BT 2005 Annual Report Download - page 59

option grant is based on corporate and individual
performance. Options are exercisable after three years,
subject to a performance target being 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 base salary. In the
financial year 2004/05, the maximum option grant for
executive directors and OC members was reduced to 1.5
times base salary (see ‘Incentive shares’ below).
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. The
proportion of options that are exercisable reduces on a
straight-line basis between those points. For options
granted in the financial year 2002/03, if the performance
measure is not met in full at the first measurement, it
may be re-tested against a fixed base in years four and
five and for options granted in the financial year 2003/04
may be re-tested in year five. If TSR has not reached the
median at the end of the fifth year, previously
unexercisable options will lapse. For options granted in
the financial year 2002/03, TSR had reached 74th
position at the first measurement relative to the FTSE 100
and performance will be re-tested in the financial year
2005/06. For options granted in the financial year
2004/05 there will be no re-testing, and the policy of the
Committee going forward is for there to be no re-testing.
The one-off grant of additional options in the financial
year 2002/03 to the senior executives most responsible
for delivering BT’s strategic plan lapsed on 31 March
2005, as the required 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) was
not achieved. The grant was not subject to a re-testing
condition.
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, 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 65.
Incentive shares
In the financial year 2004/05 the Committee decided to
grant a combination of performance-linked share options
and incentive shares instead of a grant of share options.
Incentive shares with a maximum value of two-thirds base
salary were granted in the financial year 2004/05. Awards
of incentive shares vest after a performance period of
three years, if the participant is still employed by BT and a
performance measure has been met. For awards of
incentive shares in the financial year 2004/05, TSR at the
end of the three year period must be in the upper quartile
relative to the comparator group for all of the shares to
vest. At median, 25% of the shares under award will vest.
Below that point, none of the shares under award will
vest. The proportion of shares that vests reduces on a
straight-line basis between those points. There will be no
re-testing, and no matching shares are being offered to
any executive on vesting of the incentive shares.
The details of incentive share awards held by 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 66.
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 generally 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 financial year 2004/05,
six awards were made for recruitment purposes, none of
which was to an executive director or OC member. The
Committee has approved the grant of an award of
retention shares to Ian Livingston with an initial market
value of £1m, to help secure his appointment and long-
term retention as Chief Executive, BT Retail. It is
expected that these will be granted at the end of May
2005 and will vest in two tranches.
The awards under the RSP held by Sir Christopher
Bland, Ben Verwaayen and Ian Livingston at the end of
the financial year 2004/05, or which vested during the
year, are contained in the table on page 66.
Other share plans
The executive directors and the Chairman may participate
in BT’s HM Revenue & Customs approved all-employee
share plans, the Employee Sharesave Scheme and
Employee Share Investment Plan (which replaced the BT
Employee Share Ownership Scheme), on the same basis
as other employees. There are further details of these
plans in note 31 to the accounts.
(iii) Annual package – financial year 2005/06
The Remuneration Committee does not expect there to
be any general increase in base pay for executive directors
in the financial year 2005/06.
Long-term reward
The Committee believes that, in the increasingly
competitive markets for communications and ICT in which
BT operates, BT’s present long-term incentive
arrangements have not been acting as a sufficiently
effective retention tool. This has been reflected in the loss
to the business of a number of key senior executives in
the past year. The Committee believes that key to the
successful execution of BT’s transformation strategy will
be year on year delivery of operational targets.
Accordingly, the Committee has decided to modify the
emphasis on some of the components making up the
remuneration package for executive directors and OC
members.
This involves:
&no further annual grants of options, balanced by;
&an increase in the maximum award of incentive shares
from two-thirds to 100% of base salary; and
&an increase in annual bonus potential, payable in
deferred shares.
TSR will continue to be measured against a
comparator group of companies from the European
Telecom Sector.
The Committee determined, with advice from Towers
Perrin, that the overall value of long-term incentive
58 BT Group plc Annual Report and Form 20-F 2005 Report on directors’ remuneration