Wednesday, 10 May 2017

BT bosses forfeit 2016 bonuses over Italian accounting crisis



The chief executive and former finance director of BT Group will miss out on annual bonuses worth more than £3m following the accounting scandal in Italy which helped wipe billions from the company's stock market value earlier this year.
 
Sky News has learnt that BT's remuneration committee has decided not to award payouts to Gavin Patterson and Tony Chanmugam, who left the company in 2016.


Sources said the bonus decisions, which will be announced on Thursday alongside BT's annual results, were in addition to a move to cancel roughly £400,000 in share awards due to have been paid to the two men in 2018 and 2019.


According to BT's 2016 annual report, Mr Paterson is entitled to a maximum annual bonus worth 240% of his £969,000 basic salary - equating to about £2.3m - while Mr Chanmugam, who departed midway through the financial year, would have been eligible for a bonus worth in the region of £1m.


Advisers to BT said that Mr Patterson had informed Sir Mike Rake, BT's chairman, in January - when the scale of the crisis at its Global Services unit in Italy became clear - that he did not wish to be considered for an annual bonus.


"He knows it's the right thing to do given the challenges over the last year," said one.


Both he and Mr Chanmugam will also lose out on millions of pounds-worth of other potential payouts because of the failure of long-term share awards‎ to vest.


In addition to its problems in Italy, BT warned on profits in January amid a slowdown in demand from business and public sector clients, and was hit by a big fine from regulators for failing to compensate rival broadband providers sufficiently over delayed installation appointments.


The move to curb Mr Patterson's pay for 2016 comes amid an increasingly fierce climate surrounding executive pay in the run-up to next month's General Election.


Last week, Pearson, the education and publishing group, saw two-thirds of shareholders reject its remuneration report, dealing a humiliating blow to a board packed with established City figures.


Sources said BT would issue a separate remuneration statement alongside its results, a move aimed at demonstrating management accountability ‎for an at-times turbulent year for the UK's biggest telecoms provider.


Under its pay policy, annual bonuses to Mr Patterson and Mr Chanmugam are paid two-thirds in cash, and the remainder in shares deferred for three years.


Sources said the value of these deferred shares would be adjusted ‎downwards to reflect the lower-than-reported profitability triggered by the Italian writedown.


This adjustment process, called malus, has been relatively rarely used by FTSE-100 companies outside the banking sector.


Last year, Mr Patterson was awarded an annual bonus of £1.057m, while Mr Chanmugam received £587,000, with one-third of those payments due to be handed over in shares in 2019.


For 2014-15, the deferred elements of their bonus awards - scheduled to be paid next year - were worth just over £440,000 and £237,000 respectively at the point of award.


Chunks of these payments will also now be withheld, according to insiders.


BT's remuneration committee is chaired by Tony Ball, the former chief executive of BSkyB - the previous name‎ of Sky News' owner, Sky plc.


News of the ‎pay measures will come alongside an announcement of a significant restructuring of Global Services, which analysts expect to lead to the eventual disposal of operations in France and Italy.


BT will also confirm that it has begun a process to replace PricewaterhouseCoopers (PwC) as its auditor next year amid anger in the company's boardroom that the possible fraud in Italy was not identified sooner.


Despite last year's difficulties, BT is expected to highlight progress in other areas of its business.


It struck a deal with Ofcom relating to the future of its Openreach infrastructure division, which avoided the full separation that BT had fought hard to prevent; and it made significant headway integrating EE, the mobile phone network it acquired in 2015 for £12.5bn.





SKY     News.