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HC 476 Published on 16 December 2013

by authority of the House of Commons London: The Stationery Office Limited

House of Commons

BBC severance packages

Thirty-third Report of Session 2013–14

Volume 1: Report, together with formal minutes and oral evidence

Written evidence is contained in Volume II, available on the Committee website at www.parliament.uk/pac Ordered by the House of Commons to be printed 4 December 2013

Committee of Public Accounts

£13.50

Committee of Public Accounts The Committee of Public Accounts is appointed by the House of Commons to examine ‘‘the accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit’’ (Standing Order No 148). Current membership Rt Hon Margaret Hodge (Labour, Barking) (Chair) Mr Richard Bacon (Conservative, South Norfolk) Stephen Barclay (Conservative, North East Cambridgeshire) Guto Bebb (Conservative, Aberconwy) Jackie Doyle-Price (Conservative, Thurrock) Chris Heaton-Harris (Conservative, Daventry) Meg Hillier (Labour, Hackney South and Shoreditch) Mr Stewart Jackson (Conservative, Peterborough) Fiona Mactaggart (Labour, Slough) Austin Mitchell (Labour, Great Grimsby) Nicky Morgan MP (Loughborough, Conservative) Nick Smith (Labour, Blaenau Gwent) Ian Swales (Liberal Democrats, Redcar) Justin Tomlinson (Conservative, North Swindon) Powers Powers of the Committee of Public Accounts are set out in House of Commons Standing Orders, principally in SO No 148. These are available on the Internet via www.parliament.uk. Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/pac. A list of Reports of the Committee in the present Parliament is at the back of this volume. Additional written evidence may be published on the internet only. Committee staff The current staff of the Committee is Adrian Jenner (Clerk), Claire Cozens, (Committee Specialist), James McQuade (Senior Committee Assistant), Ian Blair and Yvonne Platt (Committee Assistants) and Alex Paterson (Media Officer). Contacts All correspondence should be addressed to the Clerk, Committee of Public Accounts, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5708; the Committee’s email address is [email protected]

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Contents

Report Page

Summary 3

Conclusions and recommendations 5

1 BBC severance policy and practice 7

2 Governance 9

Formal Minutes 12

Witnesses 13

List of printed written evidence 13

List of Reports from the Committee during the current Parliament 14

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Summary

The creative talents of the many thousands of people who work for the BBC have helped maintain its reputation as the world’s leading public service broadcaster. The BBC Executive and the BBC Trust have vital roles to play in protecting this reputation whilst providing value for money for licence fee payers. We were therefore dismayed to find that many departing senior managers received ‘sweeteners’ in their severance packages that far exceeded their contractual entitlements. Both the BBC Executive and the Trust have let down licence fee payers by allowing this culture to develop. The unedifying spectacle of witnesses from the BBC Executive and the BBC Trust disputing each other’s evidence on severance pay revealed a serious breakdown in governance, record-keeping and accountability.

We welcome the decision taken by Lord Hall, shortly after he took up post as Director General of the BBC in April 2013, to cap severance payments at £150,000. Lord Hall also assured the Committee that pay in lieu of notice would be removed. These are very welcome steps towards more control and responsibility over severance payments that we hope will be administered in the interests of licence fee payers. These changes need to be matched by the BBC Trust addressing its failure to provide rigorous scrutiny and challenge, on behalf of licence fee payers, of the Executive’s management of severance payments. Those recent revelations have left us with concerns about the effectiveness of the present governance arrangements at the BBC.

The doubts we expressed about some of the oral evidence given by witnesses during our hearing in July 2013 proved well-founded. We were very sceptical when the BBC’s Director of Human Resources told us in July 2013 that she did not believe she had seen or been involved in preparing a note on the departure of the BBC’s former Deputy Director General, Mark Byford. Around two months later, in September, the Director of Human Resources confirmed that she had in fact been involved in preparing the note. We remain concerned about the veracity of other parts of the oral evidence we heard. Misleading a select committee constitutes contempt of Parliament, which can have very serious consequences. Witnesses must ensure that their evidence is free from misstatement and where a correction is necessary, inform the Committee immediately.

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Conclusions and recommendations

1. As part of its efforts to cut costs, the BBC has significantly reduced the number of senior managers it employs, from 624 in March 2010 to 445 in March 2013. In the course of our inquiry into the departure of the BBC’s former Director General, George Entwistle, we became increasingly concerned about the scale of severance pay for departing senior BBC managers. We therefore asked the National Audit Office to carry out a review of severance payments. The National Audit Office found that in the three years to December 2012, the BBC gave 150 senior managers severance payments totalling £25 million.

2. It is unacceptable for the BBC, or any other public body, to give departing senior managers huge severance payments that far exceed their contractual entitlements. The BBC paid more salary in lieu of notice than it was obliged to in 22 of the 150 severance payments for senior managers in the three years to December 2012, at a cost of £1.4 million. Some of the justifications put forward by the BBC were extraordinary. For example, the former Director General, Mark Thompson, claimed that it was necessary to pay his former deputy and long-term colleague Mark Byford an extra £300,000, not because the BBC was obliged to, but to keep Mr Byford '‘fully focused’ instead of “taking calls from head hunters”. This increased Mr Byford’s severance payment to more than £1 million.

Recommendation: The BBC should ensure that severance payments do not exceed what is absolutely necessary.

3. There was a failure at the most senior levels of the BBC to challenge the actual payments and prevailing culture, in which cronyism was a factor that allowed for the liberal use of other people’s money. We were not able to account for every case in which a manager who approved a settlement in excess of contract entitlement themselves later benefitted from a similar arrangement. We believe this contributed to the prevailing culture at the top of the BBC whereby giving inflated severance payments to departing managers was an acceptable way of cutting senior manager numbers and salary costs. We share the view of the BBC’s Director General, Lord Hall, that the BBC had “lost the plot” in its management of severance payments in recent years. We welcome the changes that he has made to cap severance pay.

Recommendation: The BBC should remind its staff that they are all individually responsible for protecting public money and challenging wasteful practices.

4. The checks that the BBC Executive applied to severance pay for senior managers were totally inadequate. The non-executives who sat on the BBC’s Executive Board Remuneration Committee failed to provide an effective check on severance pay for the BBC’s most senior staff. In turn, the Executive failed to exercise sufficient oversight of the 40 BBC staff involved in authorising severance payments to departing senior managers. For example, senior BBC executives were seemingly unaware, until it was brought to their attention by the National Audit Office, that one departing manager received £141,000 more than their contractual entitlement. Responsibility and accountability must be clearly defined and transparent, not only

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at senior levels but across the organisation, to satisfy the licence fee payer that public money is being used appropriately.

Recommendation: To protect licence fee payers' interests and its own reputation, the BBC should establish internal procedures that provide clear central oversight and effective scrutiny of severance payments.

5. It beggars belief that the BBC Trust could not locate key documents about the most significant restructuring in recent years of the BBC's Board and the associated severance payments. These documents, which included proposed payments to the BBC’s former Deputy Director General, Mark Byford, came to light after the BBC Trust Unit had concluded it held no such documents. The documentary evidence also suggests that the BBC wrote to Mr Byford to confirm his severance terms before these terms had been approved by the Executive Board Remuneration Committee. Poor documentary records contributed to the confusion and lack of transparency about what had been proposed, discussed and approved.

Recommendation: The BBC Executive and the BBC Trust need to overhaul the way they conduct their business, and record and communicate decisions properly.

6. By choosing not to challenge very large individual severance payments, the BBC Trust and its officials failed to fulfil one of its primary duties, which is to ensure the rigorous stewardship of public money. The BBC Trust approves the strategy for executive remuneration but does not examine its implementation in detail. The witnesses from the BBC Trust told us that they do not question individual payments as they are operational decisions for which the BBC Executive Remuneration Committee is responsible. In our view, this is too narrow an interpretation of the BBC's Trust's responsibilities.

Recommendation: Given its overarching responsibility for the stewardship of public money, the BBC Trust should be more willing to challenge practices and decisions where there is a risk that the interests of licence fee payers could be compromised.

7. Our examination of severance payments exposed a dysfunctional relationship between the BBC Executive and the BBC Trust that casts doubt on the effectiveness of the BBC's governance model. The unedifying disagreements between witnesses and the conflicting accounts of what was disclosed about individual severance payments are symptomatic of a wider breakdown in the relationship between the BBC Trust and the Executive. At present the governance model is broken. The Trust and the Executive have a limited amount of time to demonstrate that the current governance model can be made to work.

Recommendation: The BBC Trust and the BBC Executive need to ensure that decision-making is transparent and accountability taken seriously, based on a shared understanding of value for money, with tangible evidence of individuals taking public responsibility for their decisions.

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1 BBC severance policy and practice 1. The creative talents of the many thousands of people who work for the BBC have helped maintain its reputation as the world’s leading public service broadcaster. However, during our examination of the severance package awarded to the BBC’s former Director General, George Entwistle, we became increasingly concerned about the scale of severance pay for other senior managers and the impact of this on public trust in the BBC.1 We therefore recommended that the National Audit Office carry out a review. The National Audit Office examined an initial sample of 60 severance payments in the three years to December 2012,2 before extending its review to include all severance payments to senior BBC managers during this period.3

2. In the three years to December 2012, the BBC spent £25 million on severance pay for 150 departing senior managers.4 The BBC told us that the significant number of severance payments during this period reflected the steps it took to reduce senior manager numbers, from 624 in March 2010 to 445 in March 2013.5 The BBC estimates that reducing senior manager numbers resulted in a cumulative saving of £35 million in the three years to December 2012.6

3. In 22 of the 150 severance cases in the three years to December 2012, the BBC paid more salary in lieu of notice than it needed to, at a cost to licence fee payers of £1.4 million.7 For example, the BBC paid its former Deputy Director General, Mark Byford, around £500,000 more salary in lieu of notice than it needed to.8 The BBC announced in October 2010 that it would make Mr Byford redundant. However, it chose to delay giving Mr Byford his formal notice until he left in June 2011, so that he could receive his maximum entitlement of 12 months’ salary in lieu of notice. In practice, Mr Byford was given eight months’ notice and the BBC need only have paid him the shortfall of four months’ pay in lieu of notice.9 The BBC’s former Director General, Mark Thompson, told us that the BBC agreed to pay Mr Byford the extra eight months’ pay in lieu of notice, worth around £500,000, to keep him “fully focused” instead of “taking calls from head-hunters”.10 Mr Byford received more than £1 million when he left the BBC.11

1 Committee of Public Accounts, British Broadcasting Corporation: Off–payroll contracting and severance package for

the Director General, Twenty-second Report of Session 2012–13, HC 774, December 2012.

2 C&AG’s report, Severance payments and wider benefits for senior BBC managers: Report by the Comptroller and Auditor General presented to theBBC Trust Finance Committee, July 2013

3 C&AG , Severance payments for senior BBC managers: supplementary note September 2013

4 Q 96

5 Qq 203, 233, C&AG’s report July 2013 Figure 6

6 Qq 95, 168, 210

7 C&AG report, Severance payments for senior BBC managers: supplementary note September 2013

8 Q 215

9 Qq 8, 17, 22, 65, 249, 313, 318

10 Qq 216, 220

11 Q 65

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4. The BBC claimed that it had been ‘custom and practice’, but not a legal requirement, to add salary in lieu of notice to departing managers’ standard redundancy entitlement, regardless of whether they worked their notice.12 However, this was not applied consistently. Of the 150 senior managers who received severance pay in the three years to December 2012, 62 received payments equivalent to the BBC’s standard redundancy policy and 17 received less.13

5. The BBC included other types of non-contractual payments in some severance packages. For example, it included £49,000 for training and equipment in a severance package to improve a departing manager’s career prospects; in another case it committed to purchasing at least £60,000 of consultancy services from a departing manager.14 One senior manager who was working on a part-time basis had their severance payment calculated on a full-time basis.15

6. The BBC’s severance arrangements allowed departing managers to receive large payouts even if they had had secured job offers before leaving the BBC.16 For example, the BBC agreed to pay severance to a senior manager who had a job offer, on the basis that if it did not do so it would cost more to remove him if his post was subsequently made redundant. This individual subsequently elected to repay his severance payment on learning of deficiencies in the way the payment had been authorised.17 The BBC has not asked any senior managers to return non-contractual payments on the grounds that it has no legal grounds to do so.18

7. The BBC attributed the payment of non-contractual ‘sweeteners’ to a prevailing culture where offering generous payouts was considered to be a good way of managing severance cases.19 Lord Hall, who took up post as Director General of the BBC in April 2013, concluded that the BBC had ‘lost the plot’.20 He announced on his second day in post that he would tackle the issue of severance pay and subsequently announced that he would cap individual severance payments at £150,000. Severance payments in excess of £75,000 must now be approved by the BBC’s Senior Management Remuneration Committee. The BBC is also removing the use of payment in lieu of notice on the grounds that senior managers should work their notice and then leave.21

12 Qq 80-83, 241-251

13 Q 126

14 Q 95

15 Q 136-7

16 Q 129-33

17 Qq 107-110, 147, 374

18 Qq 134-135, 149

19 Qq 81-82, 383, 389

20 Qq 196-8

21 Qq 170-1, 183, 206

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2 Governance 8. The BBC’s Executive Board Remuneration Committee, which comprises non-executives, is responsible for scrutinising and approving severance pay for Executive Directors, except for the Director General.22 Marcus Agius, who was the Chairman of the Committee until November 2012, considered that senior BBC managers ‘suffered’ a discount in their salary compared to what they could get in the commercial sector, and that the decision to inflate Mark Byford’s severance pay by around £500,000 represented value for money.23 However, the BBC Trust considered that the non-executives had been ‘completely out to lunch’ with respect to what they thought was acceptable pay in a public body.24

9. Documents seen by this Committee suggested that the BBC reached agreement with Mark Byford on his severance pay before the Executive Remuneration Committee had authorised it. The Executive Board Remuneration Committee approved the proposed payment on 11 October 2010.25 However, the BBC Trust gave us a copy of a letter to Mark Byford dated 6 October 2010, which had been signed by the BBC’s Director of Human Resources, that confirmed the terms of the severance pay that were ultimately agreed.26 The BBC’s Director of Human Resources told us that she had been advised by colleagues that the letter was ‘incorrectly dated’ and had ‘probably’ not been sent until 12 or 13 October 2010.27 That may or may not be true. Taken at face value, the letter was signed off before the Remuneration Committee approved the proposed payment, suggesting that the decision had already been taken.

