How the votes are counted

You have one vote for each common share you hold on April 5, 2004. At March 30, 2004, 924,229,881 common shares were entitled to be voted at the meeting.
     The election of directors, the appointment of auditors and all shareholder proposals will each be determined by a majority of votes cast at the meeting by proxy or in person. If there is a tie, the Chairman of the meeting will cast the deciding vote.
     Computershare counts and tabulates the votes. It does this independently of us to make sure that the votes of individual shareholders are confidential. Computershare refers proxy forms to us only when:

• it is clear that a shareholder wants to communicate with management
• the validity of the form is in question
• the law requires it.

Corporate governance committee report

How we are meeting the TSX guidelines

We fully align with all of the TSX guidelines. The table below lists the TSX guidelines and tells you how we are meeting each one. In some cases, it also lists certain requirements under the Sarbanes-Oxley Act, related SEC rules, NYSE rules, Canadian rules and Canadian initiative, which may differ from the TSX guidelines.

Management resources and compensation committee report

The purpose of the MRCC is set forth in its written charter. This charter was amended in early 2004 in order, among other things, to document certain of our practices that are now reflected in new and proposed U.S. and Canadian corporate governance initiatives. The complete MRCC charter is available in the Governance section of our website at www.bce.ca.

Under its charter, the MRCC assists the board in the oversight of the:

• compensation
  
• nomination
  
• evaluation
  
• succession 
  of officers and other management personnel.

     The MRCC also assists the board in the oversight of BCE’s health and safety policies and procedures.
     The first part of this report tells you how the MRCC is managed and how it makes sure that BCE’s management resources strategies, in general, and executive compensation, in particular, are consistent with its business plan.
     The second part of this report tells you how non-management directors and certain executive officers are compensated. 

About the management resources and compensation committee

The MRCC consists of six unrelated and independent directors: Mr. P.M. Tellier (Chairman), Mr. R.A. Brenneman, Mr. A.S. Fell, Mr. B.M. Levitt, Mr. J.H. McArthur and Mr. V.L. Young. The MRCC communicates regularly and directly with BCE’s officers. The MRCC met six times in 2003, including without management as appropriate.
     The MRCC reviewed and reported or made recommendations to the board on the following items in 2003 and up to the date of this circular:

• the appointment or resignation of officers and the terms of these changes to ensure that they are appropriate in relation to both external and internal benchmarks
• its review with the President and Chief Executive Officer of major organizational changes
• its review of the President and Chief Executive Officer’s performance and the terms of his compensation
• its review with the President and Chief Executive Officer of the performance of the other officers and the terms of their compensation
• its review with the President and Chief Executive Officer of the BCE group’s management resources for succession planning
• the administration of benefit plans, including grants under stock option plans and a review of the share ownership requirements for executives
• its review of BCE’s executive compensation policy, which is described under Executive officers’ compensation
• its review of this report on the compensation of directors and executive officers.

     In addition, the MRCC made a thorough review of the appropriateness of BCE’s executive compensation policy which resulted in a series of changes, as of 2004, as further detailed in this report under Executive officers’ compensation – Change in compensation strategy for 2004 and in the future.
     The MRCC also carries out an annual evaluation of its performance with the CGC, including the review of the adequacy of its charter. The MRCC reports regularly to the board on its activities.

Directors’ compensation

The directors’ compensation program is designed to attract and retain the most qualified people to serve on the board and its committees and to align the interests of directors with those of BCE’s shareholders. BCE’s objective is to provide adequate compensation in light of the risks and responsibilities of being an effective director. The board sets the compensation of non-management directors based on the CGC’s recommendations. Any director who is also an employee of BCE or any of its subsidiaries does not receive any compensation as a director.
     As a result of a comprehensive review of the compensation of non-management directors that was conducted in 2002, the following key changes, which were disclosed in last year’s management proxy circular, took effect on January 1, 2003:

• increasing the cash compensation of non-management directors to reflect their increased roles and responsibilities resulting from the new governance standards under the Sarbanes-Oxley Act and related SEC rules
  
• replacing retainers and attendance fees with an all-inclusive flat fee to compensate the non-management directors for all their services as directors of BCE and of its subsidiaries whose common shares are not publicly traded, including for attending board and committee meetings
  
• paying non-management directors who live outside of Canada and are elected or appointed after January 1, 2003 the same compensation in Canadian dollars as non-management directors who live in Canada
  
• increasing the minimum share ownership requirement. Please see Minimum share ownership requirement for details.
  
• paying non-management directors in share units under the share unit plan until the new minimum share ownership requirement is reached. Please see Directors’ share unit plan for details.
  
• cancelling the non-management directors’ stock option program and all outstanding options under the program, effective November 2002.
  

