BT 2003 Annual Report Download - page 60

Report on directors’ remuneration
The Remuneration Committee is made up wholly
of independent non-executive directors. Throughout
the year, the company has applied the principles in
Section 1 of the Combined Code on Corporate
Governance (the Code) and complied with the Code.
The Board is ultimately responsible for both
the structure and amount of executive remuneration,
but it has delegated prime responsibility for executive
remuneration to the Remuneration Committee.
The Committee’s role is to set the remuneration policy
and individual remuneration packages for the Chairman,
the executive directors, members of the Operating
Committee (OC) and other senior executives reporting
to the Chief Executive. It also approves changes in
the company’s long-term incentive plans, recommends
to the Board those plans which require shareholder
approval and oversees their operation.
The Committee met seven times during the 2003
financial year. Sir Anthony Greener has chaired
the Committee since 18 July 2001. Other members
of the Remuneration Committee during the year were:
&Maarten van den Bergh
&Louis Hughes
&Margaret Jay (appointed 5 November 2002)
&Carl Symon.
The Chairman and Chief Executive are invited to
attend meetings. They are not present when matters
affecting their own remuneration arrangements
are considered.
Non-executive directors who are not members
of the Committee are entitled to receive papers and
minutes of the Committee.
The Committee has access to professional advisers,
both from within the company and externally. Towers
Perrin, (HR consultants); Ben Verwaayen, Chief
Executive; Ian Livingston, Group Finance Director;
Alex Wilson, Group HR Director (and his predecessor
John Steele) and Larry Stone, Company Secretary
(and his predecessor Colin Green), provided advice
that materially assisted the Committee in relation to
the 2003 financial year. The Committee has agreed
that Towers Perrin may advise both the Committee and
BT, and should be invited to attend meetings when
major remuneration policy issues are being discussed.
Towers Perrin provides BT with a range of data and
advisory services covering all aspects of executive pay,
bonus arrangements, shares and benefits.
Remuneration policy
This part of the report is not subject to audit.
BT’s executive remuneration policy is to reward
employees competitively, taking into account individual
performance, company performance, market
comparisons and the competitive pressures in
the information and communication technology
industry. Base salaries are positioned around
the mid-market, with total direct compensation (basic
salary, annual bonus and the value of any long-term
incentives) to be at the upper quartile only for
sustained and excellent performance. There are no
plans to change this policy.
A significant proportion of the total executive
remuneration package is linked to line of business
and corporate performance. Remuneration
arrangements and performance targets are kept under
regular review to achieve this.
Where any significant changes are proposed to
executive remuneration, these are discussed with BT’s
principal shareholders and the main representative
groups of the institutional shareholders.
Packages
The remuneration package for the executive directors,
members of the OC and certain other senior executives
reporting to the Chief Executive comprises:
Basic salary
Salaries are reviewed annually. Salary increases are
made where the Committee believes that adjustments
are appropriate to reflect contribution, increased
responsibilities and/or market pressures.
Performance-related remuneration
Annual bonus
The annual bonus plan is designed to reward
the achievement of results against set objectives.
Targets, set at the beginning of the 2003 financial year
for each objective, were based on earnings per share,
cash flow and customer satisfaction. Specific weights
were attached to each objective. On-target and
maximum bonus levels, as a percentage of salary, were
unchanged at 50% and 75% (Chief Executive 85% and
130% under his service agreement).
The Committee retains the flexibility to enhance or
reduce bonus awards in exceptional circumstances.
Deferred bonus
Awards in the form of BT shares, granted under
the Deferred Bonus Plan (DBP), are linked to the value
of annual 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.
Awards are generally equivalent in value to 50%
of the executive’s gross annual bonus, except in
the case of the Chief Executive whose award in respect
of the 2003 financial year is 100% of gross annual
bonus in accordance with his service agreement.
The awards under the DBP held by Ben Verwaayen,
Pierre Danon, Andy Green and Paul Reynolds at the end
of the 2003 financial year are contained in the table
on page 71. The awards this year include an award for
Ian Livingston. The amounts are in note f on page 65.
Long-term incentives
The BT Equity Incentive Portfolio (the Portfolio) is
designed to ensure that equity participation is
a significant part of overall remuneration. It comprises
three elements: share options, incentive shares and
retention shares. Share options are currently the main
element of equity participation, replacing incentive
shares in the 2003 financial year. Retention shares
are used primarily as a recruitment tool.
BT Annual Report and Form 20-F 2003 59