BT 2006 Annual Report Download - page 54

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At 1 April 2005, the group contained the following companies:
BT Group
Belgacom
Cable & Wireless
Cosmote Mobile Telecommunications
Deutsche Telekom
France Telecom
Hellenic Telecommunications
O2
Portugal Telecom
KPN
Swisscom
TDC
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 grant of 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.
Incentive shares
For the financial year 2005/06, the Committee decided to grant
incentive shares and to increase the annual bonus potential,
payable in deferred shares, instead of the combination of share
options and incentive shares granted in 2004/05. Incentive
shares with a maximum value of 100% of salary were granted.
The Committee determined, with advice from Towers Perrin,
that the change of emphasis would increase the proportion of
variable reward linked to annual performance targets. Incentive
share awards remain a significant part of the package and,
together with deferred shares, these modifications further
aligned management with long-term shareholder interests.
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 years 2004/05 and 2005/06, 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 2005/06 are contained
in the table on page 60.
Share options
No share options were granted in 2005/06.
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 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 above).
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, it 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, it had reached 73rd
position on the second measurement and performance will be
re-tested in the financial year 2006/07. For options granted in
the financial year 2003/04, TSR had reached 85th position at
the first measurement relative to the FTSE 100 and
performance will be re-tested in the financial year 2007/08. If
the performance measure is not met, the options will lapse.
For options granted in the financial year 2004/05 there were
no re-testing provisions, and the policy of the Committee is for
there to be no re-testing for future equity awards.
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 2005/06 are contained
in the table on page 59.
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 although
this would normally be three years unless the Committee
agreed otherwise. 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 2005/06, 14 awards were made of
which eight awards were made for recruitment purposes.
In May 2005, an award of retention shares with an initial
market value of £1 million was granted to Ian Livingston, to
help secure his appointment and long-term retention as Chief
Executive, BT Retail. This award will vest in two tranches in
November 2006 and November 2007.
Andy Green will be granted an award of retention shares in
respect of BT Global Services’financial performance in 2005/06
under a special bonus arrangement (see Annual bonus on
page 51).
The awards under the RSP held by Sir Christopher Bland and
Ian Livingston at the end of the financial year 2005/06, or
which vested during the year, are contained in the table on
page 60.
Other share plans
The executive directors and the Chairman may participate in
BT’s HM Revenue & Customs (HMRC) approved all-employee
share plans, the Employee Sharesave Scheme and Employee
BT Group plc Annual Report and Form 20-F 2006 Report on directors’ remuneration52