BT 2004 Annual Report Download - page 62

combination of share options and share awards
creates, in the Committee’s view, a better balance of
remuneration in the light of BT’s business strategy,
including the development of new wave business and
the achievement of operating efficiencies. In the 2005
financial year, the maximum grant of options will
reduce from three times base salary to 1.5 times base
salary, and the maximum share award will be
equivalent to two-thirds of salary. The overall value of
long-term incentive awards will not change as a result
of these proposals, which were determined by the
Committee with advice from Towers Perrin.
The performance measure will be relative TSR for
both elements but the FTSE 100 is being replaced by
the FTSE E300 Telecommunication Services index as
the comparator group. Performance against an
appropriate industry sector is considered a more
appropriate test of executive capability in driving
absolute performance.
At 1 April 2004, the index contained the following
companies, excluding BT:
Cable & Wireless
Cosmote Mobile
Telecommunications
Deutsche Telekom
France Telecom
Hellenic
Telecommunications
mmO
2
Portugal Telecom
KPN
Swisscom
TDC
Tele2
Telecom Italia
Telecom Italia Mobile
Telefonica
Telekom Austria
Telenor
TeliaSonera
Vodafone Group
For awards made last year subject to TSR, there
was provision for re-testing in year five against a fixed
base. The Committee has decided that there will be no
re-testing in respect of the share awards or options to
be granted in the 2005 financial year.
(iii) Other matters
Executive share ownership
A shareholding programme encourages executive
directors and OC members to build up a shareholding
in the company by retaining shares received as a result
of participating in a BT employee share plan (other
than the shares sold to pay a National Insurance or
income tax liability). 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. Given that a large part of an executive’s
remuneration is already variable, the proposal
specifically excludes the need to make a personal
investment should awards not vest.
Pensions
Those executive directors and most other senior
executives who joined the company prior to 1 April
2001, have their pension benefits based on service and
salary (known as defined benefit arrangements). Those
with longer BT service are entitled to pensions at
normal retirement age of two-thirds of final salary,
including any cash lump sum entitlement. Those with
shorter BT service are entitled to a pension of one-
thirtieth of salary for each year of service. In both
cases, a spouse’s pension of two-thirds of the
executive’s pension is provided in the event of death
after retirement. Should the executive die in service, a
lump sum equal to four times annual salary is payable
together with a spouse’s pension of two-thirds of the
executive’s anticipated pension at normal retirement
age. BT closed its defined benefit arrangements to
new employees with effect from 1 April 2001. From
this date retirement provision is made on a defined
contribution basis. 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. Additionally, a lump sum equal to
four times annual salary is payable on death in service.
Pension provision for all executives is based on salary
alone – bonuses, other elements of pay and long-term
incentives are excluded.
Other benefits
Other benefits for the Chairman and the senior
management team 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 expires at the
conclusion of the AGM in 2007. On termination of his
contract by BT before that date, he is entitled to
payment of salary and the value of benefits for the
period of 12 months from date of termination, or until
the conclusion of the company’s AGM in 2007, if that
period is shorter. 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 of
12 months from notice of termination or the director
obtaining full-time employment.
If the contract of a director (but not the Chairman)
is terminated by BT within one year of BT entering into
a scheme of arrangement or becoming a subsidiary of
another company, he will be entitled to receive the
higher of that current year’s on-target bonus or the
previous year’s bonus, the market value of shares
BT Annual Report and Form 20-F 200461 Report on directors’ remuneration