Summary report on directors’ remuneration

Introduction
This is a summary of the full Report on directors’ remuneration in the Annual Report, a copy of which is available on request or at www.bt.com/annualreport The full report will be voted on at the 2008 Annual General Meeting.

Remuneration Committee
The Remuneration Committee sets the remuneration policy and individual packages for the Chairman, executive directors and other senior executives reporting to the Chief Executive. It also approves changes in the Company’s executive share 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 global information and communications technology industry.
     The policy for executive pay, in general terms, is for base salaries to be consistent with market rates, with total direct compensation (basic salary, annual bonus and the value of any long-term incentives) to deliver upper quartile rewards 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.

Performance-related remuneration
arrow 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 2007/08 for each objective, were based on earnings per share, free cash flow and customer service. In addition, the Chief Executive is entitled to an award of deferred shares equal to two times his cash bonus. Executive directors are entitled to a bonus in the form of deferred shares with a value of 75% of the cash bonus. The shares vest after three years and act both as an incentive and a retention measure.
     
arrow Long-term incentives – the BT Equity Incentive Portfolio, comprising share options, incentive shares and retention shares, is designed to ensure that equity participation is an important part of overall remuneration and aligned with shareholders’ interests. For the financial year 2007/08, the Committee granted incentive shares to executive directors, senior executives, key managers and professionals:
     
  Awards vest only if a predetermined performance target has been achieved.
  The performance measure is total shareholder return (TSR) calculated on a common currency basis and compared with a group of companies from the European Telecom Sector.
  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. At median, 25% of shares under award would vest. Below that point none of the share awards would vest.

     Retention shares are granted in exceptional circumstances to help recruit or retain individuals with critical skills and to provide additional incentives. In the financial year 2007/08, 17 awards were granted for recruitment and retention purposes.

Executive changes
Paul Reynolds resigned as a director on 14 September 2007. In accordance with the terms of his contract, he received a bonus of £150,000 for his contribution in 2007/08. His deferred and incentive share awards vested on 17 September 2007. His share options were preserved for 12 months from the date on which he left the Company.
     Andy Green resigned as a director on 12 November 2007 and left the company on 31 December 2007. In accordance with the terms of his contract, he received a bonus of £234,000 for his contribution in 2007/08. His deferred bonus awards vested when he left the company but his other share awards and options lapsed on that date.
     Ben Verwaayen will step down as Chief Executive on 31 May 2008 and will cease to be a director on 30 June 2008. He will receive a termination payment of £700,000 in accordance with the terms of his contract and a bonus of £300,000 for his contribution in 2008/09. All his deferred bonus and incentive share awards will vest on cessation of employment. Ian Livingston has been appointed Chief Executive from 1 June 2008. He will receive a salary of £850,000 per annum.

Financial year 2008/09 policy
The Remuneration Committee carried out a review of executive remuneration and, as a result, resolved to place a greater emphasis on long-term performance-related reward. Incentive share awards with an initial value of 3x salary for the Chief Executive and 2.5x salary for executive directors will be awarded. The value of the annual cash bonus for the Chief Executive will be increased but the value of his deferred bonus will be reduced to 1x salary. The annual cash bonus for executive directors will also be increased but the value of the deferred bonus will remain at 75% of salary.
     Salaries have been increased to bring them within an acceptable market range. Ben Verwaayen’s salary will remain at £800,000, Hanif Lalani’s salary will be increased to £585,000, Ian Livingston’s salary will be increased to £850,000 on his appointment as Chief Executive and François Barrault’s salary will be increased to €850,000 (£654,000).
     For annual bonuses, the structure of the corporate scorecard has been revised. In addition to earnings per share, free cash flow and customer service (each at 30%), there will be a target (10%) relating to the individual’s contribution to the Company’s environmental, social and governance objectives.

Pension arrangements
Pensions are based on salary alone – bonuses, other benefits and long-term incentives are excluded. Those directors and other employees, who joined the Company prior to 1 April 2001, are members of the BT Pension Scheme, which is a defined benefit scheme. Hanif Lalani is a member of the Scheme but has opted out of future pensionable service accrual and the Company has agreed to pay an annual amount equal to 30% of his salary towards pension provision.
     Those executive directors who joined the Company after 1 April 2001 receive a cash allowance towards pension provision, some of which may be directed towards a defined contribution scheme on their behalf.

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. Sir Michael Rake, François Barrault, Hanif Lalani and Ian Livingston 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.

BT’s total shareholder return (TSR) performance
over the five financial years to 31 March 2008
tsr chart
         
  Box BT Box FTSE 100
         
  1 April 2003 = 100
  Source: Datastream

Non-executive directors
Total payments to non-executive directors during the year were £574,000 (2007 – £528,000).
     At 1 April 2008, there were eight non-executive directors. Non-executive directors receive an annual fee of £60,000. There is an additional fee for membership of a Board committee of £5,000 per year and a further £5,000 for chairing a committee, with the exception of the Audit Committee, for which the membership fee is £10,000 and the additional chairmanship fee is £15,000. In addition, the membership fee for the Remuneration Committee is £10,000 and the chairmanship fee is £10,000.

Maarten van den Bergh, as Deputy Chairman and senior independent director, chairman of the Remuneration Committee and chairman of the Pension Scheme Performance Review Group, receives total fees of £150,000 per year. Carl Symon receives an annual fee of £70,000 as chairman of the Equality of Access Board (a Board Committee).

Directors’ remuneration
The emoluments of the Chairman and executive directors for the year ended 31 March 2008 and the benefits received under the long-term incentive plans were, in summary, as follows:

                     
  Total salary,
fees and
benefits
£000
    Pension
allowance net
of pension
contribution
£000

1

  Annual
cash bonus
£000
    Total
2008
£000
   

Total
2007
£000

    Deferred Bonus Plan 2 
2008
£000
    2007
£000
 




















 
Sir Michael Rake3 328             328              




















 
B Verwaayen4 845     204     767     1,816     1,860     1,534     1,366  




















 
F Barrault5 699     148     416     1,263         312      




















 
H Lalani6 548     153     375     1,076     1,068     281     333  




















 
I Livingston 614         404     1,018     1,165     404     380  




















 
Sir Christopher Bland7 270             270     551          




















 
A Green8 412         234     646     1,019         362  




















 
P Reynolds9 472     64     150     686     1,056         326  




















 
  4,188     569     2,346     7,103     6,719     2,531     2,767  




















 
Notes                                        
1 Pension allowance paid in cash – see Pensions below.  
2Deferred annual bonuses payable in shares in three years’ time, subject to continued employment.  
3Sir Michael Rake was appointed as Chairman and a director on 26 September 2007.  
4Part of the pension allowance for Ben Verwaayen was paid to him direct. The balance of £34,000 was paid into his personal pension plan.  
5François Barrault was appointed as a director on 24 April 2007 and his salary and fees are for the period from that date to 31 March 2008. His benefits of £208,000 included expatriate benefits.  
6Hanif Lalani received an additional cash payment of £150,000 on 30 June 2006 in respect of a special retention arrangement established on 1 July 2004 when he was Chief Financial Officer, BT Wholesale.  
7Sir Christopher Bland retired as a director on 30 September 2007.  
8Andy Green ceased to be a director on 12 November 2007 and left the company on 31 December 2007.  
9Paul Reynolds resigned as a director on 14 September 2007.  
  Total     Total  
  2008     2007  
  £000     £000  





 
Gain on the exercise of share options 819     4  
Value of shares vested under executive share plans 9,274     2,633  





 

Pensions
Sir Michael Rake is not a member of any of the Company’s pension schemes and the Company made no payments towards retirement provision.
Ben Verwaayen, François Barrault and Ian 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. Hanif Lalani is a member of the BT Pension Scheme but has opted out of future pensionable service accrual, and the Company has agreed to pay an amount equal to 30% of his salary towards pension provision. Paul Reynolds was a member of the BT Pension Scheme but opted out of future pensionable service accrual and received an amount equal to 30% of his salary towards pension provision. Sir Christopher Bland was not a member of any of the Company’s pension schemes and the Company did not pay any amount towards retirement provision in 2007/08. Andy Green was a member of the BT Pension Scheme.
A pension is being paid to one former director under a defined benefit arrangement.

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