Cash compensation

Effective January 1, 2003, the retainers and attendance fees were replaced with a flat fee. The table below shows the annual fee for each position. The fees are paid quarterly.

Directors’ share unit plan

The Share unit plan for non-employee directors (1997) is designed to more closely link the interests of the non-management directors to those of BCE’s shareholders.
     Each non-management director receives his or her compensation in the form of share units, each one being equal in value to one BCE common share, until the minimum share ownership requirement is reached. Once the director reaches this requirement, he or she can choose how much, if any, of his or her compensation will be paid in share units.
     Each director has an account where share units are credited and held until the director leaves the board. The number of share units credited to each director’s account is calculated by dividing the amount of the payment by the BCE common share price on the day the credit is made.
     Holders of share units are credited additional units that are equal to the dividends on BCE’s common shares. Additional share units are credited to each non-management director’s account on each dividend payment date. The number of share units is calculated using the same rate as the dividends paid on BCE common shares.
     When a director retires from the board, BCE will buy the same number of BCE common shares on the open market as the number of share units the director holds in the plan, after deducting the appropriate tax. These shares are then delivered to the former director.

Compensation of directors of subsidiary boards

BCE’s non-management directors are also directors of some of its subsidiaries. The flat fee discussed above (see Cash compensation) also compensates non-management directors for their services as directors of subsidiaries whose common shares are not publicly traded, such as Bell Canada. As a result, only those directors who sit on boards of subsidiaries whose common shares are publicly traded (public subsidiaries) receive additional compensation.
     During all or part of 2003, the non-management directors who acted as directors of BCE’s public subsidiaries were: Mr. J.H. McArthur, who was a director of BCE Emergis and some of its subsidiaries, Mrs. D. Soble Kaufman, who was a director of BCI until May 1, 2003, and Mr. V.L. Young, who was a director of Aliant and some of its subsidiaries.
     These directors received regular director fees from these subsidiaries according to their rates for non-management directors. The table below shows the compensation these subsidiaries paid to these directors in 2003.

Minimum share ownership requirement

Starting in 2003, non-management directors must own at least 10,000 BCE common shares or share units. They must meet this requirement within five years of their election to the board or November 26, 2002 (when this requirement was adopted), whichever is later. The previous requirement was 3,000 common shares or share units within three years of their election to the board.
     The board believes that the higher share ownership requirement further links the interests of the non-management directors to those of the shareholders.

Executive officers’ compensation

The executive compensation policy is designed to attract, motivate and retain the executive officers needed to achieve and surpass BCE’s corporate objectives and to build an industry-leading company in terms of operational performance and creation of value for the shareholders.
     BCE’s compensation philosophy is to offer total compensation which is competitive in the marketplace. To complement this market positioning, BCE also ensures (for internal equity) that the compensation of each position fairly reflects the responsibilities of that position relative to other positions at BCE.
     A substantial portion of each executive officer’s cash compensation each year depends on meeting annual corporate performance objectives. In addition, BCE has in place long-term incentive programs. These are mainly stock options that are designed to:

• compensate and retain executive officers
  
• link the executive officers’ interests to those of the shareholders
  
• encourage executive officers to pursue value-creating opportunities for BCE by allowing them to participate in the appreciation in share value.
  

     The MRCC periodically reviews BCE’s executive compensation policy to make sure that it continues to meet its objectives. This review also includes a specific review of the compensation of the President and Chief Executive Officer and of the executive officers. In this document, executive officers whose compensation is disclosed in the Summary compensation table are referred to as the “named executive officers”.
     In 2003, in light of the evolving internal and external environments, the MRCC conducted a comprehensive review of BCE’s executive compensation policy. Following this review, changes to the compensation policy were recommended by the MRCC and approved by the board in November 2003. The changes to the compensation policy are discussed in more detail under Change in compensation strategy for 2004 and in the future.

Total compensation

In 2003, total compensation consisted of:

• base salary
  
• annual short-term incentive awards
  
• long-term incentives
  
• benefits and perquisites, including pension benefits, described under Other compensation information.
  

