BT 2007 Annual Report Download - 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 Share
Investment Plan, on the same basis as other employees. There
are further details of these plans in note 31 to the accounts.
Dilution
Treasury shares are generally used to satisfy the exercise of share
options, the grant of share awards and for the all-employee
share plans. At the end of the 2006/07 financial year, treasury
shares equivalent to 6.2% of the issued share capital would be
required for these purposes. It is estimated that treasury shares
equivalent to approximately 1% of the issued share capital will
be required for all the employee share plans in 2007/08.
(iii) Annual package – financial year 2007/08
The Remuneration Committee has carried out a review of
executive remuneration and, as a result, resolved to place a
greater emphasis on long-term reward.
Long-term reward
To provide appropriate incentives, to recognise good
performance in recent years and to help rebalance overall
remuneration to long-term reward, incentive share awards with
an initial face value in the range of 100% to 200% of salary will
be awarded. Awards will have a fair market value in the range of
44.5% to 89% of salary respectively.
Salaries
Salaries have been increased in order to bring the overall
packages more into line with the market.
Annual bonus plan
The Remuneration Committee has reviewed the structure of the
corporate scorecard for the annual bonus plan. The annual
bonus will continue to reward performance against EPS, free
cash flow and a customer-related measure. Given the
importance of excellent customer service to the company, the
weighting of the customer-related element will be increased to
30%; the EPS and cash flow elements will each be reduced
to 35%.
In addition, the existing customer-related element of the
scorecard, customer satisfaction, will be changed to customer
service to reflect the drive to improve the efficiency of the
service provided to customers. This is in line with programmes in
the business designed to reflect new quality assurance and
efficiency measures.
As in the previous two financial years, for purposes of
calculating EPS for the scorecard, volatile items reported under
IFRS have been excluded from the target.
The bonus levels for the Chief Executive and the executive
directors will continue unchanged. For the Chief Executive, at
target, two thirds of any bonus will continue to be payable in
deferred shares.
The Committee believes that the group performance targets
for the financial year 2007/08 are more challenging than the
outturn for 2006/07.
Proportion of fixed and variable remuneration
The targeted composition of each executive director’s
performance-related remuneration, excluding pension, for the
financial year 2007/08, comprising annual and long-term
incentives, will be:
Fixed
Base Pay Variable Total
B Verwaayen 23% 77% 100%
F Barrault 37% 63% 100%
A Green 34% 66% 100%
H Lalani 37% 63% 100%
I Livingston 34% 66% 100%
P Reynolds 40% 60% 100%
Total remuneration comprises base salary, annual bonus – cash
and deferred shares – and the expected value of awards under
BT’s long-term incentive plans, excluding retention shares.
Openreach
In the Undertakings given to Ofcom on 22 September 2005, BT
agreed that the incentive elements of the remuneration of
executives within Openreach should be linked to Openreach
performance rather than BT targets or share price. These
incentives cannot be provided by way of BT shares.
As a result, special arrangements were put in place for
Openreach executives in 2005/06. The annual bonus is linked to
all Openreach targets and long-term incentives are paid in cash
instead of shares.
Openreach executives participate in the BT HMRC-approved
all-employee share plans on the same terms as other BT
employees. In addition, there were no changes to the pension
arrangements of these executives.
None of the executive directors participates in the Openreach
incentive plans.
(iv) Other matters
Executive share ownership
A mandatory shareholding programme was introduced for the
financial year 2005/06 onwards. This is to encourage executive
directors and certain other executives to build up a shareholding
in the company over time by retaining shares received either 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) or from on-market purchases. The Chief Executive is
required to build up a shareholding of 2 x salary and the
remaining executive directors 1.5 x salary. Given that a large
part of an executive’s remuneration is already variable, the
requirement excludes the need to make a further personal
investment to build up the shareholding should share plan
awards not vest. Current shareholdings are set out on page 62.
Progress towards meeting these targets has been made during
the financial year 2006/07.
Pensions
Those directors and other employees, who joined the company
prior to 1 April 2001, are eligible for membership of the BT
Pension Scheme, which is a defined benefit scheme. The benefits
of the executive directors who are members of the scheme are
set out on page 64. The executive directors, who have opted
out of future pensionable service accrual following the pension
simplification legislation which came into force on 6 April 2006,
receive, as an alternative, a cash allowance annually. The
benefits for executive directors who are covered by this are set
out on page 64. This is broadly cash neutral for the company.
BT closed the BT Pension Scheme to new members from
1 April 2001. From this date, provision is generally made on a
defined contribution basis. The company agrees to pay a fixed
percentage of the executive’s salary each year which can be put
towards the provision of retirement benefits. Additionally, a
BT Group plc Annual Report & Form 20-F 59
Report of the Directors Governance