The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
“The BBC is the world’s leading public sector broadcaster, but recent revelations over severance payments to departing senior managers have put its reputation at risk.
“150 senior managers between them received payments totalling £25 million. We were dismayed to find that many of these individuals received ‘sweeteners’ in their severance packages that were far larger than the sums to which they were contractually entitled.
“Some of the justifications for this put forward by the BBC were extraordinary. We are asked to believe that the former Director General Mark Thompson had to pay his former deputy and long-time colleague Mark Byford a substantial extra sum to keep him ‘fully focused’ on his job instead of ‘taking calls from headhunters’.
“There was evidently a failure at the highest levels of the BBC to challenge payments to senior managers and what appears to have been a culture of cronyism that allowed for the liberal use of licence fee payers’ money.
“While the Executive was handing out these inflated severance payments, the BBC Trust was sitting on its hands, failing to fulfil one of its primary duties which is to ensure the rigorous stewardship of public money.
“These revelations have also been a kick in the teeth for the thousands of journalists and creative talents working at the BBC who produce the high quality programming that sustain its worldwide reputation, and who do not receive generous salaries.
“I am pleased that the BBC’s new Director General, Lord Hall, has acknowledged that the Corporation ‘lost the plot’ in its management of severance payments. We welcome his decision to cap such payments at £150,000 and to remove pay in lieu of notice.
“The dysfunctional relationship between the BBC Executive and BBC Trust, revealed all too clearly in the unedifying disagreements between witnesses at our hearing and conflicting accounts of what was disclosed about individual severance payments, indicates that the governance model was broken. We remain concerned about the veracity of parts of the oral evidence we heard.
“I note that the Trust and the Executive have just announced changes to their working relationship which my committee will want to consider in future examinations of the BBC."
Margaret Hodge was speaking as the Committee published its 33rd Report of this Session which, on the basis of a review carried out by the National Audit Office, examined severance packages to senior BBC managers.
As part of its efforts to cut costs, the BBC has significantly reduced the number of senior managers it employs, from 624 in March 2010 to 445 in March 2013. In the course of our inquiry into the departure of the BBC’s former Director General, George Entwistle, we became increasingly concerned about the scale of severance pay for departing senior BBC managers. We therefore asked the National Audit Office to carry out a review of severance payments. The National Audit Office found that in the three years to December 2012, the BBC gave 150 senior managers severance payments totalling £25 million.
It is unacceptable for the BBC, or any other public body, to give departing senior managers huge severance payments that far exceed their contractual entitlements. The BBC paid more salary in lieu of notice than it was obliged to in 22 of the 150 severance payments for senior managers in the three years to December 2012, at a cost of £1.4 million. Some of the justifications put forward by the BBC were extraordinary. For example, the former Director General, Mark Thompson, claimed that it was necessary to pay his former deputy and long-term colleague Mark Byford an extra £300,000, not because the BBC was obliged to, but to keep Mr Byford '‘fully focused’ instead of “taking calls from head hunters”. This increased Mr Byford’s severance payment to more than £1 million.
Recommendation: The BBC should ensure that severance payments do not exceed what is absolutely necessary.
There was a failure at the most senior levels of the BBC to challenge the actual payments and prevailing culture, in which cronyism was a factor that allowed for the liberal use of other people’s money. We were not able to account for every case in which a manager who approved a settlement in excess of contract entitlement themselves later benefitted from a similar arrangement. We believe this contributed to the prevailing culture at the top of the BBC whereby giving inflated severance payments to departing managers was an acceptable way of cutting senior manager numbers and salary costs. We share the view of the BBC’s Director General, Lord Hall, that the BBC had “lost the plot” in its management of severance payments in recent years. We welcome the changes that he has made to cap severance pay.
Recommendation: The BBC should remind its staff that they are all individually responsible for protecting public money and challenging wasteful practices.
The checks that the BBC Executive applied to severance pay for senior managers were totally inadequate. The non-executives who sat on the BBC’s Executive Board Remuneration Committee failed to provide an effective check on severance pay for the BBC’s most senior staff. In turn, the Executive failed to exercise sufficient oversight of the 40 BBC staff involved in authorising severance payments to departing senior managers. For example, senior BBC executives were seemingly unaware, until it was brought to their attention by the National Audit Office, that one departing manager received £141,000 more than their contractual entitlement. Responsibility and accountability must be clearly defined and transparent, not only at senior levels but across the organisation, to satisfy the licence fee payer that public money is being used appropriately.
Recommendation: To protect licence fee payers' interests and its own reputation, the BBC should establish internal procedures that provide clear central oversight and effective scrutiny of severance payments.
It beggars belief that the BBC Trust could not locate key documents about the most significant restructuring in recent years of the BBC's Board and the associated severance payments. These documents, which included proposed payments to the BBC’s former Deputy Director General, Mark Byford, came to light after the BBC Trust Unit had concluded it held no such documents. The documentary evidence also suggests that the BBC wrote to Mr Byford to confirm his severance terms before these terms had been approved by the Executive Board Remuneration Committee. Poor documentary records contributed to the confusion and lack of transparency about what had been proposed, discussed and approved.
Recommendation: The BBC Executive and the BBC Trust need to overhaul the way they conduct their business, and record and communicate decisions properly.
By choosing not to challenge very large individual severance payments, the BBC Trust and its officials failed to fulfil one of its primary duties, which is to ensure the rigorous stewardship of public money. The BBC Trust approves the strategy for executive remuneration but does not examine its implementation in detail. The witnesses from the BBC Trust told us that they do not question individual payments as they are operational decisions for which the BBC Executive Remuneration Committee is responsible. In our view, this is too narrow an interpretation of the BBC's Trust's responsibilities.
Recommendation: Given its overarching responsibility for the stewardship of public money, the BBC Trust should be more willing to challenge practices and decisions where there is a risk that the interests of licence fee payers could be compromised.
Our examination of severance payments exposed a dysfunctional relationship between the BBC Executive and the BBC Trust that casts doubt on the effectiveness of the BBC's governance model. The unedifying disagreements between witnesses and the conflicting accounts of what was disclosed about individual severance payments are symptomatic of a wider breakdown in the relationship between the BBC Trust and the Executive. At present the governance model is broken. The Trust and the Executive have a limited amount of time to demonstrate that the current governance model can be made to work.
Recommendation: The BBC Trust and the BBC Executive need to ensure that decision-making is transparent and accountability taken seriously, based on a shared understanding of value for money, with tangible evidence of individuals taking public responsibility for their decisions.