10. The BBC acknowledged that it had given divisional directors too much autonomy and applied insufficient central oversight of severance payments. For senior managers below the Executive Director grade, BBC divisions had delegated authority to approve individual severance payments up to £500,000. More than 40 people in the BBC were involved in authorising severance pay for senior managers, with limited central oversight.28 For example, one departing manager received £141,000 above the individual’s contractual entitlement, but senior BBC executives were seemingly unaware of this payment until it was brought to their attention by the National Audit Office.29

11. We asked the BBC Trust about its role in scrutinising severance payments for senior BBC managers. The BBC Trust has a duty under article 33(7) of the Royal Charter to approve the strategy for executive pay.30 It also has a duty to protect the licence fee payer’s

22 Qq 7, 10, 16, 24, 56-57, 256

23 Qq 67, 304, 408

24 Q 45

25 Q 309

26 ibid

27 Q 314, 323

28 Qq 89, 104, 111

29 Q 99

30 Qq 2,13; Department of Culture, Media and Sport, Copy of Royal Charter for the continuance of the British Broadcasting Corporation, CM 6925, October 2006

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interest. It received regular reports from the Executive on progress in reducing senior manager numbers. Despite having these duties and condemning the scale of severance pay for senior managers, the BBC Trust told us that the provisions of the Royal Charter mean that it had neither the responsibility nor power to intervene in decisions about remuneration, except that for the Director General.31 Accordingly, when it was informed about the proposed £1 million payment to Mark Byford and severance for another BBC Executive, Sharon Baylay, it did not question the detail as it considered that the Executive Board Remuneration Committee was responsible for scrutinising the proposals.32 Yet the BBC Trust has a wider responsibility for value for money and its constitutional duties include stewardship of the licence fee, upholding the public interest and ensuring the BBC observes the highest standards of openness and transparency.33

12. The BBC Trust was told about the severance pay for Mark Byford and Sharon Baylay because their departures were part of a proposal to restructure the BBC’s Executive Board.34 However, in February 2013, officials from the BBC Trust had concluded that the Trust had not received any documents about these payments. They later found in June 2013 that the Trust had in fact been told about the payments in a note from the former Director General, Mark Thompson, dated 7 October 2010.35 After our evidence session in July 2013, the BBC Trust uncovered another document setting out options for Mark Byford’s severance pay, which had been sent by Mark Thompson to Sir Michael Lyons in September 2010. The Head of the BBC Trust Unit attributed the initial failure to identify key documents to these documents not being submitted for approval by the Trust and also naming conventions. Given the significance of the proposals set out in these documents, we found this explanation incomprehensible.36

13. The witnesses disputed each other’s account of discussions that had taken place and how some of the documentary evidence should be interpreted.37 Most significantly, the witnesses from the BBC Trust considered that the former Director General, Mark Thompson, had withheld important information about the terms of Mark Byford’s severance pay.38 However, Mark Thompson considered that in his written and verbal advice to the Trust he had been clear on all aspects of the proposed payments.39 The absence of a clear audit trail means that it is not possible to determine how much individual members of the Trust knew about the terms of the payment.40

14. The BBC’s Director of Human Resources stated in her testimony on 10 July 2013 that she did not believe that she had seen or been involved in preparing the note sent to the

31 Qq 2, 7, 10-11, 14, 75-76

32 Q 283

33 Q2, 17; Department of Culture, Media and Sport, Copy of Royal Charter for the continuance of the British Broadcasting Corporation, CM 6925, October 2006

34 Q 62

35 Q 291-292

36 Q 310, 339-344

37 Q 210

38 Q 3, 8, 12, 18, 274, 271, 280, 353, 366

39 Qq 269, 313

40 Q 366

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BBC Trust on 7 October 2010 about the restructuring of the Executive Board and the £1 million severance package for the Deputy Director General. We expressed scepticism about this at the time.41 She wrote to us nearly two months later, on 2 September, to clarify that she had been involved in preparing the note.42 The same witness made statements during our follow-up session in September 2013 that appeared to contradict earlier statements; and described the use of “sweeteners” as a strange term to apply to severance, despite asking in an email disclosed to a member of our Committee for a ‘sense of the scale of the sweetener’.43

41 Qq 26-29

42 Qq 238-240

43 Qq 379-387, 403

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Formal Minutes

Wednesday 4 December 2013

Members present:

Mrs Margaret Hodge, in the Chair

Mr Richard Bacon Stephen Barclay Guto Bebb Meg Hillier

Fiona MactaggartNick Smith Ian Swales Justin Tomlinson

Draft Report (BBC severance packages), proposed by the Chair, brought up and read.

Ordered, That the draft Report be read a second time, paragraph by paragraph.

Paragraphs 1 to 14 read and agreed to.

Conclusions and recommendations agreed to.

Summary agreed to.

Resolved, That the Report be the Thirty-third Report of the Committee to the House.

Ordered, That the Chair make the Report to the House.

Ordered, That embargoed copies of the Report be made available, in accordance with the provisions of Standing Order No. 134.

Written evidence was ordered to be reported to the House for printing with the Report (in addition to that ordered to be reported for publishing on 10 July and 9 September 2013.

[Adjourned till Monday 9 December at 3.00 pm

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Witnesses

Wednesday 10 July 2013 Page

Lucy Adams, Director, Human Resources, Lord Hall of Birkenhead, Director General BBC, Lord Patten of Barnes, Chairman, BBC Trust and Anthony Fry, BBC Trustee Ev 1

Monday 9 September 2013

Mark Thompson, former Director-General, BBC, Marcus Agius, former Chairman of the BBC Executive Board Remuneration Committee, Lord Patten of Barnes, Chairman BBC Trust, Anthony Fry, BBC Trustee, Sir Michael Lyons, former, Trust Chairman, Lucy Adams, Director, Human Resources, BBC and Nicholas Kroll, Director, BBC Trust Ev 27

List of written evidence

(published in Volume II on the Committee’s website www.parliament.uk/pac)

1 BBC Ev w1;2;3;14

2 BBC Trust Ev w10;11;12

3 Mark Thompson Ev w15;37

4 Marcus Agius Ev w51;56

5 Sir Michael Lyons Ev w53

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List of Reports from the Committee during the current Parliament

The reference number of the Government’s response to each Report is printed in brackets after the HC printing number.

Session 2013–14

First Report Ministry of Defence: Equipment Plan 2012-2022 and Major Projects Report 2012

HC 53

Second Report Early Action: landscape review HC 133

Third Report Department for Communities and Local Government: Financial sustainability of local authorities

HC 134

Fourth Report HM Revenue & Customs: tax credits error and fraud HC 135

Fifth Report Department for Work and Pensions: Responding to change in jobcentres

HC 136

Sixth Report Cabinet Office: Improving government procurement and the impact of government’s ICT savings initiative

HC 137

Seventh Report Charity Commission: the Cup Trust and tax avoidance HC 138

Eighth Report Regulating Consumer Credit HC 165

Ninth Report Tax Avoidance – Google HC 112

Tenth Report Serious Fraud Office – redundancy and severance arrangements

HC 360

Eleventh Report Department of Health: managing hospital consultants HC 358

Twelfth Report Department for Education: Capital funding for new school places

HC 359

Thirteenth Report Civil Service Reform HC 473

Fourteenth Report Integration across government and Whole-Place Community Budgets

HC 472

Fifteenth Report The provision of the out-of-hours GP service in Cornwall HC 471

Sixteenth Report FiRe Control HC 110

Seventeenth Report Administering the Equitable Life Payment Scheme HC 111

Eighteenth Report Carrier Strike: the 2012 reversion decision HC 113

Nineteenth Report The dismantled National Programme for IT in the NHS HC 294

Twentieth Report The BBC’s move to Salford HC 293

Twenty-first Report Police Procurement HC 115

Twenty-second Report High Speed 2: a review of early programme preparation HC 478

Twenty-third Report HM Revenue & Customs: Progress in tackling tobacco smuggling

HC 297

Twenty-fourth Report The rural broadband programme HC 474

Twenty-fifth Report The Duchy of Cornwall HC 475

Twenty-sixth Report Progress in delivering the Thameslink programme HC 296

Twenty-seventh Report Charges for customer telephone lines HC 617

Twenty-eighth Report The fight against Malaria HC 618

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Twenty-ninth Report The New Homes Bonus HC 114

Thirtieth Report Universal Credit: early progress HC 619

Committee of Public Accounts: Evidence Ev 1

Oral evidenceTaken before the Committee of Public Accounts

on Wednesday 10 July 2013

Members present:

Margaret Hodge (Chair)

Mr Richard BaconStephen BarclayGuto BebbChris Heaton-HarrisMr Stewart Jackson

________________

Amyas Morse, Comptroller and Auditor General, Gabrielle Cohen, Assistant Auditor General, Peter Gray,Director, National Audit Officer and Marius Gallaher, Alternate Treasury Officer of Accounts, were in

attendance.

Examination of Witnesses

Witnesses: Lucy Adams, HR Director, BBC, Lord Patten of Barnes, Chairman, BBC Trust, Lord Hall ofBirkenhead, Director General, BBC and Anthony Fry, BBC Trustee gave evidence.

Chair: Welcome to you all. I start by declaring aninterest: I have a daughter who works for the BBC. Doany other Members have relatives who work there?Mr Bacon: I should declare an interest, as my wifeused to work for the BBC. I also once took a paymentfrom the BBC when I took part in a general electionrehearsal when I was a parliamentary candidate inVauxhall. I succeeded in doubling my opponent’smajority, and I was paid £50.Lord Patten of Barnes: I hope it was my election.

Q1 Chair: You were paid for doubling youropponent’s majority?We have an awful lot to get through, so I would beimmensely grateful to you all if you could be succinctin your answers; if I interrupt you, it is because I thinkthat you are going away from the purpose of thequestion that has been asked. Thank you all forattending.I will start with the Trust, so this is to you, LordPatten. Did you know about all these severancepayments to BBC staff?Lord Patten of Barnes: We knew that severancepayments were being made. We assumed, and weretold regarding two specific cases—this was the onlytime, I think, when the director general talked to usabout them—that they were being made oncontractual terms. If I may say so, withoutcontradicting what you have just suggested we shoulddo, we asked for the Report because we wereconcerned about the overall size of severancepayments, and wanted to see if we could reduce them,albeit that they were contractual. It was a question ofshock and dismay for us to discover how many hadbeen beyond contractual and had therefore been evenhigher than they needed to be.

Q2 Chair: It is the shock—the size of them and thefact that they are non-contractual—that is exercisingthe Committee and the public. I know that you strikea balance between your proper duties and those of the

Fiona MactaggartAustin MitchellNick SmithIan SwalesJustin Tomlinson

executive, but you have overall responsibility forvalue for money, and your constitutional dutiesinclude stewardship of the licence fee and upholdingthe public interest—we can agree on that. Do you feelthat you failed in this regard properly to exercise youroverview of the executive and, if so, why do you thinkthat happened?Lord Patten of Barnes: I do not think—you wouldprobably expect me to give this answer—that this is aproblem of the overall structure of governance at theBBC. I think that problems arose in the way thatpolicies were delivered by the executive, but let memake a very obvious point at the outset: there isplainly a dilemma if you are responsible for value formoney, but the charter, Ministers and White Papersmake it absolutely clear that you are not responsiblefor running things.Operationally or, on the other side of the sheet,editorially, the charter is absolutely explicit aboutwhere responsibility for executive pay, remunerationand numbers lies. Since 2007, and particularly since2009, the Trust has been pressing for a reduction inpay overall at the BBC and of numbers of senior staffat the BBC. That has had some pretty good results,but at a price that was greater than should have beenthe case.

Q3 Chair: In your response to this particular NAOReport, you explicitly say that the executive shouldimplement the recommendations of the NAO and thatit should “report back to us on progress”. So you dosee a legitimate role on monitoring theimplementation of a strategic policy set by the Trust,or set by the Trust in concert with the executive, asbeing part of your function.Lord Patten of Barnes: Certainly, and I understandthat, before I became chairman, there were fivedifferent meetings in 2009 between our remunerationcommittee, the Trust and the BBC about theimplementation of the policy on pay. There were threemeetings in each of the following years, so we have

Ev 2 Committee of Public Accounts: Evidence

10 July 2013 Lucy Adams, Lord Patten of Barnes, Lord Hall of Birkenhead and Anthony Fry

had a continuous dialogue with the executive aboutthe implementation of the policy. We have had regularpresentations of figures that have shown whatpurported to be value-for-money studies of each stageof the redundancy and severance programmes.As I said earlier, there was one case involving two ofthe people who are covered in case studies. The thendirector general contacted the Trust about two peoplewho were being made redundant under “contractualterms”, as it said in his letter. I totally agree with thefindings of the NAO on both those cases, which seemsto me to be clear and helpful to the Committee, andhelpful to us.

Q4 Chair: So you think that you should have known.I completely understand that those within contractualobligations are an executive decision but, where theyexceed contractual obligations, should the Trust haveknown?Lord Patten of Barnes: Yes, and if you call a previousdirector general of the BBC in due course, I will beas interested as you in why we didn’t know.

Q5 Fiona Mactaggart: Did you think to ask anyquestions on those memos when they said “incontractual terms”?Lord Patten of Barnes: I am not trying to cop out ofanswering the question, but the two cases that I amtalking about were before I became chairman of theTrust.

Q6 Fiona Mactaggart: Perhaps Mr Fry shouldanswer.Anthony Fry: I would be happy to. Those cases wereput to us. We were assured that they were withincontractual terms. We were told that they had beensigned off in the proper fashion by the remunerationcommittee of the BBC executive board which, as youknow, comprises solely non-executive directors.

Q7 Fiona Mactaggart: Actually, you got those notesbefore the remuneration committee signed them off.Anthony Fry: Absolutely, and specifically we weretold about them for information, because it wasrecognised in those notes that we had no power tointervene. It was a matter for the executiveremuneration committee, made up of a set of non-executive directors from outside the BBC, and wewere assured that they had signed them off as beingappropriate payments.

