BT 2009 Annual Report Download - page 62

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
60 BT GROUP PLC ANNUAL REPORT & FORM 20-F
This measure will be calibrated at a level considered by the
Committee and confirmed by its independent adviser to be at a
minimum as challenging as the previous measure.
For awards granted in 2009/10, performance will be assessed
against a range of cumulative cash flow measures. 25% of the
relevant part of the award will vest for performance at the lower
end of the range, increasing on a straight line basis, such that 100%
of the relevant part of the award will vest for performance at the
upper end of the range.
A number of key investors and the main representative bodies
were consulted about these changes and were supportive.
Incentive shares
For the financial year 2008/09, the Committee granted incentive
shares to executive directors, senior executives, key managers and
professionals.
Awards of incentive shares vest after a performance period of
three years, if the participant is still employed by BT and a
performance measure has been met. Dividends paid on the shares
during the three-year period are reinvested in further shares and
added to the awards. For awards of incentive shares granted in the
financial years, 2006/07, 2007/08, 2008/09 and awards to be
granted in 2009/10, TSR at the end of the three-year period must
be in the upper quartile relative to the comparator group for all of
the shares to vest. At median, 25% of the shares under the relevant
part of the award will vest. Below that point, none of the shares
under the relevant part of the award will vest. The proportion of
shares that vests reduces on a straight-line basis between the
upper quartile and median positions. There is no re-testing, and no
matching shares are offered to any executive on vesting of the
incentive shares.
At 31 March 2009, the TSR for the 2006/07 awards was at
14th position against the comparator group of companies. As a result
none of the shares will vest and all of the share awards have lapsed.
The details of incentive share awards held by Ian Livingston,
Tony Chanmugam, Hanif Lalani and Gavin Patterson at the end of
the financial year 2008/09 are contained in the table on page 67.
Share options
No share options were granted under the GSOP in 2008/09. The
last grant of such share options was in the financial year 2004/05.
The price at which shares may be acquired under the GSOP is the
market price at the date of grant. Options are exercisable after
three years, subject to a performance target TSR being met.
Since June 2007, 58% of the GSOP options granted in 2004/05
have been exercisable.
The details of the options held by Ian Livingston,
Tony Chanmugam, Hanif Lalani and Gavin Patterson at the end of
the financial year 2008/09 are contained in the table on page 66.
Retention shares
Retention shares are granted exceptionally under the RSP to
individuals with critical skills, as a recruitment or retention tool. In
some cases, they are granted to key employees who have
contributed to excellent corporate performance to assist retention.
As a result, shares currently under award are not generally linked to
a corporate performance target. The length of the retention period
before awards vest is flexible although this would normally be three
years unless the Committee agreed otherwise. The shares are
transferred at the end of the specified period if the individual is still
employed by BT and any performance conditions are met.
Retention shares are used in special circumstances and, in the
financial year 2008/09, two awards were granted for recruitment
purposes. No awards of retention shares were granted to executive
directors in 2008/09.
Other share plans
The executive directors and the Chairman may participate in
BT’s all-employee share plans, the Employee Sharesave Scheme,
the International Employee Sharesave Scheme, Employee Share
Investment Plan and Allshare International, on the same basis as
other employees. There are further details of these plans in note 31
to the accounts.
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.
As a result, separate arrangements were put in place for
Openreach executives in 2005/06. The annual bonus is linked solely
to Openreach targets and long-term incentives are paid in cash
instead of shares. However, payment of bonuses in Openreach is
subject to overall affordability within BT Group.
Openreach executives participate in the BT all-employee share
plans on the same terms as other BT employees.
None of the executive directors participates in the Openreach
incentive plans.
Dilution
Treasury shares are generally used to satisfy the exercise of share
options, the grant of share awards and for the all-employee share
plans. At the end of the 2008/09 financial year, treasury shares
equivalent to 4% of the issued share capital would be required for
these purposes. It is estimated that treasury shares equivalent to
approximately 1% of the issued share capital will be required for all
the employee share plans in 2009/10.
(iv) Other matters
Executive share ownership
The Committee believes that the interests of the executive directors
should be closely aligned with those of shareholders. The deferred
and incentive shares provide considerable alignment. The directors
are encouraged to build up a shareholding in the company over
time by retaining shares which they have received under an
executive share plan (other than shares sold to meet a National
Insurance or income tax liability) or from a purchase in the market.
The Chief Executive is required to build up a shareholding of
2x salary and the remaining directors 1.5x salary. Progress towards
meeting these targets has been made in 2008/09.
Current shareholdings are set out on page 63.
Pensions
Those directors and other employees who joined the company prior
to 1 April 2001 are eligible for membership of the BT Pension
Scheme (BTPS), which is a defined benefit scheme. Hanif Lalani and
Tony Chanmugam are the only executive directors who are
members of the Scheme, although Hanif Lalani has opted out of
future pensionable service accrual. The executive directors who
joined the company after 31 March 2001 and executive directors
who have opted out of future pensionable service accrual following
the pension simplification legislation which came into force on 6
April 2006, receive as an alternative, a cash allowance annually. The
benefits for executive directors who are covered by this are set out
on page 65. This is broadly cash neutral for the company.
BT closed the BTPS to new members from 31 March 2001 and all
new employees were able to join the BT Retirement Plan (BTRP).
This is a defined contribution scheme. For executive directors the
company agrees to pay a fixed percentage of the executive’s salary
each year which can be put towards the provision of retirement
REPORT OF THE DIRECTORS REPORT ON DIRECTORS’ REMUNERATION
REPORT OF THE DIRECTORS