BT 1999 Annual Report Download - page 48

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47
The Remuneration Committee is made up wholly of
independent non-executive directors. Throughout the
year, the company has applied the principles in Section 1 of
the London Stock Exchange Combined Code (the Code)
and complied with the Code’s provisions.
The Committee’s role is to set the remuneration policy for
the Chairman, the executive directors and the members of
the company’s Group Executive Committee. Specifically,
it agrees the service contracts, salaries, other benefits,
including bonuses and participation in the company’s
executive share plans, and other terms and conditions of
employment. Lord Marshall has chaired the Committee
since 1 January 1996. Its other members during the year
were:
Dr Iain Anderson
Sir Ewen Fergusson (retired 31 March 1999)
Neville Isdell (appointed 1 July 1998)
Keith Oates
The Committee met five times during the 1999 financial
year. The Chairman and Chief Executive are invited to
attend meetings to discuss senior executive remuneration
recommendations. They are not present when their own
remuneration arrangements are being considered.
Although the full Board considers itself ultimately
responsible for both the framework and the cost of
executive remuneration, the Board has delegated prime
responsibility for these issues, together with control of
executive remuneration packages, to the Remuneration
Committee. Non-executive directors who are not members
of the Committee are entitled to receive papers and
minutes of the Committee.
The Committee has access to professional advisers both
within the company and externally. The Committee
Chairman and senior executives maintain contact when
appropriate with BT’s principal shareholders and the main
representative groups of the institutional shareholders to
discuss the company’s overall remuneration policy and
its development.
Remuneration policy
BT’s executive remuneration policy is in line with the
company’s overall practice on pay and benefits. This is to
reward employees competitively taking into account
performance, market comparisons and competitive
pressures in the communications and IT sectors worldwide.
Whilst not seeking to maintain a strict market position, it
takes account of comparable roles in similar organisations.
These may be similar in size, market sector, business
complexity or international scope. As BT extends its
business globally, it takes account of markets outside the
UK where the scope of a particular role warrants this
approach. The strategy for executive pay, in general terms,
is for basic salaries to reflect the relevant market median
with total direct compensation (that is, basic salary, annual
bonus payments and the value of long-term incentives) at
the upper quartile for exceptional performance.
The Committee considers that it is crucial to link a
significant proportion of the total executive remuneration
package to individual and corporate performance.
Over several years, it has been the Committee’s policy to
increase the proportion of the total remuneration package
linked to performance to align executive performance and
reward with the interests of shareholders. Remuneration
policy and arrangements are kept under constant review
to achieve this objective and to ensure the company can
attract and retain executives of the necessary quality in a
highly and increasingly competitive marketplace.
Packages
The remuneration package for the Chairman and executive
directors comprises some or all of the following elements:
•Basic salary
Salaries are reviewed (although not necessarily
increased) annually. Salaries are increased only
where the Committee believes that adjustments
are appropriate to reflect performance, increased
responsibilities and/or market pressures.
•Performance-related remuneration
Annual bonus
The annual bonus plan focuses on annual objectives
and is designed to reward appropriately the
achievement of results against these objectives.
Targets are set at the start of the financial year based
on key corporate objectives, such as revenue growth,
profitability, quality of service, customer satisfaction
and people management. Specific weights are attached
to each objective on the basis of the BT Corporate
Scorecard. The Committee retains the flexibility to
enhance bonus awards in exceptional circumstances.
BT Executive Share PIan/
BT Performance Share Plan
The BT Executive Share Plan (ESP), formerly the
BT Long Term Remuneration Plan, was approved by
shareholders in 1995. Awards of BT shares normally
vest at the end of five years only if BT’s total
shareholder return (TSR) meets a pre-determined target
relative to the FT-SE 100 companies and if the executive
is still employed by the group. Awards are based on the
executive’s bonus and are therefore dependent upon his
Report on directors’ remuneration