Outlook: BT brain drain

ADDRESSING shareholders at his annual general meeting in Birmingham yesterday, Sir Iain Vallance, chairman of British Telecom, said the company had enjoyed one of its best years ever. He was proud of the commitment shown by Sir Peter Bonfield, the chief executive, his senior management team, and BT people at all levels. And who wouldn't be? Even investors have come to appreciate the attractions of this one time stock market dullard, with the shares more than doubling in value in the past eighteen months.

What Sir Iain did not mention, however, was that quite a chunk of the "senior management team" that made this possible has or is leaving. It is no exaggeration to say that BT is experiencing a veritable brain drain of its up and coming talent, with five senior executives leaving in the past six months alone. First out of the door was Peter Manning, head of BT's multinationals arm, Concert. He's been poached by Colt for a reputedly huge package. Then in May, the company lost Afshin Mohebi, an American who had been running BT markets, a new UK division under Bill Cockburn. He's gone back to California to join Qwest.

Another serious loss is Lucy Woods, chief executive of BT Northern Ireland and a former executive assistant to Sir Iain. She's gone to MCI WorldCom. Meanwhile, Steve Robertson, one of BT's most promising young executives has quit as managing director of data, a core part of BT's strategy for the future, to join Mr Manning at Colt. Also off to pastures new is Mike Wagner. a senior executive in UK marketing.

While it would be unfair to characterise this migration as a mass exodus, these are not the sort of people BT can afford to lose. All in their mid to late thirties and they are the seed corn of the company's future. One thing these people are very definitely not showing is the "commitment" Sir Iain speaks of. Why is this? As in most things, the answer is money.

BT's main board is well remunerated by British standards as well as those of most other European PTOs. But against the yardstick of other international telecoms businesses operating in one of the world's fastest growing industries, even Sir Iain and Sir Peter are quite poorly paid. Below board level the position is a good deal worse. All these people earn exceptional salaries by national standards, but against the wealth being "earned" by senior executives at fast moving new comers to the market like Colt and Energis, their pay amounts to little more than peanuts.

BT's predicament highlights a more widely spread one among British companies in a globalising economy, but it is particularly acute in a business which is still regarded by most people as a public service. As a consequence, BT has to be constantly on its guard against allegations of "fat cattery". On the other hand, unless it can enrich its key employees with share options and free share plans in the same way as other parts of the international competition, it will lose them.

Some years ago, BP managed to introduce American style remuneration for key employees with relatively little controversy. Its ability to do so has arguably played a key part in the group's recent success internationally. If they want to stay in the game, BT and others will have to follow suit, public stink not with standing.