BT 2012 Annual Report Download - page 81

78 Governance
The Committee is also satisfied that the incentive structure for senior
executives does not raise environmental, social or governance (ESG)
risks by inadvertently motivating irresponsible behaviour. Part of the
annual bonus depends upon an individual assessment of each senior
executive’s personal contribution to ESG measures, including results of
the regular employee surveys and health and safety outcomes.
The Committee retains absolute discretion to reduce variable
compensation in light of risk and the group’s overall performance. We
would only use this in exceptional circumstances.
Remuneration in 2012
Remuneration for 2012 is set out below.
Salaries
Salaries are reviewed annually. A salary increase was received by
executive directors in June 2011. The executive directors have
requested that the Committee not consider them for any salary increase
for the year 2013 and accordingly executive director salaries will
remainunchanged.
Annual bonus
Executive directors are eligible for an annual bonus based on corporate
performance targets, ESG measures and individual targets. The
customer service element of annual bonus is only paid if a minimum
EPS threshold is achieved. The annual bonus is paid in two elements,
a cash element, and a deferred element paid in shares. The deferred
share element is subject to clawback provisions as set out on page81
and deferred shares must be held for three years before they vest.
There are no additional performance conditions on the deferred shares,
other than a requirement for continued employment, and there is no
matching of deferred shares by the company. 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 shareholders. Deferred shares awarded to executive
directors in 2012 and in previous years are set out on page 85. Annual
bonus payments are not pensionable.
The levels for bonus element are set out below.
Level of bonus for executive directors
Chief Executive Executive directors
Annual cash bonus target 125% salary
maximum 200% salary
target 100% salary
maximum 150% salary
Deferred bonus in
shares
target 125% salary
maximum 200% salary
target 75% salary
maximum 112.5% salary
Total bonus target 250% salary
maximum 400% salary
target 175% salary
maximum 262.5% salary
Annual bonuses in 2012 were assessed by the Committee based
on a number of factors. The annual bonus structure for 2012 is set
outbelow:
Chief Executive and Group Finance Director annual
bonus structure
25%
25%
25%
15%
10%
Adjusted EPS
Adjusted free cash flow
Customer service
Personal objectives
ESG
CEO BT Retail annual bonus structure
20%
20%
20%
15%
15%
10%
Adjusted EPS
Adjusted free cash flow
Customer service
Personal objectives
BT Retail objectives
ESG
For the Chief Executive and Group Finance Director, the customer
service element of bonus was increased from 20% to 25%, and personal
objective element increased from 10% to 15%. Both adjusted EPS
and adjusted free cash flow were reduced from 30% to 25% of bonus.
Similarly the CEO of BT Retail also had the proportion of bonus relating to
adjusted EPS and adjusted free cash flow both reduced from 30% to 20%,
with 15% of bonus now subject to BT Retail metrics and the proportion
attributable to personal objectives increased from 10% to 15%.
The two financial targets for the annual bonus are two of our key
performance indicators and 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 adjusted
EPS and adjusted free cash flow targets in advance, since these are
market sensitive and commercially confidential. The Committee is,
however, satisfied that the measures are appropriate and that the
targets are stretching.
In calculating adjusted EPS specific items are excluded as set out on
page 28.
The measure for free cash flow within the annual bonus is adjusted free
cash flow. Adjusted free cash flow represents the cash generated from
operations after capital expenditure and financing costs but before
specific items and pension deficit payments. In 2011 the measure was
reported free cash flow. The use of adjusted free cash flow more closely
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