BT 2004 Annual Report Download - page 61

For options 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 for options granted in
2002. If TSR has not reached the median at the end of
the fifth year, previously unexercisable options will
lapse. This was reduced to one re-testing in year five
for options granted in 2003.
The one-off grant of options in 2002 to the seven
senior executives most responsible for delivering BT’s
strategic plan is subject to an earnings per share test.
The Committee believes that earnings per share was
the most appropriate measure for this grant as BT
embarked on a radical business transformation that will
require exceptional performance in exceeding business
goals. 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. Earnings
per share is calculated as basic earnings per share
before goodwill amortisation and exceptional items.
The option granted to Sir Christopher Bland on
22 June 2001 as part of his recruitment package is 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 2004
financial year are contained in the table on page 67.
Incentive shares
There were no awards under the Incentive Share Plan
(ISP) in the 2004 financial year. A number of awards
made in previous years were, however, still
outstanding at the beginning of the 2004 financial
year, and are contained in the table on page 68.
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
2001 vested as BT’s TSR was at 83rd position on
31 March 2004, the end of the performance period.
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, shares
currently under award are not linked to 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 2004 financial year, five
awards were made for recruitment purposes and a
further two were made for retention purposes, one of
which was to Sir Christopher Bland under his new
contract securing his services for the company until
2007.
The awards under the RSP held by Sir Christopher
Bland, Ben Verwaayen and Ian Livingston at the end of
the 2004 financial year are contained in the table on
page 68.
Executive Share Plan (ESP)
The last awards under the ESP were granted in 1999.
Participants are generally only entitled to the 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
vest on a straight line pro rata basis.
None of the awards of shares granted under the
ESP in 1999 vested as BT’s TSR was at 90th position
on 31 March 2004, the end of the performance period.
Other share plans
The executive directors and the Chairman 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.
(ii) Annual package – 2005 financial year
The Remuneration Committee has decided that there
should be no increase in base pay for executive
directors in the 2005 financial year, which reflects the
restraint being exercised across the company. Salaries
have now been held flat for three years. There is no
change either to on-target and maximum bonus levels
(see page 59). The annual bonus plan will continue to
focus on annual objectives and to reward the
achievement of results against those objectives.
Performance will again be against earnings per share,
free cash flow and customer satisfaction measures.
Performance targets for the 2005 financial year are
more challenging than the outturn of the 2004
financial year, as BT continues its transformation.
For the achievement of target, performance-
related remuneration is approximately 63% of total
remuneration (excluding pension) for the Chief
Executive and 55% for the other executive directors.
Total remuneration comprises base salary, annual
bonus and awards under the DBP, and the expected
value of share options and awards under BT’s
long-term incentive plans.
The Committee has decided that a combination of
performance-linked share options and incentive shares
will be granted in the 2005 financial year. For the last
two years, only share options have been granted. The
BT Annual Report and Form 20-F 200460 Report on directors’ remuneration