Network Rail - Making a Fresh Start (HC 639-i) Public Accounts Committee 26 May 2004

Evidence given by Mr David Rowlands CB, Permanent Secretary, Department for Transport, Mr Richard Bowker, Chairman and Chief Executive, Strategic Rail Authority, Mr Ian McAllister CBE, Chairman, and Mr John Armitt CBE, Chief Executive, Network Rail.

Q28 Mr. Gerry Steinberg (City of Durham): Mr Bowker, I cannot resist this, I am sorry, but there was an article in the newspaper recently which said that you hired Mr Steve Norris to show you how to deal with the Committee of Public Accounts and that it cost £1500 for an hour out of public funds. Was the advice worthwhile?

Mr Bowker: I have to say, and you will forgive me for not being able to resist this, Mr Steinberg, that it is another example of the media being highly selective in their reporting of what happened. It is true that we used the services of Mr Norris in that capacity. It is not true that it was for an hour and, in fact, it involved a very considerable amount of preparation time. I think it is entirely appropriate for us to use external advice where that advice is relevant and where it does not exist internally, which in that case it did not.

Q29 Mr. Gerry Steinberg (City of Durham): Did you find that the advice was good?

Mr Bowker: I certainly believe that the advice we paid for represented value for money, yes.

Q30 Mr. Gerry Steinberg (City of Durham): For the taxpayer?

Mr Bowker: All our expenditure --

Q31 Mr. Gerry Steinberg (City of Durham): Who have you been to before this meeting?

Mr Bowker: We did not feel the need to do that because that was the first time I appeared before the Committee of Public Accounts and I did not feel I needed to repeat the exercise.

Q32 Mr. Gerry Steinberg (City of Durham): Can I just give you some information? I am retiring at the next election, and I can honestly tell you that I will charge half of what Norris charged, so I will give you my card at the end of the meeting!

Mr Bowker: I will take you up on that, Mr Steinberg.

Mr. Gerry Steinberg (City of Durham): Mr Armitt, I watched television the other night, I think it was during the weekend, and I watched the news on TV and it was announced by Mr Crow that the union was going on national strike, and I thought, "Oh, dear me, here we go again, the same old rhetoric that we have heard for years and years and years", but then I read the report which was entitled Making a fresh start, and that was a bit ironic, was it not, and I thought "Here we are, a fresh start, and we have a national strike looming in the next few weeks or so", but then I read the report and I got to paragraphs 2.31 and 2.33, if you would like to turn to them, on page 20. Shall I finish this after the vote, Chairman?

Chairman: Just finish your question and then they will have time to think about the answer!

Mr. Gerry Steinberg (City of Durham): No!

Chairman: You see? I want to give you an easy time but I am not allowed to!

The Committee suspended from 4.00 pm to 4.10 pm for a division in the House.

Mr. Gerry Steinberg (City of Durham): As I was saying, if you have a look at paragraphs 2.31 and 2.32, I listened to Mr Crow's words and thought "Here we go again" but then when I read these particular paragraphs I thought to myself, "I can understand what he is saying now", because I stumbled across --

Mr Curry: You are lucky!

Q33 Mr. Gerry Steinberg (City of Durham): -- the bonus system for managers and executives, and I can honestly say I did not really understand how it worked but I did glean from it that the bonuses that the managers and the senior executives can expect to receive are 80 %, 36 %, and, in some cases, 60 %. Is that right?

Mr Armitt: The maximum that could be earned under the bonus scheme by directors is 60 % of salary, and to achieve that you have not only to achieve targets for the current year but you have to meet all the targets of the year following, so you achieve everything that was expected a year ahead of time. As far as the strike itself is concerned, what has happened is that a ballot has been held --

Q34 Mr. Gerry Steinberg (City of Durham): I am well aware of what is happening, yes.

Mr Armitt: -- but the issues within the --

Q35 Mr. Gerry Steinberg (City of Durham): The issue, as I see it, is that the ordinary workforce are getting around about inflation, or have been offered around about inflation, increases but the people who they are accountable to are getting bonuses of up to 60 %. No wonder they are not happy about it. I would not be happy; I do not think you would be. It is quite outrageous. These huge bonuses are coming out of public money and public subsidy for doing a job that they are supposed to do in the first place -- which they are not doing very well anyway. It is incredible. I cannot understand it!

Mr Armitt: When Network Rail was set up it was essentially a requirement that there was a management incentive programme set up for the company, and the programme which was set up was one which the remuneration committee, which obviously the executive directors are not members of so it is the non executive directors, took advice on from external experts as to what was an appropriate level of incentive to put in place to attract the right level of people to the company --

Q36 Mr. Gerry Steinberg (City of Durham): I have no objection to anybody being paid what they are worth for doing the job but what I cannot accept is that the man, or woman, almost gets double the salary for doing the job that they have applied to do in the first place. Let's give some examples. I am not trying to be at all rude but what do the executives and the managers actually earn? What is their basic salary? What is your basic salary? I will tell you mine, which is fifty something thousand a year. What is yours?

