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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

	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.

	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.

	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
	Basic salary and fees £’000	Annual bonus £’000	Benefits excluding pension £’000	Sub-total £’000	Other £’000	⁽²⁾	Total 2004 £’000	Total 2003 £’000

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.