Squandering public money, BBC style

The culture of severance packages at the BBC has been exposed as so reckless with public money that there is talk of the police being brought in. Here's why.

David Elstein
19 July 2013

For all the BBC’s ability to enlighten and entertain the nation, nothing quite matches its unique ability to shoot itself in the foot.

Having resisted, where possible, attempts by the Commons Public Accounts Committee to inject National Audit Office investigators into its inner workings, the row over a huge pay-off to a failed Director-General and further pressure from the PAC forced the BBC Trust last November to invite the NAO to inquire more broadly into severance payments for executives.

Actually, we now realize that the BBC employed two failed Directors-General last autumn: George Entwistle, who was paid a year’s salary (plus other benefits that took the total above £500,000) when he resigned over the Savile and McAlpine scandals; and Mark Thompson, who was being paid £102,000 to go on garden leave in September, so as to allow Entwistle to step into his job.

In its report (bbctrust/assets/files/pdf/review_report_research/severance_benefits.pdf) the NAO exposes an extraordinary story. The BBC operated a very generous severance scheme for departing executives. Some qualified for up to 24 months’ salary, depending on length of service; PILON (payment in lieu of notice) was routinely given, even when notice had been given and served many months before departure; top-ups were not uncommon (one departing executive, who was moving to a £200,000 a year job at Goldsmiths, received a £266,000 contribution to his £4m pension pot, in addition to £600,000 in severance).

More than one-third of the 664 senior managers at the BBC as at December 2010 had departed by February 2013. Two-thirds of these received severance payments: the average amount was £164,000, including PILON of £53,000. In a sample of 60 managers, the NAO found that 60% had received PILON, and that 40% of these had received more than their maximum contractual entitlement.

Under fierce pressure from external critics and the BBC Trust, BBC executives agreed in October 2008 to reduce the maximum redundancy entitlement for new entrants to 12 months, not 24 months: but 85% of current BBC managers still qualify for the 24 month maximum.

Since the new Director-General, Tony Hall, arrived in April 2013, he has proposed that the maximum be reduced to twelve months’ pay (six for him, actually) or £150,000, whichever is the lesser (a formula not yet accepted, and which anyway does not apply to 15 departures already in the pipeline).

The BBC Trust roundly blamed the BBC Executive for this lamentable state of affairs, referring to an “entirely unacceptable and deeply worrying failure of the BBC Executive and its Remuneration Committee to follow agreed policy and entitlements”. The Executive – whose membership has substantially changed in recent months – has accepted that it failed to exercise adequate governance. It has promised to investigate past failures and report to the Trust.

Of course, this is not the end of the story. Accusations of failure properly to inform were levelled at Mark Thompson by Trust members Lord Patten and Anthony Fry. He immediately replied that the largest single settlement – to remove his own deputy, Mark Byford, at a cost of some £1 million – had been approved in outline and principle by a non-executive member of the BBC board, Marcus Agius, and notified to the Trust (who had no say in the matter). That Byford was given 8 months’ notice of his impending departure was not allowed to stand in the way of his receiving a full 12 months’ PILON.

The root of the problem lies, not in buck-passing, or even in the rickety governance structure of the BBC. It goes back to Thompson’s original appointment as Director-General, at a salary 50% above that of his predecessor, Greg Dyke (ostensibly, to compensate him for giving up the equally lucrative – and  ludicrous – salary he received as CEO of Channel 4, our other publicly owned broadcaster).

Inevitably, salaries of other BBC bureaucrats floated up to close the gap to his £665,000 (which was subsequently inflated further to compensate him in cash for limits imposed on BBC pension contributions). Job titles were created that then disappeared when the occupants were paid off: the BBC no longer has a Deputy Director-General, or a Chief Operating Officer.

A Marketing Director was appointed who was paid off with nearly £400,000, despite not qualifying for any redundancy payment, having served less than two years when Thompson made the decision to remove her. This problem was got around by giving her eight months’ notice, which neatly took her over the 24-month qualifying period, even though a month after announcing this arrangement, the executive, Sharon Bayly, took maternity leave.

Sir Michael Lyons, when he was chairman of the Trust, maintained a steady pressure on Thompson in relation to management salaries and numbers. Individual pay levels were frozen, bonuses were abolished for top managers, perks were removed for incoming managers, and a steady flow of exits instituted.

Yet this served mostly to demonstrate how completely salaries and numbers had “got away” from the Trust. The BBC tries to mitigate the negative publicity over the NAO report by referring to the “savings” being achieved annually (around £17 million) from having reduced the number of top managers by a third. Yet surely – unless the BBC is being much worse managed than previously – the correct conclusion must be that the BBC was simply wasting that £17 million every year.

