BT 2009 Annual Report Download - page 61

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
REPORT OF THE DIRECTORS
59BT GROUP PLC ANNUAL REPORT & FORM 20-F
REPORT OF THE DIRECTORS REPORT ON DIRECTORS’ REMUNERATION
Proportion of fixed and variable remuneration
The composition of each executive director’s performance-related
remuneration, excluding pension, is as follows:
Fixed
base pay Variable Total
Ian Livingston
2009/10 target 24% 76% 100%
compositiona
2008/09 actual 58% 42% 100%
compositionb
Tony Chanmugam
2009/10 target 29% 71% 100%
compositiona
2008/09 actual 65% 35% 100%
compositionb
Hanif Lalani
2009/10 target 29% 71% 100%
compositiona
2008/09 actual 76% 24% 100%
compositionb
Gavin Patterson
2009/10 target 29% 71% 100%
compositiona
2008/09 actual 62% 38% 100%
compositionb
aTarget remuneration comprises current base salary, on-target annual bonus and the expected value
of awards under the deferred bonus and incentive share plans, excluding retention shares.
bActual remuneration comprises base salary, actual cash bonus and the value received from deferred
shares and incentive shares (awards granted in 2005 and vested in 2008) during the financial year.
Long-term incentives
The BT Equity Incentive Portfolio comprises three elements: share
options, incentive shares and retention shares. Awards may be
granted under the Global Share Option Plan (GSOP), the Incentive
Share Plan (ISP) and the Retention Share Plan (RSP). Incentive
shares were used for equity participation in the financial year
2008/09. Retention shares are used by exception only, and
principally as a recruitment or retention tool. Neither the
Committee nor management deemed it appropriate to consider the
rebasing of any share awards.
In April 2009, the Committee approved a change to the rules of
each of the executive share plans providing for a clawback of
unvested awards in circumstances where it becomes apparent that
there was a misjudgment of the basis on which the award was made.
Performance measure
Normally, awards vest and options become exercisable only if a
predetermined performance target has been achieved. The
performance measure for outstanding awards and options is total
shareholder return (TSR), calculated on a common currency basis
and compared with a relevant basket of companies. TSR for these
purposes was calculated by the law firm, Allen & Overy. TSR links
the reward given to directors with the performance of BT against
other major companies. TSR was measured against a group of
companies from the European Telecom Sector. This comparator
group was chosen because the companies faced similar market
sector challenges to BT and are within the sector in which BT
competes for capital.
At 1 April 2008, the group contained the following companies:
BT Group Swisscom
Belgacom Telecom Italia
Cegetel Telecom Italia RNC
Deutsche Telekom Telefonica
France Telecom Telekom Austria
Hellenic Telecom Telenor
Portugal Telecom TeliaSonera
Royal KPN Vodafone Group
All the above companies with the exception of Cegetel were
members of the group as at 1 April 2007. Cosmote Mobile
Telecommunications was also a member at that date. All the above
companies, together with Telecom Mobiles and Telecom Italia
Mobile but with the exception of Cegetel and Telecom Italia RNC,
were members of the comparator group at 1 April 2006.
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 three months prior to the beginning of the performance
period, the end value is determined by calculating the average RI
over the three 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 growth in TSR.
Changes to performance measure in 2009/10
The
Remuneration Committee has reviewed the performance measure
for the ISP. For awards granted in 2009 and in future years, it has
determined that the TSR comparator group should be revised to better
reflect the sectors in which BT now operates. The new comparator
group will not be restricted to European telecoms companies and will
contain companies which are either similar in size or market
capitalisation and/or have a similar business mix and geographical
spread to BT. The comparator group for the performance period
commencing on 1 April 2009 contains the following companies:
Accenture National Grid
AT & T Portugal Telecom
Belgacom Royal KPN
BSkyB Swisscom
BT Group Telecom Italia
Cable & Wireless Telefonica
Cap Gemini Telekom Austria
Carphone Warehouse Telenor
Centrica TeliaSonera
Deutsche Telecom Verizon
France Telecom Virgin Media
Hellenic Telecom Vodafone
IBM
In addition, 50% of each award will be linked to the TSR
performance measure and 50% will be linked to a three-year
cumulative free cash flow measure. This change was considered to
be appropriate given the importance of cash generation to
dividend payments.