Leading article: Executive pay must be justified by performance

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At least - let us be grateful for small mercies - Mr Thompson had the sense to waive his own award. Whether he was equally wise to recommend that his immediate subordinates accept their £50,000 plus bonuses is another matter. Suffice it to say that a situation where top executives receive thousands of pounds in addition to their ample salaries at the same time as the ranks of humbler employees are pruned in the name of cost-saving is not a recipe for harmony.

That said, however, this knee-jerk reaction needs to be tempered. The BBC is a labyrinthine organisation that has long needed pruning. The cuts announced by Mr Thompson last year are overdue and, if anything, too timid. The BBC has spread itself too widely beyond broadcasting; it has indulged an excessive bureaucracy, and it has been insufficiently open to independent producers. Mr Thompson deserves support for the changes he has set in train. At the same time, the BBC must be able to recruit and retain outstanding executives in a sector that is highly competitive. BBC heads of service are responsible for leading and managing the world's most renowned and prestigious broadcaster. Their salaries must be considered in this context.

It is here, however, that the serious questions begin. Does the BBC needs quite so many well-paid senior executives as it has? Are the terms for bonuses sufficiently rigorously drawn? The BBC governors have rightly concluded that the maximum 30 per cent of salary is too high a bonus for a public sector organisation. It will be reduced to 10 per cent this year, but those affected will have a salary increase - a move that suggests bonuses have been treated as a routine part of the pay package rather than strictly related to performance.

The matter of bonuses, however, highlights a dilemma that is rooted in the policies of deregulation initiated by Margaret Thatcher and extended by the present government. There was a time when public sector organisations were expected to be guided by an ethos that was different from the profit-making priority of the private sector. Their executives and staff generally settled for lower salaries in return for other benefits, such as job security and safe pensions.

Once public sector organisations were supposed to be competitive and were judged essentially by private sector standards, the distinction became less clear-cut. Last year, pay for senior executives across the public sector rose by an average of almost 10 per cent to become comparable with those in the private sector. And the BBC is no exception. Yet BBC executives take few financial risks and are not answerable to shareholders.

It is increasingly hard to escape the impression that those at the top of the public sector have the best of both worlds, while those lower down, especially in the NHS and local government, have the worst. They are poorly paid, and the benefits they have traditionally enjoyed, especially pensions, are under threat. The compact that allowed the private and public sectors to exist peaceably side by side has been upset. The tensions at the BBC over staff cuts and bonuses shows that a new equilibrium has yet to be found.

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