BT 2003 Annual Report Download - page 62

Report on directors’ remuneration
The vesting date of 1998 ESP awards is in August
2003. None of the shares will vest as BT’s TSR was
at 83rd position on 31 March 2003, the closing date
of the performance period.
The awards under the ESP held by Andy Green
and Paul Reynolds at the end of the 2003 financial year
are contained in the table on page 69.
Other share plans
The executive directors may participate in BT’s Inland
Revenue approved all-employee share plans,
the Employee Sharesave Scheme and Employee Share
Investment Plan (which replaced the Employee Share
Ownership Scheme), on the same basis as other
employees. There are further details of these plans
in note 34 to the accounts.
Annual package – 2004 financial year
The Remuneration Committee has decided that there
should be no increase in base pay for executive
directors in 2004. For the achievement of target,
performance-related remuneration will be
approximately 67% of total remuneration (excluding
pension) for the Chief Executive and 54% for the other
executive directors.
Under his current service agreement the Chairman
is not entitled to be paid a bonus, or to participate in
the Equity Incentive Portfolio.
Performance targets for the 2004 financial year
are significantly more challenging than the outturn
of the 2003 financial year. To increase the proportion
of performance-related remuneration, the maximum
bonus level will increase to 100% of salary for truly
exceptional performance for six executives only. The
on-target and maximum bonus levels for the Chief
Executive are unchanged. The threshold level, below
which a bonus payment will not be paid, has been set
at a higher level than the results achieved in the 2003
financial year. The proportion of the bonus linked to
corporate performance has been increased from 60%
to 75% for the lines of business chief executives. For
all other relevant executives, bonuses are based solely
on corporate performance.
The Committee has decided that in 2004 and
subsequent years the value of the Chief Executive’s
DBP awards will be in line with other executives at 50%
of his gross annual bonus.
The value of options granted in the 2004 financial
year will not exceed three times salary. Grants will be
subject to the same TSR performance conditions as
described above, except that the number of re-tests
will be reduced to one only, in year five.
Executive share ownership
A shareholding programme encourages executive
directors and OC members to build up a shareholding
in the company. The programme, which is not
mandatory, is designed to encourage executive
directors and members of the OC to build up
a shareholding with a value of 100% of their annual
salary within a period of three years from appointment.
Pensions
For the executive directors and most other senior
executives who joined the company prior to 1 April
2001, pension benefits are one-thirtieth of final salary
for each year of service with two-thirds of the executive’s
pension for the surviving spouse. Those with longer BT
service have undertakings of pension benefits
of two-thirds of final salary payable at normal
retirement age (inclusive of the pension equivalent
of any retirement cash lump sum) plus a pension
of two-thirds of the director’s or executive’s pension for
the surviving spouse. On death-in-service, a lump sum
equal to four times annual salary is payable together
with a pension of two-thirds of the director’s or
executive’s prospective pension for the surviving
spouse. Pensions are based on salary alone – bonuses,
other benefits and long-term incentives are excluded.
BT closed its final salary pension arrangements to
new employees with effect from 1 April 2001 and this
has been reflected in the retirement provision granted
to executive directors and other senior executives hired
since that date.
For these executive directors and other senior
executives, retirement provision is made on a defined
contribution basis where the company agrees to pay
a fixed percentage of the executive’s salary each year
towards the provision of retirement benefits. Typically
this is 20-30% of salary. On death-in-service, a lump
sum equal to four times annual salary is payable.
Other benefits
Other benefits for the Chairman and executive
directors include some or all of the following: company
car, fuel and driver, personal telecommunications
facilities and home security, medical and dental cover
for the director and immediate family, professional
subscriptions and personal tax and financial
counselling. The company has a permanent health
insurance policy to provide cover for the Chairman
and executive directors and members of the OC who
may become permanently incapacitated.
Service agreements
It is the policy for the Chairman and executive directors
to have service agreements providing for one year’s
notice. It may be necessary on recruitment to offer
longer initial periods to new directors from outside BT,
or circumstances may make it appropriate to offer
a longer fixed term. All the service agreements contain
provisions dealing with the removal of a director
through poor performance, including in the event
of early termination of the contract by BT.
Termination payments
Sir Christopher Bland’s contract entitles him on
termination of his contract by BT to payment of salary
and the value of benefits until 12 months from notice
of termination. Ben Verwaayen’s contract entitles him
on termination of his contract by BT to payment
of £700,000. The contracts of Pierre Danon, Andy
Green, Ian Livingston and Paul Reynolds entitle them
on termination of their contract by BT to payment
of salary and the value of benefits until the earlier
BT Annual Report and Form 20-F 2003 61