     For 2003 and consistent with past practices, total compensation was positioned at the median of what is paid by the group of companies with which BCE compares itself (comparator group). Paying at the median of the comparator group means that 50% of the companies in the comparator group pay more than BCE and 50% pay less for similar positions.
     In 2003, as part of its periodic reviews of the comparator group, the MRCC decided to expand the group from 22 to 43 publicly traded Canadian and U.S. companies. The 2003 comparator group includes 23 Canadian companies and 20 U.S. companies. The Canadian and the U.S. companies were selected based on one or more of the following criteria: telecommunications/high technology, strategic use of technology, most admired companies and revenues. This larger group of companies is more representative of BCE’s current environment and will therefore provide a better basis for comparisons to the market.
     Total compensation that the executive officers received was between the median and the 75th percentile of what the comparator group offered for similar positions, based on each individual’s contribution to BCE’s performance and how successful BCE was in achieving its strategic business objectives and financial targets. Consistent with past practices, the 75th percentile was reserved for those few individuals who contributed in an outstanding fashion. The 75th percentile means that 25% of the comparator group pay more than BCE and 75% of the comparator group pay less. The MRCC did not assign weightings to any elements of the total compensation.
     Please see Other compensation information – Executive compensation table for total compensation paid to the named executive officers over the past three years.

Base salary
The MRCC determines the base salary of each executive officer within a salary range to reflect individual performance and responsibilities related to the position. The mid-point of the salary range corresponds to the median of the comparator group for similar positions. The minimum for the salary range is 20% below the mid-point and the maximum is 20% above.

Annual short-term incentive awards
The short-term incentive program is designed to support the achievement of corporate objectives and reward executives officers based on BCE’s success. Financial targets account for 70% of the corporate performance factor while the remaining portion is based on the achievement of strategic business objectives. The board sets these objectives in the corporate mandate at the beginning of each year. Please see Statement of corporate governance practices – How we are meeting the TSX guidelines – guidelines 1(a) and 1(c) for more information. The MRCC determines the annual short-term incentive awards by considering both the corporate performance and the executive officer’s contributions.
     For the year 2003, BCE’s financial targets were set with respect to net earnings applicable to common shares (EPS), revenue growth, EBITDA ¹ growth, capital intensity (% of revenues), free cash flow ² and ROIC ³. Each of these components has a weight of 10% except the EPS which is at 20%. Strategic business objectives which account for the remaining 30% of the corporate performance factor might include, for example, a specific corporate objective with respect to a particular subsidiary, the development of new businesses, higher penetration of products and services, the improvement of management development or the strengthening of certain relationships. Further to the implementation of a new structure at Bell Canada in June 2003 and in recognition of the increased focus of BCE’s executive officers on Bell Canada, BCE’s core asset, the MRCC and the board decided to adjust BCE’s corporate performance factor based on Bell Canada results. In 2003, Bell

Canada’s performance was evaluated based on NIAC¹ (45%), revenue (25%) and customer satisfaction (30%), which resulted in a Bell Canada corporate performance factor of 50%. Consequently, a corporate performance factor of 50% instead of 65% was used to determine the annual short-term incentive awards of BCE’s executive officers.
     The individual’s contribution is evaluated based on criteria that affect corporate performance such as creativity and initiative in addressing business issues, succession planning and management development. The individual performance factor may vary between 0 and 200%.
     Each year, the MRCC sets target values for the awards. In 2003 the target awards ranged from 30% of base salary for the lowest eligible officer’s position to 125% of base salary for the President and Chief Executive Officer. The minimum target for the named executive officers was 75% of base salary.
     On the basis of the above factors, the MRCC determines the size of the annual short-term incentive awards. More specifically, awards are computed based on the product of the target award, the corporate performance factor and the individual performance factor. The maximum payout is two times the target award.
     In most cases, awards granted for a year are paid at the beginning of the following year.
     Executive officers who are eligible to participate in the BCE share unit plan for senior executives and other key employees (1997) (deferred share unit plan) and in the Employees’ profit sharing plan can elect to have up to 100% of their annual short-term incentive award paid in deferred share units (DSUs) or contributed to the Employees’ profit sharing plan. They must decide how they wish to receive their award by the end of the year in which the award is earned. Please see Deferred share unit plan for more information. Contribution to the Employees’ profit sharing plan permits tax on the incentive award to be paid by the time of the required filing date of the income tax return for the year of contribution.
     Election to receive the award in the form of DSUs can be used as a means to achieve mandatory share ownership levels as described under Share ownership requirements.

Two-year Bell Canada capital efficiency incentive plan
Bell Canada had a special incentive plan in place for 2002 and 2003. The plan was designed to reward executive officers for reducing Bell Canada’s capital intensity ratio, which is defined as capital expenditures divided by revenues. Bell Canada’s board approved the capital intensity targets in November 2001. Because the BCE group of companies and the telecommunications industry have changed their focus from measuring performance based on capital intensity to free cash flow, the targets for 2003 were changed to free cash flow in early 2003.
     The payments are calculated using the short-term incentive target award in effect as of December 31, 2003. The maximum payment for each executive officer for 2002 is 50% of the target award under the short-term incentive plan. The maximum payment for 2003 is 65% of that target award. The total combined maximum payment is 115% of the target award.
     The capital intensity target for 2002 and the free cash flow target for 2003 were both met and related payments were made in the first quarter of 2004 to eligible executive officers who maintained satisfactory individual performance until payment. Payments were made in cash, in DSUs or contributed to the Employees’ profit sharing plan.
     Except for Mr. Anderson, all of the named executive officers were eligible to such incentive. Mr. Blouin became eligible for such incentive for 2003 upon his transfer to Bell Canada.
     The amounts payable under the Two-year Bell Canada capital efficiency incentive plan for each named executive officer are shown under Long-term incentive (LTIP) payouts in the Summary compensation table.

