferred Bonus Plan. The shares are held in trust for three years and act both as an incentive and a retention measure.

Long-term incentives  – the BT Equity Incentive Portfolio, comprising share options, incentive shares and retention shares, is designed to ensure that equity participation plays an important part in overall remuneration. In the financial year 2004/05, a combination of performance-linked share options and incentive shares replaced the grant of share options.

 

Awards vest and options become exercisable only if a predetermined performance target has been achieved.

 

The performance measure is total shareholder return (TSR) compared with a group of companies from the European Telecom Sector, replacing the FTSE 100 as the comparator group.

 

BT’s TSR at the end of the three-year measurement period must be in the upper quartile for all of the awards to vest or options to become exercisable. At median, 30% of options would be exercisable and 25% of shares under award would vest. Below that point all of the share awards and options would lapse.

Retention shares are granted in exceptional circumstances to help recruit or retain individuals with critical skills. In the financial year 2004/05, six awards were made for recruitment purposes.

In the financial year 2005/06, the emphasis on some of the components making up remuneration packages will be modified, as the present long-term arrangements have not been acting as a sufficiently effective retention tool. As a result, no further options will be granted and this will be balanced by an increase in the maximum award of incentive shares from two-thirds to one times base salary. There will also be an increase in annual bonus potential, payable in deferred shares for the financial year 2005/06 onwards, which will vest three years after grant.

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 their pensions under defined benefit arrangements. Those with longer BT service are entitled to pension benefits of two-thirds of final salary payable at normal retirement age. Those with shorter BT service are entitled to pension benefits of one-thirtieth of salary for each year of service.

Retirement provision for executive directors and other senior executives who joined BT on or after 1 April 2001 is generally made on a defined contribution basis – the company agrees to pay a fixed percentage (typically around 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, fuel or driver, personal telecommunications facilities and home security, medical and dental cover, special life cover, professional subscriptions and tax planning and financial counselling.

Service agreements
The policy is for the Chairman and executive directors to have service agreements providing for one year’s notice by the company. If BT terminates the Chairman’s contract before it expires – at the end of the 2007 AGM – he is entitled to payment of salary for 12 months from termination or until the 2007 AGM if that is shorter. Ben Verwaayen is entitled to £700,000 on termination by BT. Andy Green, Hanif Lalani, Ian Livingston and Paul Reynolds are entitled to salary and benefits until the earlier of 12 months from notice of BT’s termination of the contract or the director obtaining full-time employment.

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

BT’s total shareholder return (TSR) performance over 
the five financial years to 31 March 2005

Graph of shareholder return

1 April 2000 = 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 emoluments of the directors for the year ended 31 March 2005 and the benefits received under the long-term incentive plans were, in summary, as follows: 

 

Total

 

Total

 

 

2005

 

2004

 

 

£’000

£’000

 



 


 

Salaries (includes amounts in note (2) below)

3,237

 

3,150

 

Performance-related and special bonus

1,449

 

2,074

 

Deferred bonus in shares

600

 

1,037

 

Other benefits

419

 

467

 



 


 

 

5,705

 

6,728

 

Payments to non-executive directors

391

 

337

 



 


 

Total emoluments

6,096

 

7,065

 



 


 

Gain on the exercise of share options

 

 

Value of shares vested under the executive share plans

2,132

 

412

 



 


 

Retirement benefits are accruing to three directors under defined contribution arrangements and to three directors and one former director 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 30% of salary towards pension provision. The aggregate value of contributions paid, or treated as paid, to defined contribution schemes in the 2005 financial year was £61,200. A Green, H Lalani and P Reynolds are members of the BT Pension Scheme. Additional days of pensionable service are being purchased for A Green, H Lalani and P Reynolds to bring their pensionable service at age 60 up to 40 years.

 

 

 

Annual
cash
bonus
£’000

 

Benefits
excluding
pension
£’000

 

 

 

 

 

 

 

 

 

 

Basic salary
and fees
£’000

 

 

 

 

 

 

 

Total
2005
£’000

 

Total
2004
£’000

 

 

 

 

 

Sub-total
£’000

 

Other(2)
£’000

 

 

 

 

 

 

 

 

 

 

 













 


 

Sir Christopher Bland

500

 

 

32

 

532

 

 

532

 

532

 













 


 

B Verwaayen(1) (2)

700

 

448

 

237

 

1,385

 

127

 

1,512

 

1,968

 













 


 

A Green(1)

444

 

204

 

36

 

684

 

 

684

 

791

 













 


 

H Lalani(1)

64

 

136

 

7

 

207

 

 

207

 

 













 


 

I Livingston(1) (2)

469

 

198

 

29

 

696

 

120

 

816

 

913

 













 


 

Dr P Reynolds(1)

400

 

213

 

40

 

653

 

 

653

 

737

 













 


 

Sir Anthony Greener

115

 

 

 

115

 

 

115

 

96

 













 


 

M van den Bergh

55

 

 

 

55

 

 

55

 

44

 













 


 

C Brendish

50

 

 

 

50

 

 

50

 

39

 













 


 

L R Hughes

21

 

 

 

21

 

 

21

 

40

 













 


 

Baroness Jay

50

 

 

 

50

 

 

50

 

39

 













 


 

J F Nelson

50

 

 

 

50

 

 

50

 

39

 













 


 

C G Symon

50

 

 

 

50

 

 

50

 

40

 













 


 

P Danon

413

 

250

 

38

 

701

 

 

701

 

750

 













 


 

 

3,381

 

1,449

 

419

 

5,249

 

247

 

5,496

 

6,028

 













 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

     
 

Notes
(1) In addition, deferred bonuses payable in shares in three years’ time were awarded to B Verwaayen (£224,000), A Green (£102,000), H Lalani (£68,000), I Livingston (£99,000) and P Reynolds (£106,500).

(2) Part of the pension allowance of 30% of salary for B Verwaayen (20% of salary until 1 January 2005), and 30% of salary for I Livingston, was paid to them direct.

 
     

Summary of directors’ interests in shares and share plans
as at 31 March 2005

 

 

 

Number of

 

Incentive

 

 

 

 

 

 

shares

 

and

 

Deferred

 

 

Beneficial

 

under

 

retention

 

bonus

 

 

shareholdings

(a)

option

(b)

shares

(c)

awards

(d)









 

Sir Christopher Bland

674,183

 

314,244

 

299,753

 

 









 

B Verwaayen

902,001

 

3,656,458

 

252,798

 

781,024

 









 

A Green

120,002

 

1,545,032

 

153,484

 

230,154

 









 

H Lalani

5,733

 

655,197

 

72,224

 

66,720

 









 

I Livingston

313,054

 

1,637,155

 

469,517

 

180,258

 









 

Dr P Reynolds

67,768

 

1,453,319

 

144,456

 

208,593

 









 

Sir Anthony Greener

60,007

 

 

 

 









 

M van den Bergh

7,540

 

 

 

 









 

C Brendish

23,920

 

 

 

 









 

L R Hughes

6,800

 

 

 

 









 

Baroness Jay

5,572

 

 

 

 









 

J F Nelson

50,000

 

 

 

 









 

C G Symon

10,069

 

 

 

 









 

 

2,246,649

 

9,261,405

 

1,392,232

 

1,466,749

 









 

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.