BT 2002 Annual Report Download - page 59

Report on directors' remuneration
No individual has received awards under all elements of
the Portfolio.
Incentive Shares
Incentive Shares have been the main element of the
Portfolio. The value of awards made to executive directors
and the senior executive team in the 2002 ®nancial year
was 100% to 200% of salary.
Awards of Incentive Shares under the Incentive Share
Plan (ISP) 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.
The 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 ®rst vesting of awards of Incentive Shares is
expected to be in 2003. Based on performance to date,
none of the shares would vest.
Retention Shares
Retention Shares are granted under the Retention Share
Plan (RSP) 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.
The length of the retention period before awards vest is
¯exible. The shares are transferred at the end of the
speci®ed period if the individual is still employed by the BT
group.
Retention Shares are used only in exceptional
circumstances and, to date, less than 20 awards have been
made.
Share Options
Options to acquire BT shares have been granted under the
Global Share Option Plan (GSOP), in the past, 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 2002 ®nancial year, the exercise
of the option is generally phased over three years. Other
than for new recruits, the grant has been based on
corporate and individual performance. Options have been
granted over shares with an initial value generally in the
range of one to three times salary.
As part of his recruitment package, an option was
granted to the Chief Executive with an initial value of four
times salary exercisable in three years, subject to a
performance measure being met. The performance
measure is relative TSR compared with the FTSE 100. BT's
TSR must be in the upper quartile for all of the options to
become exercisable. At median, 40% of the options will be
exercisable. Below that point, none of the options may be
exercised.
Annual package ± 2003 ®nancial year
The Committee, in pursuit of its aim to establish a simple,
focused and more leveraged approach to reward, has
reviewed how effectively the stated policy has been applied.
As a result, the Committee has greatly reduced the number
of objectives in the annual bonus plan. In the 2003 ®nancial
year, the objectives will be earnings per share, cash ¯ow
and customer satisfaction. On-target and maximum bonus
levels, as a percentage of salary, remain unchanged at 50%
and 75% (Chief Executive 85% and 130%, under his service
agreement).
It is intended that the value of deferred bonus awards
granted in respect of the 2002 ®nancial year will be 50% of
gross annual bonus (compared with the previously agreed
50% to 100%), except in the case of the Chief Executive,
whose award in the 2003 ®nancial year will be 100% of his
gross annual bonus in accordance with his service
agreement.
Share Options will replace Incentive Shares as the main
element of equity participation for annual awards. Options
granted in the 2003 ®nancial year will be exercisable in three
years only if a performance target has been met. Whilst the
Committee would not normally expect the initial value of
annual grants of options to exceed three times salary, in the
2003 ®nancial year, as we embark on a radical business
transformation and rejuvenation programme, the initial value
may be four times salary in a limited number of cases.
These grants will not be made to more than ten people.
The initial value of those options that are granted
subject to a TSR measure will not exceed 2.5 times salary.
The measure will be relative TSR compared with the FTSE
100. At the end of the three year period, BT Group's TSR
must be in the upper quartile for all of the options to be
exercisable. At median, 30% of the options will be
exercisable. Below that point, none of the options may be
exercised. If the performance measure is not met at the ®rst
measurement, it may be re-tested against a ®xed base in
years four and ®ve. If TSR has not reached the median at
the end of the ®fth year, previously unexercisable options
will lapse.
To provide an additional reward for exceptional
performance in exceeding business goals, further options
with an initial value not exceeding 1.5 times salary may be
granted in the 2003 ®nancial year to the senior executives
58 BT Group Annual Report and Form 20-F 2002