BT 2002 Annual Report Download - page 60

Report on directors' remuneration
most responsible for delivering BT's strategic plan. These
options will be subject to a more stringent performance
measure. For these options to become exercisable, there
must be a 35% compound growth in BT's earnings per
share over the next three years (equivalent to 22 pence per
share at the end of the 2005 ®nancial year). There will be no
opportunity to re-test if this target is not achieved.
Under his service agreement, the Chief Executive is
entitled in the 2003 ®nancial year to options with an initial
value of four times salary. These options will be subject to
the above performance criteria
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
2002 ®nancial year are shown on page 65.
BT Executive Share Plan/BT Performance Share Plan
The last awards under these plans were granted in 1999.
Awards of 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 third vesting of awards
under the ESP was in the 2002 ®nancial year. On the basis
that the company's TSR was at 36th position compared
with the other FTSE 100 companies at the end of the
®ve-year performance period, 85% of the shares under
award vested in 62 participants on 1 August 2001.
Like the ESP, the vesting of awards of shares under the
BT Performance Share Plan (PSP) was subject to the
company meeting a pre-determined TSR target measured
against the FTSE 100. Normally, if the performance target
was met and the participant was still employed by the
group, the awards would vest after the end of a cumulative
three-year cycle. The ®nal awards under the PSP vested in
August 2001. As BT's TSR, measured over the three
®nancial years to 31 March 2001, ranked it in 38th position,
80% of the shares under award vested.
Rule changes
During the 2002 ®nancial year, the rules of the GSOP were
amended to permit in exceptional circumstances the
performance measure and target to be determined after the
grant of an option, but within a limited period. This is
because there may be occasions when these are under
review or there are practical considerations preventing a
target being set.
The GSOP rules were also amended to enable the BT
group to obtain a tax deduction when issuing new shares to
meet the exercise of options.
The rules of the ESP and DBP were amended to
provide for the awards of certain participants under these
plans to vest on a date later than that provided for in the
rules.
The rules of the ESP, ISP, DBP and RSP were
amended in connection with the scheme of arrangement
and demerger, principally to enable awards, generally, to roll
over into the appropriate number of shares in the company
employing the participant after the demerger (BT Group or
mmO2, as appropriate).
Effect of the rights issue
Following the rights issue announced on 10 May 2001,
certain adjustments were 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 Trustee sold
suf®cient rights ``nil'' paid to enable the balance of the rights
to be taken up using the proceeds of the sale. The newly-
acquired shares were allocated to the relevant awards and
have been or will 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 GSOP, the Board adjusted 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.
Scheme of arrangement and demerger
Share Options
On the scheme of arrangement, existing unexercised
executive options, granted under the BT Share Option
Scheme and the GSOP, were exchanged for options over
shares in the new holding company of the optionholder's
employing company after the demerger.
Options were released and exchanged for replacement
options granted under Legacy Option Plans adopted by BT
Group and mmO2. The replacement options are on the
same terms and are exercisable between the same dates
as the original options for which they were exchanged. The
terms of the exchange ensured that the total amount
payable on exercise and any gain or loss arising had the
option been exercised at the time of exchange were the
same before and after the exchange.
BT Executive Share Plan, BT Incentive Share Plan, BT
Retention Share Plan and BT Deferred Bonus Plan
Performance-related awards to key individuals, using TSR
as the measure, were outstanding at the date of demerger
under the ESP and ISP. For awards that were more than
four years into their performance period (ie 1997 ESP), the
measurement was accelerated to the point of the
restructuring. These awards have been banked on the
accelerated performance achieved. On this basis, 32.5% of
the 1997 ESP will vest on 1 August 2002. Normal vesting
otherwise applies.
For awards that were less than four years into their
performance period, performance measurement will
continue to apply until the normal vesting date. Performance
will be assessed using BT's TSR in the period leading up to
the demerger and after that the TSR of the holding
company of the participant's employing company (BT
Group or mmO2, as appropriate).
BT Group Annual Report and Form 20-F 2002 59