BT 2013 Annual Report Download - page 84

Governance
82 Governance 82
Remuneration Policy in 2013/14
The committee is not proposing any changes to the remuneration
structure for 2013/14. We will be consulting major investors and
representative bodies over the coming months with the intention of
making changes to executive pay structure in 2014/15 subject to
approval at the 2014 AGM.
Salaries
Salaries are reviewed annually. The executive directors requested that
the committee not consider them for any salary increase for the year
2012/13 and the committee agreed to this request. For 2013/14, the
Chief Executive again asked not to be considered for a salary review, and
the committee accepted this request. The committee reviewed salaries
for 2013/14 for the other executive directors, taking into account
performance during 2012/13, and the percentage salary increases for
other UK group employees. The committee agreed the salary increases
set out below:
2012/13 2013/14 Increase
Ian Livingston £925,000 £925,000 0%
Tony Chanmugam £535,000 £550,000 2.8%
Gavin Patterson £570,000 £585,000 2.6%
The percentage salary increases for Tony Chanmugam and Gavin
Patterson are broadly in line with those for other UK employees.
Annual bonus
Executive directors are eligible for an annual bonus based on corporate
performance targets, ESG measures and individual targets. The customer
service element of annual bonus is only paid if a minimum adjusted EPS
threshold is achieved. The annual bonus is paid in two elements, a cash
element, and a deferred element paid in shares. The levels of bonus
opportunity are set out in the policy statement on page 81.
We do not publish details of the adjusted EPS, normalised free cash
flow and revenue growth bonus thresholds in advance for 2013/14,
since these are commercially confidential. We will publish achievement
against targets at the same time as we disclose bonus payments in the
Annual Report 2014, so that shareholders can evaluate performance
against those targets.
The bonus structure has been amended for 2013/14 to include a growth
measure to reflect our aim to drive profitable revenue growth. This
increases alignment between the annual bonus and long-term elements
of remuneration. Adjusted EPS and normalised free cash flow are two of
our KPIs and have a direct impact on shareholder value while customer
service is vital to the long-term health of the business and is a key
element of our strategy. Payment of bonus against customer service is
only made if a minimum adjusted EPS threshold is met.
The annual bonus structure for 2013/14 is set out below.
Chief Executive and Group Finance Director
% Weighting
Adjusted earnings
per share 20%
Normalised free
cash flow 20%
Revenue growtha 10%
Customer service 20%
Personal contribution 15%
Environmental, social
& governance 15%
CEO, BT Retail
% Weighting
Adjusted earnings
per share 15%
Normalised free
cash flow 15%
Revenue growtha 10%
Customer service 15%
Personal contribution 30%
Environmental, social
& governance 15%
a Underlying revenue growth (excluding transit revenue).
Long-term share-based incentives
Incentive shares
BT operates a long-term ISP (incentive shares) based on performance
over three years. Shares only vest if the participant is still employed by
BT and challenging performance measures have been met.
The ISP 2013 awards, expected to be made in June 2013 (as set out on
page 83), will be made at the same percentage of salary level as the ISP
2012 awards and with the same mix of performance conditions. Given the
movement in share price over the previous year, a lower number of shares
is likely to be awarded in June 2013. The performance conditions will be
based 40% on relative TSR, 40% on normalised free cash flow, and 20% on
underlying revenue growth (excluding transit revenue) over a three-year
performance period. The target range for the normalised free cash flow
element for the three year performance period 2013/14 – 2015/16 and
underlying revenue growth (excluding transit revenue) is set out in the
table below.
Measure 2013/14 –
2015/16 Threshold
Level of
vesting Maximum
Level of
vestinga
Normalised free
cash flow £7.4bn 25% £8.4bn 100%
Revenue growthb1% 25% 4% 100%
a Vesting levels between threshold and maximum will be on a straight line basis.
b Underlying revenue growth (excluding transit revenue).
The committee believes that the free cash flow and revenue
performance measures are challenging, and the financial performance
necessary to achieve awards towards the upper end of the range for
each target, is stretching. Targets for threshold performance have been
established at above consensus market expectations at the time set.