BT 2008 Annual Report Download - page 68

BT Group plc Annual Report & Form 20-F 67
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, 2005/06, 2006/07 and 2007/08,
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 is no
re-testing, and no matching shares are offered to any executive
on vesting of the incentive shares.
At 31 March 2008, the TSR for the 2005/06 awards was at
median against the comparator group of 19 companies. As a
result, 25% of the share awards will vest in May 2008.
The details of incentive share awards held by Ben Verwaayen,
Franc¸ois Barrault, Hanif Lalani and Ian Livingston at the end of
the financial year 2007/08 are contained in the table on
page 75.
Share options
No share options were granted in 2007/08. 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.
The exercise of the options is 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. For options granted in the financial
year 2003/04, TSR had reached 85th position at the first
measurement relative to the FTSE 100 and the performance was
re-tested in the financial year 2007/08. At 31 March 2008, BT’s
TSR was at 53rd position against the FTSE 100. As a result, the
options lapsed on that date.
Since June 2007, 58% of the options granted in 2004/05
have been exercisable and there are no further options
outstanding.
The details of the options held by Ben Verwaayen, Franc¸ois
Barrault, Hanif Lalani and Ian Livingston at the end of the
financial year 2007/08 are contained in the table on page 73.
Retention shares
Retention shares are granted exceptionally under the Retention
Share Plan (RSP) to individuals with critical skills, as a
recruitment or retention tool. In some cases, they are granted to
key employees who have contributed to excellent 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 and any performance conditions are met.
Retention shares are used in special circumstances and, in the
financial year 2007/08, 17 awards were granted of which eight
awards were made for recruitment purposes.
Details of the awards under the RSP granted to Ian Livingston
and Franc¸ois Barrault and which vested during the financial year
2007/08 are contained in the table on page 75.
Other share plans
The executive directors and the Chairman may participate in BT’s
all-employee share plans, the Employee Sharesave Scheme,
Employee Share Investment Plan and Allshare International, 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 2007/08 financial year, treasury
shares equivalent to 4.9% of the issued share capital would be
required for these purposes. It is estimated that treasury shares
equivalent to approximately 2% of the issued share capital will
be required for all the employee share plans in 2008/09.
(iv) Other matters
Executive share ownership
The Committee believes that the interests of the executive
directors should be closely aligned with those of shareholders.
The deferred and incentive shares provide considerable
alignment. The directors are encouraged to build up a
shareholding in the company over time by retaining shares
which they have received under an executive share plan (other
than shares sold to meet a National Insurance or income tax
liability) or from a purchase in the market. The Chief Executive is
required to build up a shareholding of 2x salary and the
remaining directors 1.5x salary. Progress towards meeting these
targets has been made in 2007/08.
Current shareholdings are set out on page 70.
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. Hanif Lalani
is the only executive director who is a member of the Scheme,
although he has opted out of future pensionable service accrual.
The executive directors, who joined the company after 1 April
2001 and 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 72. 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
lump sum equal to four times salary is payable on death in
service. None of the executive directors are members of the
defined contribution scheme.
Pension provision for all executives is based on salary alone –
bonuses, other elements of pay and long-term incentives are
excluded.
Other benefits
Other benefits for the Chairman and the senior management
team include some or all of the following: company car, fuel or
driver, personal telecommunications facilities and home security,
medical and dental cover for the director and immediate family,
special life cover, professional subscriptions, and personal tax
planning and financial counselling. The company has a
permanent health insurance policy to provide cover for the
Chairman and certain executive directors who may become
permanently incapacitated.
Report of the Directors Governance