BT 2001 Annual Report Download - page 64

Report on directors’ remuneration
64 BT Annual report and Form 20-F
It is anticipated that around 300 senior executives will
receive deferred bonuses. The shares are held in trust and
transferred to the executive if still employed by the company in
three years’ time. There are no additional performance
measures for the vesting of DBP awards. The ¢rst awards
granted under the DBP in 1998 are due to vest in July or
August 2001. The DBP uses existing shares only.
During the 2001 ¢nancial year, the rules of the DBP were
amended to permit, in the event of BT terminating a
participant’s employment, a participant’s award to vest at the
endofthedeferredperiodwherethedateofvestingwouldhave
fallen during a period of notice and the full notice period is not
served. This would not apply where employment is terminated
for gross misconduct, breach of contract or serious shortfall in
performance.
The rules were also amended so that, on a scheme of
arrangement to create a new holding company, awards will roll
over into shares in the new company. Without the change, the
awards would vest automatically. Awards outstanding at the
date of the amendment that roll over would be preserved until
the end of the deferred period if a participant leaves
employment (other than for gross misconduct). The value of
these awards would also be preserved.
Former long-term incentives
BT Share Option Scheme
This scheme expired in January 1995. The last options were
granted in December 1994. Details of outstanding options held
by the directors and former directors at the end of the 2001
¢nancial year are shown on page 68.
BT Executive Share Plan/BT Performance Share Plan
The last awards under these plans were granted in 1999.
Awards of BT shares under the BT Executive Share Plan (ESP)
normally vest at the end of ¢ve years but only if BT’s TSR
meets a pre-determined target relative to the other companies in
the FTSE 100. The second vesting of awards under the ESP
was in the 2001 ¢nancial year. On the basis that the company’s
TSR was at 10th position compared with the other FTSE 100
companies at the end of the ¢ve-year performance period, 100%
of the shares under award vested in 54 participants on
1 August 2000.
Like the ESP, the vesting of awards of BT shares under the
BT Performance Share Plan (PSP) is subject to the company
meeting a pre-determined TSR target measured against the
FTSE 100 companies. Normally, if the performance target is met
and the participant is still employed by the group, the awards
will vest after the end of a cumulative three-year cycle. The ¢nal
awards under the PSP are due to vest in August 2001. Based on
BT’s TSR measured over the three ¢nancial years to 31 March
2001, ranking it in 38th position, 80% of the shares under award
will vest.
During the 2001 ¢nancial year, the change of control
provisions of the ESP and PSP were amended to align them
with those for the Incentive Shares. Vesting is based on
performance to the date of change of control, with the
Committee having discretion to vest higher amounts, taking
other relevant factors into account (for example, length of
service, anticipated future employment prospects and
underlying company performance). Provision has also been
made for the protection of any balance of a participant’s award
which did not vest on a change of control, if the participant is
dismissed (other than for gross misconduct) or is demoted and
leaves within twelve months. In addition, the cessation of
employment provisions of the ESP and PSP were amended to
align them with those for the Incentive Shares.
The rules of the ESP were also amended to permit the
preservation of awards where the company terminates a
participant’s employment and the participant leaves within two
years of their expected vesting date, or would have left after
the date of preservation had a full notice period been served.
This would not apply where employment is terminated by the
company for gross misconduct, breach of contract or serious
shortfall in performance.
Effect of the rights issue
Following the rights issue announced on 10 May 2001, certain
adjustments will be made to the awards and options granted
under the plans described above. In the case of the contingent
awards granted under the ESP and PSP and the awards of
Incentive and Retention Shares, the Board will recommend to
the trustee of each relevant trust that su⁄cient rights are sold
nil paid to enable the balance of the rights to be taken up with
the proceeds of the sale, so that the new BT shares acquired
can be allocated to the relevant awards and be released on the
same basis as the awards to which they relate.
In the case of options granted under the BT Share Option
Scheme and the Share Options element of the Portfolio, the
Board proposes to adjust the number of shares in respect of
which options may be exercised and the price at which the
shares may be acquired to take account of the rights issue.
Executive share retention
A shareholding programme, which requires executive directors
and EC members to build up a shareholding in the company
was introduced during the 2001 ¢nancial year.
The programme, which is not mandatory, is designed to
encourage executive directors and EC members to build up a