BT 2005 Annual Report Download - page 58

salaries are positioned around the mid-market, with total
direct compensation (basic salary, annual bonus – cash
and deferred shares – and the expected 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 and increasing
proportion of the total executive remuneration package is
linked to line of business and/or corporate performance.
Remuneration arrangements and performance targets are
kept under regular review to achieve this.
(ii) Packages
The remuneration package is made up of some or all of
the following:
Basic salary
Salaries are reviewed annually, but increases are made
only where the Committee believes that adjustments are
appropriate to reflect contribution, increased
responsibilities and/or market pressures. No base pay
changes were proposed or made, save that the
Committee agreed an increase in base salary effective on
1 January 2005 for Andy Green and Ian Livingston to
align their packages with their revised responsibilities in a
highly competitive market.
Performance-related remuneration
Annual bonus
The annual bonus plan is designed to reward the
achievement of results against set objectives.
For the financial year 2004/05, on-target and
maximum (requiring truly exceptional performance) bonus
levels for executive directors and OC members, as a
percentage of salary, were 75% and 150%, respectively,
and for the Chief Executive they were 127.5% and 195%,
with one-third of any bonus payable in the form of
deferred shares. Under his contract the Chairman is not
entitled to a bonus.
Targets, in respect of corporate performance, set at
the beginning of the financial year 2004/05 for each
objective, to which specific weights were attached, were
based on earnings per share, free cash flow and customer
satisfaction. Delivery against these operational targets will
be a key determinant of success and supports BT’s
strategy for transformation and growth. For the three line
of business Chief Executives, 75% of the potential bonus
was linked to BT’s corporate performance and 25% to the
performance of their respective line of business. For all
other relevant executives, bonuses were based solely on
corporate performance. The Committee retains the
flexibility to enhance or reduce bonus awards in
exceptional circumstances.
Achievement against corporate targets in the financial
year 2004/05:
Earnings per
share –
weighting
40% of target
Free cash
flow –
weighting
40% of target
Customer
satisfaction –
weighting
20% of target
Total % of
target
37 20 18 75
(Note – threshold reflects 50% of target; target is 100% and stretch is
150%)
The deferred share element of the annual bonus is paid
under the Deferred Bonus Plan (DBP). The shares are held
in trust and transferred to the executive after three years
if still employed by the company. There are no additional
performance measures for the vesting of deferred share
awards. The Committee considers that deferring a part of
the annual bonus in this way also acts as a retention
measure and contributes to aligning management with
long-term shareholder interest.
These deferred awards for Ben Verwaayen, Andy
Green, Hanif Lalani, Ian Livingston and Paul Reynolds at
the end of the financial year 2004/05 are contained in the
table on page 67. The initial values of the awards are in
note f on page 62.
Long-term incentives
The BT Equity Incentive Portfolio (the Portfolio) is
designed to ensure that equity participation is an
important part of overall remuneration. It comprises three
elements: share options, incentive shares and retention
shares. A combination of share options and incentive
shares was used for equity participation in the financial
year 2004/05. Retention shares are used only as a
recruitment or retention tool.
Under his service agreement, the Chairman is not
entitled to receive annual grants of long-term incentive
awards or options.
Normally, awards vest and options become exercisable
only if a predetermined performance target has been
achieved. The performance measure for outstanding
awards and options is TSR (total shareholder return)
compared with a relevant basket of companies. TSR links
the reward given to directors with the performance of BT
against the shares of other major companies. For grants
in the financial years 2001/02, 2002/03 and 2003/04, the
comparator group was the FTSE 100 at 1 April in each
year and for grants in the financial year 2004/05, TSR was
measured against a comparator group of companies from
the European Telecom Sector.
At 1 April 2004, the group contained the following
companies:
BT Group
Cable & Wireless
Cosmote Mobile Telecommunications
Deutsche Telekom
France Telecom
Hellenic Telecommunications
O2 (formerly mmO
2
)
Portugal Telecom
KPN
Swisscom
TDC
Tele2
Telecom Italia
Telecom Italia Mobile
Telefonica
Telekom Austria
Telenor
TeliaSonera
Vodafone Group
The base price at the beginning of the performance
period is calculated by averaging the share price of BT
and other companies in the comparator group over the six
months to 31 March prior to the award. However, for the
awards granted in the financial year 2002/03, the period
was from 19 November 2001 (the date of the O2
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, adjusted for all capital actions
and dividend payments that occur during the performance
period.
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
Report on directors’ remuneration BT Group plc Annual Report and Form 20-F 2005 57