Bonfield bonus angers BT investors

Beleaguered telecom giant BT has angered shareholders by revealing it could pay chief executive Sir Peter Bonfield up to £3m in bonuses this year - despite debts of £30bn.

It looks a little steep for someone who it is difficult to associate with value creation

BT shareholder

The award was revealed in a prospectus asking shareholders to contribute £5.9bn in the form of a discounted rights issue to reduce the company's debt mountain.

The cash call - the biggest in UK corporate history - was announced last week along with BT's first annual loss.

The former state monopoly has also revealed more details of its £600m cost-cutting programme and the de-merger of BT Wireless, which includes the BT Cellnet mobile phone network.

'Obscene'

Sir Peter, who has been under pressure to quit because of the company's crippling debt and plunging shares, will receive a basic salary of £820,000 this year.

But he is also set to benefit from a performance-related package including shares worth up to £1.6m and a £481,000 payment under BT's deferred bonus plan - potentially boosting his earnings for the year to more than £2.9m.

Sir Peter Bonfield could earn £3m this year

In addition, Sir Peter stands to collect a "terminal bonus" of £820,000 at the end of 2002 as an incentive to remain with the company until its restructuring is complete.

The 57-year-old telecom chief's remuneration package is set out in a prospectus for BT's rights issue, which will reach the company's shareholders from Monday.

"It does seem a bit obscene," said a fund manager for an institution owning more than 0.5% of BT.

"It looks a little steep for someone who it is difficult to associate with value creation."

BT shares fell as much as 3.2% to 509 pence on Monday, their lowest since early April.

The cash call allows investors to buy three shares at 300p each for every 10 they own.

Shareholders are likely to quiz BT about Sir Peter's salary when the company meets investors this week, said the fund manager and another one with a similar holding.

Investigation

It is unlikely to threaten the rights issue, shareholders say, but it may influence opinion about the company.

The National Association of Pension Funds, which often represents institutional shareholders in disputes over corporate pay, said it will look into the promised remuneration.

BT has defended the package.

"We're trying to offer him a generous package because we want him to stay here and see through this restructuring," a spokesman said.

"Most of the provisions within it are completely performance-related and are subject to a strict set of criteria."

The share element comprises performance-related options that will only be realised after three years, he added.

Investors 'undecided'

The salary is part of a new contract Sir Peter signed last week which runs until the end of next year.

However, some large shareholders expect Sir Peter to follow former chairman Sir Iain Vallance out of the door before long.

Sir Christopher Bland has ordered the cost-cutting programme

New BT chairman Sir Christopher Bland is due to meet institutional investors this week as the company begins a three-week roadshow to drum up support for the rights issue.

Many large investors are thought to be undecided about whether they will contribute to the fund raising or sell their rights.

Shedding jobs

BT has told shareholders the demerger of BT Wireless is necessary because of tough market conditions and increasing competition in the mobile phone sector.

There was a danger the wireless division would be on the drag on the group's profits, it added.

BT says it also hopes to shed 5,000 jobs this year through "natural wastage".

Additionally, the company is expected to face questions from investors about its plans for Concert, its unsuccessful joint venture with AT&T.

BT is considering selling its half of the venture to AT&T, along with its Ignite corporate internet division, or combining the two for a float on the stock market.

Other options include closing down Concert, which services multinational companies, or narrowing its scope.

"We don't have a most-likely option at the moment," the BT spokesman said.

Syntegra sale?

BT was also refusing to comment on a Financial Times report that it is also considering selling Syntegra, an IT services operation that is part of Ignite.

The company plans to sell its UK radio towers business as well, according to the FT, which could fetch up to £280,000 for each of its 6,000 masts.

There was more bad news from BT on Monday when it said it had delayed the launch of the world's first third-generation mobile service on the Isle of Man because of a software problem in the handsets.