Long-term incentives

In light of BCE’s internal and external environments and to create an even stronger link between executive compensation and BCE’s mid-term and long-term operational and financial success, the board has approved, for 2004 and onward, a significant shift in BCE’s long-term compensation strategy which includes the introduction of a mid-term incentive and a reduction in the use of stock options. These are discussed under Change in compensation strategy for 2004 and in the future.

Stock Options
The MRCC may grant BCE’s executive officers and other key employees, and those of certain of BCE’s subsidiaries, options to buy BCE common shares under the stock option plans. The number of outstanding options is not taken into account when determining if and how many options will be awarded.
     Multiples of the base salary are used as a basis to grant stock options. The multiples vary depending on the position and are designed to bring total compensation, depending on individual performance, to between the 50th and 75th percentile of what is paid by the comparator group for similar positions. The 75th percentile is reserved for those few individuals who have contributed in an outstanding fashion. The option multiples used in 2003 were reduced by an average of 20% from the 2002 levels in order to reflect the downward trend in the size of stock option grants.
     The number of options granted is calculated by dividing the value of the grant by the subscription price i.e., the market value of BCE common shares on the day before the grant is effective. The MRCC may approve special grants of stock options to recognize singular achievements or, exceptionally, to retain or motivate executive officers and key employees.
     The price at which a common share may be purchased when the option is being exercised is called the exercise price. The exercise price is at least equal to the subscription price, except under certain circumstances. For example, the MRCC may set a higher exercise price when it grants the option. Or it may set a lower exercise price to maintain the economic position of the option holder. This may take place when an option to acquire shares of one of BCE’s subsidiaries or of a company that BCE is acquiring is converted into an option to acquire BCE common shares. The lower price would be subject to any required approval of the stock exchanges on which BCE common shares are listed.
     The term of an option is normally 10 years from the day it is granted, unless the option holder retires, leaves the BCE group of companies, dies, or the company he or she works for is no longer part of the BCE group of companies. In these cases, the term may be reduced in accordance with the stock option plan under which it was granted or in accordance with decisions made by the MRCC.
     The right to exercise an option normally accrues or “vests” by 25% a year for four years from the day of grant, unless there is a change of control of BCE or of a designated subsidiary or the MRCC sets different terms. Please see Change of control for details.

     Option holders will lose all of their unexercised options granted after 2001 if they engage in prohibited behavior after they leave the BCE group of companies. These include using BCE’s confidential information for the benefit of another employer. In addition, the option holder must reimburse BCE the after-tax profit realized on exercising any options during the twelve-month period preceding the date on which the unfair employment practice began.
     Prior to November 1999, some options were granted with related rights to special compensation payments (SCPs). SCPs are cash payments representing the excess of the market value of the shares on the day of exercise of the related options over the subscription price of the options. SCPs, if any, are attached to options and are triggered when the options are exercised.
     Effective January 1, 2003, BCE adopted the fair value method of accounting for stock option compensation on a prospective basis.

Change of control
Special vesting provisions in the event of a change of control were introduced in 1999.
     A change of control of BCE occurs when:

• another party acquires 50% or more of the outstanding securities of a class of voting or equity securities of BCE
  
• the composition of a majority of the BCE board changes for a reason such as a dissident proxy solicitation
  
• BCE’s shareholders approve plans or agreements for disposing of all or substantially all of BCE’s assets, liquidating or dissolving BCE, or in certain cases, merging, consolidating or amalgamating BCE, or
  
• the MRCC determines that an event is a change of control.
  

     If there is a change of control of BCE and the option holder’s employment is terminated within 18 months of the change of control for a reason other than for cause or if the option holder terminates his employment for good reason, his or her unvested options will become exercisable for a period of 90 days from the date of termination, or for a longer period if the MRCC allows it.

Change of control or partial change of control of Bell Canada or a designated entity
Unvested options of an option holder who is employed in one of BCE’s business units, such as Bell Canada or another subsidiary that the MRCC identifies as a “designated business unit”, will become exercisable if:

• BCE’s interest in the business unit or subsidiary falls below 50% but remains at least 20%, and
  
• the option holder’s employment is terminated within 18 months of the reduction for a reason other than for cause or if the option holder terminates employment for good reason.

