The Company previously announced on 27 October 2016 that an initial internal investigation of accounting practices in its Italian business had identified certain historical accounting errors and areas of management judgement requiring reassessment. The Company instigated an investigation, which included an independent review by KPMG LLP, with support and oversight from its Legal, Governance & Compliance function and Freshfields Bruckhaus Deringer. The investigation identified an overstatement of profits amounting to £268m in its Italian business over a number of years.
Ofcom investigation of Deemed Consent
In March 2017 Ofcom found that Openreach, a division of BT that is being spun-off into a legally separate division of the BT Group, had breached its contractual and regulatory obligations by inadequately and retrospectively applying Deemed Consent between January 2013 and December 2014; and that Openreach then failed to compensate communications providers fully.
As a result of the findings, Openreach has agreed to compensate alternative communication providers (CPs) and Ofcom has imposed a fine of £42m, reflecting the seriousness of the failings. This includes a 30% maximum discount for BT admitting its liabilities and agreeing to compensate the affected CPs in full. The precise amount of these compensation payments will result from discussions with the affected parties and is currently estimated at £300m.
Item 2: Approve the Remuneration Report.
No bonus was paid to the CEO and outgoing FD as a result of the accounting irregularities in the Italian business. The new FD, appointed in July 2016, was paid a bonus for the year.
The structure is weighted more towards rewarding long-term performance and the payout is adequately aligned with performance. LTIP targets appear challenging, which partially mitigates our concern that total variable remuneration exceeds guidelines.
Item 3: Approve the Remuneration Policy. There are concerns over the remuneration policy related to the excessive maximum level of incentive pay (740% of base salary), the excessive size of the annual bonus (240% of base salary, and the potential for accelerated vesting.
Item 10: To re-elect as a director, Tim Höttges
The director is affiliated as he is the CEO of Deutsche Telekom AG. His appointment letter reflects the terms of the Relationship Agreement between the Company and Deutsche Telekom. He also serves as Chairman of T-Mobile US Inc, Chairman & Chief Executive of Deutsche Telekom AG, Director of FC Bayern München AG, and Member of Supervisory Board of Henkel AG & CO KGaA. This exceeds ECGS guidelines for time committments.
Item 17: Re-appoint the Auditors.
PricewaterhouseCoopers and its predecessor firms have been external auditors since the Company listed on the London Stock Exchange in 1984. The auditor's tenure exceeds the limits set out in our guidelines and may undermine auditor independence.
Etude l' AG du 12/07/2017