Too high a price: Why huge executive salaries are the bane of the BBC

When James Murdoch attacked the BBC for its size and dominance last year, he failed to mention the big issue behind the corporation's woes.

He never mentioned executive pay. Maybe it was the austere beauty of his surroundings in Edinburgh, the city where John Knox spent his final years. Or maybe it was just that James Murdoch was conscious that he himself enjoys a pay package said to be worth nearly £6m a year.

But when the heir to his father Rupert's News Corporation empire stood up before the great and good of the television industry last year and angrily accused the BBC of being "chilling", "land-grabbing" and Orwellian, he failed to identify the issue that, 12 months later, most obviously supports his argument that the corporation is over-funded and inefficiently run.

A year after Murdoch Jnr's provocative MacTaggart Lecture to the Edinburgh International Television Festival, when he demanded that the BBC "must be far, far smaller", the organisation has not been obviously diminished, nor is it less dominant within a British media ecology where commercial rivals wrest with pitiless economic conditions.

But we have a new government committed to cutting public spending, and the BBC is vulnerable over executive pay. So much so that corporation staff, furious at plans to change their pension scheme, are threatening strike action next month that could target landmark broadcasts such as coverage of the Last Night of the Proms and the autumn party conferences.

Speaking to The Independent this week, the former BBC director-general Greg Dyke says that the corporation's bosses, through their generous pay packages, are giving encouragement to the Government to take a knife to the BBC. "I do think that at a senior level they haven't really acted as they should have done in terms of senior salaries. I think the salaries at the BBC are a red rag to a bull at a time when the Government is cutting organisations because too many public-sector people are earning too much money," he says. "I think the chairman of the [BBC] Trust [Sir Michael Lyons] should have done something about it, and hasn't."

Dyke points out that the Culture Secretary, Jeremy Hunt, who is considering a cut in the BBC licence fee when the current settlement runs out in 2013, had recently ordered the closure of the UK Film Council after complaining it was "not acceptable in these times" to fund an organisation "where no fewer than eight of the top executives are paid more than £100,000".

The BBC employs 85 senior managers on salaries of more than the £142,500 paid to the Prime Minister. The corporation's top 15 executives were paid £4.76m last year, up from £4.6m in 2008-09, according to figures released last month. High earners include the chief operating officer, Caroline Thomson, on £419,000, the deputy director-general, Mark Byford, on £488,000, and the director of Vision, Jana Bennett, on £517,000. Mark Thompson, the director-general, who in eight days' time will deliver this year's MacTaggart, was paid £838,000. Thompson this month ordered his fellow senior executives to forgo their pension top-up payments in what was seen as an attempt to head off industrial action by resentful BBC staff. Those changes will effectively reduce the director-general's total package to £675,000.

This is unlikely to be enough to appease critics. "They need to look again at senior salaries at the BBC because they look large now," says Dyke, who was the director-general between 2000 and 2004. "I was earning somewhere between £300,000 and £400,000 – so it's more than doubled. And the salaries below him have gone up the same amount, there were some significant increases. It is an issue out there that is going to get more acute as the public expenditure cuts get greater."

BBC employees are deeply concerned that executive salaries are exposing the corporation to criticism that the organisation is wasteful, claims Gerry Morrissey, the general secretary of the broadcasting union Bectu. "The general feeling among staff is that those executive salaries have brought unnecessary attention to the BBC. I think that's definitely unresolved. They are saying they are going to reduce the numbers [of senior managers] by 25 per cent but that will not get away from the fact that the director-general will be paid £800,000, the director of personnel £400,000 etc."

Tim Dams, the editor of Televisual magazine, argues that since the BBC parted company with its most expensive presenter, Jonathan Ross, this year, Thompson's salary had become the lightning rod for the corporation's critics. "Mark Thompson's own salary has become the rallying cry. It's a big job but it's a big figure and looks pretty bad when you set it against the benchmark of what the Prime Minister earns. Mark Thompson's salary is way out of kilter with that."

So how much has the BBC changed since Murdoch Jnr's attack? According to the Shadow Culture Secretary, Ben Bradshaw, last year's MacTaggart was "an all-out assault on the legislative policy and intellectual framework of UK broadcasting", one that has since been taken up by the new Coalition Government. "I'm afraid the BBC's response post-Murdoch has been to obsess about the integrity of the licence fee," Bradshaw says. "I think if I was James Murdoch I would be rather pleased at how the last year has turned out. If I valued the contribution of the BBC and its importance to our public-service landscape I would feel rather depressed, as I do." He predicted "real dangers for the BBC" in the year ahead in a "less benign political environment".

James Murdoch might feel pleased that he has drawn greater attention to the role and plight of commercial media. Much of his ire was directed at the BBC's online operation. "Dumping free, state-sponsored news on the market makes it incredibly difficult for journalism to flourish on the internet," he complained. Since then, Times Newspapers, which Murdoch Jnr oversees, has placed its websites behind a subscription pay-wall, a gamble intended to revolutionise the consumption of online news but jeopardised by the popularity of the BBC's free service.

Dyke says the Murdoch lecture was a "self-serving" speech of "all bluster and no substance". But Jeremy Hunt and his Conservative colleagues don't appear so dismissive. Philip Davies, a Tory member of the House of Commons select committee on Culture, Media and Sport, says he is "very sympathetic" to News Corp's concerns. He claims the BBC has boxed cleverly in avoiding attempts to reduce its operation in the past year, during which time it conducted a Strategy Review of services. "The BBC is very politically savvy and very political with a small 'p'," the MP says. "It certainly doesn't feel any smaller to me."

He is still unclear whether the BBC's proposal to close the radio station 6 Music (later reversed following a passionate campaign by listeners) was a deliberate ploy to win public support or a genuine attempt to scale down. "Mark Thompson is in the luxurious position of knowing that next year, the BBC's income is going to be higher. The cuts therefore are a public-relations exercise rather than anything the BBC needs to do."

Morrissey argues that the BBC has genuinely suffered in the past year ("Jobs are moving out into the regions, less programming is being done, and there is a reduction on the website output"), and that Thompson needs to be able to finance forthcoming technological changes, including the preparation of the internet-connected television platform Canvas. "It feels smaller and they have curtailed some of their more ambitious plans," he says.

David Graham, a former producer for Panorama and the founder of the media consultancy Attentional Ltd, recently produced a report on the BBC for the Adam Smith Institute recommending the licence fee be replaced by a voluntary subscription. He says the BBC should not be diverting so much of its funding into distribution technology. "It should concentrate on content, that should be by far the most important job that it does."

In the past year, the BBC has enjoyed several public shows of support with the hashtag #proudofthebbc proliferating on Twitter and the BBC Trust chairman claiming in the annual report that the corporation is "maintaining its position in the public's affections" with 82 per cent of people saying they would miss the BBC if it wasn't there.

According to Dyke, the BBC's "biggest problem" is that when other areas of the media are struggling financially, "the BBC is a bit short of friends" in its industry. At least Richard Desmond, a new broadcasting rival after his acquisition of Channel Five, is not yet among the corporation's enemies. "The BBC does so much so well," he says diplomatically, before gently voicing concern over the power of the BBC's website. "The quality of its online content is also clearly excellent, yet the fact that it's totally subsidised by the licence fee-payer raises issues for commercial broadcasters."

But Desmond, by his own admission, has "so much money it's ridiculous". More impecunious observers of the BBC may be rather less charitable.