BT 2014 Annual Report Download - page 98

95
Governance
Governance
The TSR comparator group for the ISP 2011 comprised the following
companies
Accenture
AT & T
Belgacom
BSkyB
BT Group
Cable & Wireless
Worldwide
Cap Gemini
Centrica
Deutsche Telekom
France Telecom
Hellenic Telecom
IBM
National Grid
Portugal Telecom
Royal KPN
Swisscom
TalkTalk
Telecom Italia
Telefónica
Telekom Austria
Telenor
TeliaSonera
Verion
Virgin Media
Vodafone
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 ocial closing price 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 eects of share
price volatility. A positive change between the initial and nal values
indicates growth in TSR.
The following graph shows the vesting schedule for the TSR element of
the 2011 ISP awards.
TSR vesting schedule 2011 Awards
TSR ranking position
% of ISP 2011 vesting
0%
10%
20%
30%
40%
0 5 10 15 20 25 30
The company’s shares achieved a TSR performance of 139%. This was
2nd out of 25 companies during the three-year period and resulted in
40% (out of 40%) of the ISP award that related to the TSR element
vesting.
Adjusted free cash Ʈow
When we set the performance measures for the ISP 2011, the threshold
for three-year cumulative free cash ow was £6.75bn, which had to be
achieved before any shares would vest. A further performance range of
£1bn was set above this to £7.75bn, which if achieved, would cause
all of the shares under the cash ow element of the award to vest.
Theupper part of the range was considered to be extremely stretching
and was well above consensus market expectations at the time.
Weachieved a cumulative three-year adjusted free cash ow outcome
of £7.7bn which resulted in 38.7% (out of 40%) of the ISP award
thatrelated to the cash ow element vesting.
Revenue growth
A measure for sustainable revenue growth was added to the ISP to
reect the Board’s aim to drive protable revenue growth. The measure
was based on growth in underlying revenue excluding transit measured
against the baseline of 2010/11, with the threshold set as growth of2%.
The challenging revenue environment, representing regulation and
tough economic conditions, resulted in the threshold targets for revenue
growth not being met. Accordingly this element did not vest.
Overall vesting of ISP 2011
The performance in the TSR and adjusted free cash ow resulted in a
78.7% vesting of the ISP 2011. The number of shares due to vest under
the ISP 2011, in May 2014, is set out below. An estimate of the cash
value of the shares vesting is shown in the single gure table on page 93.
Director
Vesting of
free cash
ow element
(£000)
Value of TSR
element
(£000)
Total value of
ISP Vesting
(£000)aISP Vesting (Shares)
Gavin Patterson 957 988 1,945 502,047
Tony Chanmugam 898 928 1,826 471,217
a An estimate based on the three-month average share price from 1 February 2014 to 30 April
2014 of £3.8751.
Ian Livingston stepped down as Chief Executive in September 2013 to
join the Government as Minister of State for Trade and Investment.
Inrespect of the ISP 2011 awards, the committee considered that
Ianhad served for the majority of the performance period (1 April
2011to 10September 2013), during which the company had
performed strongly and, accordingly, would exercise its discretion,
andallow pro-rata vesting of the ISP 2011. Following the
committee’sreview, 812,784 shares vested on 6 November 2013.
Details of the committees treatment of Ian Livingstons outstanding
awards are set out on page 93.
Total pension entitlements
The BT Pension Scheme (BTPS) closed to new entrants on 31 March
2001. None of the executive directors participate in future service
accrual in the BTPS Tony Chanmugam has deferred benets in the BTPS.
Executive directors who have been members of the BTPS, and who retain
deferred benets in the BTPS, also benet from a death in service lump
sum of four times salary.
All new employees are eligible to join the dened contribution BT
Retirement Saving Scheme (BTRSS). The BTRSS is a group personal
pension plan. For executive directors, the company agrees to pay a xed
percentage of the executive’s salary each year which can be put towards
the provision of retirement benets. Executive directors who have
never been members of the BTPS benet from death in service cover
that would provide a lump sum of four times salary and a dependant’s
pension of 30% of capped salary.
Sir Michael Rake is not a member of any of the company pension
schemes, and the company made no payments towards retirement
provision for him. BT provides him with a lump sum death in service
benet of £1m.
Gavin Patterson receives an annual allowance equal to 30% of salary in
lieu of pension provision as set out in the table on page 93. Gavin has
previously been a member of the BTRSS but neither he nor the company
has made any contribution to the scheme during 2013/14. BT also
provides death in service cover of a lump sum of four times his salary
plusa widow’s pension of 30% of his capped salary.
Tony Chanmugam is not a contributing member of any of the company
pension schemes he did not accrue any BTPS pension over the nancial
year and no other contributions were made. The company has agreed
to pay him an annual amount equal to 30% of salary in lieu ofpension
provision as set out in the table on page 93. The BTPS deferred benet
is payable from his 60th birthday. BT provides death in service cover of a
lump sum of four times his salary which would cease if his BTPS benets
were put into payment.