BT 2010 Annual Report Download - page 72

70 BT GROUP PLC ANNUAL REPORT & FORM 20-F
REPORT OF THE DIRECTORS REPORT ON DIRECTORS’ REMUNERATION
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 2009/10 financial year, treasury shares
equivalent to 9% 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 2010/11.
(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 DBP and
ISP 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 2009/10.
Current shareholdings are set out on page 72.
Pensions
The BT Pension Scheme (BTPS) closed to new entrants on 31 March
2001. None of the executive directors participates in future service
accrual in the BTPS. Executive directors who are members of the
BTPS also benefit from a death in service lump sum of four times
salary.
All new employees are eligible to join the defined contribution BT
Retirement Saving Scheme (BTRSS), the successor to the defined
contribution BT Retirement Plan (BTRP). The BTRSS is a group
personal pension plan. For executive directors 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. Executive
directors who are not members of BTPS benefit from a death in
service lump sum of four times salary and a dependant’s pension of
30% of capped salary.
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 advice 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.
Director who has left the Board
Hanif Lalani resigned as a director on 7 January 2010 and left BT
on 31 March 2010. In accordance with the terms of his director’s
service contract, which was terminated on 11 January 2010, and,
following the cessation of his employment, his salary of £585,000
per annum and the value of all of the benefits to which he was
entitled, amounting to £195,000 per annum, continue to be
provided until the earlier of nine months from 31 March 2010 or
his obtaining full-time employment. A bonus for the year ended
31 March 2010 of £503,290 was also paid.
Hanif Lalani held awards over a total of 1,990,525 shares under
the ISP all of which lapsed on the date of termination. At the
discretion of the
Remuneration Committee , his awards over a total
of 282,744 shares under the Deferred Bonus Plan were pro-rated
and 124,691 shares will vest in August 2010 and 105,374 shares
will vest in August 2011. A total of 52,679 shares under the
Deferred Bonus Plan lapsed. As such awards over a total of
2,043,204 shares (90%) under the executive share plans lapsed.
Hanif Lalani’s options over a total of 195,889 shares at option
prices of 192p and 199.5p under the GSOP were preserved, at the
discretion of the
Remuneration Committee , until 31 March 2011.
Service agreements
It is group policy for the Chairman and executive directors to have
service agreements providing for one year’s notice. It may be
necessary on recruitment to offer longer initial periods to new
directors from outside BT, or circumstances may make it appropriate
to offer a longer fixed term. All of the service agreements contain
provisions dealing with the removal of a director for poor
performance, including in the event of early termination of the
contract by BT. The contracts of the Chairman, Ian Livingston, Tony
Chanmugam and Gavin Patterson entitle them on termination of
their contract by BT to payment of salary and the value of benefits
(pension benefits (including life cover), health cover, dental cover
and car) until the earlier of 12 months from notice of termination or
the director obtaining full-time employment. No director will
receive a bonus or other payments on a change of control.
Outside appointments
The Committee believes that there are significant benefits, to both
the company and the individual, from executive directors accepting
non-executive directorships of companies outside BT. The
Committee will consider up to two external appointments (of which
only one may be to the Board of a major company), for which a
director may retain the fees. Ian Livingston receives an annual fee of
£25,000 as a non-executive director of Celtic and an additional
annual fee of £5,000 for chairing the audit committee. Gavin
Patterson was a non-executive director of Johnston Press from
7 July 2008 until 24 April 2009, for which he received a fee at the
rate of £40,000 per annum. Tony Chanmugam was appointed as a
non-executive director and chairman of the audit committee of
Barnet and Chase Farm Hospital Trust on 1 April 2010, for which he
receives a fee of £6,000 per annum and which is donated to charity.
Non-executive directors’ letters of appointment
Non-executive directors have letters of appointment. They are
appointed for an initial period of three years. During that period,
either party can give the other at least three months’ notice. At the
end of the period, the appointment may be continued by mutual
agreement. Further details of appointment arrangements for
non-executive directors are set out in Governance and role of the
Board on page 60. The letters of appointment of non-executive
directors are terminable on notice by the company without
compensation.
Non-executive directors’ remuneration
Six of the directors on the Board are non-executive directors who,
in accordance with BT’s articles of association, cannot individually
vote on their own remuneration. Non-executive remuneration is
reviewed by the Chairman and the Chief Executive, and discussed
and agreed by the Board. Non-executive directors may attend the
Board discussion but may not participate in it.
The most recent review by the Board of the fees for the
non-executive directors was in January 2008, having not
previously been reviewed since 2004. Increases in the fees were
made in order to align them with the market.
The basic fee for non-executive directors is £60,000 per annum.
There are additional fees for membership and chairing a Board
committee, details of which are given in the table below: