Bonfield will get £2.8m pay-off for leaving BT early

Chief executive stands down after six years, two failed mergers and the biggest rescue share issue in British corporate history

Internal links

Outsider set to take Bonfield's job at BT

The rollercoaster ride into borrowed time

Outlook: Sir Peter goes with the usual reward for failure

Leading Article: Shareholders should stop these rewards for failure

Sir Peter Bonfield is to quit as chief executive of British Telecom a year early with a pay-off worth up to £2.8m, the company announced yesterday.

The much-criticised chief of the former government monopoly, who presided over a collapse in the company's share price and a massive rise in its debts to £29bn, will stand down at the end of January next year. He had not been due to leave until 2003.

Sir Peter, who joined BT in 1996, will receive £1.5m in severance pay. He is also entitled to a further £1.3m in share awards payable over the next three years. BT will also put an extra year's money, worth £350,000, into Sir Peter's pension pot. Although the size of the pay-off upset a number of large institutional shareholders, BT's chairman, Sir Christopher Bland, said Sir Peter was only receiving his contractual entitlements.

Sir Peter's pay-off is only the latest in a series of "rewards for failure". Gerald Corbett received £1.3m after being ousted as chief executive of Railtrack and, last month, Marconi announced that it was paying £300,000 to its former chief executive, Lord Simpson of Dunkeld.

BT has already begun the search for a successor to Sir Peter and said it would look internally and externally. But the lack of an immediate replacement has prompted speculation that it has decided to go outside the group.

Sir Christopher, who took over the helm of BT in May after the removal of the previous long-serving chairman, Sir Iain Vallance, said Sir Peter had decided to quit early because the reorganisation of BT had been completed more quickly than expected.

It has been an open secret for several months that Sir Peter would not serve out the full term of his contract ­ not least because of his strained relationship with BT's new chairman. But the timing of his departure announcement still came as a surprise since Sir Peter told shareholders at the company's annual meeting only a week ago that he intended to honour his contract.

Sir Peter said of his six "action-packed" years: "It has been a hell of a ride. We got some things right. Some were a real disappointment."

The biggest disappointments for him were the failure to pull off the $20bn (£13bn) takeover of the long-distance American carrier MCI ­ a deal that would have turned BT into a global telecoms company ­ and the forced sale of its businesses in Japan to Chris Gent, chief executive of BT's arch rival, Vodafone.

Since May, BT's debts have been cut to £17.5bn, thanks to a £6bn share issue and £7bn of asset sales and next month it will spin off its mobile phone arm, mmO2, into a separate company. The group has also abandoned plans to separate its British retail business from its trunk network.

Sir Peter, who is 57, said he intended to remain involved in technology-related business when he left BT, but with "a broader portfolio of international interests".

BT shares rose 11p to 348p as investors welcomed his departure. One shareholder said: "It finally breaks the link with the old international strategy."