BT 2001 Annual Report Download - page 63

BT Annual report and Form 20-F 63
and people management. Speci¢c weights are attached to each
objective on the basis of the BT Corporate Scorecard. The
Committee retains the £exibility to adjust bonus awards in
exceptional circumstances. The on-target and maximum
bonuses were reviewed for the 2001 ¢nancial year for all EC
members and some were increased to re£ect benchmarks in the
external market.
Current long-term incentives
The BT Equity Incentive Portfolio (the Portfolio), approved at
the 2000 AGM, supports the company’s remuneration strategy
for our most critically-skilled people. The three elements which
constitute the Portfolio are:
&Incentive Shares
&Retention Shares, and
&Share Options.
The key drivers of the Portfolio are performance, £exibility and
transparency. Following the introduction of the Portfolio, no
new awards have been granted under the BT Executive Share
Plan or the BT Performance Share Plan. No individual has been
awarded all of Incentive Shares, Retention Shares and Share
Options.
Incentive Shares
Incentive Shares are the main element of the Portfolio. Awards
are granted annually to the executive directors of BT and
members of the senior executive team. Awards have been
granted to around 2,500 key managers and professionals.
Awards of Incentive Shares normally vest after a
performance period of three years, if the participant is still
employed by the BT group and a performance target has been
met. The performance measure is Total Shareholder Return
(TSR) compared with the FTSE 100 companies. At the end of
the three-year period, BT’s TSR must be in the top 25
performing companies for all the shares to vest. The proportion
of shares which vests reduces on a straight-line basis to 50th
position, at which point 25% of the shares under award vest.
Below 50th position, none of the shares vest.
To encourage exceptional performance, the Remuneration
Committee has discretion to reward performance in the upper
quartile. At the end of the three-year period, if the company is
in the top 25 performing companies, the Remuneration
Committee may increase the award of shares vesting. If BT’s
TSR is in the top ten companies of the FTSE 100, the increase
may double the number of the shares vesting. The discretion
will only be exercised if the Remuneration Committee is also
satis¢ed that there has been a signi¢cant improvement in the
company’s underlying ¢nancial performance. The Remuneration
Committee will take account of BT’s Corporate Scorecard
targets and earnings per share growth.
The initial value of awards of Incentive Shares in the 2001
¢nancial year was 10% to 200% of salary, with the vast
majority being below 100%. The ¢rst vesting of awards of
Incentive Shares is expected to be in 2003. Based on
performance to date, none of the shares would vest.
Share Options
Under the Share Options element of the Portfolio, options to
acquire BT shares are granted as an alternative to Incentive
Shares, primarily for overseas employees and, in the UK, for
employees of BT’s internet business and/or new recruits. The
price at which shares may be acquired is the market price at
the date of grant. For options granted in the 2001 ¢nancial
year, the exercise of the option is generally phased over three
years. The grant or exercise of options may be linked to a
performance target. Currently, the grant is based on corporate
and individual performance. This is kept under review.
Options have been granted over shares with an initial
value generally in the range of one times to three times salary
with one option with a value of four times salary. Around 1,000
people currently participate in this element of the Portfolio.
Retention Shares
Retention Shares are granted to individuals with critical skills
as a recruitment or retention tool. As a result, awards of shares
are not generally linked to the satisfaction of a corporate
performance target, but may be linked to performance, such as
the completion of speci¢c projects.
The length of the retention period before awards vest is
£exible. Awards may vest in annual tranches. The shares are
transferred at the end of the speci¢ed period only if the
individual is still employed by the BT group.
The ¢rst awards of shares were granted in August 2000.
Retention Shares are used only in exceptional circumstances
and, to date, less than 20 awards have been made.
BT Deferred Bonus Plan (DBP)
The DBP was established in 1998. Awards in the form of BT
shares, were granted to around 260 senior executives during the
2001 ¢nancial year in respect of their performance in the 2000
¢nancial year. The awards were generally equivalent in value to
50% of the executive’s gross annual bonus. It is intended that
the value of deferred bonuses granted in respect of the 2001
¢nancial year will, except in a very limited number of
circumstances where higher levels of award are justi¢ed, be of a
similar value.