BT 1997 Annual Report Download - page 27

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Report of the Board
Committee on
Executive Remuneration
The Board Committee on Executive Remuneration
comprises independent non-executive directors only.
It determines the remuneration, benefits and terms and
conditions of employment of the executive directors and
members of the company’s Executive Committee. It has
been chaired since 1 January 1996 by Sir Colin Marshall
and its other members during the year were:
Dr Iain Anderson
Sir Ewen Fergusson
Yve Newbold (until 30 November 1996)
Keith Oates
Lord Tebbit (until 2 November 1996)
The Committee, which has formal terms of reference, met
eight times during the year ended 31 March 1997.
The Committee’s constitution and operation have fully
complied throughout the year with Section A of the best
practice provisions of the Stock Exchange Listing Rules.
The Committee also confirms that full consideration has
been given to Section B of the best practice provisions in
framing its remuneration policy.
Remuneration policy
BT’s executive remuneration policy is to reward senior
executives competitively. The Committee does not seek to
maintain any strict market position but rather to ensure
that pay is set appropriately and in the knowledge of
pay practice amongst appropriate comparators. The
Committee focuses on the largest companies by market
capitalisation, ie the FT-SE 100 and in particular on those
organisations where the complexity of roles, of the
business and the extent of international scope are
comparable. The Committee obtains advice and
information from external experts.
The remuneration package for executive directors is made
up of the following elements:
3Basic salary
Salaries are normally reviewed annually or on a
change of responsibilities although it has been the
Committee’s practice not to increase salaries
automatically in times of low market movement.
Salaries are increased only where the Committee
believes that market adjustments are necessary
to reflect responsibilities and contributions to the
business. Salary adjustments were made during
the course of the year for a number of key executives,
including Sir Iain Vallance, Sir Peter Bonfield and
Robert Brace. From 1 January 1997, Sir Iain’s salary
was increased from £480,000 to £500,000, Sir Peter’s
salary was increased from £475,000 to £570,000 and
Robert Brace’s salary was increased from £275,000
to £300,000.
3Annual bonus
The annual bonus plan is designed to provide a focus
on key annual objectives and to reward senior
executives who have achieved results against these
objectives. For the Executive Committee the bonus
plan is currently capped at 50% of salary with an on-
target bonus (payable if all objectives are fully met)
of 30 to 35%.
Targets are set at the start of the financial year based
on key corporate objectives – such as profitability,
quality of service, customer satisfaction and revenue
growth; specific weighted targets are attached to each
item. Objectives are set on the basis of the BT
Corporate Scorecard. This enables the Committee to
assess the performance of the executives under four
headings: shareholder value, customer satisfaction,
process improvement and organisational learning.
For the executive directors, with the exception of
Robert Brace, bonus awards are based wholly on the
achievement of group-wide objectives and results.
For Robert Brace, and members of the Executive
Committee, bonus payments are based on the
achievement of a mix of group, divisional and
personal objectives.
Following his decision to step down as Chief Executive
from January 1996, the Chairman was not included in
the formal bonus plan for the year ended 31 March
1997. The Committee took the view that he should,
however, be considered for a discretionary bonus
award in the light of his contribution over the year. It
is intended that, as a result of the significant change in
his responsibilities following the merger with MCI, he
will participate again in the bonus plan from 1997/98
onwards with an on-target level of 50% and a maximum
of 100% of salary. In the case of Sir Peter Bonfield, the
Committee will take account of his contribution to the
closing and effective implementation of the merger.
Any additional bonus in respect of the merger will be
within a total maximum annual bonus of 100% of salary
and subject to an overall maximum of £500,000 over
the two years, 1997/98 and 1998/99.