BT is planning to end a performance-related bonus scheme and replace it with a smaller guaranteed payout, in a major overhaul of the incentives for top executives.
The telecoms company wants to discontinue its long-term incentive plan, a type of bonus system that has proved controversial in recent years, according to three top 30 shareholders.
The move, which would affect the top management including chief executive Philip Jansen, comes as concern about excessive pay continues to rise up the public agenda.
Concerns about LTIPs have increased in the wake of large payouts at public companies such as housebuilder Persimmon, where the former chief executive was in line for a £110m bonus.
But in the case of BT, a collapse in its value led to former chief executive Gavin Patterson failing to receive his full bonus for a number of years.
The three BT shareholders said the telecoms business has proposed introducing a type of restricted share plan, where executives are given a set number of shares that they have to hold for a certain period of time.
Restricted share plans do not typically include prescriptive performance conditions. Instead, executives give up the possibility of a bigger payout for smaller, largely guaranteed sums.
BT said its new pay policy would be presented to shareholders for approval at its 2020 annual meeting to replace its existing policy that was approved in 2017.
“BT’s remuneration committee is currently reviewing the remuneration policy and will consult with our largest shareholders and the proxy voting agencies ahead of making any changes at the AGM,” a spokesman said.
Shareholders did not rule out backing the plans, saying they had yet to decide whether they would support the switch to restricted shares.
“We are certainly not closed to it,” said a top 30 shareholder. “I do think investors are expecting a big discount [on the total amount paid out] because restricted shares are easier to get.”
Mr Patterson’s pay packet fell dramatically after an accounting scandal in Italy triggered a collapse in the company’s share price at the beginning of 2017 from which it is yet to recover. The former chief was not paid any LTIP shares last year, or the year before, and agreed to cede half of his annual bonus — about £500,000 — due to the company’s struggles.
LTIPs account for the largest chunk of pay at the UK’s biggest companies and have been at the centre of controversy over excessive executive pay in recent years. Under LTIPs, top executives receive shares if they meet certain performance criteria, typically paying out after three to five years.
Under BT’s current LTIP structure, Mr Jansen could earn 400 per cent of his £1.1m base salary if it was to pay out in full. He is also eligible for an annual bonus based on different performance targets to the LTIP.
BT’s pay policy caused disruption in 2018 when investors revolted against the bonus structure following a warning from a proxy adviser.
Last year, engineering company Weir won shareholder support for its plans to introduce restricted shares, but few other British companies have similar pay awards.
In October, a report by the Purposeful Company, an influential management think-tank, suggested that up to a quarter of British companies should consider shifting their executive pay policies away from LTIPs and towards restricted share awards.
The pay shake-up is the latest move to overhaul BT under Mr Jansen, who formally replaced Mr Patterson at the start of the year. The former Worldpay boss said in May that the company would hand £50m worth of shares a year to its staff to motivate them.
Get alerts on BT Group Plc when a new story is published