BT chief and ex-CFO take £400,000 hit over Italian scandal
The company's CEO and former finance director will forfeit the share awards over its £530m Italian writedown, Sky News learns.
By Mark Kleinman, City Editor
BT Group will dock six-figure sums from the pay packages of its chief executive and former finance director next week when it reports annual results tarnished by a £530m accounting scandal at its Italian operations.
Sky News has learnt that both Gavin Patterson and Tony Chanmugam, who stepped down as the telecoms giant's finance chief last year, will each forfeit hundreds of thousands of pounds due to have been paid in deferred share awards in 2018 and 2019.
Insiders said that the sums they would not now be paid were likely to amount to more than £400,000.
In total, the two men will lose out on millions of pounds each because other long-term share awards will fail to vest as a consequence of the company's financial performance.
Details will be finalised this week at a board meeting ahead of BT's results on Thursday.
BT's pay committee is understood to have decided to take a tough line on pay in the wake of the Italian writedown, and is pursuing the unusual step of penalising an executive who has already left the company.
Bonuses across the company for the last financial year are also expected to be cut across the group as a result.
Sources said that BT planned to issue a separate remuneration statement alongside its annual results on Thursday outlining the impact of the crisis in Italy on variable pay.
The move will be aimed at demonstrating management accountability for the problems at the company's Global Services division, which provides IT and other technology solutions to corporate customers.
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.
Some job cuts are also possible.
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.
Sky News reported in March that BT had written to accountancy watchdogs to inform them of plans to replace PwC.
An appointment is expected to be made by the autumn, meaning that both EY and KPMG – the potential replacements for PwC – have had to stand down from a range of non-audit work they have been undertaking for BT.
Executive remuneration will be one of the principal areas of focus for the City on Thursday, particularly with close scrutiny by institutional shareholders of the link between pay and performance.
Under BT's remuneration 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, the chief executive was handed 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 boardroom pay committee is chaired by Tony Ball, the former chief executive of BSkyB – the previous name of Sky News' owner, Sky plc.
Despite the crisis in Italy, and a big fine from Ofcom for failing to compensate rival broadband providers sufficiently over delayed installation apointments, BT is expected to highlight progress in other areas of its business in 2016-17.
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.
Analysts expect BT's full-year numbers to be "solid, not spectacular", said one.
A BT spokesman declined to comment on Saturday.