Q8 Chair: This is a very simple thing. The note of 7October 2010 refers to Mark Byford, and you are toldthat it is within contractual obligations. You are thentold at the end that he has to stay for another eightmonths because there are critical functions that hemust deal with and there is no one better placed toadvise on the design of a failsafe new system, so thereis a further four months to do that. You know all thatfrom reading this letter. You also know, because youwere told, that he was going to get a year’s pay in lieuof notice, although the decision to part company withhim was made at this time.I cannot understand why you did not spot it, Mr Fry.I cannot understand. This is the third time that you

have been before us and, with the greatest respect—you are a very credible witness—you come andexcuse yourself on Entwistle, you come and excuseyourself on the DMI, and you are going to come andexcuse yourself today on these things. One begins towonder: what on earth have you been doing? Whyhaven’t you picked up these outrageous—to us and tothe general public—wastes of licence fee payers’money?Anthony Fry: Without going into ancient history, it isfair to say that I did not come to excuse myself onEntwistle; I came to tell you how we had reached theconclusion that we had reached—

Q9 Chair: No, you always come and say, “This isterrible; I am really sorry.”Anthony Fry: To be fair, on George Entwistle, I didnot come and say, “This is terrible; I am very sorry.”I said to you, “I am coming here to explain to youwhy we reached the decision we took on thatparticular evening and that weekend,” which is verydifferent. In regard to this particular case—Chair: With respect, that was not how you said it, butwe will let that go.

Q10 Fiona Mactaggart: You said: “Did I feel goodabout it? Absolutely not. Do I feel good about itnow? No.”Anthony Fry: But, if I may say, I did finish by sayingthat it was still the right decision to take. There is adifference between, “Do I feel good about spendinglarge amounts of licence fee payers’ money?Absolutely not”—I made that consistently clear to theCommittee—and whether I would take the samedecision if I was asked to do it again, to which theanswer is yes.Going back to the question you asked in regard toOctober 2010, The Trust has no locus in regard tosetting remuneration for people other than the directorgeneral. That is the fact. We were informed, and wewere informed on two bases: first, “This is withincontractual terms,” and, secondly, “It has beenapproved by the body that is designated to approveremuneration.”

Q11 Chair: Did you look at the details?Anthony Fry: We are not in a position, as the Trust,to examine the individual details of the executiveremuneration. There is nothing we can do about it. Weare not authorised under the role—

Q12 Chair: Did you look? I am just asking amonitoring question.Anthony Fry: We did not look. If you are asking mewhether I read the contractual letter that passedbetween Mr Byford and the BBC, no, I did not.

Q13 Fiona Mactaggart: But the problem is thatarticle 33(7) of the charter says that the “strategy” forexecutive payment that the remuneration committeehas to fulfil must be “approved by the Trust”.Anthony Fry: The strategy does.

Q14 Fiona Mactaggart: So you approve the strategy,but I think what you are trying to suggest to us is that



you do not have any responsibility for making surethat the strategy that you agree is carried out. We findthat hard to believe. We think that if you approve astrategy, you have to make sure that it happens.Anthony Fry: Okay. I actually think there is adifference. The BBC executive was underconsiderable pressure from the Trust, for a period ofnearly two years, to address the fundamental issue ofthe number of senior managers and the total cost ofthe payroll. The papers that were presented to us inregard to the strategy going forward, when we got to2009, therefore looked at the planned reduction in thetotal number of senior managers, the total costsinvolved in making those reductions and the impactof that on the overall finances of the BBC.The NAO Report makes it very clear that, in strategicterms, that direction of travel was implemented andrepresented in terms of the reduction in the number ofmangers, and was an appropriate strategy to beadopted. You may be asking me, as a strategic body,whether you then go down into the individual weeds.If the numbers that you are getting collectively add upto the numbers that you have approved in terms of theoverall strategy document, I do not believe that that isthe job of the strategic authority. Indeed, I think weare specifically barred—and should be—from gettinginvolved, not least because one of the reasons this wasset up under the royal charter was to exclude thegoverning body of the BBC from the sort of detailedinvolvement that had been around during the time ofthe governors, which was why the remuneration wasextracted—Chair: It is one thing to be involved in decisions;doing monitoring is another thing. I would suggestthat monitoring to protect the interests of the licencefee payer—exercising proper oversight—did notoccur.

Q15 Mr Bacon: I don’t understand how you cancomply. Ms Mactaggart mentioned article 33(7) of thecharter. The second sentence states: “The terms onwhich such members are appointed”—executivemembers—“must be compatible with thisrequirement”, which is the requirement of theremuneration committee to “determine theremuneration of executive members in accordancewith a strategy approved by the Trust.” How can youevaluate whether that has happened? How can youevaluate whether members are appointed in a way thatis compatible with the requirement if you do notcheck?Anthony Fry: Because, as you will be aware, if youare a member of the executive board of the BBC, yourremuneration, and terms and conditions, will be setout clearly in the annual report of accounts, amongother places.

Q16 Mr Bacon: You are just saying that putting it inan annual report of accounts means that you havefulfilled—Anthony Fry: We, by definition, see the informationthat will go into the annual report of accounts. That ispublic information available to anyone sitting in thisroom and anyone sitting outside. Licence fee payerscan see how much members of the executive board

are paid in exactly the same way as you would in apublic company. The responsibility for setting thoseterms and conditions, like with a public company, areset by the executive board remuneration committeecomprising non-executive directors.The questions about the terms and conditions, withrespect, could as easily, and probably as appropriately,be directed to those non-executive directors as tomembers of the Trust. They are the people who areultimately responsible and ultimately accountable.

Q17 Chair: Article 23(f) of the charter states that theBBC should observe the highest standards “ofopenness and transparency.” If we look at the MarkByford case, was it part of his contract that he takepay in lieu of holiday for seven years previously? Wasit part of his contract that he got payment in lieu ofnotice when he was actually working for another eightmonths? Was that in his contract? Why was that notopen? Why didn’t the Trust meet its obligations onpublic accountability and transparency? I think, MrFry, with the greatest respect, that you have failed.Stephen Barclay: Could we just have an answer tothat point? Were those two points within thecontractual entitlement to Mr Byford?Anthony Fry: I have not seen Mr Byford’s contract. Icannot comment on that.

Q18 Stephen Barclay: Did you ask the directorgeneral whether the payment to Mr Byford was oncontractual terms?Anthony Fry: Yes, and that was confirmed by thedirector general and by the executive remunerationcommittee.

Q19 Mr Bacon: Can you confirm which directorgeneral you are talking about?Anthony Fry: Mr Thompson.

Q20 Chair: And who else worked with him, MsAdams? Were you involved in that?Lucy Adams: I was involved in that.

Q21 Chair: Why did you agree it outside thecontract? Why did you write a letter? Presumably youwere part of writing a letter that states theseredundancies will take place on the basis of the termsset out in their contracts, and then proceeded toignore it?Lucy Adams: Mr Byford had a letter confirming thathe would receive 12 months’ redundancy—

Q22 Chair: Everybody now accepts that you settledoutside the terms of the contract. Why, in this letterthat went to the BBC Trust, did you say that you dida settlement in the terms of the contract when youabsolutely blatantly did not?Lucy Adams: What we did was to provide MarkByford with 12 months’ redundancy entitlement,which he was entitled to, and payment in lieu ofnotice.Chair: But he worked for eight months.Fiona Mactaggart: He got paid twice.



Q23 Mr Bacon: With respect, the question was: whydid you allow a letter to go to the Trust saying that itwas in accordance with the contractual terms?Lucy Adams: Forgive me; I am not aware of the letterthat went to the Trust. I did not actually write thatletter. What I am trying to explain to you is that—

Q24 Mr Bacon: Who did?Lucy Adams: I believe it was Mr Thompson whowrote that letter.Mr Bacon: Mr Thompson wrote that letter. It is allcoming back to Mr Thompson, isn’t it?Lucy Adams: And this was an arrangement that wassigned off by the executive remuneration committeechaired by Marcus Agius, with two other non-executives on it.

Q25 Mr Bacon: For HR matters, wouldn’t thedirector general have relied on you?Lucy Adams: Yes.

Q26 Mr Bacon: Didn’t you have a hand in draftingthe letter? How would Mr Thompson have knownwhether it was in contractual terms?Lucy Adams: Can I just answer your question? Interms of actually providing the arrangement for MrByford to leave the organisation, I was involved inadvising Mr Thompson. I don’t think, as the NAOpointed out, that it was acceptable for him to get sucha large payment in lieu of notice. I am not trying todefend that; I am trying to explain that the situationat the time was that Mr Byford was aware of customand practice with regard to other executives. Wewanted to enable a smooth transition with minimumdisruption. Mr Thompson was very keen that MrByford stayed on to cover the royal wedding and soon but, as the NAO pointed out, this was eightmonths’ notice that could have been avoided.

Q27 Chair: Ms Adams, are you telling us that younever saw the memo dated 7 October 2010? You neversaw it?Lucy Adams: I don’t believe so, but what I did dois provide—

Q28 Chair: You don’t believe so? Either you did oryou didn’t.Lucy Adams: I don’t believe so. I can’t say withabsolute certainty.

Q29 Chair: I can’t believe, knowing howorganisations work, that it didn’t go around as a draftand wasn’t shared with you, as director of HR. I findthat incredibly difficult to believe. I don’t believe it.Lucy Adams: But I did put forward advice on draftingthe arrangement with Mr Byford that we put forwardto the executive remuneration committee.Chair: Okay. I’ve been hogging it. Stewart, thenAustin, then Justin, then Fiona wants to come back.

Q30 Mr Jackson: The director general has written tous today, and it is an astonishing letter in manyrespects. It makes the point that poor procedures anda lack of central oversight took place in the periodwe are looking at. Particularly striking is the fourth

paragraph on page 2: “This serves to underline thatthis was an institutional rather than an individualfailing. It also demonstrates the need for morerigorous Executive oversight and simpler processesgoing forward.” Lord Patten, I would like to ask yousome questions relating to George Entwistle. WasGeorge Entwistle your favourite candidate to becomedirector general?Lord Patten of Barnes: He was the unanimous choiceof the Trust.

Q31 Mr Jackson: That is not an answer to myquestion. Was he your favourite for appointment todirector general? Was he your preferred choice?Lord Patten of Barnes: By the time we hadinterviewed all the other candidates, clearly. He wasthe unanimous choice.

Q32 Mr Jackson: How much did the BBC spend onconsultants to obtain his eventual employment asdirector general?Lord Patten of Barnes: We had two exercises. First,we had a trawl of who might be available in themarketplace, then we had a specific effort to securecandidates from outside as well as inside the BBC. AsI recall—if I have got this figure wrong, I will correctit as soon as possible—we spent about £180,000 withEgon Zehnder1.

Q33 Mr Jackson: For a candidate who was alreadypotentially identified?Lord Patten of Barnes: No, for one of scores whoapplied. He was one of four from inside the BBC whogot to the shortlist, and one of eight from inside andoutside the BBC who got to the shortlist.

Q34 Mr Jackson: Do you regret your decision torefuse the National Audit Office permission to auditthe Entwistle pay-off at the time?Lord Patten of Barnes: No.

Q35 Mr Jackson: Why not?Lord Patten of Barnes: I will explain. The NationalAudit Office came to us. We thought that sinceAnthony Fry was appearing in front of thisCommittee, since I was appearing in front of theSelect Committee on Culture, Media and Sport in thenext couple of weeks, since we were going to makeall the literature available to this Committee, whichwe duly did, it was better to ask the NAO to lookat severance payments in general, including GeorgeEntwistle’s. They did that, and I think the report isexcellent.

Q36 Mr Jackson: Did your decision in that respecthave anything to do with the fact that—I think this ison the public record—at the time of Entwistle’sresignation, or just before, you had had a conversationwith him about the rather tumultuous circumstancesthat led to his resignation. He asked you, it is alleged,whether he should resign as director general, and yousaid, “We are not urging you to go but we are noturging you to stay, either.”1 Note by witness: The cost of the work carried out by Egon

Zehnder was £186,000 plus VAT.



The importance of that, if it is true—I would like youto confirm whether it is true or not—is that he wasthen in a position to engage expensive lawyers topossibly move forward with a constructive dismissalcase against the BBC as a direct result of yourcomments. Therefore, you are principally responsiblefor the fact that he was paid £25,000 extra for the 20days that he did not work. That was money that shouldnot have been paid out, and was certainly above anycontractual obligation to Mr Entwistle.Lord Patten of Barnes: I hope you won’t regard thisas an unfair comment, but I find it difficult to followthe logic of that argument. Let me straight awayconfirm that I did have that conversation with him.Indeed, there were other trustees present. As I suspectMr Fry has told this Committee, because I read all ofhis evidence on Entwistle, and as I certainly told theCMS Committee, we had that conversation during ateleconference call that we had with George Entwistleon the day that he left. I think that encapsulated theposition in which we found ourselves with GeorgeEntwistle. I do not think that that conversation led toany expectation on his part that he would be able toproceed straight away to a constructive dismissal orunfair dismissal scenario with lawyers.It is, of course, perfectly true that if we had notreached a compromise agreement, as the Baker-McKenzie letter which I gave to the Committee makespretty clear, the likelihood is that we would have gotlanded with a constructive dismissal case, and with anunfair dismissal case, and would have fetched uppaying more than in fact we had to pay him.Therefore, I do not think that those things follow.The other issue about the £25,000 is a separate pointon which I think Mr Fry has written to the Committee.We never hid from the Committee the fact that GeorgeEntwistle was paid until the end of November,although Mr Fry has said—and I accept this—thatperhaps we should have been more explicit in drawingthat to the attention of the Committee. On behalf ofMr Fry and myself, I want to apologise for the factthat we were not more explicit about the fact that thepay-off started from the end of November.

Q37 Mr Jackson: I think it reveals a casual disregardfor public money. One could say that there was anelement of disingenuous grandstanding here in thatyou resisted his request for £30,000 and yet you werenot very clear about the £25,000 that you did pay him.Lord Patten of Barnes: I think that you would agree,Mr Jackson, that we at no stage hid that fact fromthe Public Accounts Committee. I have said that weapologise that we were not more explicit in drawingit to the attention of the Public Accounts Committee.I would not suggest that the fact that the PublicAccounts Committee or the NAO were surprised bythe figure suggested that people had not done theirhomework and looked at the figures themselves. Itwas an oversight on our part in not making that figureexplicit, and perhaps an oversight by others.