     The option holder has up to 90 days from that day, or longer, if the MRCC allows it, to exercise the options.
     If BCE’s interest in a designated business unit falls below 20%, option holders who are employed in that business unit may exercise all of their unvested options effective upon the earlier of:

• one year following the reduction in the interest, or
  
• the day the option holder was terminated.
  

     The option holder has up to 90 days from that day, or longer, if the MRCC allows it, to exercise the options.

Stock options for executive officers of BCE subsidiaries
The number of options granted to Bell Canada’s executive officers in 2003 was based on the economic profit target of 2002. As the 2002 target was exceeded, their stock option grant was increased by 10% which means that they received 110% of their normal grant in February 2003. If 90% to 100% of the target had been achieved, 100% of the grant would have been awarded. If less than 90% of the target had been achieved, executive officers would have received only 50% of their grant.
     In 2003, the economic profit target was replaced by the return on equity (ROE)¹ target and therefore 100% of the grant was taken into consideration when establishing the 2004 grants under the new executive compensation policy. Please see Change in compensation strategy for 2004 and in the future for details.
     The share option plan of BCE Emergis is almost the same as BCE’s stock option plans, except that the term of the options is six years and options vest by 25% after two years, 75% after three years and 100% after four years. As Chief Executive Officer of BCE Emergis until May 13, 2003, Mr. Blouin participated in the BCE Emergis share option plan.
     You will find more information about options granted and exercised under these programs in the tables under Other compensation information –Stock options.

Deferred share unit plan
The deferred share unit plan is designed to more closely link the interests of the executive officers to those of the shareholders. DSUs may be awarded to certain executive officers and other key employees and those of certain subsidiaries.
     DSUs have the same value as BCE common shares. The number and terms of outstanding DSUs are not taken into account when determining if and how many DSUs will be awarded. There is no vesting period for DSUs.
     DSUs receive payments that are equivalent to the dividends on BCE common shares. Additional DSUs are credited on each dividend payment date and are equivalent in value to the dividend paid.
     Eligible executive officers can choose to have up to 100% of their annual short-term incentive award and capital efficiency incentive award paid in DSUs instead of cash. The award is converted into DSUs based on the market value of a BCE common share on the day before the award is approved by the board. These DSUs count towards the minimum share ownership requirements, which are described under Share ownership requirements.
     The MRCC may also grant special awards of DSUs to recognize outstanding achievements or for attaining certain corporate objectives.
     Holders of DSUs may not sell their units while they are employed by a company of the BCE group. Once they leave the BCE group, BCE will buy the same number of BCE common shares on the open market as the number of DSUs a participant holds in the plan, after deductions for applicable taxes. These shares are then delivered to the former employee.

Share ownership requirements

BCE believes in substantial share ownership and is providing compensation programs designed to encourage executive officers to own shares of BCE through common shares or DSUs. A minimum share ownership level has been set for each position, based on a percentage of annual base salary:

• President and Chief Executive Officer – 500%
  
• Group Presidents and heads of major lines of business – 300%
  
• other officers – 200%.
  

     These officers must meet their target within five years with the objective that 50% of their target will be reached within 3 years. The 5-year target must be reached by April 2006, or within 5 years from their date of hire or promotion, if such event occurred after April 1, 2001.
     Share ownership requirements also apply to all Vice-Presidents with a target of 100% of annual base salary.
     Shares or DSUs received through the following programs can be used to reach the minimum share ownership level:

• deferred share unit plan, which is described under Deferred share unit plan
  
• employees’ savings plan, which is described in Other compensation information – Executive compensation table, footnote (6)
  
• shares acquired and held by exercising stock options granted under BCE’s stock option plans, which are described under Long-term incentives.
  

     As part of the new compensation policy for 2004 and beyond, concrete measures will be taken to ensure that share ownership requirements are met.

Chief Executive Officer’s compensation

When he was appointed President and Chief Executive Officer in 2002, Mr. Sabia asked that his current and future base salary and incentive compensation be adjusted to place more weight on variable (at risk) compensation. As a result, the MRCC reduced the mid-point of the salary range for the Chief Executive Officer from the median of the comparator group to 90% of that value. At the same time, the MRCC increased the target value of the annual short-term incentive from 100% to 125% of base salary to preserve the alignment of the total cash compensation.
     The MRCC agreed, at Mr. Sabia’s request, to keep Mr. Sabia’s annual salary at its current level of $1,000,000 for the year 2003. His current salary corresponds to the minimum of the salary range for the President and Chief Executive Officer position.
     The MRCC evaluates at the beginning of each year the performance of the CEO based on his contribution to the:

• financial performance of BCE compared to financial targets set at the beginning of the year
  
• progress of BCE in reaching its strategic objectives
  
• development of the executive team and succession planning
  
• maintenance of BCE’s leadership in the telecommunications industry.
  

