Victory of the lottery fat-cats

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Lottery "fat cats" were celebrating victory over the Government last night after a deal was struck which allows them to keep all the bonuses that provoked last week's public outrage.

Following secret negotiations between Camelot, the lottery organiser, and the Department of National Heritage on Thursday, a deal yesterday was presented as a compromise verging on victory for the Government. However, closer examination revealed a climb-down by Chris Smith, the Secretary of State for National Heritage. Mr Smith had demanded the return of the bonuses of up to 90 per cent of salary paid to directors last year when Camelot's profits fell by 8.6 per cent and donations to good causes dropped from pounds 1.4bn to pounds 1.3bn. In fact, not a penny will be returned by the directors.

Under the deal, Camelot has agreed to hand over interest on unclaimed prizes to the good causes fund, and its directors have undertaken to make secret, personal voluntary payments into a charitable fund from a forthcoming "long-term bonus".

The repayable interest is currently about pounds 6m and will amount to some pounds 24m by 2001, when Camelot's licence expires. However, it had been the subject of negotiation for almost a year and most observers - and, sources say, Camelot directors - believed the company would have to yield to demands to give it back sooner or later. It appears that the directors have simply used it as a bargaining chip in order to keep their bonuses.

A source involved in the negotiations said that none of the bonuses paid last year are included in the deal. Neither does the deal include an annual bonus of 43 per cent of salary to be paid this month. Neither will next year's annual bonus be included.

"The only one included will be the final installment of a long-term bonus of 120 per cent of salary negotiated in 1994," said the source. "That amounts to 35 per cent of salary and it will be paid in October. [The directors] can choose to pay an amount from that. It will be voluntary and it will be one-off. I don't think anyone has thought about how much to pay yet."

The deal was struck on Thursday during a day of telephone conversations between Hayden Phillips, Mr Smith's permanent secretary, and Tim Holley, Camelot's chief executive, after it had become clear to the Secretary of State for National Heritage that his insistence that Camelot's directors give their bonuses to charity had backfired.

He had summoned Sir George Russell, the Camelot chairman, to his office last Monday to express his anger at the levels of directors' pay. Among the biggest earners, Mr Holley had been given pounds 590,000 for 1996/97 - 50 per cent up on the previous year; David Rigg, communications chief, picked up pounds 330,000 - 90 per cent up on the previous year; and Peter Murphy, finance director, got a 76 per cent pay increase to pounds 361,000.

But Mr Smith soon realised that neither he nor Camelot's shareholders - GTech, Racal, De La Rue, Cadbury Schweppes and ICL - could force the directors to return bonuses paid legally as the result of proper contracts.

"It wasn't the money involved," one director told The Independent yesterday. "It was the principle. It could be pounds 10 or pounds 1m. You simply can't go around asking people to pay back their bonuses."

The impression that Mr Smith had bitten off more than he could chew was reinforced when Mr Holley, Mr Rigg and Mr Murphy said they would resign over the matter. Finally, the secret talks were initiated on Thursday after GTech, Racal and De La Rue said they would pull out if Camelot were made into a "not-for-profit" organisation - the type of body Mr Smith wants Camelot to become. Both sides are to put forward proposals on that step by the end of July.

By the time Mr Hayden and Mr Holley had completed their talks on Thursday, Mr Smith was able to say that Camelot's directors were giving money from their bonuses to charity. And the directors were safe in the knowledge that they could keep the bonuses at the centre of the controversy.

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