Q38 Mr Jackson: Lord Patten, you seem to becoping admirably with my logic in answering myquestions very clearly. May I ask you about the£107,000 paid in legal and related costs as a result of

being a Pollard review witness to George Entwistle.Do you think that was appropriate and good valuefor money?Lord Patten of Barnes: What it represents is, first ofall, the payment that was made to lawyers andsecondly, the fact that HMRC regards such a payment,we understand, as a taxable benefit. I think, perfectlyreasonably, we met the cost of that tax plus VAT. If Iam asked whether I think that lawyers are well paidin this country, then the answer is yes. If we had donewhat some people suggested we should do and gonefor a full-scale public inquiry led by a judge, I thinkthat the lawyers’ fees would have been even higher.

Q39 Mr Jackson: That would be a compellinganswer were it not for the fact that you have notpublished the full cost of the Pollard review. Wecannot see within the context of how that £107,000was spent or whether it was good value for money.That is a point that you have not actually answered.Lord Patten of Barnes: I can be helpful. We willpublish those figures in full in the annual report andaccounts next Tuesday, and I can probably let theCommittee have them before the end of this meetingif you would like.

Q40 Mr Jackson: Okay. Please do.Two quick questions if I may. For doing 20 days workabove his contractual obligations, Entwistle was paidmore or less the equivalent of what one of myconstituents earns as an average annual salary. Whatdid he actually do in those 20 days? You said in yourletter that the “few days between stepping down asdirector general and finishing his employment with theBBC enabled him to undertake these tasks.” Howmany hours did he work?Lord Patten of Barnes: Very little. We started theclock from the end of the month because we wereworried that there might be issues during the periodof handover to Tim Davie, who was acting directorgeneral. But the fact of the matter is that Tim Daviecoped brilliantly on his own, and within 12 days wehad appointed the next director general, Lord Hall,whose appointment was extremely well received, Ithink.

Q41 Mr Jackson: So he did not do anything?Lord Patten of Barnes: As it happened, he was notrequired to do anything, but I thought it was—

Q42 Mr Jackson: So you paid the outgoing directorgeneral £25,000 of public money to sit on his backsideand do nothing for 20 days, and you are quite happythat that is a satisfactory and appropriate use oflicence payers’ funds?Lord Patten of Barnes: I think that the whole packagethat we negotiated as a compromise agreement withGeorge Entwistle was—I was not unaware that thiswas not going to be the most popular thing I haveever done in my life. I am not that naïve. But Ithought—and as far as I know the legal advice hasnever, ever been challenged—that the alternativewould have been more expensive and would have lefta gap at the top of the BBC, which would have beenextremely embarrassing and awkward.



Q43 Nick Smith: Have you asked for that money tobe returned?Lord Patten of Barnes: No.

Q44 Mr Jackson: My final question: are you goingto seek a second term as chairman of the Trust?Lord Patten of Barnes: So that I can enjoy appearingin front of the Public Accounts Committee moreregularly? I have not even considered going beyondthe next couple of years.

Q45 Austin Mitchell (Great Grimsby) (Lab): I wantto ask Mr Fry about the point that the Chair initiallyraised. Today’s issue of Private Eye, which is adocument I read almost as avidly as I read theNational Audit Office’s Reports, says that you, MrFry, were there from 2008. You were billed, we aretold, as having more than 20 years’ experience ofadvising companies and Government, both in the UKand internationally. The Trust approves theremuneration strategy for executive directors, and Imake the further point that the Trust is there tomanage relations between the wider public and theBBC. You must have had some idea of the stink thatwould be produced when it emerged that people suchas Mark Byford were being paid a million quid to go.Why did you not raise this earlier? You raised it withthe NAO, that is true, and we are grateful to you forthat. But why did you not raise it earlier?Anthony Fry: I think there are two separate issues.The first is the question of quantum, and the secondis the question of process. I would like to separatethem out. It is absolutely the case that from the timeI joined the Trust I was in the vanguard of peoplewithin the Trust, and more importantly the executiveboard, arguing that the size of contractual obligations,including pay, was simply totally out of kilter withwhat the public and licence fee payers expected. Itis fair to say that there were a series of particularlyunpleasant discussions that took place with membersof the remuneration committee of the Trust, includingmyself, and members of the executive remunerationcommittee—the non-executive directors. Frankly, notto put too fine a point on it, I thought they werecompletely out to lunch in regards to what theythought was acceptable pay in a public body. I makeno bones about that. I was extremely vociferous.The fact of the matter is that there are two separateissues. I thought that the level of pay—and rememberthat the new director general is paid nearly half ofwhat Mr Thompson was being paid when I joined theTrust—in the public sector broadcaster wasunreasonable. I was absolutely convinced that,regardless of whether or not these payments were inline with contract or outside of contract, these werenumbers that were completely unacceptable to peopleoutside of this room, and indeed in this room. I thinkhuge moves have been made to reduce the scale ofthe salaries and the scale of payments. Now, that isone whole issue. If you ask me whether I expectedthat when people like Mr Byford and others left theBBC, the scale of payments they received wouldcause considerable public comment: absolutely. Did Iexpect to find out that in addition to what were alreadyhuge payments, payments above contractual

obligations were paid on this sort of scale? No, I didnot. Frankly, the BBC and the policy that was beingadopted to reduce senior managers were already in thecontext of considerable pressure on the finances.

Q46 Chair: Did Mark Thompson lie to you?Anthony Fry: That is a question that you wouldhave to—

Q47 Chair: Did Mark Thompson lie to you?Anthony Fry: All I can say is that on the basis of theinformation provided in the letter to the trust on 7October, and the terms of that letter, which we havediscussed earlier, and what emerged subsequently,there is some disconnect which has never beenexplained to me—

Q48 Chair: Did Mark Thompson lie to you, Mr Fry?Anthony Fry: I can’t say he lied. I am just sayingwhat I know happened and what I have seen in theletter.

Q49 Chair: Did he lie to you? We just want a straightanswer because then we might begin to undercover—we are about responsibility and accountability. DidMark Thompson lie to you or were you negligent?Anthony Fry: I have a copy of the letter or note thatcame to the trust and I have the information in theNational Audit Office Report. Those two do notconnect.

Q50 Chair: So Mark Thompson lied to you?Anthony Fry: I am not going to make a commentabout whether somebody lied. That is a matter for youto address to him.

Q51 Stephen Barclay: But, Mr Fry, in essence yourevidence has. Paragraph 3 of that letter dated 7October 2010 says: “These redundancies”—thedeputy director general—“will take place on the basisof the terms set out in their contracts”. Your evidencesays that they didn’t take place like that.Anthony Fry: It is not my evidence. It is the NationalAudit Office evidence, with respect. It is not myevidence.

Q52 Stephen Barclay: Therefore what your evidenceis saying is the Mr Thompson gave false informationto the Trust. Ms Adam’s evidence is saying that hewrote this letter without even sharing the details withthe head of HR. That suggests Mr Thompson wasincompetent.Anthony Fry: I suggest that when he comes in frontof you, which I believe he has agreed to do—I don’tknow, but I believe he has—I am sure that that andother matters will be among those you want to askhim about.

Q53 Chair: Let me just ask you another question. Itis really frustrating. We get this a lot in a range ofcivil service departments. I don’t want to get it inrelation to the BBC, which is an institution I reallybelieve in. Lord Patten, you said in your evidence tothe Culture, Media and Sport Committee, “I think thatyou can’t on the one hand argue the case for public



service broadcasting, and the public paying for theBBC, and at the same time assert the ambition of BBCemployees to be paid almost the same as if you wereworking for Barclays.”Lord Patten of Barnes: That went down well with thesenior independent director of the BBC.

Q54 Chair: I was going to come to the ex-CEO ofBarclays, Marcus Agius—sorry, chairman. He was thenon-executive director who signed off not just theByford settlement but all these excessive, over-the-topseverance settlements. So is he culpable?Lord Patten of Barnes: Well he was chairman of thecommittee that signed them off.

Q55 Chair: So is he culpable?Lord Patten of Barnes: And before my time. Myprincipal discussions with the non-executive directorsof the BBC when I became chairman of the Trust wereabout the proposal I had to introduce the Will Huttonidea of capping the multiple of senior pay to medianpay. I have to say that, initially, that went down like acold rice pudding. But we made it stick and we alsodealt, as the Committee knows, with the car allowancefor new senior members and private health insuranceand senior members. But those weren’t easydiscussions. But the non-executive directors, whohave all changed since then, eventually went alongwith what we were proposing.

Q56 Chair: Everybody has conveniently changed. Iaccept that. I have no doubt when we talk to LordHall we will want to talk a little bit more about thoseprivate health and car allowances. I am asking both ofyou direct questions because it would help us in tryingto understand the story. These severance paymentsthat the NAO looked at, in the sample of 60 theylooked at a quarter were in excess of the contractualobligations. They were signed off by Marcus Agius,who I have never met. Was he therefore culpable?Who is accountable? Who is accountable to us? Whois accountable for the licence fee payers’ money?Lord Patten of Barnes: Well, the non-executivedirectors should be publicly accountable to licence feepayers and to us. So if you are asking who wasresponsible for making these payments, theresponsibility is for the senior members of theexecutive and for the executive remuneration board.

Q57 Stephen Barclay: But they weren’t signed offby the Trust, were they? I thought—Anthony Fry: They were signed off by the executiveremuneration committee, which has non-executives.They were the people who were responsible.Chair: Which was chaired by Mr Agius.Lord Patten of Barnes: Can I make one point now,which I promise not to make again and which I didnot make at the outset? I have half an hour of quotesfrom charters, from White Papers, from the excellentspeeches of the former Secretary of State, whodecided on this system of governance, and from SelectCommittees about the role of the Trust, about how weshould not be involved in remuneration and about howthere must be no sharing of roles between the Trustand the executive. I will not go through all those, but

there is a real issue about the distinction betweenoversight, and delivery and implementation. Maybeyou can’t make it work.

Q58 Mr Bacon: The trouble with that, Lord Patten,is that the alternative of giving it to Ofcom is evenmore unpalatable, given its performance and ability tolard its own budgets and hide things. We have lookedat it specifically. If that is not going to work, and thispresent arrangement is not going to work, what wouldyou suggest?Lord Patten of Barnes: Can I address that? I am surethere will be opportunities in a “post-chairman of theTrust” role for me to offer observations about thegovernance of the BBC. Clearly, a unitary board isnot necessarily the answer, because it was the boardof governors at the BBC that helped to produce theculture in which some of these huge payments werebeing made.I think what is absolutely imperative is to have achairman of the Trust and a director general who trustone another. I believe that I have that relationship withTony Hall, who I think understands all these issues.I also think that it may be that in the future, whenParliament looks at the terms of the charter, you needto look at whether there should be more involvementon the part of the strategic oversight body on issuessuch as senior executive pay. I do not think that youwould want the Trust or the oversight body dealingwith every issue of pay and remuneration, but maybeit should at least deal with the pay of the executiveboard.

Q59 Chair: But you did say when you came in thatyou would do a root-and-branch review ofgovernance, didn’t you? Two years ago, you said that.I just wonder where on earth that had landed, orended up.Lord Patten of Barnes: It landed with trying todistinguish, among other things, between the role ofthe non-executive directors and the role of the Trust.I am extremely pleased with the relationship we havewith Fiona Reynolds, the new senior independentdirector of the BBC, and her colleagues among thenon-executive directors.

Q60 Chair: But you can’t build institutions justaround personal relationships.Lord Patten of Barnes: No, you can’t.

Q61 Chair: You have to have institutional structuresthat will survive beyond personalities.Lord Patten of Barnes: Yes and no. I spent five yearsof my life in Brussels—Chair: That’s even worse.Lord Patten of Barnes: So I have a certain amount ofbelief in individuals, not just institutions.

Q62 Austin Mitchell: Thank you, Chair, for yourintervention. I am afraid that, by asking my haymakerquestion, you have deprived me of the Paxpersonaward as the most persistent, populist prober on thePAC and relegated me to obscurity. Chris Patten hasemphasised the importance of trust in the directorgeneral. The impression I would get from the



correspondence of 7 October is that the Trust was nottold the truth about contractual arrangements. Wouldthat be your impression?Lord Patten of Barnes: I would ask Sir MichaelLyons, if I were you.May I remind the Committee of two other things,which have not come up in relation to thatcorrespondence? The first is that the correspondencewas triggered because the Trust’s endorsement isrequired not of the pay of the executive board, but ofits structure. What the then director general was doingwas proposing to drop two members of the executiveboard, which was why he wrote to the Trust. I amadvised that, following that letter, the Trust contactedthe director general to confirm that the executiveboard remuneration committee was happy with thefigures, which apparently were included in thecontractual terms. Those are both quite significantpoints in distinguishing between the role of the Trustand the role of the executive.

Q63 Austin Mitchell: Can I summarise it like this?The Trust had been put in a difficult position. Anagreement had been reached with the Government inthose five days in August for a cut in the licence feeand for the BBC to take on various other services. Aspart of that, the director general was under a duty anda responsibility—an inevitability—to fire aconsiderable proportion of the management staff,whether useful or useless. It was therefore a situationin which desperate and quick action had to be takento get rid of managers, so everybody was prepared tosanction more than usually high payments—paymentsabove the normal contractual arrangements—just toaccomplish that as quickly as possible. Thecalculation was made that the savings in salary wouldmore than outweigh the outgoings in compensation. Isthat an accurate portrayal of the picture you faced?Lord Patten of Barnes: Not entirely—actually, not. Ithink the issue is a bit more complicated than that.The Committee may want to look at bit more at thehistory, but I understand that when the Trust firstinsisted on 25% cuts in numbers of senior managersand pay, the executive came back with proposals thatback-loaded the cuts in numbers and pay. I think that,in the Trust’s view, rather like years four and five inpublic spending rounds, the last years never come. Ithink I am right in saying that Tony Fry and hiscolleagues on the committee insisted that, far frombeing back-loaded, the figures should be front-loadedand that we should get on with this reduction.It may be that in pursuing that, the executive thought,“The big game is to get the numbers down and toget the bill down,” and it did that, in many respectsadmirably. However, the NAO Report shows thatcorners were cut in doing that, and that the wholeprocess did not lead to as big savings as should havebeen achieved if people had simply stuck tocontractual terms.What worried us when we first asked the NAO to dealwith this is that in light of my experience in dealingwith the George Entwistle payment, and in view ofthe payment to his deputy director general, I wasworried about the quantum size of pay, whichAnthony mentioned earlier. We did not realise that

when you looked at the quantum, you would come upwith real and serious problems about the process andthe extent to which the quantum had been increasedunnecessarily in order to get people out of the door.