     The assessment of Mr. Sabia’s performance by the MRCC has translated into an individual contribution factor of 200%, which corresponds to the maximum individual factor. The performance assessment included the following achievements:

• Bell Canada was restructured along customer segment lines and consolidated Network and Customer operations business units into one comprehensive operations group within a short timeframe and with little disruption to ongoing operations
  
• actions were launched in all key areas of the company to simplify internal processes and provision of services to customers
  
• partnerships were initiated with software, services and technology providers to enable Bell Canada to move quickly toward the Internet Protocol (IP) technology
  
• substantial improvement was made in operating profitability.
  

     Using the same short-term incentive formula as described under Annual short-term incentive awards and based upon a corporate performance factor of 50%, Mr. Sabia’s 2003 short-term incentive award was established at $1,250,000. Mr. Sabia chose to receive his entire award in DSUs, therefore no short-term incentive award was paid to him in cash for 2003.
     Mr. Sabia would have been entitled to receive $1,437,500 under the Two-year capital efficiency incentive plan. He has declined payment. In his capacity as CEO, Mr. Sabia believes that he should receive no incremental compensation for the achievement of this corporate objective.
     As President and Chief Executive Officer, Mr. Sabia received an annual grant of 525,000 options in February 2003.
     The MRCC did not make any changes to Mr. Sabia’s pension arrangements in 2003.

Compensation policy of subsidiaries

Bell Canada’s and BCE Emergis’ compensation policies are similar to BCE’s. Payments under their short-term incentive plans depend on achieving their respective corporate objectives, which are set out at the beginning of each year.
     The board approved the recommendations of Bell Canada for grants of BCE options to Mr. Blouin, Mr. Wetmore, Mr. Roman and Mr. Sheridan in 2003. Grants of options to Mr. Blouin while he was employed by BCE Emergis were made under the BCE Emergis share option plan, according to BCE Emergis’ compensation policy.

Change in compensation strategy for 2004 and in the future

BCE and its core asset, Bell Canada, are dealing proactively to the changing competitive landscape and customer needs. During the last year, the structure and business strategy have been realigned to deliver on these business realities. BCE and Bell Canada have worked to simplify both the customer experience and the internal operations. As well, the type of leadership considered essential for success now and into the future was redefined.
     In light of these important changes, starting in 2004, the executive compensation policy has been redesigned to ensure close alignment and support with the company’s new direction and strategic objectives. The committee has been closely involved in developing the overall design. The design delivers clear direction as to what is important to BCE executives and Bell Canada executives and what behaviors and types of results will be rewarded. Fundamentally, the new executive compensation policy is designed to drive a shift

in culture toward greater individual accountability and higher levels of performance.
     The underlying philosophy is to remain conservative with regards to fixed compensation (such as base salary) while placing more emphasis on variable (at risk) compensation, through the use of three different compensation vehicles, short-term, mid-term and long-term incentive plans. Each of these variable compensation vehicles contains specific performance targets which must be met in order to trigger any payments. These targets are not achievable by incremental change alone, in some cases they will require a complete process redesign.
     The key components of this policy are:

• increase total compensation from the median (50th percentile), where it is today, to the 60th percentile of a specific comparator group of companies. This will provide BCE and Bell Canada with the ability to attract and retain the type of executives needed to deliver at required performance levels.
• elements within the total compensation policy at the 60th percentile

  –	maintain base salaries at the median (50th percentile), their current level
  –	increase the short-term annual incentive target awards from the median to the 75th percentile of the comparator group for similar positions. This will further reinforce the importance of meeting the annual financial drivers and the fashion in which they are delivered.
  –	transfer approximately 50% of the value of the long-term incentive plan, where stock options are granted, into a new mid-term plan under which Restricted Share Units (RSU) are used as the vehicle:
  	•	dependent on their level, each executive is granted a specific number of RSUs for a two-year period. The RSUs will either vest or be forfeited two years from the grant date.
  	•	vesting is conditional on achieving specific operational targets by the end of a two-year performance period. These targets are directly aligned to achieving the company’s strategic goals for each of the core business units of Bell Canada.
  	•	at the end of the performance period, subject to compliance with individual share ownership requirements, vested RSUs will be paid in BCE common shares or in cash.
  –	reduce the value of stock options granted in the long-term incentive plan by approximately 50% and changing the key design features:
  	•	vesting is subject to a combination of time and performance. The performance metric is based on meeting or exceeding the median total shareholder return of a group of North American telecommunications companies. 50% of the stock options will vest after two years and 100% after three years, subject to achieving the performance metric.
  	•	option period reduced from ten to six years
  	•	number of stock options granted cover a three-year period (front-loaded).