Moreover, even as it was bribing managers to depart – a third of those in the corporate division and the finance and business directorate left in three years – the BBC was still hiring. Although the NAO report does not spell out the exact numbers, it would appear from their analysis that whilst 450 senior managers have left since 2005, some 150 have been hired. Indeed, in the last eight years, according to the NAO, the BBC has spent £369 million on making 7,500 staff redundant. Yet on even the most optimistic version of the employment figures, the reduction in BBC staffing is less than half that total.

Indeed, the NAO allows itself to fall for an old BBC trick, which is to compare oranges and apples. It notes that in the BBC’s last licence fee settlement, in 2010, it promised a major reduction in staff. But the 3,700 reduction reported by the NAO (using BBC figures) goes back to 2005, before the BBC sold off one of its labour-intensive service businesses, which accounted for the only large reduction in BBC employment.

Even on the figures cited by the NAO, employee numbers reduced by just 115 between 2008 and 2011. And cross-checking with the BBC’s annual reports would have allowed the NAO to see figures for BBC employees up to 3,000 higher than the ones in this report. This week’s annual report for 2013 refers to 21,282 employees, not the 19,649 cited by the NAO

As for the Trust, despite being charged with delivering value for money for the licence fee payer, it never got a handle on severances. It chose not to intervene on severance policy (which it assumed was being approved by the non-executive members of the BBC Executive), and never realised that this policy was anyway as often honoured in the breach as in the observance.

Yet some of the biggest pay-offs were public knowledge, and were well-known to the Trust before they became public. Caroline Thomson was paid £680,000 to go away after failing in her bid for the top job, which represented two years’ salary: yet she was perfectly willing to work her notice, and has recounted how Lord Patten, chairman of the Trust, even sat her down and recommended the head-hunters where he was a non-executive, so as to help her find a new job.

Now, of course, the Trust is requiring that the Executive report annually on pay and on severances, whilst the new policies – including abolition of PILON and reductions in notice periods where employment has been found elsewhere – are implemented. Astonishingly, these include BBC Human Resources now keeping “a detailed record of all redundancy payments and severance payments”.

The NAO established that there were overlapping and incomplete approval processes. Until January of this year, divisional managers could approve severances costing up to £500,000. Now, everything above £75,000 will have to go through the BBC Senior Management Remuneration Committee, and anything out of the ordinary will go up another level, to the non-executives who form the Executive Remuneration Committee.

Perhaps the most startling feature of the BBC’s session last week with the Commons Public Accounts Committee was the admission by the BBC’s Director of Human Resources, Lucy Adams, that she realised when she arrived at the BBC that severance policy was not always being followed, with unnecessarily large payments being made: but she accepted that this was part of the BBC “culture”.

When Rupert Murdoch referred to the culture of Fleet Street including payments to informants, he was excoriated for turning a blind eye to illegality. Given that BBC executives were conspiring to hand out and receive money for which there was no entitlement (out of 60 cases investigated by the NAO, 14 had received such payments), it is not surprising that some MPs have been calling for police investigation of possible fraud or misconduct in public office.

What is clear is that the “culture” of a whole generation of BBC executives was to have little regard for the decent opinions of mankind. Unique amongst them was Roly Keating, a former Controller of BBC2, who returned his severance cheque (less the amount deducted for tax) when he heard what the NAO had concluded. He had left the BBC to take a lower-paid job at the British Library, but had nonetheless received a gross amount of £375,000. Both Mark Thompson and Lucy Adams were personally involved in what the NAO described as a “seriously deficient” process.

There has always been, in any organisation, a requirement to mitigate any redundancy payments by seeking alternative employment and otherwise working out notice periods. When the BBC allowed an executive to receive 12 months of PILON, having already given him14 months’ notice of his projected last day at work (as happened with our man now at Goldsmiths), was that the kind of abuse that managers might encourage if they thought that they, too, might one day benefit from such a scam?

And the NAO report does not even include the £800,000+ payment for John Smith, who departed BBC Worldwide to go to Burberry’s as chief operating officer earlier this year.

Thompson will be giving evidence to the PAC later this year. He has many questions to answer. Perhaps the most important is why he allowed such a state of affairs to prevail during his period at the top of the BBC, seeming not to realise its scandalous dimensions. The MPs will not let him off as lightly as Nick Pollard did in his report on the Savile affair. Nor should they. The new executives show signs of wanting to take on the huge task of restoring the BBC's financial reputation and they will need all the help they can get.


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