Q64 Austin Mitchell: Can I ask a final questionwhich relates to historical experience? I am one of thefew great television personalities of the 1970s whohas not yet been arrested by the police. I have vividmemories of walking up and down a picket lineoutside Yorkshire Television with a sign that read “Wedemand parity with the BBC”. Frankly, I am appalledby the scale of these payments. Some of these peoplehave already got well-paid jobs, and yet they claimmassive redundancies. Nearly a million quid went toMark Byford. This discredits the licence fee, becausewe are facing a situation in which a lot of people—itis very high now, at 145 quid, or whatever it is.Chair: You can take this as a comment, because weare going to come back to the—Austin Mitchell: Some people are in prison for notpaying it, and yet it is doled out through such massivesums—that is so many licence fees. Lord Patten,would you condemn the scale of these payments outof the licence fee to BBC executives?Lord Patten of Barnes: Yes, and it is not only thelicence fee payer who has been shocked by what hashappened; it is people who work for the BBC andhave been told for the past couple of years that theyhave not got money to make this or that programmethat they want to make, and that they cannot get a payrise for this year. Then they read this Report and seesome of the payoffs that people were given. That iswhy I so strongly endorse the decisions that Tony Halltook from the outset, because it is terribly importantfor us to be aware of our responsibilities towardspeople who work within the organisation todemonstrate to them that it is not only efficiently run,but run with a sense of fairness.Chair: We have to move on and ask Lucy Adamssome questions. I have Justin, Fiona, Ian, Guto andRichard, and then we must move to Lucy after that.Justin Tomlinson: I was going to lead into that.Chair: Okay, I promise I will come back to you. Doesanyone else have questions for the Trust?

Q65 Stephen Barclay: Can I just get something onthe record? The payment to Byford was more than £1million, if you include the payment for holiday fromseven years earlier, so he was actually paid £1.22million, not less than £1 million. Is that correct?Anthony Fry: I do not have the figure in front of me,but perhaps we can send a note.2

Q66 Fiona Mactaggart: I am still trying to nail theresponsibility here. Mr Fry has said, “We didn’t havethe power,” and so on, but the issue that we reallyhave to address is responsibility. We have heard it ispossible that the director general did not tell the Trustthe truth. We have heard that the approval of the detailof these settlements was through the remunerationcommittee, which was chaired by Marcus Agius.When he had to stand down from Barclays in July2 Note by witness: Mark Byford was paid £1,022,000.



2012, did it occur to you, Lord Patten, to ask him tostand down from the BBC at the same time?Lord Patten of Barnes: He did stand down from theBBC—Fiona Mactaggart: No, he continued—Lord Patten of Barnes: Shortly afterwards.

Q67 Fiona Mactaggart: He continued untilNovember. His term of office ran out in November. Ihave not heard that he stood down before the end ofhis term of office.Lord Patten of Barnes: All right: he stood down fourmonths afterwards. I think I am right in saying that weare consulted about the appointment of non-executivedirectors, but we do not decide who non-executivedirectors should be.

Q68 Fiona Mactaggart: That was exactly why Iasked whether you thought to ask him. I understandthat you probably did not have the power to sack him,but I am certain that someone in that role who wasasked by the chairman to retire—Lord Patten of Barnes: What I did do was to make itclear that we thought his successor should besomebody who had experience of working in thepublic sector and knew some of the pressures withinthe public sector on issues such as pay and overallexpenditure.

Q69 Fiona Mactaggart: You suggested that theNational Audit Office Report was a response to theTrust itself seeing a crisis, but wasn’t it actually aresponse, Mr Fry, to this Committee’srecommendation that that should be done? I don’tthink you took the initiative; I think we were pushingyou rather hard to take it, were we not?Anthony Fry: I think the actual sequence of eventswas that after the George Entwistle resignation—whatever we want to call it—there was a discussion.At the time I came in front of this Committee, wediscussed the role of the National Audit Office. I thinkwe said that we would welcome this, but the reasonwe had suggested that there should not be a NationalAudit Office review of George Entwistle alone wasthat there should be a broad look at severance withinthe BBC, and that George Entwistle should be seen inthat context.Frankly, from my viewpoint, it does not really matterwhether it was due to pressure from you, pressurefrom me or pressure from anyone else. The goodthing, in my view, is that this is precisely what theNational Audit Office should be doing. The Report isvery helpful and I am delighted that therecommendations are going to be adopted in full bythe executive.

Q70 Fiona Mactaggart: I think it provides for thefuture, but I am still looking at the issue ofaccountability. We have had you before us—sincebefore I was on the Committee—telling us, “I’ll behot on this issue.” You must be a very worriedorganisation, because if you look at the NAO Reportand your introduction to it, you talk about how theTrust is worried about these issues. You were worriedin November 2012 in evidence to this Committee: “I

am deeply worried and concerned, and I remaindeeply worried and concerned.” On the digital mediaissues, you have been very worried. We don’t wantworry; we want clarity of action.I accept Lord Patten’s suggestions that there are flawsin the construction of the royal charter, potentially,and I am happy to follow them up, but what were theinitiatives taken by the Trust to ensure value formoney in executive pay and redundancy?Anthony Fry: If you read the National Audit OfficeReport, it absolutely confirms that the strategy setdown by the Trust to reduce to the number of seniormanagers was the right thing to do and, of itself—Chair: Nobody is arguing that.Anthony Fry: The question is the scale of value formoney. The idea that this whole programme ended upbeing a loss of value to the licence fee payer is simplythe wrong characterisation. Could the licence feepayer have got more benefit? There is no question.The question you asked—

Q71 Chair: I am going to have to interrupt youbecause this issue is at the heart of our work. Valuefor money does not mean that you are spending lesstoday than you were doing yesterday.Anthony Fry: Absolutely right.Chair: Value for money means that, in the actionsyou take, you get the best value for, in this case, thelicence fee payers’ pound. The accusation that youface today is that, whether it is the executive or theTrust, there is a failure in the severance payments, asanalysed by the NAO, in securing the best value forthe licence fee payers’ pound.Anthony Fry: And in the comments made by theTrust we have not disagreed with that.On the broader question I have been asked about theposition of the Trust and value for money generally, Iwould contest the accusation. If you take the totalityof the Reports produced over the last five years—forsome of that period I have been directly responsibleto this Committee on value for money for licence feepayers, and on other times I have sat on the financecommittee, the strategic accounts committee and theremuneration committee—I would argue that, as Ihave said before at this Committee, in an organisationof the size and scale of the BBC, you will not solveall the issues outstanding from the past in one go.The direction of travel, particularly around financialmanagement, as demonstrated in the NAO Report lastyear on financial management, has been positive.Is there more work to do? Of course there is. When Ileave the Trust, the work will not stop; somebody elsewill be sitting in front of you. They will bring upissues and you will be dissatisfied with stuff. You aredoing your job and I believe that the Trust is doing itsjob. If you look at the condition of the BBC todayacross a whole raft of areas, it is massively improvedfrom the position that existed even five years ago.

Q72 Fiona Mactaggart: The issue before us today isthe way in which executive severance pay wasnegotiated. It took the Trust more than six years to geta handle on that and, indeed, as far as I can see, it wasnot until the appointment of the new director general



that a plan for the future was developed. It took thisbody to press the Trust to take action.Your excuse that you have provided good value formoney elsewhere is good—we welcome that and weare glad of that—but it sounds a little like some ofthose companies that we are concerned have not beenpaying their corporation tax telling us how much VATand national insurance they pay. Frankly, we are gladof that, too, but at the moment we are looking at howyou settle severance. We cannot understand why ittook six years to get to a situation where there wasproper oversight and grip on this issue. During thattime, we were told that it was someone else’s fault.Have you got an answer to that?Chair: And it does damage the reputation of the BBC.Lord Patten of Barnes: Yes, of course it does. I amnot going to go back on my promise to avoid readingchunks of the charter at you, but the charter isabsolutely clear about what our responsibilities are. Icome back to a background in which, before my time,the Trust, with Sir Michael Lyons, started the businessof reducing numbers and pay. That was speeded up in2009. We have continued to have success on thatfront, albeit—this is a very big albeit—still payingmore than we should have paid to get severance ofemployees.

Q73 Justin Tomlinson: I have a few general thingsand then I will gently move it on because we need todrill a bit beneath the Trust board. Just so that I amabsolutely clear in my mind, you are not meant to dealwith things operationally, are you?Lord Patten of Barnes: That is true.

Q74 Justin Tomlinson: But you rely onorganisations such as the National Audit Office to dodrilling for you.Lord Patten of Barnes: And others.

Q75 Justin Tomlinson: Ms Mactaggart made a goodpoint that perhaps six years to investigate this wasprobably a little too slow. But then who isresponsible? The licence fee payers are in theoryrelying on you and would presume that you get accessto everything. If you do not, because you get accessto certain information only if a report iscommissioned, we would then presume that we havefull transparency, yet it is clear from point 13 thatmuch of the severance pay comes underconfidentiality clauses. We have the two case studies,but we cannot look at the others today and presumablyyou do not look at them because you are not involvedoperationally. Who holds to account the professionaladvice that you are given?Lord Patten of Barnes: We got regular reports—Anthony may like to add to this—on the progress thatwas being made in reducing numbers and in reducingthe overall pay bill. We did not get involved inindividual cases except in those two incidents in2010—Mark Byford and Sharon Baylay—because theexecutive board was being restructured. That is whywe were involved on that occasion.

Q76 Justin Tomlinson: You keep referring back tothe fact that things could have been done better, but

that you were ahead of target in the grand scheme ofthings in terms of the savings that were set. Did thatmean that you had your foot off the pedal and you didnot need to keep pressing, because you had a busyboard meeting, the pressure was on, you were keen toget home and there were other items on the agenda?This potential minefield was fine, because you wereahead of schedule. Is that what could have happened?Anthony Fry: I think that is mischaracterising it. TheTrust has been extraordinarily aware that of all theissues that could be regarded as toxic in the publicservice generally the question of pay is one of them.Lord Patten is right to highlight this. At one level, itwas precisely the Trust insisting strategically thatlarger numbers were taken out earlier in theprogramme that actually caused some of theseproblems. I freely admit that. Do I think it was theright thing to do? Absolutely. Was I very worriedabout proposals that back-ended all of this to yearsfour and five? Do I regret that? No. It is very difficultwhen you have a group of external people who arenon-executive directors and run a committee, and whoare directly responsible under the charter for doingthat for the Trust. When you are assured that they arefollowing policies and doing the right thing to achievethe strategic objective, there is a very difficult balanceas to the extent to which you watch the watchers andspend your whole time revisiting all the work.I will be absolutely honest with you. I would bedelighted if you had the former director general inhere actually to talk about this issue for the verysimple reason that there were a number of occasionswhen—not to put too fine a point on it—people likeme were asked in not particularly pleasant terms toget back into our box, because these were not mattersthat were appropriate for us to be dealing with underthe royal charter. There is a very difficult balancingact when you are trying to achieve big strategicobjectives. At some point, you have to believe thatpeople are going to do what they say they are doing.You have to believe that.

Q77 Justin Tomlinson: I am just coming to that. Justto be clear, because you are not meant to be dealingwith operational issues—I absolutely understand that,but there is a question mark as to whether there is agap; but that is a debate for another day—why didyou not object to getting involved with the SharonBaylay and Mark Byford cases? Why did you not putyour hand up and say, “This is operational”?Anthony Fry: Because, as the chairman has alreadysaid, the only reason we were consulted was not thesubject of the pay, but rather because it was arestructuring of the executive board. That issomething that, in terms of the overall structure of theexecutive board, they were consulting about. Therewas a division about what they were consulting on,which was, “We are proposing to do this. Do you havea view?” and “This will have the following impact invalue-for-money terms and this is what we will saveover x amount of time.”

Q78 Justin Tomlinson: Obviously, those thingscame forward and alarm bells rang, because, as yousaid, one of the things that you keep an eye on is



severance pay and pay in general, as they are what themedia are interested in. As you said, however, you arerelying on the professional advice that you are given.We are hoping that Mark Thompson will come andanswer some very serious questions on that. Weaccept all that, whether it was lies and you werehoodwinked or whether there were professionalmistakes. This is where I begin to get worried.Lucy, I will turn to you. Earlier, you said there was adebate about whether the letter said that everythingwas fine in terms of the contract terms. The Trusttherefore would have ticked it off, although it mighthave thought, “That’s not very good, but those are thecontract terms.” You are saying you didn’t see thatletter. What conversations did you have with MarkThompson about the deal that was being done?Presumably, as the highly paid director of humanresources who was ultimately responsible for makingsure you were abiding by the legal contracts, you musthave given advice.Lucy Adams: We were having many conversationsabout the way in which we could reduce not just allsenior managers, but the very highest level of seniormanagers. The restructuring of the journalism groupthat removing Mark Byford’s post presented was areal target for us. It enabled us to save about £1.37million per annum, when you take into account theoffice—

Q79 Chair: Can you stick to the severance payments,Ms Adams? We are here to talk about the severancepayments.Lucy Adams: I understand that, Madam Chairman. Iam just trying to explain the context.Chair: We have a lot to get through, so it is muchmore helpful to stick to the issues.

Q80 Justin Tomlinson: He would have come to you,and he would have said, “This is what I am proposingto do.” You are highly paid, you have expertise, andyou would have given professional advice aboutwhether that was acceptable or not and whether itwould have cause and effect. Did those conversationstake place?Lucy Adams: Yes, they did. The conversations wentalong the lines of saying that Mark was entitled to 12months’ severance for redundancy. He had anexpectation—I appreciate that is not the same as acontractual term—of a payment in lieu of notice of 12months, because of the custom and practice with otherexecutives. Mark Thompson was very keen.

Q81 Mr Bacon: Can you repeat that last bit? Therewas an expectation, not a contractual entitlement, thathe would get 12 months in lieu of notice—is that whatyou said?Lucy Adams: Yes, I did. There was very much aprevailing culture that payment in lieu of notice wasan acceptable way of managing severancearrangements.

Q82 Mr Bacon: Even if they didn’t actually leaveat that point, you could still give them pay in lieuof notice?

Lucy Adams: There was custom and practice at thattime to suggest that that was a good approach.

Q83 Chair: Custom and practice that you, as head ofHR, had some responsibility for.Lucy Adams: Yes, I absolutely accept that my rolewas to challenge and—

Q84 Justin Tomlinson: That is the point. To whatextent did you challenge that? It was not in thecontract, so what was your advice?Lucy Adams: My advice was that the important thingwas to get Mark Byford out of the organisation. Hehad 31 years’ service. We wanted to take the benefitof the restructuring as early as possible. Inconversations with Mark Thompson, he was very keenthat Mark stayed to deliver the royal wedding and therestructuring of the journalism board. What I wastrying to do was to find a way, with Mark, to enablea negotiated settlement with Mark Byford to enablehim to leave with minimum disruption, and to deliverthe savings as quickly as possible.

Q85 Chair: Did he threaten to take you to a tribunal?Lucy Adams: No.Chair: So it wasn’t much of a negotiation.

Q86 Justin Tomlinson: Your professional advicewas that it was acceptable to go outside thecontractual terms?Lucy Adams: My advice was that he would be entitledto 12 months’ contractual entitlement for redundancy,that there was custom and practice around payment inlieu of notice, and although it was uncomfortable,there was custom and practice to suggest that thiscould be acceptable.

Q87 Justin Tomlinson: So you were supportive ofwhat Mark Thompson ultimately did?Lucy Adams: What I was supportive of was gettingMark Byford out of the organisation after 31 years’service to enable us to take advantage of the savings.

Q88 Justin Tomlinson: Yes, but you could havedone that within the contract terms. You were happyto go beyond the contract terms. It wasn’t that youwere saying to Mark Thompson, “Don’t do that”—Lucy Adams: Sorry to interrupt. I absolutely acceptthat looking at that deal with hindsight, there wereeight months that we could have asked Mark to work.

Q89 Justin Tomlinson: Putting that to one side, whywere you so busy that you were happy to delegateanything up to £500,000 of severance pay, and allowpeople who do not have your expertise to make thefinal decision on them being signed off. You are paida considerable sum of money, and you have expertise.Why was it acceptable that people without yourexpertise and knowledge were in a position to sign offseverance payments of up to £500,000? The Trust, aswas made clear, were relying on professional advice.You are the most professional person in this area, andit was delegated. Why did that happen?Lucy Adams: If I could, I will explain the way inwhich restructuring and redundancy cases are



approved within the BBC. Up to £250,000 can beapproved at a local level—a head of department, ahead of finance and a head of HR. Up to £500,000requires not just myself to sign it off, but the CFO aswell. Anything over that goes to the financecommittee. One thing that the NAO has highlighted—it is an absolutely valid criticism—is that the level ofdelegated authority was too high.

Q90 Justin Tomlinson: Did you not think that wasthe case before the recommendations? Presumably,with your professional knowledge, you would havebeen uncomfortable that people were making seriouslegal decisions and negotiations of sorts withoutnecessarily passing your desk.Lucy Adams: It is a valid criticism that the NAOmakes: in the finance committee approval and thefinancial approval process for restructuring andredundancy, there was too much delegated authority.

Q91 Mr Jackson: Why didn’t you seek legal advice?Did you seek legal advice on this particular case?Lucy Adams: On Mark Byford?Mr Jackson: Yes.Lucy Adams: We obviously discussed it with the in-house lawyers at the BBC. They provide advice aboutwhat we are contractually entitled to pay. As I said,there was an eight-month period in which MarkByford was paid in lieu of notice when he could havebeen working. I accept that.

Q92 Mr Jackson: In what other organisation in thepublic or private sector does the director of humanresources sanction double redundancies for seniorofficials as “custom and practice”? Do you not thinkit was a dereliction of your duty on value for money?You used the word “challenge”. You did not challengeat all. You did not even sign it off. There is no audittrail, as far as the evidence shows, between you andMark Thompson. That was £500,000 in public money.Don’t you think that is pretty appalling? Given thatyou will have had a hand in suspending the chieftechnology officer over DMI, don’t you think youshould consider your own position?Lucy Adams: In terms of the answer to your firstquestion on whether I should have challenged harderand whether it is acceptable for an HR director to goalong with custom and practice, there is somethingaround going into an organisation where you have totake into account the way that things have beendone—

Q93 Mr Jackson: No, that is HR flim-flam. That isnot the issue. I am asking you specifically: you are ina position, as a responsible person, to challenge aculture when it is not in the best interests of taxpayers.You did not challenge it. You ticked a box, passed iton to someone else and allowed someone to take twicewhat they were contractually entitled to receive inpublic money. That is a serious issue.

Q94 Justin Tomlinson: I wanted your answer to be:“With my professional advice, I advised MarkThompson that this was the incorrect way to do it.That is why I was paid that money, but ultimately it

was his decision. He would have come to thathearing.” It seems you were every bit as much inagreement as he was.Lucy Adams: If I can come to the question aboutchallenging, over the last four years that I have beenat the BBC, I have tried incredibly hard to reduce theamount of money spent on senior managers. Over30% reductions have been made, in terms of bothsalary and senior management numbers. I have alsobeen involved in leading a raft of changes around theremoval of cars, removal of private health care fornew joiners, taking away pension supplements forsenior people, and putting in place pay freezes forexecutives and senior managers.Mr Jackson: Yes, but you have also—Lucy Adams: Let me finish the question—

Q95 Mr Jackson: No, let me jump in there. Youhave also overseen giving a departing manager£49,000 for training and IT equipment to improvetheir individual skills and career prospects on leavingthe organisation, and an agreement to buy anotherperson at least £60,000 in consultancy services fromthe departing manager over two years at a daily rateof £1,000. If this was any other organisation, thatwould be called corporate fraud and cronyism, andyou presided over it.Lucy Adams: I would also say, going back to the levelof challenge that I provided to the prevailing culture,that I proposed to the management board in 2011 thata redundancy cap be put in place. I was well awarethat this was unsustainable. What I tried to do wasbalance the need to exit long-serving senior managers,who often did not want to leave the BBC, in a waythat meant that we were able to expedite it as quicklyas possible and ensure that we were taking £19 millionin savings year on year in senior management salaries.

Q96 Chair: Ms Adams, you keep coming back tothat. I am sure you have done lots of good things. Youare paid a lot of money; you are paid over £300,000as an executive of the BBC. The thing that reallysticks in our gullet is that in all these cases—25%according to the sample from NAO—you paid overthe contractual commitment. We can cut it all sorts ofways. In the three years since you have beenresponsible, there have been 150 senior managers and£25 million. I think I am right in saying that is halfthe budget of Radio 4. It is two thirds of the budgetof Radio 1. It is a heck of a lot of money that youhave allowed to go out of the door, which could havebeen used to produce good public servicebroadcasting.Lucy Adams: In the vast majority of those cases inthe £25 million they were being paid, admittedlysignificant, amounts of money based on theircontractual entitlement. In a number of cases—

Q97 Chair: No, you went above that. The contractwas lousy; we know that. But what is particularlygalling is that you went above that. We can’tunderstand why you went above it. Mark Thompsonwill come and he will give evidence. We might evenhave Mr Agius come and give evidence, too. What Icannot understand from you, with all of your



experience—you were at Eversheds beforehand soyou have not come out of an easy organisation—iswhy you did not just put your foot down? You arehead of HR.Lucy Adams: I think the overwhelming focus was toget numbers out of the door as quickly as possibleto save—

Q98 Chair: But it is public money. It is the licencefee payer’s money. It is not your money; it is ourmoney.Lucy Adams: I understand that, Madam Chairman. Iaccept, as the BBC has accepted, many of thecriticisms in the NAO Report that too often we weretoo generous.

Q99 Stephen Barclay: If I could go to a specificthing that builds on what the Chair is saying. I takeyou to page 26, paragraph 2.12, of the Report: “Aseverance payment of £219,000, which was £141,000more than the individual was entitled to.” Did youregard that payment as value for money?Lucy Adams: I was unaware of that particularpayment until I saw the Report. The other commentsabout lack of oversight that the director general hasmade in a letter today are absolutely valid.

Q100 Mr Bacon: If you were not aware of it, whoauthorised it?Lucy Adams: In this instance, it was authorised withinthe governance rules of the time by the head ofdepartment, the head of HR and the head of finance.I am not trying to defend the payment; I am merelytrying to explain the decision making behind it.

Q101 Stephen Barclay: As the person at the headof the function, were you concerned that the peopleapproving these pay-offs beyond contractual termswere in some instances themselves benefiting frompay-offs beyond contractual terms?Lucy Adams: Sorry, could you repeat that question,please?

Q102 Stephen Barclay: Were you concerned that thepeople approving payments beyond contractual termsthen benefited themselves from payments beyondcontractual terms? That is a policy issue that wouldapply to the head of function.Lucy Adams: Clearly, there were members of themanagement board who were subsequently maderedundant, who due to their level of seniority wereapproving payments.

Q103 Stephen Barclay: Were you aware of thatinstance? Were you aware that people approving thesethemselves were benefiting subsequently from beyondcontractual term payments? Were you aware of that?Lucy Adams: I am not sure what you are suggesting.

Q104 Stephen Barclay: I am saying that there were40 people involved in signing these off. You say inyour evidence, to take the first one, that someone waspaid £141,000 more than they were entitled to, butyou were not aware of it.

Lucy Adams: Are you suggesting that the personinvolved in signing that payment off, then benefitedfrom a payment in the future? That is not the case.

Q105 Stephen Barclay: No. I am asking whetherthere were conflicts of interests in people approvingpayments when they themselves subsequentlybenefited from such payments.Lucy Adams: I understand. Obviously, in anysituation and any governance structure, the individualsmaking decisions at a senior level may at some futurepoint be made redundant. I don’t honestly believe thatpeople would be making those kinds of payment withan eye to their own future.

Q106 Stephen Barclay: That sounds rather naive. Tobe clear, you were aware that people who hadapproved beyond contractual payments were thengoing forward themselves for consideration forpayments beyond contractual entitlement, and youraised no objection to that.Lucy Adams: Because of the way in which theorganisation restructures at the BBC have taken place,there are senior individuals who have left theorganisation who at some point have approvedpayments, but not at the point where they werenegotiating for themselves, but they negotiated themto let others go.

Q107 Stephen Barclay: Did you approve the RolyKeating payment?Lucy Adams: Yes, I did.

Q108 Stephen Barclay: You did. Why did you thinkthat was value for money?Lucy Adams: I was approached by Roly after aconversation he had had with Mark, when he had beentalking to the British Library about another job. Heasked me whether he would be considered for another,bigger role at the BBC, and in my view I did not thinkthat was going to be the case. He then explained thatthe role that he was being asked to consider at theBritish Library was going to be on a considerablylower sum than the salary he was on at the BBC, andhe asked whether there would be an opportunity to geta severance arrangement or a deal.What I did, and I consulted with my line manager atthe time, Caroline Thomson, was to go through asimple equation, which was that if we were to makeRoly redundant—and he was on a list of roles that Ihad identified as a real possibility—we would bepaying him £500,000 redundancy, plus £125,000 interms of his notice, plus the salary to get us to thepoint where he was leaving.

Q109 Chair: Why? He had got a job to go to.Lucy Adams: What I am saying, Madam Chairman,is that if he stayed in the organisation, because I knewthat we were potentially making him redundant—Chair: Yes, but he had a job. He had a job offer.He could have gone off on a job offer, like normalpeople do.



Q110 Stephen Barclay: Can we stick to the paymentof contractual terms? Could you explain why he waspaid—Chair: He should not have had anything.Lucy Adams: Just to be clear I consulted withCaroline but she didn’t sign it.Stephen Barclay: Indeed, and the fact that he wassigned by Caroline Thomson—and uniquely, the BBCthen said that the chief operating officer role was notnecessary, and therefore she could get a payment. Butthat is a side issue. Could we be quite specific? Couldyou explain, please, why, in your professionaljudgment, it was value for money to pay Roly Keatingbeyond his contractual term?Lucy Adams: Because I believed that if we did notpay him the money to go, he would stay. We wouldthen be making him redundant, and in fact his rolewas then closed 12 months later, and therefore itwould cost us, in addition to what I had paid him, afurther £550,000.

Q111 Ian Swales: Lucy, could I stay with youplease? You have been at the Trust four years, Ibelieve.Lucy Adams: At the BBC.Ian Swales: Sorry—a Freudian slip. You have beenat the BBC four years. The letter we have receivedtoday from Lord Hall, who has been very patienttoday, contains a sentence saying: “…I believe theBBC lost its way on this issue in recent years. Poorprocedures and a lack of central oversight helped tocreate a climate where the wrong culture was allowedto flourish.” That is today’s view from the directorgeneral. You have been head of HR for all those recentyears. What is your response to that accusation, in asense? You have been responsible for all HRprocesses in that time. How do you react to thataccusation? I want to talk about the system issue.Lucy Adams: Yes, certainly. The way I react to it isto say that I think it is a valid criticism. I think thatwe have, as an organisation, made a number ofdecisions which were not in the best interests of thelicence fee payer. That, in part, was due to lack ofcentral oversight—about divisional directors havingtoo great a level of autonomy. As the letter goes on tosay, there were over 40 people involved in makingdecisions over the last few years, and therefore this ismore of an institutional than an individual failure.

Q112 Ian Swales: But you are head of HR. In thatfour years, have you at any point suggested that thisshould be changed—that a new structure or set ofauthorisations should be put in place?Lucy Adams: No, I haven’t individually suggestedthat there should be a new governance process forfinance arrangements. The governance and processaround financial controls rests with the CFO. We havemade a number of changes, so compromise deals over£75,000 came to me in many instances—admittedly,not in all. But what I was mostly focused on wasreducing the amount spent on senior management pay,and also proposing a change to introducing a cap sometime before.

Q113 Ian Swales: I can understand that you havechanged the compromise agreements—we have notspoken about those yet. Are you saying that at nopoint in the last four years, other than compromiseagreements, did you suggest to any of yourexecutives—you are in charge of HR—that thereshould be a better process for authorising severance?You have never suggested that.Lucy Adams: Only more recently from January,insofar as I proposed to the senior managementremuneration committee that we look at severancedeals over £150k.

Q114 Ian Swales: And even at that level, the NAOare saying that it is too high. Do you accept that?Lucy Adams: Sorry, I beg your pardon.

Q115 Ian Swales: Even at the new level that youagreed in January, the suggestion from the NAO isthat that figure is too high.Lucy Adams: That is something that Tony, as newdirector general—

Q116 Ian Swales: Do you accept it? I am talking toyou as the head of the HR function. Do you acceptthat?Lucy Adams: I think it is really important that wehave senior managers who are able to make decisionswithin their own organisations, within their divisions,but we have to balance that with a greater level ofscrutiny, so the new—Chair: Ian, the NAO have not suggested that it istoo high.