Conclusion

In the MRCC’s view, the total compensation of the named executive officers for 2003 was appropriate and competitive in the marketplace. The MRCC believes that it was also consistent with the compensation policy of linking a large part of executive officers’ compensation to the achievement of corporate performance objectives and the creation of shareholder value.
     The MRCC believes that the compensation must reflect corporate performance. As such, the annual short-term incentive award of the named executive officers was based on a corporate performance factor of 50% as the corporate objectives were not fully achieved.
     Overall, the MRCC is confident that this approach to compensation has allowed BCE to attract, motivate and retain executive officers, while aligning their interests with those of its shareholders. The new compensation strategy implemented in 2004 will help further support the company’s goal to become the best telecommunications company in North America.

Report presented March 10, 2004 by:

P.M. Tellier, Chairman 
R.A. Brenneman 
A.S. Fell 
B.M. Levitt 
J.H. McArthur 
V.L. Young

This section outlines how the named executive officers are compensated, their pension arrangements, and termination and other employment arrangements.

Executive compensation table

The table below shows the President and Chief Executive Officer and the four most highly compensated named executive officers’ salary and other compensation for the financial years ended December 31, 2003, 2002 and 2001. The table also includes disclosure of the compensation paid to Mr. Sheridan who ceased to be an executive officer during the year.

Summary compensation table

The table below shows the total number of DSUs that each named executive officer held and their value at December 31, 2003, based on BCE common share price of $28.90. The total number of DSUs shown excludes DSUs granted as payment of the 2003 annual short-term incentive award and the award payable under the two-year capital efficiency incentive plan.

The table below is a summary of all of the stock options that each of the named executive officers exercised under BCE’s stock option plans, the BCI stock option program, the Aliant stock option plan and the BCE Emergis share option plan in the financial year ended December 31, 2003. It also shows the total value of their unexercised options at December 31, 2003.

Aggregated option/SAR exercises during the most recently completed financial year and financial year-end option/SAR values

Pension arrangements

All of the named executive officers participate in the BCE or Bell Canada non-contributory defined benefit pension plan. The BCE and Bell Canada plans are substantially similar. In addition, named executive officers enter into supplementary executive retirement agreements (SERPs).

SERPs

Named executive officers receive 1.5 year of pensionable service under SERPs for every year they serve as an officer of BCE, one of its subsidiaries or an associated company. Retirement eligibility is a function of the executive officer’s age and service. The board may credit additional years of service towards retirement eligibility, pension calculation or both, through a special arrangement.
     In general, a named executive officer will receive SERP benefits when he or she reaches:

• at least age 55, and the sum of age and service is at least 85
  
• at least age 60, and the sum of age and service is at least 80
  
• age 65 and has 15 years of service.
  

     Pensions are calculated based on pensionable service and pensionable earnings.
     Pensionable earnings include salary and short-term incentive awards, up to the target value, whether they are paid in cash or DSUs. The one-year average of the named executive officers best consecutive 36 months of pensionable earnings is used to calculate his or her pension. There is a maximum limit on the amount of annual short-term incentive awards that can be included.
     A named executive officer may receive up to 70% of his or her average pensionable earnings in a total pension benefit under the pension plan and SERP.
     Pensions are payable for life. Surviving spouses receive about 60% of the pension that was payable to the named executive officer.
     Named executive officers receive a retirement allowance equal to one year’s base salary when they retire. This is not included in their pensionable earnings.

Estimated annual pension benefits

The table below shows the estimated annual pension benefits for various categories of pensionable earnings and years of pensionable service that would be payable under the pension plans and SERPs, assuming that a named executive officer retired on December 31, 2003 at age 65.
     These benefits are not subject to any deductions for government benefits or other offset amounts. They are partly indexed every year to increases in the Consumer Price Index, subject to a maximum of 4% per year.

Pension benefits for named executive officers

The amount of service for calculating total pension benefits at December 31, 2003 was 21.5 years for Mr. Sabia (age 50), 17.8 years for Mr. Anderson (age 54), 21.8 years for Mr. Blouin (age 45), 6.8 years for Mr.  Wetmore (age 51) and 24.3 years for Mr. Roman (age 46).
     Eligibility to SERP benefits for Mr. Anderson, Mr. Blouin, Mr. Wetmore and Mr. Roman occurs at age 55 and is at age 60 for Mr. Sabia.
     Mr. Sabia can retire at anytime from age 60 under his SERP. In 2002, he was credited with an additional 9 years of service, such being offset by a reduction in the range used to determine future grants of options, which provided for:

• a minimum replacement pension at age 55 that is equal to 40% of his pensionable earnings
  
• a replacement pension at age 65 that is equal to 70% of his pensionable earnings.
  

