BT 2011 Annual Report Download - page 73

70
REPORT OF THE DIRECTORS REPORT ON DIRECTORS’ REMUNERATION
Remuneration in 2011
The table below summarises the component parts of the remuneration package in 2011. This includes bonuses earned for performance
during 2011, payouts received from and awards granted under the executive share plans.
Ian Livingston Tony Chanmugam Gavin Patterson
Base salary £892,000 £504,000 £521,000
Annual bonus
Cash £1,415,250 £604,350 £645,750
Deferred shares 726,514 sharesa232,680 sharesa248,620 sharesa
Pensionb£32,000 £151,000 £104,000
Other benefits Company car, fuel or driver, personal telecommunications facilities,
medical cover, financial planning
Incentive shares – awarded 1,675,769 shares 707,546 shares 744,786 shares
– vested –––
– lapsed 1,499,425 155,818 735,010
Deferred shares – vested 142,312 shares 38,422 shares 58,931 shares
Shareholding requirement 200% salary 150% salary 150% salary
aAwards of deferred shares are expected to be granted in June 2011. An indication of the number of shares to be granted has been calculated by using the share price (194.8p) on 6 May 2011.
bPension allowance paid in cash for 2011 – see Pensions on page 78.
remuneration remains cash flow (24% of the Chief Executive’s total
package), reflecting the importance of cash flow to invest in the
business, reduce net debt, support the pension fund and pay
progressive dividends. In deciding to include three-year revenue
growth as a new measure for the long-term incentive shares, we
considered carefully the possible risk of incentivising unprofitable
revenue growth. We believe, however, that the continued inclusion
of total shareholder return (TSR) and free cash flow performance
measures, the inclusion of earnings per share (EPS) in the annual
bonus plan and the Board’s focus on profitable growth will
sufficiently mitigate this risk.
The Committee is also satisfied that the incentive structure for
senior executives does not raise environmental, social or
governance risks by inadvertently motivating irresponsible
behaviour. Part of the annual bonus depends upon an individual
assessment of each senior executive’s personal contribution to
environmental, social and governance measures, including results
of the regular employee surveys and health and safety outcomes.
The Committee has reaffirmed its position that the Board and
Remuneration Committee have absolute discretion to reduce
variable compensation in the light of risk and the Group’s overall
performance. We would only use this in exceptional circumstances.
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 2010.
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 certain senior executives. The
Committee approves new executive share plans and any changes
and makes recommendations to the Board 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
Corporate Governance on reward-related matters, and confirms
that the company has complied with all aspects of the Code.
The Committee met six times during 2011. The Committee is
chaired by Patricia Hewitt, the Senior Independent Director. The
current members of the Committee are all independent non-
executive directors. The other members who served during 2011
were:
•Eric Daniels
•Carl Symon
•Sir Michael Rake (member until 31 May 2010).
In addition, the Chairman and Chief Executive are invited to attend
meetings, except when it would be inappropriate for them to be
there, for example, when their 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. In view of the growing demands on remuneration
committees from corporate governance requirements, the
Committee has been strengthened by the addition of a new
member, Tony Ball, with effect from 5 May 2011.
The Committee has received advice during the year from
independent remuneration consultants, Towers Watson, who were
appointed by the Committee. Towers Watson attended Committee
meetings when major remuneration issues were discussed. Towers
Watson also provide the company with consultancy services on
general human resources (HR) and pensions issues. The Committee
regularly consults the Chief Executive, the Group HR Director, the
Director Reward and Employee Relations, and the Company
Secretary.
The chair of the Committee meets major shareholders, the
Association of British Insurers, Risk Metrics (RREV) and Pensions
Investment Research Consultants Limited (PIRC) to discuss
remuneration issues, on a regular basis.
The Committee reviews its own performance regularly and takes
steps to improve its effectiveness.
OVERVIEWBUSINESS REVIEWFINANCIAL REVIEWREPORT OF THE DIRECTORSFINANCIAL STATEMENTSADDITIONAL INFORMATION