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Annual Review & Notice of Meeting 2007

Summary report on Directors' remuneration

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 The full report will be voted on at the 2007 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 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 within a range, consistent with prevailing market rates, with total direct compensation (basic salary, annual bonus and the value of any long-term incentives) to be at the upper quartile 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
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 2006/07 for each objective, were based on earnings per share, free cash flow and customer satisfaction. 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.
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 2006/07, 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 basket of companies in 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 special circumstances to help recruit or retain individuals with critical skills and to provide additional incentives. In the financial year 2006/07, seven awards were granted for recruitment and retention purposes.

Andy Green, formerly Chief Executive BT Global Services, will be granted an award of retention shares, linked to the financial performance of that line of business, with a value of £217,000, in June 2007 (2006: £750,000). In recognition of the leading role which Andy Green will take in delivering the further transformation of the company, announced in April 2007, a retention share award with a value of £535,000 will be granted to him; the award will vest in two years’ time and will not be subject to performance conditions.

Financial year 2007/08 policy
The Remuneration Committee carried out a review of executive remuneration and, as a result, resolved to place a greater emphasis on long-term reward. Incentive share awards with an initial value in the range of 100% to 200% of salary will be awarded. Salaries have been increased to bring them more into line with the market. Ben Verwaayen’s salary will be increased to £800,000, Andy Green’s salary to £520,000, Hanif Lalani’s salary to £520,000, Ian Livingston’s salary to £560,000 and Paul Reynolds’ salary to £475,000.
    François Barrault receives an annual salary of €750,000 (approximately £500,000).
    The bonus targets for the Chief Executive and for the executive directors will continue unchanged.

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 benefits scheme. Andy Green is a member of the BT Pension Scheme. Hanif Lalani and Paul Reynolds are members of the Scheme but have opted out of future pensionable service accrual.
    The executive directors, who opted out of future pensionable service accrual following the pensions simplification legislation which came into force on 6 April 2006, receive, as an alternative, a cash allowance annually. This is broadly cash neutral for the company.

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 Sir Christopher Bland’s contract before it expires on 30 September 2007, he is entitled to payment of salary and the value of any benefits until that date. Ben Verwaayen is entitled to £700,000 on termination by BT. François Barrault, 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. Sir Mike Rake has a service agreement as a director and Chairman with effect from 26 September 2007.
    See the following tables for details of directors’ emoluments and interests in shares.

Directors’ remuneration
The emoluments of the directors for the year ended 31 March 2007 and the benefits received under the long-term incentive plans were, in summary, as follows:

  £’000   £’000  

Salaries 3,167   3,058
Performance-related bonus 2,752   2,284
Deferred bonus in shares 2,767   2,441
Other benefits 223   203

  8,909   7,986
Payments to non-executive directors 528   467

Total emoluments 9,437   8,453
Gain on the exercise of share options 4  
Value of shares vested under the executive share plans 2,633   652

Retirement benefits are accruing to three directors under defined contribution arrangements and to three directors and one former director under defined benefit arrangements.
Sir Christopher Bland is not a member of any of the company’s pension schemes but in 2006/07 the company paid him £15,186 as a retirement allowance. 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 2007 financial year was £88,245. A Green is a member of the BT Pension Scheme. Additional days of pensionable service are being purchased for A Green to bring his pensionable service at age 60 up to 40 years. H Lalani and P Reynolds are members of the BT Pension Scheme but have opted out of future pensionable service accrual and they each receive an annual cash amount equal to 30% of their salary towards pension provision.
  Basic salary and fees   Pension allowance net of pension contributions   Total salary and fees   Annual cash bonus   Expenses allowance   Other benefits excluding pension   Total
  £’000   £’000   £’000   £’000   £’000   £’000   £’000   £’000  

Sir Christopher Bland 500   15   515       36   551   532

B Verwaayen(1)(2) 742   190   932   884     44   1,860   1,694

A Green(1) 500     500   483     36   1,019   930

H Lalani(1)(4) 450   135   585   444     39   1,068   759

I Livingston(1)(2)(3) 525   102   627   507   19   12   1,165   1,110

P Reynolds(1)(3) 450   135   585   434   19   18   1,056   834

M van den Bergh 93     93         93   59

M Alahuhta 45     45         45   8

C Brendish 50     50         50   50

P Hodkinson 55     55         55   8

Baroness Jay 50     50         50   50

D Lathen(5) 8     8         8  

J F Nelson 55     55         55   52

C G Symon 115     115         115   87

Sir Anthony Greener(6) 57     57         57   115

L R Hughes(7)               38

  3,695   577   4,272   2,752   38   185   7,247   6,326

1In addition, deferred bonuses payable in shares in three years’ time, subject to continued employment, were awarded to B Verwaayen (£1,366,000), A Green (£362,000), H Lalani (£333,000), I Livingston (£380,000) and P Reynolds (£326,000).
2Part of the pension allowance of 30% of salary for B Verwaayen and I Livingston was paid to them direct.
3Expense allowance includes a monthly cash allowance in lieu of a company car equivalent to £18,500.
4H 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.
5D Lathen was appointed as a director on 1 February 2007.
6Sir Anthony Greener retired as a director on 30 September 2006.
7L Hughes retired as a director on 31 March 2006.

Summary of Directors ’ interests in shares and share plans
as at 31 March 2007, or date of appointment if later

  Beneficial shareholdings a Number of shares under option b Incentive and retention shares c Deferred bonus awards d

Sir Christopher Bland 674,386   314,244   329,418    

B Verwaayen 1,238,827   1,369,820   806,894   958,537  

F Barraulte 107   362,500   900,328   206,271  

A Green 204,629   837,389   898,896   284,822  

H Lalani 36,358   415,410   417,420   171,416  

I Livingston 349,901   887,889   869,675   286,733  

P Reynolds 147,169   787,309   483,675   261,310  

M van den Bergh 13,621        

M Alahuhta 20,000        

C Brendish 30,920        

P Hodkinson 4,622        

Baroness Jay 10,185        

D Lathen        

J F Nelson 50,000        

C G Symon 15,069        

  2,795,794   4,974,561   4,706,306   2,169,089  

Executive directors are also able to participate in BT’s all-employee share plans.
aBeneficial shareholdings include shares held in the director’s own name or by close family members.
bOptions granted under the Global Share Option Plan are normally exercisable in full after the third anniversary of their date of grant only if a corporate performance target has been met. Option prices range between 187p and 318p. Options granted in 2002/03 lapsed on 31 March 2007 because the TSR target was not met. The TSR target for options granted in 2004/05 was met in part. As a result, 58% of each option will become exercisable in June 2007; the remaining 42% of each option lapsed.
cRetention shares are used as a recruitment and retention tool. They normally vest after three years and are transferred to participants, if they are still employed by the company. The TSR target for awards of incentive shares granted in 2004/05 was met in part. As a result, 55% of each award of incentive shares will vest in May 2007; the remaining 45% of each award lapsed on 31 March 2007.
dAwards of shares are directly linked to the value of annual bonuses. The shares vest after three years and are transferred to participants, if they are still employed by the company. Details of deferred bonus awards in respect of the financial year 2006/07 are given in the notes to the table on Directors' remuneration. Awards in respect of the deferred bonuses will be granted in June 2007.
eF Barrault was appointed as a director on 24 April 2007.


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