BT Group chief executive Gavin Patterson will step down later this year with a successor to be named soon after.
He will not now receive the 2018 incentive share plan, worth £3.5m.
Analysts at Bernstein said it was no secret that Patterson was under huge pressure, but added that the timing of the announcement was "highly puzzling and worrying".
His leadership has seen a number of significant developments.
Patterson's exit also follows major restructuring at BT.
But the firm has been criticised for spending money in this way, and not on improving both the breadth and speed of its broadband coverage.
Patterson said the company was well placed for the future.More news: Kingdom Hearts 3 release date announced
Mr Patterson will stay in his role until that time.
BT shares plummeted after it was announced, and are now trading near a six-year low. After his departure was announced, the shares were up by 1.2 percent.
Mr Patterson expanded BT beyond its core business by investing in its TV arm and buying football broadcast rights.
"I am confident that, for the remainder of his term, Gavin and his senior management team will continue to display the energy required to deal with every dimension of the task at hand", he said. When you are a former monopoly, and have a division, Openreach, that offers services to your direct competitors, you do not want to be having the regular run-ins with the regulator that have peppered the last few years. Finally, although the board gave his plan their support - many investors felt it was nowhere near bold enough to correct years of (ultimately fatal) underperformance.
BT chairman Jan du Plessis said that while the board was generally supportive of the new strategy set out by Patterson and his team in May, given the reaction to it, both he and Patterson had now agreed only a leadership change could actually deliver on these plans.
He managed to avoid a full break-up of the group by agreeing to legally separate Openreach, but he admitted he had been taken aback by the flak BT had received about its customer service and its networks during the bitter two-year battle.
Mr Patterson has been at BT for 14 years, 10 of those as a board member.