     If Mr. Sabia’s employment is terminated on or after age 55 but before age 60, his pension will be at least equal to 40% of his pensionable earnings. In this case, the calculation will be based on the one-year average of his best consecutive 60 months of pensionable earnings. If Mr. Sabia’s employment is terminated before age 55 for a reason other than for cause or a change of control, his pension from age 55 will be calculated as if he was age 55 when he left the company.
     Mr. Wetmore can retire at age 55 under his SERP. His pension will equal 25% of his average pensionable earnings if he retires at age 55, 40% at age 60 and 55% at age 65. This includes pension benefits he earned when he was employed at Aliant.
     Based on current compensation and service accrual to age 55, the estimated annual benefits payable at age 55 are as follows: Mr. Sabia, $561,985, Mr. Anderson, $180,601, Mr. Blouin, $348,622, Mr. Wetmore, $200,157 and Mr. Roman, $274,824.

Termination and other employment arrangements

An agreement with Mr. Sabia setting out the terms of his employment agreement was entered into effective April 24, 2002 with BCE. In addition to the total compensation elements and pension arrangements described above, the agreement provides for the following principal terms:

He will receive payments if:

• he is terminated without cause, including following a change of control, or
  
• he resigns for certain reasons, including if there is a major change in his responsibilities, such as being removed as a director of BCE (other than if required by law), a reduction in his total compensation, specific benefits or perquisites, or for any reason within one year of a change of control. The employment agreement defines a change of control primarily as another party acquiring at least 33 1/3% of BCE’s voting shares or at least 33 1/3% of its assets.
  

These payments include:

• base salary and annual short-term incentive award, prorated to the number of complete months expired immediately after such termination
  
• a lump-sum payment equal to his base salary plus the target value of the annual short-term incentive award for up to 36 months or the period between the day he is terminated and the day he is eligible to receive his pension at age 65, whichever is less. The current target for the annual short-term incentive award for the Chief Executive Officer is 125% of base salary
  
• any other benefits, such as pension, disability, insurance proceeds, stock options or other amounts that may be payable under any other plan or agreement if Mr. Sabia’s employment is terminated.
  

     The above payments are subject to Mr. Sabia’s compliance with the non-competition and non-solicitation provisions of his employment agreement.
     If there is a change of control, all of Mr. Sabia’s BCE stock options will vest, whether his employment is terminated or not.
     Mr. Sabia’s employment agreement also covers compensation and treatment of stock options if he leaves BCE because of illness or disability, if he retires or if he dies.
     In the event of the retirement of Mr. Anderson after December 31, 2004, he will be entitled to receive salary and short-term incentive award at target for a period of up to 12 months.

     Under Mr. Wetmore’s employment agreement with Bell Canada, he will receive payments if:

• he is terminated without cause, or
  
• he resigns for certain reasons, including any significant change in his duties, functions or total compensation and which are not reasonable to Mr. Wetmore.
  

These payments include:

• a severance indemnity equal to his base salary and annual short-term incentive award at target for a period of 24 months or a period equal to the amount of time between the date of termination and age 65, whichever is less
  
• vesting of all of Mr. Wetmore’s BCE stock options.
  

     The above payments are subject to Mr. Wetmore’s compliance with the non-competition and non-solicitation provisions of his employment agreement.
     Mr. Sheridan left Bell Canada on November 28, 2003. Mr. Sheridan is entitled to the following principal benefits under arrangements made in 2003 and at time of his departure:

• a lump-sum severance payment equal to 12 months of his 2003 base salary and short-term incentive award at target (75% of base salary)
  
• subject to compliance with confidentiality and non-competition provisions:

  –	a monthly pension benefit of $27,300 starting at age 55
  –	additional amount of two times base salary and annual short-term incentive award at target payable in 24 installments
  –	vesting of stock options until November 28, 2006 and 120 days from such date to exercise vested options
  –	participation in benefit plans and perquisites until Mr. Sheridan is employed elsewhere but for a period not to exceed 36 months.

Shareholder return performance graphs

The graphs below compare the cumulative annual total return of our common shares to the cumulative annual total return of the S&P/TSX Composite Index and the S&P Global 1200 Telecommunication Services Index. They assume an initial investment of $100 and that all dividends were reinvested. Percentages shown in the graphs represent compounded annual rates of return over the period.