BBC Trust says £25m pay-offs for Corporation staff are a 'fundamental failure'

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The BBC Trust said the NAO conclusions were 'deeply worrying'

Media Editor

The BBC has been accused by its own governing body of a “fundamental failure of central oversight and control” after the National Audit Office revealed that the organisation had paid its departing managers £60m in severance packages since 2005.

The BBC Trust said it was “deeply concerned” after the NAO uncovered huge payments to managers who the BBC knew had already lined up new jobs. In around a quarter of cases examined the BBC had paid the departing executives more money than they were contractually entitled to. Auditors were mystified as to why some had been given car and private health allowances and ex gratia payments.

In an extraordinary rebuke, Anthony Fry, chair of the BBC Trust’s Finance Committee, said the generosity of the payments would “quite rightly, be met with considerable dismay by licence fee payers and by BBC staff.” In a statement, he said: “There can be no repeat of such a fundamental failure of central oversight and control.”

The payments were uncovered by the National Audit Office (NAO) in a report which found that 367 of the BBC’s 436 senior managers remain on contracts that entitle them to two years’ salary as part of the corporations’s redundancy programme. The BBC has spent £60m on severance packages for managers since 2005, including £25m paid out in the last three years.

The average redundancy settlement for a senior BBC manager in the three years to December 2012 was £164,200. In 14 of the 60 cases reviewed by the NAO, the BBC paid senior managers more salary in lieu of notice than their contractual entitlement, costing licence fee payers at least £1 million. The NAO identified two cases where the BBC knew departing senior managers had secured future employment before they had left but still paid them around £1m.

The report uncovered some extraordinary payments signed off by the BBC. In one case, a departing manager was given a package of £219,000 even though this was £141,000 more than he was entitled to. The payment included £49,000 to cover training and IT equipment in order to help the individual’s future career prospects. The BBC originally offered £30,000 but was persuaded to give the additional £19,000 to cover tax and national insurance.

In another example, the BBC agreed to hire one of its departing managers as a consultant on a daily rate of £1,000 and pay a minimum of £60,000 over two years. The individual additionally received £145,500 redundancy payment and a £66,000 contribution to their pension pot.

The Trust's criticisms were directed at the BBC’s former leadership – essentially that of the former Director General Mark Thompson and his senior executives - for failing to exert “adequate governance” over the payments. “This has resulted in decisions being taken which were poor value for money, undermine the culture of accountability that should exist in any publicly funded organisation and put public trust in the BBC at risk,” it said.

The findings are especially damning in the wake of the revelation that the BBC wasted £100m of licence fee payers’ money on its disastrous digital archive project, the Digital Media Initiative (DMI), which was axed in May and is now the subject of an inquiry by accountancy firm PricewaterhouseCoopers.

The BBC has been under pressure to save money by reducing costs after the freezing of its income in the last licence fee settlement. But the NAO found that although the BBC had saved £35m by cutting the posts of 228 managers in three years, it had spent £25m of that on redundancy packages.

News of the management severance packages comes as thousands of BBC staff are due to vote this week on taking industrial action over their pay and conditions.

The BBC Trust today called on the new BBC Director General Tony Hall to “implement rigorously” new restrictions on management severance packages which cap payments at £150,000.

Responding to the findings, Lord Hall admitted it was “wrong” to have paid some of the departing executives so much. “The level of some of these payments was wrong – I said so in my first week in the job,” he said.

“The BBC was trying to get its senior management headcount down – and it succeeded, reducing it from 640 to 445. As the NAO acknowledges, we have saved £10m over the period studied in the report and will keep on making savings every year. But we have to accept that we achieved our objectives in the wrong way.

“I believe the BBC lost its way on payments in recent years. I have already said that we will be capping severance payments at £150,000 and we have now begun to improve our processes. These payments were from another era and we are putting a stop to them.”

The NAO found two cases where BBC managers were paid their maximum pay in lieu of notice even though the organisation knew they had already found new jobs. Between them, they walked away with severance and redundancy packages worth £975,000.

Between 2005 and 2013 the BBC paid a staggering £369m in severance payments to 7,500 staff of all levels. This included payments of £60m to 401 senior managers. Total staff costs at the BBC are £1 billion.

Some 71 of the 150 senior BBC managers who received severance payments in the three years to December 2012 were paid more than the standard amount. The NAO carried out a detailed review of 60 cases and found that in 14 cases the BBC had paid more than it was contractually obliged to do, costing licence fee payers more than £1 million.

One manager was given 14 months’ notice that they would be leaving the BBC but worked that full period before taking £300,000 in redundancy and a further £300,000, supposedly “in lieu of notice”.

In two cases the BBC placed departing managers on “restricted duties” but paid them full salary for two months (including car allowances, private medical allowances and pension contributions) and six months’ pay in lieu of notice.

Another BBC manager who had only worked for the organisation for seven months and left abruptly was given six months car allowance, private healthcare and a payment of £95,000 for six months’ salary in lieu of notice. The BBC told the NAO that the extras had been provided “to secure a quick exit because the individual’s relationship with a key BBC client had broken down”.

One manager who was contractually entitled to two months’ notice pay was instead given four months’ money (£71,000) plus an ex gratia payment of £17,600. All of this was in addition to a redundancy payment of £88,100. The BBC said it made the additional payments because the individual worked beyond an agreed leaving date to finish a project.

In its conclusions, the NAO said: “The BBC has breached its own policies on severance too often without good reason resulting in payments that have not served the best interests of licence fee payers. Weak governance arrangements have led to payments that exceeded contractual entitlements and put public trust at risk. Severance payments for senior BBC managers have, therefore, provided poor value for money for licence fee payers.”

Responding to the report, Culture Secretary Maria Miller said it “shines a light” on the culture at the top of the BBC. “Every publicly-funded organisation must be able to justify every penny of taxpayers money they spend, and even more so in these tough economic times,” she said.

“There is huge public interest in the BBC, and the NAO has exposed a culture of pay-offs that simply cannot be justified. The report shines a light on a culture at the BBC where individuals received payments that went beyond the already very generous terms of their contract. I welcome the fact that the BBC is looking at future payments - a move which this report suggests is long overdue.”

BBC executives who pocketed the money

Caroline Thomson

The chief operating officer left in September after 17 years at the BBC and took with her a £331,400 redundancy payment and a further £335,000 pay in lieu of notice, plus £14,000 legal costs. £680,400

Mark Byford

The deputy Director-General quit the BBC in 2011 with £474,500 in redundancy payment and a similar amount in lieu of notice. £949,000

John Smith

The chief executive of BBC Worldwide gathered in his earnings as he left the BBC after 24 years in December. On top of his £570,000 for basic pay, benefits and annual bonus, he collected a further £1,031,000 in deferred bonuses, profit-share schemes and pay in lieu of notice. He later returned £205,000. £826,000

George Entwistle

The Savile crisis ended his 23-year career at the BBC but the short-lived Director-General walked away with a £450,000 pay-off, plus £36,500 in legal, health and public-relations costs and an extra £25,000 in salary because he resigned in the first week of the month. £511,500

And one who didn’t…

Roly Keating

The head of archive content was given a £375,000 severance payment, which the NAO found to be “seriously deficient” in the way it was signed off. When Mr Keating, now the head of the British Library, discovered this, he repaid the amount in full. £0

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