BT 2010 Annual Report Download - page 68

66 BT GROUP PLC ANNUAL REPORT & FORM 20-F
REPORT OF THE DIRECTORS
REPORT ON DIRECTORS’ REMUNERATION
Overview
The Remuneration Committee endorsed the Chief Executive’s
proposal that directors and senior executives should receive no
salary increase in 2009/10, in line with the pay freeze for all
employees.
In view of our executive team’s strong performance, the
Committee decided to increase salaries to directors and senior
executives from June 2010. Executive directors’ salaries are set
to be below the median level for directors of comparable
companies. The salary increases proposed for 2010/11 are in line
with that principle.
The demanding conditions set for the 2009/10 annual bonus were
largely met. In particular, BT exceeded the targets for free cash
flow and earnings per share (EPS). The Chief Executive was
therefore awarded a bonus of 142% of target; 71% of his
maximum bonus opportunity.
In 2008, shareholders supported a two-stage change in executive
remuneration, designed to simplify the structure and bring total
remuneration closer to our comparators. As we reported last year,
however, the second stage was postponed in view of the company’s
disappointing performance. The second stage will now be
implemented in 2010/11, but with lower maximum long-term
incentive opportunities than originally proposed, and lower than
awards granted in previous years.
Following consultation with major shareholders, we
strengthened the performance measures for our long-term
Incentive Share Plan. For awards granted from 2009/10, half of
each award is linked to total shareholder return and half to a new
three-year cumulative free cash flow measure.
The Committee introduced a clawback mechanism into all
executive share plans, making BT one of the first companies to
take such action.
Having considered the impact of personal income tax changes
from April 2010, the Committee endorsed the Chief Executive’s
recommendation that no changes be made in order to either
avoid or to compensate for the higher top tax rate.
Hanif Lalani, Chief Executive of BT Global Services and formerly
Group Finance Director, resigned as a director on 7 January 2010.
Details of his leaving arrangements are disclosed in this report.
Introduction
This report sets out the details of the remuneration policy for the
company’s directors and senior executives and the amounts paid to
the directors in 2009/10. As well as meeting statutory requirements,
the Committee aims to comply with best practice guidelines in
producing this report. Relevant sections of this report have been
audited in accordance with the Large and Medium-sized Companies
and Groups (Accounts and Reports) Regulations 2008.
This report covers the following:
Remuneration policy (not subject to audit)
(i) Role of the Remuneration Committee
(ii) Remuneration principles
(iii) Remuneration in 2009/10 and 2010/11
(iv) Other matters
Executive share ownership
Pensions
Other benefits
Director who has left the Board
Service agreements
Outside appointments
Non-executive directors’ letters of appointment
Non-executive directors’ remuneration
Directors’ service agreements and contracts of appointment
Directors’ interests
Performance graph
Remuneration review (audited)
Directors’ emoluments
Former directors
Loans
Pensions
Share options
Share awards under long-term incentive plans
Vesting of outstanding share awards and options
Deferred Bonus Plan awards
Share awards under the Employee Share Investment Plan
Shareholders will be asked to vote on this Report at the
2010 AGM.
Remuneration policy
This part of the Report on directors’ remuneration is not subject
to audit.
(i) Role of the Remuneration Committee
The Remuneration Committee is a formal committee of the Board
and has powers delegated to it under the Articles of Association. Its
remit is set out in the terms of reference formally adopted by the
Board, which were last reviewed in December 2009.
The terms of reference of the Committee are available on the
company’s website at www.bt.com/committees
The
Remuneration Committee agrees the framework for the
remuneration of the Chairman, the executive directors and certain
senior executives. This includes the policy for all cash remuneration,
executive share plans, service contracts and termination
arrangements. The Committee approves salaries, bonuses and share
awards for executive directors and senior executives. The
Committee approves changes to the executive share plans and
recommends to the Board any changes which require shareholder
approval. The Committee also determines the basis on which
awards are granted under the executive share plans to executives
reporting to the senior management team.
The Board has reviewed compliance with the Combined Code on
reward-related matters, and confirms that the company has
complied with all aspects. The Chairman, Sir Michael Rake, is a
member of the Committee, in accordance with the provision of the
Combined Code permitting a company chairman to be a member of,
but not chair, the remuneration committee.
The Committee met five times during 2009/10. In addition to the
Chairman, the members of the Committee are all independent non-
executive directors. Maarten van den Bergh, who had been
chairman of the Committee since October 2006, stood down at the
AGM in July 2009 and was succeeded by Patricia Hewitt, the Senior
Independent Director. The other members who served during
2009/10 were:
Matti Alahuhta (retired 31 May 2009)
Eric Daniels
Deborah Lathen (retired 31 January 2010)
Carl Symon
In addition, the Chief Executive is invited to attend meetings,
except when it would be inappropriate for him to be there, for
example, when his own remuneration is discussed. Non-executive
directors who are not members of the Committee are entitled to
receive the papers discussed at meetings and the minutes.