BT 2003 Annual Report Download - page 61

Report on directors’ remuneration
No individual receives awards under all elements
of the Portfolio in any one year.
Generally, awards vest and options become
exercisable only if a predetermined performance target
has been achieved. The performance measure is TSR
(total shareholder return) compared with the FTSE 100
companies. The Remuneration Committee chose TSR
as it links the reward given to directors with
the performance of BT against the shares of other
major UK companies in which investors have
the opportunity to invest.
For 1998, 1999, 2000 and 2001 awards, the base
price at the beginning of the performance period has
been calculated by averaging the BT share price over
the six months to 31 March in the year of award. For
the 2002 awards, the period was from 19 November
2001 (the date of the mmO
2
demerger) to 31 March
2002. The end price is the average of the share price
over the six months to the end of the performance
period. The end price is adjusted for all capital actions
and dividend payments that occur during
the performance periods.
Share options
The price at which shares may be acquired under
the Global Share Option Plan (GSOP) is the market
price at the date of grant. Other than for new recruits,
the size of option grant is based on corporate and
individual performance, and market relativity.
Options granted will be exercisable in three years
only if a performance target has been met.
The Committee would not normally expect the initial
value of annual grants of options, based on the market
price of a BT share, to exceed three times salary.
In the 2003 financial year, as BT embarked on
a radical business transformation and rejuvenation
programme, the initial value was four times salary in
the case of the senior executives most responsible for
delivering BT’s strategic plan. The grants comprised
options with an initial value of 2.5 times salary relative
to a TSR test and 1.5 times salary relative to
an earnings per share test.
For those options that were granted subject to
a TSR measure, BT’s TSR at the end of the three-year
period 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 first measurement, it may be re-tested
against a fixed base in years four and five. If TSR has
not reached the median at the end of the fifth year,
previously unexercisable options will lapse.
To provide an additional incentive for exceptional
performance in exceeding business goals, further
options were granted to seven senior executives.
For these options to become exercisable, there must
be a 35% compound annual growth in BT’s earnings
per share over three years (equivalent to 22 pence
per share at the end of the 2005 financial year). There
will be no opportunity to re-test.
An option was granted to Sir Christopher Bland
on 22 June 2001 as part of his recruitment package.
This was not subject to a performance measure as
it matched a personal investment in BT shares
of £1 million.
The details of the options held by Sir Christopher
Bland, Ben Verwaayen, Pierre Danon, Andy Green, Ian
Livingston and Paul Reynolds at the end of the 2003
financial year are contained in the table on page 68.
Incentive shares
There were no awards under the Incentive Share Plan
(ISP) in the 2003 financial year. A number of awards
made in previous years are, however, still outstanding.
Participants are entitled to shares at the end
of a three-year performance period if the company has
met the relevant predetermined performance target
and participants are still employed by the group.
At the end of the three-year period, BT’s TSR must
be in the upper quartile for all the shares to vest.
At median, 25% of the shares under award vest.
Below that point, none of the shares vest.
None of the awards of incentive shares granted
in 2000 will vest as BT’s TSR was at 85th position
on 31 March 2003, the closing date of the
performance period.
The awards under the ISP held by Sir Christopher
Bland, Pierre Danon, Andy Green and Paul Reynolds
at the end of the 2003 financial year are contained
in the table on page 69.
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 currently in place are not linked to
the satisfaction of a corporate performance target.
The length of the retention period before awards
vest is flexible. The shares are transferred at the end
of the specified period if the individual is still employed
by BT.
Retention shares are used only in exceptional
circumstances and, in the 2003 financial year, six
awards were made for recruitment purposes (one
of which was made to an executive director) and
a further six were made for retention purposes.
The awards under the RSP held by Ben Verwaayen,
Pierre Danon and Ian Livingston at the end of the 2003
financial year are contained in the table on page 69.
Executive Share Plan (ESP)
The last awards under the ESP were granted in 1999.
Participants will generally only be entitled to shares
at the end of a five-year performance period if
the company has met the relevant predetermined
performance target and participants are still employed
by the group. At the end of the five-year period, if BT’s
TSR reaches 30th position, all the shares vest. If BT is
at 70th position starting from the top of the list, none
of the shares vest. Between those points, the shares
will vest on a straight line pro rata basis.
In 1994, 1995 and 1996 ESP participants could
invest 50% of their annual bonus in the ESP for
the purchase of shares. These invested shares were
matched by the company.
60 BT Annual Report and Form 20-F 2003