BT 2012 Annual Report Download - page 79

76 Governance
Report on Directors’ Remuneration
Review of the year
The Committee concluded the strategic review
of remuneration policy begun in 2011, which
was designed to ensure that our approach
to remuneration remained fit for purpose for
the period ahead. As a result of that review,
we made a number of changes that were
reported to investors in the 2011 Directors’
Remuneration Report and approved with a
vote of 94.7% at the 2011 AGM. In particular,
reflecting the group’s long-term strategy,
we decided that underlying revenue growth
(excluding transit) should form 20% of the
performance target for the Incentive Share
Plan (ISP). We also increased the element
of the annual bonus linked to personal and
role-specific objectives, again reflecting the
company’s long-term strategy.
The changes to the ISP were applied to awards
made in June 2011; changes to the annual
bonus took effect for the year ended 31 March
2012. We are not proposing further significant
changes to the remuneration policy and
structure in 2013.
Outcomes for the year
The group has delivered good results for the
year, continuing the improvement in financial
performance over the past three years and
reflecting the executive team’s commitment to
deliver value for ourshareholders.
For the year ending 31 March 2009 adjusted
free cash flow was £772m. In 2012, adjusted
free cash flow was £2.5bn. From 31March
2009 to 30March 2012, the BT share price
increased from 78p to 226p, with a total
shareholder return (TSR) of 224%. The
outcomes for adjusted EPS, adjusted cash
flow and customer service improvement key
performance indicators are set out on page4.
As a result, shares awarded to executive
directors under the 2009 ISP will vest in full for
the first time, clearly demonstrating the link
between pay and performance (see page 80).
The Committee was pleased to see that around
20,000 employees who have participated in
the 2009 three-year Sharesave all-employee
share option plan also stand to benefit directly
from this performance.
Performance over the last year has delivered
a TSR of 27%, placing BT second against its
comparator group of companies (see page80).
Demanding targets for cash generation were
exceeded, adjusted EPS grew by 13%, this was
around target performance (demonstrating the
degree of challenge posed by the Committee
in setting targets) whilst customer service also
continued to improve. As a result, the Chief
Executive was awarded a bonus of 116% of
target (73% of the maximum opportunity),
compared with 126% of target (79% of the
maximum opportunity) for the previous year.
Half of the bonus will be paid in cash, with the
remaining half deferred into shares receivable
in three years’ time, subject to continued
employment as well as a clawback condition.
The table below sets out the summary of
remuneration received by and expected to be
granted to executive directors in respect of
their service in 2012.
Looking ahead
Despite the performance achieved the
executive directors, and those senior
executives reporting directly to the Chief
Executive, have requested that they not be
considered for any salary increase, in 2013.
The Committee pays particular attention to
the pay and conditions of all our employees.
As we reported last year, salary increases for
direct reports to the Chief Executive (including
executive directors) were consistent with salary
increases for employees over the same period.
Rt Hon Patricia Hewitt
Over the next year, while executive directors’
salaries remain unchanged, UK team members
will benefit from an average 3% increase (the
third year of a three-year pay deal) together
with a bonus of £250 (equivalent to nearly
1% of average pay). The salary for the Chief
Executive and that of UK team members has
been closely linked as set out below.
2010 2011 2012 2013
Chief
Executive 0% 5.88%a2.78% 0%
UK team
members 0%b3% 3% 3%
a The Chief Executive donated the difference between
5.88% and 3% to charity (the BT Benevolent Fund).
b Team members in the UK were awarded a £400 non-
consolidated lump sum award.
We continue to consult with major investors
and their representative bodies, including
the Association of British Insurers (ABI),
and National Association of Pension Funds
(NAPF) and have participated actively in the
consultations launched by the Department
for Business, Innovation and Skills (BIS). We
welcome proposals for increased transparency
and continue to take best practice guidelines
into account in preparing this report. Although
BIS has not yet finalised its proposals, we
believe that the approach taken by BT in recent
years will leave us well placed to address
anychanges.
Rt Hon Patricia Hewitt
Committee Chair
9 May 2012
Summary remuneration of executive directors in 2012
Ian Livingston Tony Chanmugam Gavin Patterson
Base salary £925,000 £535,000 £570,000
Annual bonus
cash £1,344,000 £605,000 £613,000
deferred sharesa626,715 shares 211,475 shares 214,348 shares
Incentive shares to vestb2,222,929 shares 1,035,186 shares 1,089,668 shares
Pensionc£220,000 £159,000 £119,000
Other benefits Company car, fuel or driver, personal telecommunications facilities,
life and medical cover, financial planning and home security
a Award of deferred shares expected to be granted in June 2012. An estimate of the number of shares to be granted has been
calculated using the closing market share price of 214.5p on 8 May 2012.
b ISP awards of shares granted in June 2009, covering the performance period 2010-2012, that will vest in May 2012.
c Pension allowance paid in cash.
Reports of the Board Committees
Overview
BusinessStrategy
Performance
Governance
Financial statements
Additional information Overview
BusinessStrategy
Performance
Governance
Financial statements
Additional information