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Week ending July 6, 2013

NAO - Severance payments and wider benefits for senior BBC managers - July 1, 2013
from Angharad Thomas/NAO

The savings the BBC has made from senior manager redundancies exceed the cost of severance payments, according to a report today from the National Audit Office for the BBC Trust. However, the spending watchdog found that the BBC has breached its own policies on severance too often and without good reason, exceeded contractual entitlements and put public trust at risk.

The report concluded that the severance payments for BBC managers have therefore provided poor value for money.

The findings from the report include the following:

Between August 2009 and December 2011, the BBC exceeded its target of a 20 per cent cut to the number of senior managers it employs. By December 2011, it had reduced numbers by 24 per cent to 484. By February 2013, it had further reduced senior manager numbers to 436.

Two-thirds of all senior managers who left the BBC between 1 April 2005 and 31 March 2013 received a severance payment at a cost, after adjusting for inflation, of £60 million. The BBC estimates that, by 31 March 2013, it had saved £188 million from senior manager redundancies since 2005.

The BBC announced in April 2013 that it is consulting staff on capping redundancy payments at the lower of £150,000 or 12 months’ salary. This cap is lower than that applied by the civil service.

Senior manager entitlements to pay in lieu of notice have, until the recent change in BBC policy, tended to exceed the terms available within the senior civil service. In 14 of the 60 cases the NAO reviewed, the BBC paid senior managers more salary in lieu of notice than would be provided by their contractual entitlement, costing licence fee payers at least £1 million. The NAO identified two cases where the BBC knew that departing senior managers had secured future employment before they had left.

Decisions to award severance payments that exceed contractual entitlements have, until recently, been subject to insufficient challenge and oversight. For example, in five of the NAO’s 60 sample cases, the BBC made unusual payments that were subject to little central assessment of the potential risks to the BBC of making them. These included committing to purchasing £60,000 worth of consultancy services.

The BBC Trust paid the former BBC Director General, George Entwistle, £475,000 after announcing his resignation. This included three weeks’ salary worth £25,000 that was not part of his severance payment of £450,000.

Among the NAO’s recommendations are that the BBC should include within its remuneration strategy the principles that will guide decisions on severance entitlements, and ensure that its revised severance polices are communicated clearly and consistently applied. The BBC should increase scrutiny of severance payments that differ from standard entitlements.

The BBC Trust accepts these recommendations and will ensure they are implemented in full. In its published response to the NAO’s report the Trust has said that:

Some of the conclusions reached by the NAO in its report are deeply worrying, particularly the failure, in the past, of the BBC Executive and its Remuneration Committee to always follow agreed policy and entitlement. Such practices are entirely unacceptable and the BBC Trust welcomes the far stricter approach now introduced by the current Director General and the Non-Executive Directors of the BBC’s Executive Board to both severance policies and their implementation.

While the BBC Trust is not empowered under the Royal Charter to intervene directly in decisions around individual employment arrangements other than those for the Director-General, it will require far higher levels of reporting and annual assurance in regard to the remuneration policies and practices of the BBC going forward.

The Trust notes the NAO finding that the severance payment to George Entwistle in November 2012 was equivalent to his notice period of 12 months. The Trust has since agreed with the current Director-General a reduction to his notice period from 12 to six months.

It will look to the new Director-General to implement rigorously his recently announced policy on severance including the £150,000 cap on future payments.

It will require the Executive to report back on progress against each of the agreed actions as part of formal, regular reporting and assurance from the Executive Board Remuneration Committee to the BBC Trust. In doing so, it expects the Executive to investigate any failures that have been identified in the approval process for previous payments, ensuring that these are dealt with by the Executive’s new procedures. The Trust and Executive’s shared aim is to make certain that no such failure can recur.

It will ensure that decision makers are held to account for any departures from the new policy by requiring the BBC Executive to report publicly in the BBC’s audited Annual Report and Accounts on any exceptions and the justification for them.

It will ensure that a follow up review is carried out within two years to provide further assurance that the NAO’s findings and recommendations have been acted upon.

Anthony Fry, BBC Trustee and Chair of the Trust’s Finance Committee said:

“We asked the NAO to carry out this review following public concern about the size and frequency of severance packages at the Corporation, and this report shows that those concerns were justified. Although the BBC has achieved significant savings in its senior manager pay bill, some of the NAO’s conclusions are deeply worrying, particularly the failure to follow agreed severance policies in a number of cases as a result of weak governance from the BBC Executive in the past. Such practices are unacceptable, and I have no doubt that they will, quite rightly, be met with considerable dismay by licence fee payers and staff alike.

“The Trust is clear that there cannot be a repeat of such a fundamental failure of central oversight and control. We welcome the Director-General’s plans to introduce a cap on severance payments to £150,000, bringing it well under that operated by the Civil Service, and we have asked the Exec to increase the transparency of the BBC’s severance payments by disclosing more information in the Annual Report and Accounts. We will also expect a follow-up review to be carried out within two years.”

Amyas Morse, head of the National Audit Office, said today:

“The BBC has too often breached its own already generous policies on severance payments. Weak governance arrangements have led to payments that exceeded contractual requirements and put public trust at risk.

“The BBC’s proposal to cap redundancy payments, announced in 2013 by the new Director General, is a signal of change for the better. It is well below the maximum that applies to civil servants.”