BT 2011 Annual Report Download - page 76

73BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011
REPORT OF THE DIRECTORS
REPORT OF THE DIRECTORS REPORT ON DIRECTORS’ REMUNERATION
term incentive plan as well as for the annual bonus reflects the
importance of cash generation over both the short and medium term.
TSR for these purposes was calculated by JPMorgan Cazenove. TSR
links the reward given to directors with the performance of BT
against other major companies. TSR is measured against a
comparator group which contains European telecommunications
companies and companies which are either similar in size or market
capitalisation and/or have a similar business mix and spread to BT.
The TSR comparator group for awards to be granted in 2011
comprises the following companies:
Accenture France Telecom Telecom Italia
AT & T Hellenic Telecom Telefónica
Belgacom IBM Telekom Austria
BSkyB National Grid Telenor
BT Group Portugal Telecom TeliaSonera
Cable & Wireless Worldwide Royal KPN Verizon
Cap Gemini Swisscom Virgin Media
Centrica TalkTalk Vodafone
Deutsche Telekom
The TSR comparator group was the same for awards granted in
2010. In 2009, Cable & Wireless Worldwide replaced Cable &
Wireless and TalkTalk replaced Carphone Warehouse.
The TSR for a company is calculated by comparing the return index
(RI) at the beginning of the performance period with 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; and 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.
Historical vesting for executive share plans
Performance conditions for the incentive shares and share options
are challenging as demonstrated by the table below. Relative TSR
has been the measure for many years. This measure has been
retained under the current remuneration policy although a free
cash flow measure was added for awards granted in 2009 and
2010, and in 2011 there will be an additional revenue measure.
For recent awards, both TSR and cash flow performance have
improved when compared with the last five years and recent
awards are projected to vest at higher levels than the awards for the
period from 2004 to 2008 as shown below.
The following table shows the vesting levels of BT’s incentive share
awards and share options granted to executives since 2004.
Share options
Year of Performance Incentive shares percentage
grant period percentage vesting vesting
2004 2004-2007 55% 58%
2005 2005-2008 25% –
2006 2006-2009 0% –
2007 2007-2010 0% –
2008 2008-2011 0% –
Average annual vesting 16% –
No share options have been granted since 2004.
At 31 March 2011, the TSR for the awards granted in 2008 was at
9th position against the comparator group of 15 companies. As a
result, none of the shares will vest and all of the share awards have
lapsed.
TSR vesting schedule for awards of incentive shares granted in
2009 and 2010
The following table shows the potential vesting of awards granted
in 2009 and 2010 based on performance to date.
The remaining 50% of the awards of incentive shares are based on a
three-year cumulative cash flow measure. For awards to be granted
in 2011, there will be an additional measure of revenue growth
over three years, which will form 20% of the measure. The TSR and
cash flow measures will each be reduced to 40% of the total
measure.
The Committee believes that the free cash flow and revenue
performance measures are challenging and the financial
performance necessary to achieve awards towards the upper end of
the range for each target is stretching. Targets for threshold
performance have been established at above market consensus at
the time when they were set.
Clawback
The rules of the executive share plans provide for a clawback of
unvested awards in circumstances where the Committee becomes
aware of facts which would, in its discretion, justify such reduction.
Retention shares
Awards of retention shares are used by exception only and
principally as a recruitment or retention tool. As a result, shares
currently under award are not generally subject to a corporate
performance target. The length of the retention period before
awards vest is flexible, although this would normally be three years
unless the Committee agrees otherwise. The shares are transferred
at the end of the specified period if the individual is still employed
by BT and any performance conditions are met. No awards of
retention shares were made to executive directors, but one award
was granted to a senior executive in the 2011 financial year.
Share options
No share options have been awarded under the Global Share
Option Plan (GSOP) since 2004.
Details of options held by directors at the end of 2011 are
contained in the table on page 79.
Renewal of executive share plans
The four executive share plans, the BT Group Incentive Share Plan,
the BT Group Deferred Bonus Plan, the BT Group Retention Share
0.0
25.0
50.0
TSR vesting
%
123456789101112131415161718192021222324
25
% of share award vesting
TSR ranking position
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