BT 2009 Annual Report Download - page 60

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
58 BT GROUP PLC ANNUAL REPORT & FORM 20-F
Remuneration in 2008/09
Salaries
Salaries are reviewed annually but increases are made only where
the Committee believes the adjustments are appropriate to reflect
the contribution of the individual, increased responsibilities and
market conditions. In June 2008, the salary of Ian Livingston was
increased reflecting his appointment as Chief Executive. Hanif
Lalani’s salary was increased at the same time to bring his overall
package more into line with the market.
Annual bonus
The annual bonus is linked to corporate performance targets set at
the beginning of the financial year. In 2008/09, 30% of the
scorecard related to earnings per share (EPS), 30% related to free
cash flow, 30% related to customer service and 10% related to each
director’s contribution to the company’s environmental, social and
governance objectives (ESG).
The outcome measured against corporate targets in 2008/09 is
set out below:
Earnings per Free cash Customer
share flow service
0% 0% 24.4%
Note: target is 100% and stretch is 200%
In calculating EPS for purposes of the annual bonus, volatile items
which would be reported under IFRS are excluded. The impact of
market movements in foreign exchange and financial instruments
plus the net finance income relating to the group’s pension liabilities
were excluded from the target.
All executive directors and members of the
Operating Committee
will, immediately after payment, use their annual cash bonus for
2008/09, net after tax, to purchase shares in the company.
The deferred element of the annual bonus is paid in shares under
the Deferred Bonus Plan (DBP). The shares vest and are transferred
to the executive after three years if they remain employed by the
company. There are currently no additional performance measures
for the vesting of deferred share awards. The Committee considers
that deferring a part of the annual bonus in this way also acts as a
retention measure and contributes to the alignment of
management with the long-term interests of the shareholders.
The deferred awards for previous years for Ian Livingston, Tony
Chanmugam, Hanif Lalani and Gavin Patterson at the end of the
financial year 2008/09 are contained in the table on page 68.
Remuneration in 2009/10
In 2007/08, the
Remuneration Committee reviewed the senior
executive remuneration package. At that time, as BT had enjoyed a
period of relative success and had delivered good performance for
its shareholders, the Committee decided to implement a new
remuneration structure to be phased in during 2008/09 and
2009/10. This structure was designed to bring the remuneration of
executive directors into line with that of the FTSE 30 and of ICT
companies. The revised structure also eliminated the need to put in
place overlay arrangements in the form of additional grants of
deferred and retention shares, which had been made in previous
years in order to retain key executives. These changes were
approved by shareholders.
In the light of the current difficult market and trading conditions,
however, executive directors indicated that they did not wish to
receive the second stage increases that had been approved in
2007/08. The Committee decided to postpone the increases in
on-target bonus levels for 2009/10. In addition, there will be no
increases in the salaries of executive directors in 2009/10. There
will be no changes to the level of awards of incentive shares
granted and no retention share awards or options will be granted.
Details of the package are set out in the table above.
Annual bonus
For annual bonuses, the structure of the corporate scorecard will be
adjusted in 2009/10. 15% of the weighting will relate to each
individual’s contribution to the company’s environmental, social
and governance (ESG) objectives. The EPS and cash flow elements
will each remain at 30% and the customer service measure will be
25% of the weighting.
As in the previous two financial years, for purposes of calculating
EPS for the scorecard, volatile items reported under IFRS will be
excluded from the target.
The Committee believes that the group performance targets for
the financial year 2009/10 are very challenging.
REPORT OF THE DIRECTORS REPORT ON DIRECTORS’ REMUNERATION
2009/10
changes agreed 2009/10
2008/09 by shareholders Actual
Base salary increases to align with the increases to align no increases
market with the market
Annual bonus
Chief Executive target 100% salary target 125% salary no increases applied
maximum 200% salary maximum 200% salary no change to
Executive directors target 80% salary target 100% salary 2008/09 levels
maximum 120% salary maximum 150% salary
Deferred bonus (in shares)
Chief Executive 1x cash bonus 1x cash bonus no change
Executive directors 75% of cash bonus 75% of cash bonus no change
Incentive shares
Chief Executive 3x salary 3x salary no change
Executive directors 2.5x salary 2.5x salary no change
Retention shares none no change none
Share options none no change none
Note: Under his contract, the Chairman is not entitled to a bonus or an annual grant of share awards or options.
(iii) Remuneration in 2008/09 and 2009/10
The structure of the remuneration is set out below:
REPORT OF THE DIRECTORS