BT 2011 Annual Report Download - page 74

71BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011
REPORT OF THE DIRECTORS
REPORT OF THE DIRECTORS REPORT ON DIRECTORS’ REMUNERATION
Salaries
Salaries are reviewed annually but increases are made only where
the Committee believes the adjustments are appropriate. In 2011
salaries of the directors were increased to reflect the contribution of
the individual, increased responsibilities and market conditions.
Annual bonus
Executive directors are eligible for an annual bonus, based upon
corporate performance targets, environmental, social and
governance performance and achievement of personal and role-
specific objectives. The structure of the annual bonus, approved by
shareholders in 2008 and subsequently introduced in phases, is as
follows:
Chief Executive Executive directors
Annual cash bonus target 125% salary target 100% salary
maximum 200% salary maximum 150% salary
Deferred bonus into target 125% salary target 75% salary
shares maximum 200% salary maximum 112.5%
salary
Total bonus target 250% salary target 175% salary
maximum 400% salary maximum 262.5%
salary
Following our review, the Committee decided to leave this structure
unchanged.
The deferred shares, which are based on the same performance
criteria as the cash bonus, are, of course, subject to continued
employment as well as to clawback, see Clawback on page 73.
Targets for the annual bonus are set at the beginning of the
financial year. For 2011, the weighting of the bonus targets were
set as follows:
ADJUSTED EARNINGS PER SHARE (EPS) 30%
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STRUCTURE OF ANNUAL BONUS 2011
REPORTED FREE CASH FLOW 30%
CUSTOMER SERVICE IMPROVEMENT 20%
ROLE-SPECIFIC OBJECTIVES 10%
TOTAL 100%
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE OBJECTIVES (ESG)
10%
The scores for corporate performance targets for 2011 (see Our
strategy on page 6) were as follows:
Measure (weighting) Threshold Target Maximum Actual
EPS (30%) 15% 30% 60% 60%
Free cash flow (30%) 15% 30% 60% 60%
Customer service (20%) 10% 20% 40% 0%
Sub-total 120%
ESG (10%) 5% 10% 20% a
Role-specific objectives (10%) 5% 10% 20% a
aPerformance is assessed on an individual basis.
The two financial targets (which together represent 60% of the bonus)
have a direct impact on shareholder value, while customer service and
broader objectives are vital to the company’s long-term health and
growth. We do not publish details of the EPS and cash flow targets,
since these are market sensitive and commercially confidential. The
Committee is, however, satisfied that the measures are appropriate and
that the targets are properly stretching.
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 expense or income relating to the group’s pension liabilities, were
excluded from the target.
Customer service is measured by rigorous and challenging ‘right
first time’ metrics across each line of business. Although we will
keep this measure under review, ‘right first time’ is directly linked to
cost reductions as well as to customer satisfaction and is measured
objectively. As explained by the Chief Executive in his introduction
to the Business review on page 9, the company did not always
deliver on its promises to customers during 2011; as a result, no
payment for the customer service component of the annual bonus
will be made.
The environmental, social and governance measure is assessed by the
Chief Executive for each senior executive, and by the Chairman for the
Chief Executive himself. Assessment is based upon BT’s regular employee
survey as well as health and safety and sustainability measures.
In 2011 we introduced a new measure, worth 10% of the bonus,
relating to individual performance against personal and role-
specific objectives based on the company’s strategic priorities.
Annual bonuses are paid in cash and deferred shares. Details of the
bonuses for Ian Livingston, Tony Chanmugam and Gavin Patterson
are set out in the table on page 77.
Annual bonuses are not pensionable.
Deferred shares
As shown in the table above, part of an executive director’s annual
bonus is deferred into shares. The number of shares under each award is
calculated using the average market price of BT shares on the three
dealing days preceding the date of grant.
The shares vest and are transferred to the executive after three years if
they remain employed by the company. There are no additional
performance measures for the vesting of deferred shares but they are
subject to clawback. There is no subsequent matching of deferred
shares. The Committee considers that awarding shares on a deferred
basis acts as a retention measure and contributes to the alignment of
management with the long-term interests of the shareholders.
The deferred share awards for previous years for Ian Livingston,
Tony Chanmugam and Gavin Patterson at the end of 2011 are
contained in the table on page 81.
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