Q117 Ian Swales: Apologies. I withdraw that. I thinkthe problem that we all have with this, both us in thisCommittee and the public, is that the taxpayer’s poundthat you spend is the same as the taxpayer’s poundthat anybody else spends. You are paid more thantwice as much as the Prime Minister. In the civilservice, the Chief Secretary to the Treasury is nowsigning off all salary deals—not severance deals,salary deals—of £150,000 or more. Do you think thatsome sort of culture like that should take place inyour organisation?Lucy Adams: That is what we have introduced. Weintroduced a senior management remunerationcommittee, with a non-executive, chaired by Tony, tolook at salaries—anything over £150,000.

Q118 Ian Swales: What benchmarking are youdoing, again from your professional point of view, onthe type of contracts that you are giving people, andthe severance arrangements that are contractual?Indeed, what benchmarking are you doing on levelsof pay? You have just given an example wheresomebody’s alternative employment was on a lotlower pay, and I do not believe for a minute that those450 senior managers would walk out of the doortomorrow if a lot of them were paid quite a lot less.How are you dealing with that issue?Lucy Adams: On severance arrangements, wecommissioned benchmarking from three differentsources: Towers Watson, PwC and Deloitte. Theyindicated that our severance arrangements were



roughly in line with the public sector but higher thanthe private sector. In terms of the benchmarking wedo on salaries, which we have done for a number ofyears, we benchmark with a variety of differentorganisations because we cover so many differentsectors, but obviously we benchmark executivedirectors to ensure that we continue to pay a discountagainst the market.

Q119 Ian Swales: Am I right in saying that in yourbusiness, most of the alternative arrangements peoplewould have would be in the private sector? We gettold, and it is true, that BBC people often go off tothe private sector, so is your benchmarking with theprivate sector?Lucy Adams: We benchmark on salaries against boththe public sector and the private sector, but as yourightly point out, the vast majority of the people weemploy tend to move between other mediaorganisations and ourselves.

Q120 Ian Swales: Exactly. I think I am right insaying that your comment about the severancearrangements benchmarking was that they were in linewith the public sector, but more generous than theprivate sector.Lucy Adams: That is correct. That is, they were; wehave obviously changed them as a result of thatbenchmarking.

Q121 Chair: Who’s we? Have you been told to byLord Hall or is that your initiative?Lucy Adams: No, this is something that was startedbefore Lord Hall had arrived, before Tony arrived.This was started in September.

Q122 Q122 Ian Swales: Do you think the peoplewho are now benchmarked against the private sectorfor pay also have similar severance arrangements tothose they would have in the private sector?Lucy Adams: Could you say the question again? Ido apologise.

Q123 Ian Swales: If you are benchmarking one ofyour top executives against the private sector for theirpay, are you also benchmarking their contractualarrangements around severance to the private sector?Lucy Adams: Right, I understand. We ensure that oursenior managers are paid less than their commercialcounterparts. We have a clear discounting policy.

Q124 Chair: Out of interest, which FTSE 100 paysover £300,000 for their HR director?Lucy Adams: I can assure you, Madam Chairman,that the vast majority of HR directors are earningsignificantly more, once you add in their bonus andtheir incentive schemes. I took a significant drop tocome to the BBC.

Q125 Chair: Most FTSE 100?Lucy Adams: Absolutely.

Q126 Ian Swales: Finally, I refer to figure 9, on page24. We are now talking about a system that you areclaiming has changed, but that figure really brings up

the evidence that of 150 cases, 62 were paid oncontract and 17 under contract for various reasons.There was a total of 71, so almost half were beingpaid above contract. A little block highlighted by theNAO at the bottom shows that people were being paidvery large sums of money, who had actually only beenwith the organisation, if I read rightly, from one tofour years approximately. When you see that scatterof data, what is your response as head of HR?Lucy Adams: Of the 71 who got more than thestandard redundancy, 60 of those were as a result ofreceiving payment in lieu of notice. Payment in lieuof notice is not necessarily in itself a bad thing; it isjust a different way of paying notice.

Q127 Chair: It is. It is a fiddle to get more money.It was a fiddle to give them more money. For heaven’ssake. It was the easy way of getting them out. Weknow from the people we have had here that theyworked on and they still got their year’s payment inlieu. It was a fiddle to increase the amount of moneypeople walked out of the door with.Lucy Adams: In 14 of those cases, they had time towork their notice, and they should have been asked towork their notice.Chair: Out of 60?Lucy Adams: Out of 60. In the majority of the othercases, payment in lieu of notice can actually be acheaper way of doing it.

Q128 Chair: Can? Was?Lucy Adams: You don’t know whether they are goingto get another job, so you are making an up-frontpayment as opposed to keeping them on the payroll.

Q129 Ian Swales: Of the people who left, how manywere leaving the BBC on a Friday and starting anotherjob on the Monday—to put it in perhaps exaggeratedterms? In other words, how many people went straightto another job after leaving the BBC?Lucy Adams: I do not have the level of detail for allof the 150. Clearly, in a number of the higher profilecases, there were people who were going to getanother job. People getting another job who are notgetting payment in lieu of notice, but who are gettingtheir redundancy entitlement, is not something wrong.You are obliged to pay that, whether they get anotherjob or not.

Q130 Chair: As I understand it, in the compromiseagreement is a clause saying that you have not gotanother job. Isn’t that right? You are the HR expert. Itis my understanding, from talking to an HR lawyer,that most compromise agreements have a clause inthem, whereby the employee says, “I haven’t gotanother job.”Lucy Adams: It depends on the nature of thecompromise agreement, but some do.

Q131 Chair: If that was in the clause, why did theyget the extra money and walk into another job?Whether it was Loughrey, whether it was Keating orwhether it was John Smith, they all walked intoother jobs.



Lucy Adams: The compromise arrangements that wehad with those individuals did not prevent them fromgetting another job.

Q132 Chair: Did you have a clause that said, “Youmust not have another job”?Lucy Adams: No.

Q133 Ian Swales: Exactly. That is what enrages thepublic. Let us accept the fact that they might be dueredundancy payments, but your earlier exampleshowed the idea of people receiving money in lieu ofnotice and then actually working in another job duringthe period when, in effect, they are still being paid bythe BBC. Why should people not be enraged by that?I am guessing that some of those people were actuallymaking career moves, going to higher paid jobs. Theyhad the kind of conversation you referred to earlier,and you paid them to go in order to manage thenumbers. In both those cases, the general public areright to be enraged if a large amount of public moneyhas headed to those individuals. Am I right in sayingthat you have examples of both cases? There arepeople being paid money in lieu of notice, who haveactually started another job during that notice period,and people who have effectively made a career move,perhaps to a private sector media organisation, andwho you have paid off, and they may have beennegotiating that new job in advance of your agreeingthe figure with them.Lucy Adams: We certainly have an example wherepeople will have got another job at the point whenthey were being made redundant. We have an instancewhen somebody got payment in lieu of notice andthen was successful in getting another job in thatperiod of time.

Q134 Ian Swales: Do you ask for the money back?If you give somebody pay in lieu of notice of sixmonths, and they end up in another job in threemonths, do you get any money back from them?Lucy Adams: No, we have no legal ability to do that.You are paying them their notice period, but you arechoosing to pay it in one lump sum.

Q135 Ian Swales: But if you give somebody a noticeperiod, it means that they work until the end of thenotice. They should surely not be allowed to startanother job in that period without some financialredress.Lucy Adams: No, a payment in lieu of notice is a fulland final settlement, which means that they walkaway, having had their notice paid up front. You haveno means of recourse.Ian Swales: That is why we are here.

Q136 Guto Bebb: Going back to the £25 million,which the Chair referred to, the reason why that figureis important is that it reflects the licence fee paymentsof 172,000 households, so we are talking about asignificant sum of money. You made the point that thevast majority will have been in line with contracts, butto bring you to another example, in paragraph 2.12 onpage 27, the payment for a senior executive who wasworking on a part-time basis was calculated on the

basis of a full-time equivalent. According to the BBC,the individual in question had recently agreed tobecome a full-time member of staff, so the paymentwas calculated on the basis of that person workingfull-time. In other words, the person never workedfull-time and always worked part-time, but when itcame to working out their redundancy payments, thepayment was made on a full-time basis. How can thatbe justified?Lucy Adams: Again, I am not seeking to justify it; Iam seeking to explain how—

Q137 Guto Bebb: But the decision was made, so itshould be justified. The difference between what thatperson should have received, which was £145,000,and what that person did receive, which was£233,000, is £88,000. I bring it back to licence feepayments. That represents 607 households paying fora discretionary payment that was not necessaryaccording to the contractual agreement that thatindividual had. You need to justify it.Lucy Adams: I go back to what I said earlier: in eachof these negotiated settlements, severancearrangements were arrived at with a view to movingthe individual out of the door and getting the savingsas quickly as possible.

Q138 Guto Bebb: If the aim was to get that personout of the job, why had that person recently agreed towork on a full-time basis? If the aim was to movethem out of the organisation quickly, that does notcorrespond with the BBC explanation that they hadrecently agreed that that person would work on a full-time basis. It does not stack up.Lucy Adams: Because obviously a drive to restructurefollowed swiftly after the agreement for the individualto move from working four days a week to workingfive days a week.

Q139 Guto Bebb: The other thing I wanted to saywas that Lord Patten referred to the fact that thesefigures have not only horrified the licence fee payer,but many members of staff within the BBC. The £5.3million paid to 10 executives is equivalent to 50% ofthe cuts being demanded of BBC Wales over a five-year period. That is the scale of the BBC’s generositytowards senior members of staff.On the part-time issue and going back to the issue ofus and them, why did you not follow the redundancyand reorganisation policy of the BBC? If you areworking at floor level in the BBC in Cardiff on£40,000 a year and you work on a part-time basis,your compensation would be calculated on the basisof that policy. Yet if you happen to be a seniorexecutive and are able to have a cosy chat with theHR director, it would appear that you get a better deal.Is that acceptable in terms of the morale of BBC staff?Lucy Adams: No, I fully accept that the payment inthis instance was too generous. All I can say is thatthey were a highly litigious individual and thedecision and the negotiated settlement was to avoidfuture legal claims and to create minimum disruption.



Q140 Guto Bebb: But if the contractual position said£145,000, surely you must be confident that any legalaction would have failed.Lucy Adams: No, because clearly there are caseswhere people can take action over unfair selection forredundancy. In this case, it was a choice between twoindividuals and it was very possible that we would beopen to a legal challenge.

Q141 Guto Bebb: On the basis of this advice, if anymember of the BBC staff in Wales facing redundancyas a result of BBC cuts engages a lawyer, they willget a better deal.Lucy Adams: This individual did not engage a lawyer.They were a highly litigious individual whounderstood the law themselves. I go back to the factthat I am not seeking to defend and justify all thesepayments. What I am trying to do is to explain thatdecisions were made with a view to saving hugeamounts of money and getting individual managersout of the door.

Q142 Guto Bebb: The key thing is that you do needto justify the figures in question, because this is publicmoney. There is a great deal of concern that we havetwo situations here: we have public money beingwasted without justification, but just as seriously, wehave a situation in which it appears that some peoplewho are able to talk to senior management in Londonget a far better deal than other members of BBC staffin other parts of the country. That is a huge issue forthe morale of the organisation.

Q143 Nick Smith: Mr Fry, earlier when you gaveevidence you used a phrase that I found deeplytroubling. You said—I think you referred to the formerdirector general—that you were told to get back inyour box. What was that about, did you resolve thematter and did you report it to Lord Patten?Anthony Fry: This predates Lord Patten. I think itwas actually almost my first remuneration committee,where I think the former director general took theview that I had not read my royal charter quite closelyenough and therefore realised that some of my priorexperience of what I thought remunerationcommittees were there to do was outwith myresponsibilities as a member of the Trust.

Q144 Nick Smith: How was the matter that you weredisagreeing over resolved?Anthony Fry: If I am absolutely honest with you, Icannot even remember what the matter was. I suspectthat it was to do with aspects of executiveremuneration on a generic basis—the scale of pay andso forth.By the time I joined the Trust, which was 2008, thequestion of pay generally within the public sector wasbecoming a very live issue in the aftermath of thefinancial crisis. I freely admit that I think the BBCTrust was way ahead of many other bodies inrecognising that the question of pay in the publicsector was going to become a very big issue. I thinkat that time we were urging the director general thathe should take immediate action in regard to the scaleof salaries at the executive board level, because we

felt it would be inevitable that over the coming yearsthere would be massive pressure on the public sector.I believe I have said in front of this Committee beforethat I very much regret that—I may have got the dateswrong on this—it took the BBC some further 18months to take action with regard to senior pay. In myview, the BBC would have been much better had ittaken that action when we were suggesting it should.I think it was on that issue.

Q145 Nick Smith: Lord Patten, you gave evidenceearlier. I think most people out there in Ebbw Valein Blaenau Gwent—in my constituency—would thinkthat if you discover an obvious wrong, an open-and-shut case, how you respond is really quite important.It says something about you and it says somethingabout the organisation. It is often the simple storiesthat tell a lot about what is going on. It was reportedthat Mr Entwistle received about £25,000 for 20 days’work, and you said, “He didn’t do it, because histemporary replacement did the job.” When I asked ifyou had asked for the money back, you said verysimply, “No.” I suppose the question is: why didn’tyou ask for the money back?Lord Patten of Barnes: As part of the compromiseagreement with George Entwistle, it was accepted thatif he broke the compromise agreement in any way,there was the possibility of us clawing back parts ofthe settlement. On two or three occasions, weconsulted Baker and McKenzie about whether we hadan entitlement to make any clawback, and on eachoccasion they said that we did not.

Q146 Nick Smith: That brings me to a wider point.Colleagues around the table today have outlined theeye-watering amounts of money that have beenoverpaid in many cases. Are you going to ask for anyof that money back, or is it all just flowing down theriver and gone?Lord Patten of Barnes: What I am certainly not goingto do is to risk asking to get money back, losing incourt and fetching up paying more money from thelicence fee payer than would have been the caseotherwise.Chair: There is nothing wrong in asking.Nick Smith: Yes. Ask for your money back. If I thinkthat I have been overcharged for something, I ask forthe money back, and all of my constituents would dotoo.

