BT 2014 Annual Report Download - page 94

91
Governance
Governance
In summary, the changes represent
• a signicant reduction in opportunity under the annual bonus,
particularly for on-target performance. As a result, there is a reduction
in the amount of the package delivered in short-term cash
• an increase in the Incentive Share Plan (ISP) element – this reects
the greater emphasis we wish to place on sustained, long-term
performance
• for the Chief Executive, a signicant reduction in remuneration
opportunity for on target performance and the maximum opportunity
has been reduced slightly and
• for the Group Finance Director, an overall reduction to his on target
opportunity, however, there has been an increase to his base salary
and to the maximum opportunity to ensure his total package remained
around the same value. We did not feel a signicant reduction for the
Group Finance Director was appropriate given his position against the
market remains below median and given his tenure and performance
in the role.
We believe that these restructured packages will incentivise and reward
our executive directors to deliver long-term, sustainable protable
revenue growth, in line with our business strategy and shareholder
interests, without encouraging inappropriate risk-taking.
In considering the leaving terms for Ian Livingston, we took into account
the unique circumstances of his departure. In particular, the committee
noted that Ian was not pursuing another commercial opportunity and
was taking a role in the national interest. Ian did not leave due to poor
performance and, indeed, in reecting on Ian’s ve-year tenure as
ChiefExecutive the committee recognised the transformation of the
company under his leadership and the foundation that Ian provided for
future growth.
As a result, the committee considered it appropriate for Ian’s unvested
deferred bonus shares, earned for performance over his tenure, to
be released in full. In addition, given that Ian had been in role for the
majority of the 2011 ISP award performance period, and taking into
account the strong company and individual performance during this
period, the committee determined that this award should be pro-rated
for time and tested for performance upon his departure. All other ISP
awards were lapsed in full, which at the date of lapse represented over
£9m of potential value forfeited. More detail is set out on page 96.
Outcomes for the year
The company delivered a strong nancial performance for the year.
Adjusted earnings per share increased 7%, normalised free cash ow was
higher than our outlook for the year, and underlying revenue excluding
transit grew by 0.5%. Although there was an improved trend on revenue
growth, the ISP revenue target was not reached.
For annual bonus purposes, the company performed well against the
nancial targets, although the customer service target was not met.
As a result the annual bonus for the Chief Executive was 68% of
maximum. In keeping with past practice, part of the annual bonus is
deferred for three years and paid in shares.
Further information on annual bonus is set out on page{
93
Report on Directors’ Remuneration
Review of the year
I became the Chairman of the Remuneration Committee in March 2014
following the retirement of Patricia Hewitt. I would like to oer my
thanks to Patricia for her leadership and contribution during the time
shewas chair of the committee.
As a committee, we consider that the basic remuneration principles
remain appropriate and fundamentally t for purpose namely that
base salaries are positioned below median against our comparator
group, and a signicant proportion of total remuneration is variable and
performance related. We consider that this policy has helped drive the
strong performance that the company has delivered in recent years.
Nevertheless, as part of our ongoing dialogue with shareholders, a
regular feedback theme has been that we should review the balance
between the short-term and long-term elements of remuneration. The
committee considered this feedback and felt that the time was right
to make a change as we shift our focus towards our goal of delivering
sustainable, protable revenue growth in addition to continuing our
focus on cost transformation.
In this context, upon the appointment of Gavin Patterson as Chief
Executive in September 2013, we took the opportunity to make a
number of changes to the remuneration structure for the Chief Executive
role. These changes resulted in a reduction in total remuneration
for Gavin relative to his predecessor’s arrangements, particularly at
on-target performance, while signicantly shifting the balance of
opportunity from short-term to long-term achievement. To maintain
alignment within our executive team, we have subsequently extended
this re-balancing to the Group Finance Director’s remuneration
arrangements. The changes are also being cascaded further down the
company, to ensure that remuneration arrangements for all senior
executives are aligned to the same corporate goals.
Tony Ball