If Public Sector Budgets Are Getting Slashed Can Public Broadcasters Be Far Behind? The BBC Just Answered That One!

Philip M. Stone July 1, 2010 Follow on Twitter

You are the public broadcaster and your pension fund that had a £470 million ($708 million; €580 million) deficit two years ago is now running a deficit close to £2 billion ($3 billion; €2.5 billion). What to do? The British Broadcasting Corporation (BBC) answered that one Wednesday – you change the rules so every single employee is going to end up with much less at retirement age than they had previously thought

As might have been imagined the employees were not amused  -- already they were unhappy with a pay proposal offering only those earning less than £37,000 ($56,000; €46,000) an annual hike of just £475 ($715; €585)  – and with the pension news the unions broke off talks and are warning strikes could well be on the way.

But it’s not just pensions where management wants major savings. Management itself is in the firing line and whereas the previous target had been to cut management pay by 25% over three years the time frame has now been reduced to 18 months. And the most senior executives for the next two years will receive only 11 months pay annually.

Also, because there is a general feeling in the country that BBC managers and BBC talent are paid too much, the chairman of the BBC Trust says he wants the details of those salaries published, although it is a little unclear if the guilty will actually be named or whether there will be a general listing of how many salaries fall within specific pay levels. There are bound to be plenty of oohs and aahs when that list comes out.

Talent salaries became a major issue a couple of years back when it got leaked that Jonathan Ross, who hosts a once-a-week chat show, a film review program and a once-a-week radio program received £5.5 million ($8.3 million; €6.8 million) annually. Ross’ contract should have been renewed this month but both sides agreed back in February that Ross would leave in July.

The corporation previously had announced it was closing two digital radio stations and a major strategy review is under way to come up with more savings. The BBC receives around £3.5 billion ($5.3 billion, €4.4 billion) annually from the license fee.

Countries all over Europe are announcing major cutbacks in the public sector, so when Britain’s new coalition government announced last week it was looking for major cuts it was a perfect umbrella for BBC management to make the severe changes they have probably wanted to make for some time. This time not only is the political environment right but the country as a whole understands savings are necessary everywhere, even the public broadcaster must share in the pain.  

One thing that is becoming clear and somewhat of an embarrassment is just what a good deal it is to be working in the public sector these days, especially the pension scheme. The BBC operated what is known as a final salary pension scheme that basically provides workers upon retirement annual payments equivalent to around two-thirds of their final annual salary. Thus in today’s world someone earning £75,000 ($113,000; €93,000) in their final year could expect an annual pension for life of around £50,000 ($75,000; €62,000).

That now gets changed. Pensions will now be based on today’s annual salary and no matter what percentage that salary may grow annually in the years to come the new plan will assume just a 1% annual increase. It means that those near retirement today won’t get hurt very much, but for the younger workers it’s a major hit.  

Accountants have said that for a 30-year-old BBC worker today who earns, say, £25,000 ($38,000; €31,000) a year and who could have expected close to 5% annual increases the pension upon retirement – at the BBC that would be age 60 -- would have been around £25,000 ($38,000; €31,000), but under the new scheme that would be reduced to around £9,000 ($13,500; €11,000) annually. Any wonder that the unions are up in arms?

Only about 13% of the 22 million UK private sector workers have such final salary schemes whereas more than 80% of the six million public sector workers have it, the private sector having learned long ago the final salary scheme was just too expensive. Most private companies offer a scheme in which both employee and employer make pension contributions with the proceeds usually invested in the stock market, similar to the U.S. 401 Pension Plan.

Sir Michael Lyons, head of the BBC Trust, explained that the BBC had to act. “The nation is facing some very difficult times and I think will just simply be intolerant if the BBC doesn’t send a strong message that it doesn’t stand aloof and separate from these pressures. It lives in the same world as the whole of the UK population.”

But there seems to be a real disconnect by employees. “If the BBC fails to address the real concerns members have over pay and pensions then a ballot for industrial action seems inevitable,” said Jeremy Dear, the general secretary of the National Union of Journalists.

Since the public doesn’t want to pay a higher license fee, and the mood in the country is to cut costs, management has probably found an opportune time to get its house really in order.

See also...

Public Broadcasting - Arguments, Battles and Changes

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The BBC

Few pure media brands transcend borders and boundries to acheive the iconic status of the BBC. The institution has come to define public service broadcasting. Yet missteps, errors and judgment questions fuel critics. The BBC battles those critics and competitors and, sometimes, itself. 72 pages PDF (February 2009)

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