BT 2007 Annual Report Download - page 59

At 1 April 2006, the group contained the following companies:
BT Group
Belgacom
Cosmote Mobile Telecommunications
Deutsche Telekom
France Telecom
Hellenic Telecom
Portugal Telecom
Royal KPN
Swisscom
Telecom Italia
Telecom Italia Mobile
Telefonica
Telecom Moviles
Telekom Austria
Telenor
TeliaSonera
Vodafone Group
All the above companies, with the exception of Telecom
Moviles were members of the comparator group at 1 April 2005;
Cable & Wireless, 02 and TDC were also members of the group.
At 1 April 2004, Belgacom was not a member of the group but
Mobistar and Tele2 were members.
The TSR for a company is calculated by comparing the return
index (RI) at the beginning of the performance period to the RI
at the end of the period. The RI is the TSR value of a company
measured on a daily basis, as tracked by independent analysts,
Datastream. It uses the official closing prices for a company’s
shares, adjusted for all capital actions and dividends paid. The
initial RI is determined by calculating the average RI value taken
daily over the six months prior to the beginning of the
performance period, the end value is determined by calculating
the average RI over the six months up to the end of the
performance period. This mitigates the effects of share price
volatility. A positive change between the initial and end values
indicates TSR growth.
Incentive shares
For the financial year 2006/07, the Committee granted incentive
shares to executive directors, senior executives, key managers
and professionals.
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. Dividends paid on the
shares during the three-year period are reinvested in further
shares and added to the awards. For awards of incentive shares
granted in the financial years 2004/05, 2005/06 and 2006/07,
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 the upper quartile and median positions. There will be
no re-testing, and no matching shares are being offered to any
executive on vesting of the incentive shares.
At 31 March 2007, the TSR for the 2004/05 awards was at
8th position against the comparator group of 20 companies. As
a result, 55% of the awards will vest in May 2007.
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 2006/07, and by Franc¸ois Barrault
on 24 April 2007 when he was appointed as a director, are
contained in the table on page 66.
Share options
No share options were granted in 2006/07. The last grant of
share options was in the financial year 2004/05.
The price at which shares may be acquired under the Global
Share Option Plan (GSOP) is the market price at the date of
grant. Options are exercisable after three years, subject to a
performance target being met.
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 upper
quartile and median performance. Options were granted in the
2002/03, 2003/04 and 2004/05 financial years. The options
granted in the 2002/03 financial year did not, after re-testing,
meet the TSR target at the end of the performance period on
31 March 2007 and lapsed on that date. 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. At 31 March
2007, TSR for these options was at 8th position against the
comparator group of 20 companies and, as a result, 58% of the
options will become exercisable from June 2007.
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 2006/07 and by
Franc¸ois Barrault on 24 April 2007 when he was appointed as a
director, are contained in the table on page 65.
Retention shares
Retention shares are granted under the RSP (Retention Share
Plan) to individuals with critical skills, as a recruitment or
retention tool. In some cases, they are granted to key employees
who have contributed to good corporate performance to assist
retention. 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 in special circumstances and, in the
financial year 2006/07, seven awards were granted of which
three awards were made for recruitment purposes.
As a retention measure in his role as Chief Executive, BT
Global Services, Andy Green receives awards of retention shares
linked to BT Global Services’ financial performance in 2005/06
and 2006/07. The target award was equivalent to 100% of
salary with a maximum of 150% of salary. The first award with a
value of £750,000 was granted in June 2006. The second award
with a value of £217,000 will be granted in June 2007. The
awards vest three years after the date of grant subject to
continued employment. In recognition of the leading role which
Andy Green will take in delivering the next phase of
transformation of the company over the next two years, a
further retention share award with a value of £535,000 will be
granted to him in June 2007. The vesting of the award will be
after two years and will not be subject to performance
conditions.
The awards under the RSP held by Sir Christopher Bland and
Ian Livingston at the end of the financial year 2006/07 and by
Franc¸ois Barrault on 24 April 2007 when he was appointed as a
director, or which vested during the year, are contained in the
table on page 66.
Report of the Directors Corporate governance
58 BT Group plc Annual Report & Form 20-F