The short and long-term bonus schemes, detailed in the company's annual report sent to shareholders yesterday, represented BT's long-awaited move to put the pay of British executives on par with their counterparts in the US long-distance operator MCI, which the UK group is in the process of buying for pounds 13bn.
The most generous payouts are to be shared by Sir Peter, and Sir Iain Vallance, chairman, including one-off bonuses in recognition of their work to put the MCI deal in place.
Both executives, along with the finance director, Robert Brace, have raised their annual cash bonus limit from 50 per cent of salary to 100 per cent of salary from this year, giving Sir Iain and Sir Peter the potential to be "million pound men" for the first time.
Sir Peter will also receive a discretionary bonus on top of his annual bonus of up to pounds 500,000, payable over the next two years, if the merger goes through. The report showed Sir Peter's annual bonus for last year was pounds 225,000, representing 45 per cent of his pounds 498,800 basic salary last year. From this calendar year his salary rose to pounds 570,000.
Sir Iain was paid a "discretionary" bonus of pounds 185,000 last year in recognition of his contribution to the MCI deal, although he had not been actually part of the formal annual bonus scheme.
The payout came on top of a pounds 485,000 basic salary, taking his total pay including pensions benefits to pounds 698,900. From January this year Sir Iain's basic salary rose to pounds 500,000.
On 10 March Sir Iain wrote to The Independent denying he would receive a pounds 500,000 bonus, after a report suggested he could receive one for the last financial year. His letter continued: "There is no chance of my being offered a sum approaching pounds 500,000 as a bonus. Just for the record, if I were I would not accept it." It also emerged yesterday that the new contracts, with the higher bonus limits for next year, came into effect from 1 April.
A BT spokesman defended the awards and gave a "cast iron" guarantee that none of the three executives would actually receive their full 100 per cent bonuses, despite the changes to the scheme.
"Nobody, but nobody, gets more than their 50 per cent target bonus. Not even God could get a 50 per cent bonus. The 100 per cent figure is simply a contractual matter which is prevailing in other big companies at the moment."
The spokesman also said in practice that Sir Peter's two annual bonuses for this year would not exceed 100 per cent of salary, though in theory they could be worth more than pounds 1m.
On top of the proposed annual bonuses, BT unveiled a new long-term bonus package which could give Sir Peter up to six times his annual salary in shares and share options. Sir Colin Marshall, BT's deputy chairman and head of the pay committee, urged shareholders to vote in favour of the new scheme at the annual general meeting on 16 July.
The scheme, which would start from next April, has three elements. Executives can invest some of their annual bonuses in Concert shares, the new name for the merged group, which will be matched with one additional share for every three invested at the end of three years. In addition a share option scheme would provide options worth up to four times an employee's salary. The third scheme, called the "restricted share plan," gives Concert shares worth up to twice the basic salary.
Sir Peter is the only UK executive to share in all three schemes. BT said: "Peter Bonfield is chief executive of the fifth-largest UK company by market capitalisation and the fourth-largest communications company in the world. His pay does not figure in the top 10 of British chief executives. You cannot compare him with the fat cat league."
BT and MCI yesterday announced a $10bn loan facility for Concert with five US banks.