BT 2006 Annual Report Download - page 55

Share Investment Plan, on the same basis as other employees.
There are further details of these plans in note 31 to the
accounts.
(iii) Annual package –financial year 2006/07
The Remuneration Committee has determined that there will
not be any general increase in base pay for executive directors
in the financial year 2006/07. However, Ben Verwaayen’s base
pay, which has not increased since he joined the company in
2002, will be increased to £750,000 per annum from 1 June
2006. Hanif Lalani’s base pay will be increased to £460,000
per annum from 1 June 2006, following his successful
assumption of, and continuing performance in, the Group
Finance Director’s role.
Long term reward
In the financial year 2006/07, incentive shares will again be
granted for equity participation on the same terms as incentive
shares in 2005/06. TSR will continue to be measured against a
comparator group of companies from the European Telecom
Sector.
Annual bonus plan
The bonus structure remains unchanged. However, in line with
the Committee’s policy progressively to make a greater part of
the remuneration packages variable, on-target and maximum
(requiring exceptional performance) bonus levels for executive
directors as a percentage of salary will be 105% and 192.5%
respectively, with approximately 43% of any bonus payable in
deferred shares. The bonus arrangements for the Chief
Executive remain unchanged.
The annual bonus plan will continue to focus on annual
objectives and to reward the achievement of results against
those objectives. Performance will again be against earnings per
share, free cash flow and customer satisfaction measures and
the weighting of those objectives will be the same as in 2005/
06. As in the financial year 2005/06, for purposes of calculating
earnings per share for the scorecard, volatile items reported
under IFRS have been excluded from the target.
Group performance targets for the financial year 2006/07
are believed by the Committee to be more challenging than the
outturn of the financial year 2005/06.
Proportion of fixed and variable remuneration
The targeted composition of each executive director’s
performance-related remuneration, excluding pension, for the
financial year 2006/07, comprising annual and long-term
incentives, will be:
Fixed
Base Pay Variable Total
B. Verwaayen 25% 75% 100%
A. Green 40% 60% 100%
H. Lalani 40% 60% 100%
I. Livingston 40% 60% 100%
Dr. P. Reynolds 40% 60% 100%
Total remuneration comprises base salary, annual bonus – cash
and deferred shares – and the expected value of awards under
BT’s long-term incentive plans, excluding retention shares.
Openreach
In the Undertakings given to Ofcom on 22 September 2005, BT
agreed that the incentive elements of the remuneration of
executives within Openreach should be linked to Openreach
performance rather than BT targets or share price. These
incentives cannot be provided by way of BT shares.
New arrangements have been agreed by the Committee and
put in place which will give Openreach executives an
opportunity to receive bonuses and long-term incentive awards
of equivalent value to the bonuses and long-term incentives
awarded to other BT executives. Long-term incentives will,
however, be paid in cash instead of BT shares.
For the financial year 2006/07, the annual bonus will
continue to be linked to an annual scorecard but the scorecard
targets will be those of Openreach alone.
As required by the Undertakings a cash arrangement is also
in place to enable Openreach executives to exchange, if they
wish, in June 2006 their options and awards over BT shares for
cash awards.
Openreach executives will continue to participate in the BT
HMRC-approved all-employee share plans on the same terms as
other BT employees. In addition, there would be no changes to
the pension arrangements of these executives.
None of the executive directors will participate in the
Openreach incentive plans.
(iv) Other matters
Executive share ownership
A mandatory shareholding programme was introduced for the
financial year 2005/06 onwards. This is to encourage executive
directors and certain other executives to build up a
shareholding in the company over time by retaining shares
received either as a result of participating in a BT employee
share plan (other than the shares sold to pay a National
Insurance or income tax liability) or from on-market purchases.
The Chief Executive is required to build up a shareholding of 2 x
salary and the remaining executive directors 1.5 x salary. Given
that a large part of an executive’s remuneration is already
variable, the requirement excludes the need to make a further
personal investment to build up the shareholding should share
plan awards not vest. Current shareholdings are set out on page
56. Progress towards meeting these targets has been made
during the financial year 2005/06.
Pensions
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. The benefits for the three
executive directors who are members of the scheme are set out
on page 58.
The Committee reviewed the impact of the Lifetime
Allowance under the pension simplification legislation which
came into force from 6 April 2006. As a result, BT offered those
members affected the option to opt out of future accruals of
pensionable service and in its place to receive a cash allowance
annually. This was broadly cash neutral for the company.
BT closed the BT Pension Scheme to new members from
1 April 2001. From this date provision is generally made on a
defined contribution basis. The company agrees to pay a fixed
percentage of the executive’s salary each year which can be put
towards the provision of retirement benefits. Additionally, a
lump sum equal to four times salary is payable on death in
service. The benefits for the three executive directors who are
covered by this are set out on page 58.
Pension provision for all executives is based on salary alone –
bonuses, other elements of pay and long-term incentives are
excluded.
Report on directors’ remuneration BT Group plc Annual Report and Form 20-F 2006 53