Mr Armitt: My basic salary is 468.

Q37 Mr. Gerry Steinberg (City of Durham): 468 -- ?

Mr Armitt: Thousand.

Q38 Mr. Gerry Steinberg (City of Durham): £468,000? And you get a 60 % bonus on top of that, if things go well?

Mr Armitt: If things went extremely well and we exceeded all targets by a significant amount.

Q39 Mr. Gerry Steinberg (City of Durham): So approximately £300,000 in bonus?

Mr Armitt: That is what could be earned if we met all the targets.

Q40 Mr. Gerry Steinberg (City of Durham): And what do the poorer executives get?

Mr Armitt: It depends what you mean by the "poorer executives". The thing about the bonus system is that it is a company-wide bonus system.

Mr. Gerry Steinberg (City of Durham): But you get more than the Prime Minister, and the Prime Minister is running the country and you are running the railway lines -- and not very well!

Mr Curry: He is doing better than the Prime Minister!

Q41 Mr. Gerry Steinberg (City of Durham): You want to get back to the Agriculture Committee!

Mr Armitt: All I can say is that our objective as a company, and at every level in the company, is to pay what is regarded as the market rate for the jobs and the positions held in the company comparable with companies of a similar size across industry as a whole, and the remuneration committee takes advice from external and independent advisers as to what those levels of salary should be to ensure that we as a company, not only at my level but at others, were able to attract the right level of skill and experience into the company if necessary from other sectors across industry as a whole.

Q42 Mr. Gerry Steinberg (City of Durham): But you did not tell us what the poorer executives are getting. What is their basic salary?

Mr Armitt: Clearly our staff within the company range from, say, £20-25,000 --

Q43 Mr. Gerry Steinberg (City of Durham): But that is not your executives, is it? That is the fellow who is driving the train or -- not driving the train but digging the rails?

Mr Armitt: There are a number of senior executives in the company who earn in the order of £100,000.

Q44 Mr. Gerry Steinberg (City of Durham): And they get bonuses of anything up to 60 %?

Mr Armitt: No. Their bonuses would be less than that. They could be up to 30 %.

Q45 Mr. Gerry Steinberg (City of Durham): So could you tell us how much bonus you paid out last year? What were the total bonuses that were paid -- out of company funds, remember. It is not as though you are making a profit and paying it out of your profits. You are paying it out of public funds, so what were the total bonuses you paid out last year?

Mr Armitt: Last year we received no bonuses as executives because it was felt that insufficient performance had been achieved in certain key areas. Many employees in the company did receive a bonus of about £600 for their parts in a business which had achieved -- at least the signallers and people in Mr Crow's membership would have received bonuses of about £600 last year.

Q46 Mr. Gerry Steinberg (City of Durham): Can you understand the animosity that must be felt amongst the workforce when they see the possibility of bonuses like that being paid to a privileged - possibly talented, I am not disputing that - part of the workforce, and they are getting a pittance compared to that? Can you understand why they take industrial action?

Mr Armitt: I do not think the industrial action is related to the bonus issue at all. In fact, when I go around, as I do from time to time --

Q47 Mr. Gerry Steinberg (City of Durham): That is not what he said on the news. He said that the managers were paying themselves huge bonuses and then he went on to say why they were coming out on strike. Something to do with the pension and so forth.

Mr Armitt: The issues which people voted on have got nothing to do with the bonuses. As I say, Bob Crow may choose to say that he believes that is an issue but my experience from talking to people across the company at every level within the company is that it has not been raised with me as a significant issue. The issues which the dispute is about are the pay increase, the percentage this year which would apply across the whole company, the matter of the pension schemes and the free travel. Those are the three issues. I do not believe that the bonus issue is a significant factor in this dispute.

Q48 Mr. Gerry Steinberg (City of Durham): Well, I can only repeat what I heard him say on the news on the television. Finally, Mr Bowker, is your job basically to protect the public, or is that the Rail Regulator's? How do you see your job?

Mr Bowker: I have different aspects to my job but I do have responsibility as the accounting officer for the Strategic Rail Authority to be satisfied that the public funds that go into the railway are value for money, however they are then disbursed.

Q49 Mr. Gerry Steinberg (City of Durham): And you agreed to the bonus scheme, did you not?

Mr Bowker: We agreed to a management incentive plan at the creation of Network Rail and the principles of it which are set out very clearly in this report, which would incentivise not just the senior executives but the whole company to deliver excellent performance, and I certainly do accept that if Network Rail - and they are now responsible; they have a remuneration committee and the Regulator is responsible for overseeing the policy of this in the future - achieve the targets we are talking about here, then the railway and all the people that work in it are better off as a result.

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Q165 Mr. Gerry Steinberg (City of Durham): Has the advice that Mr Norris gave you the last time helped you for this meeting and give us an example of how it has?

Mr Bowker: I think it would be very difficult to be that specific.

Mr Allan: That was the example!

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.