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Regulator blocks Network Rail board's bonus plans

Richard Price, the new rail regulation boss, has blocked Network Rail's £15.6m long-term management incentive proposals as he looks to overhaul the track operator's controversial bonus culture.

The move comes despite attempts by the revamped Network Rail board to introduce an improved incentive structure after the rows over director bonuses that marred the last days of Iain Coucher's leadership. The former chief executive was awarded £641,000 on top of his £613,000 basic salary last year, but successor David Higgins has proposed a more disciplined scheme.

Mr Higgins' team suggested that more of the bonus should be based on how Network Rail performs in its five-year control periods, the latest of which runs to 2014. The 10 executive directors and executive committee members are entitled to 2.6 per cent of anything up to £600m that the organisation saves over its £5.2bn efficiency target.

On top of this potential £15.6m pot, the executive directors and committee members could get an annual bonus of up to 60 per cent of salary, down from the Coucher era's 100 per cent. For example, Mr Higgins' basic £560,000 could become nearly £900,000 this financial year.

Although NR's members, who act in a similar way to a company's shareholders, have approved the proposals, the Office of Rail Regulation (ORR) believes the scheme does not meet the three core objectives for the incentive plan that it set out earlier this year. These are delivery, which includes improving service and health and safety; out-performance, so that NR is incentivised to beat efficiency targets; and accountability and transparency, such as openly seeking the views of the members and Network Rail's principal funders, which include the Government.

Bill Emery was due to write to NR with the ORR's concerns after a board meeting in April, but he has since been replaced by Mr Price. The ORR has instead met with NR several times as they try to hammer out a compromise.

NR chairman Rick Haythornthwaite told members at the annual meeting earlier this month that he "won't stretch [their] mandate", meaning that should the incentive plan significantly change he will put the proposals to a second vote.

A resolution is not expected for several months. An industry source said: "The gut feeling is that the new rail regulator with Mr Price at the helm wants to be seen to look at things anew."