Q147 Chair: One thinks of Pat Loughrey, RolyKeating and John Smith, for starters, all of whomwent into jobs. It is all public money, and I just thinkthat there is nothing wrong in asking. In fact, RolyKeating has given it back.Lord Patten of Barnes: I am very pleased that RolyKeating has. The Roly Keating case happened since Ihave been chairman of the Trust. The other cases werebefore my time. I think other people with anappropriate sense of seemliness would see whetherthey should make a similar gesture.

Q148 Nick Smith: When you go back to the officetonight will you ask to get the money back?



Lord Patten of Barnes: I am not going to add to theanswer I have just given which was not about GeorgeEntwistle. I explained that the information was not inrelation to George Entwistle, but to other people.

Q149 Chair: Will you ask for the money, Lord Hall?Lord Hall of Birkenhead: I think the onus ofresponsibility for these decisions—these payments—lies with the BBC. I am pleased that Roly Keatingsent his money back. John Smith has sent somemoney back too. But we got this wrong. We wereoverpaying. The fault lies with us, the executive ofthe BBC.

Q150 Mr Bacon: I should like to ask Lucy Adamsabout case study 5. Could you turn to page 41? Thisis Sharon Baylay who was paid severance of£394,000. Do you think that this was value formoney?Lucy Adams: The saving of Sharon’s post veryquickly meant that we recouped the money as part ofthe ongoing plan of annual savings. So I think it wasthe right decision to remove that post. I also thinkthat, given that Sharon was pregnant and about to goon maternity leave, the fact that at the BBC, while itis not a legal necessity, it is custom and practice notto serve notice to pregnant women but to wait untilthe end of their maternity leave, and given that shewas leaving at the same point as a male colleaguewho, as we have seen, was going to be receiving somefairly generous terms, it was the appropriate thing todo.

Q151 Mr Bacon: What is the answer to myquestion?Lucy Adams: What I am saying is that it is a lot ofmoney—Mr Bacon: What I am really asking is what is theanswer to my question.Lucy Adams: I believe it was value for money ratherthan face a discriminatory claim for unfair selectionof redundancy by a pregnant woman when a malecolleague was in receipt of a significantly largerpayment.

Q152 Mr Bacon: At the time it was decided that shewas to leave, she had only worked for 17 months. Shehad only 17 months of continuous service, as thereport says, “ and so is not entitled to redundancypay”. That is correct, isn’t it?Lucy Adams: That was correct.

Q153 Mr Bacon: Good. Okay, thank you. The nextpoint is this: you have stated all along that the primaryconcern of all of this was to get people out of the dooras quickly as possible. Correct? That was the primaryconcern: to get people out of the door as quickly aspossible. I paraphrase, but that is what you saidearlier, didn’t you?Lucy Adams: What I said earlier was that my primaryconcern was to get people out as quickly as possible—

Q154 Mr Bacon: Yes, thank you. I thought that iswhat you said.Lucy Adams: But with minimum disruption.

Q155 Mr Bacon: As she was at a point where shedidn’t have a statutory right to redundancy paybecause she only had 17 months’ continuous service,and your primary concern was to get people out of thedoor as quickly as possible, why was she then allowedto extend her stay at the BBC so that the proposedleaving date was eight months hence, taking her overthe 24-month limit so that she became entitled to asignificant sum of money to which she previouslywould not have been entitled at all? Why was thatallowed if the primary concern had been to get her outof the door?Lucy Adams: Because she was pregnant.

Q156 Mr Bacon: Right, so she then went onmaternity leave.Lucy Adams: That’s right. So we served notice at thepoint when her maternity leave finished.

Q157 Mr Bacon: It says in the report that she wenton maternity leave just over a month later.Lucy Adams: But she was pregnant at that time soshe was about to go on maternity leave. As I say, it isthe BBC’s approach not to serve notice on pregnantwomen.

Q158 Mr Bacon: You ended up paying her £400,000when you needn’t have paid her anything. She had noentitlement to redundancy pay and you ended uppaying her £400,000.Lucy Adams: We had to pay her her notice which was£310,000,which is the vast majority—

Q159 Mr Bacon: That is the whole point isn’t it.Until she had got past the 24 months—I am readingfrom the report: “At this point, the individual involvedhas 17 months of continuous service and so is notentitled to redundancy pay”.Lucy Adams: That’s right, but the redundancyelement was obviously 10% of the overall amount—

Q160 Mr Bacon: Are you saying that even at thatpoint she would still have been entitled to pay in lieuof notice?Lucy Adams: She would have been entitled to hernotice period, whether it was paid in one lump sumor over the period.

Q161 Mr Bacon: What does it say about HR policyat the BBC when you hire this person, who was therefor only 17 months on an annual salary of £310,000and less than a year and a half later you decide that thepost is not required and make the person redundant?Lucy Adams: Ms Bayley joined before I joined theBBC, so I was not involved in her appointment, norwas I involved in the structure of—

Q162 Mr Bacon: I was not asking who made thedecision. I was asking what it says about the BBC’sHR policies if that is possible.Lucy Adams: It is clearly not desirable that people arelet go so soon after joining. You hope that they enjoya fantastic career at the BBC. What we were trying todo was to reduce the amount spent on executive board



members and senior managers. Ms Bayley was one ofthose casualties.

Q163 Mr Bacon: You were allowing people whowere below you to use delegated authority to get ridof people. One of the most surprising things you saidwas that you did not even know about the examplein paragraph 2.12—the case of someone being given£141,000 more than they were entitled to—until youread this report.Lucy Adams: No, that’s right. I wasn’t aware of ituntil the NAO came and talked to us about the studybecause, as I said, we have a level of divisionalautonomy to make financial decisions and, withhindsight, that lacked central oversight.

Q164 Mr Bacon: And that was lack of centraloversight by you.Lucy Adams: I think lack of central oversight basedaround the financial governance of the BBC in respectof these payments, yes.

Q165 Mr Bacon: It was a lack of central oversightby you, wasn’t it?Lucy Adams: We’re asking divisional directors—verysenior executive board members—to make some ofthese calls, so in that sense I think it is sharedresponsibility.Lord Hall of Birkenhead: Could I just make a point,Mr Bacon? My point about the culture of the BBC isthat it is not just HR. What was going on here was abroad acceptance of things being devolved that in myjudgment should not have been devolved—Mr Bacon: Indeed.Lord Hall of Birkenhead: And of responsibilities byexecutive remcos with non-execs and so on, andmanagement boards and finance committees whichwere not gripped or not tight enough. I have proposedreforms to that, working closely with Lucy Adams.

Q166 Mr Bacon: There is a reason why you havesaid relatively little in this. Everyone knows that youhave joined extremely recently and weren’tresponsible for this culture. It seemed to be a cultureof mates, cronyism, slapping each other on theshoulder, arranging for huge pay-offs, snouts-in-the-trough r us.Lucy Adams: I do not think it is a question of matesand cronyism, Mr Bacon. I think there was aprevailing culture where generous redundancy termsand severance arrangements were made, which clearlydid not deliver value for money.

Q167 Mr Bacon: It is good that you said that,because a minute ago you said case study 5 was valuefor money. Now you are saying that generally theywere not value for money. That is interesting. What Iwant to know is what is the licence fee payer gettingfor the £300,000 or so you are paid? How much isyour salary?Lucy Adams: It is £320,000.

Q168 Mr Bacon: What does the licence fee payerget for that if you are not doing oversight?

Lucy Adams: What they have got over the last fouryears since I have been there is a reduction in seniormanagers, which has delivered £19 million of savingsevery year, which is obviously significantly more thanwas spent. What they have also got is a reform ofpensions and a freeze on management pay. What theyhave also got is removal of management benefits morein line with a public service. What they have also gotis reform of additional pension supplements that weregiven to managers. What they have also got isgreater transparency—

Q169 Mr Bacon: On benefits, such as private health,perhaps the BBC was going to remove it anyway, butit was a matter of astonishment that senior managerseven got private health when everyone else didn’t, andI think that reflects just how extraordinarily out oftouch the culture had become.I have talked to BBC journalists. I was talking to onelast night who said, “I would love to be one of thosepeople who had to hang their head in shame becauseI had been paid so much money.” But most BBCemployees are not like that. They work very hard andthey don’t get paid big amounts of money. There is asort of little superstratum at the top—Ian Swales: Big superstratum.

Q170 Mr Bacon: A big superstratum at the top. Idon’t know whether it is the marzipan or the icingsugar, or the cherry on top, but a small number ofpeople have been gouging the licence fee bare forquite a long time, and it is a very big problem. I amdelighted that Tony Hall in his answer a moment agosaid that he recognises that there is a big culturalproblem, and I recognise that Lord Patten said earlierthat he is trying to do something about it.I want to come on, Tony Hall, to ask you a questionabout that, because you are dealing with anorganisation that is widely loved. Many people in thiscountry have a great deal of time for the BBC, but itsactions over recent years are very hard to defend.There are those of us who want to see the BBC thriveand do well and who want to protect the existinglicence fee structure against all comers, and goodnessknows there are plenty of those who would like to seeit torn apart. I count myself among those people whowant to see it thrive, notwithstanding all we knowabout convergence and all the rest of it.My view is that, if it is not absolutely, completely,totally and utterly broken, don’t fix it. Leave thelicence fee system in place, because I think it deliverstremendous value. For those of us who want to defendthe BBC and everything it stands for, the actions ofthe people who have been running the organisation forthe past few years make it incredibly difficult for usto defend the BBC. I would like to know what youhave been doing as the new leader in the past fewmonths and what you will be doing in the time aheadto restore the morale and confidence of the peoplewho work for you.Lord Hall of Birkenhead: First, may I thank you forwhat you said about the BBC? It is a wonderfulorganisation that a lot of people, both inside andoutside the organisation, believe in. It produces great



programmes, and it has been doing great programmesover the weekend, and before that, too.On the specific issues that are before us now, Irecognised that we had to move on this and move onit quickly, which is why I said on day two that wewould tackle the issue of severance pay. A bit laterthat month, I said that we would cap severance pay.That was the first thing. Working very closely withLucy on that, and looking into the culture of the BBCand the way that it is organised, I could also see that,at the centre, the amount of control of what was goingon was simply not good enough. There had been adifferent principle running through this, which was todevolve decisions. That was not good enough, whichis why Lucy and I are working together. From nowon, we will have a senior management committee thatlooks at remuneration down to the level of £75,000.That is not just to do with severance or redundancy,but—I think you made this point earlier, Mr Bacon—to look at the substance of pay and how much we arepaying people. On top of that, we will remove the useof payment in lieu of notice, because as the NAOReport makes absolutely clear, people should worktheir notice and then leave.

Q171 Mr Jackson: In your letter, on page 2 you referto the 11 cases caught by the cap where redeploymenthas simply not been possible. What specific legaladvice have you had, or are currently having, on yourresponsibilities and obligations to those people?Lord Hall of Birkenhead: Lucy and I began workingon 26 people—work had been going on before Iarrived—who would be hit by a £150,000 cap becauseof the conditions of their contract before the cap.Those people had letters and all sorts of things sayingthat they would be paid redundancy and other things.

Q172 Mr Jackson: All of them?Lord Hall of Birkenhead: Yes.

Q173 Mr Jackson: So it is not just custom andpractice—they have had a letter indicating acontractual relationship in which they effectively haveto be paid above that cap?Lord Hall of Birkenhead: Yes, Mr Jackson. Therewas no cap when these deals were done. These werepeople to whom it was either said, “Will you stay onuntil a certain point?” or “We need you to stay on,”or whatever. These are people who either had lettersor had had firm meetings saying, “This is the deal foryour exit.”With good work from the HR department, we havenow got that 26 down to 11. Those are people whoeither are going to stay on and accept the cap or arebeing redeployed. There are then 11. Six of thosepeople have gone with payments above the cap.Above-the-cap payments by us to those six peopletotal £400,000. We are now working on the otherfive people.

Q174 Chair: £400,000 in total?Lord Hall of Birkenhead: In total for those sixpeople. We have five people on whom we are nowworking to see whether we can redeploy them before1 September, when the cap comes in, or they have to

leave. In honesty, I have to say to the Committee thatit is unlikely that we can redeploy those people, butthey are all people under prior conditions of serviceand notice.

Q175 Chair: Can I just ask some questions on that?Were any of these people involved in the DMI fiasco?Lord Hall of Birkenhead: No.

Q176 Chair: Are any of them getting payment in lieuof notice?Lord Hall of Birkenhead: No.

Q177 Chair: Are you proposing to pay any of thema payment outside of the BBC rules?Lord Hall of Birkenhead: No. There is one casewhere there is a possibility of a fault in the way thatthe case has been handled and we might have to makesome recompense for that, but we are taking legaladvice on that.

Q178 Mr Bacon: I would like to ask two morequestions of Lord Patten, because they are really aboutthe Trust. The first is about the role of the NationalAudit Office. You cast some doubt on the existingstructure and, at the very least, suggested that perhapsthe role of the Trust should be extended in somerespects, even if they were relatively minor. Anotherissue with which you will be familiar, which theCommittee has talked about for many years, is therelationship between the BBC and the National AuditOffice, which is unconventional to say the least, inthat it is the result of an agreement between theSecretary of State for Culture, Media and Sport andthe Trust, such that the auditor can go only where theauditee consents to it going.I understand that there is a negotiation and that sixtopics are suggested each year under the agreement,but it is not the kind of normal relationship that youmight expect between the auditor and a publiclyfunded body. That has raised some questions,particularly in the light of what has happened in recentyears. It is quite possible that, had the NAO had theability to go wherever it sought and therefore therehad been a greater degree of challenge earlier—onemight say the same about the Financial ServicesAuthority, had it been the case there—some of theseproblems might have been uncovered earlier. Do yousee a case for examining and perhaps adjusting therelationship between the NAO and the Trust so thatthe NAO as an auditor—a value-for-money auditor—has the unfettered access that it would normallyexpect in relation to any other publicly funded body?Lord Patten of Barnes: I cannot speak for theComptroller and Auditor General, but at the momentI think we have a good and effective relationship withthe NAO. In practice, it is inconceivable that if theNAO asked to look at this or that aspect of ouractivities, we would be able to say no.We are coping with a situation that would have ledsome of my predecessors as Chairman of theGovernors to throw themselves on their spears inprotest at what they would regard as an infringementof the BBC’s independence. I do not take that view.The BBC has been in front of parliamentary Select



Committees nine times this year. That is the sort ofaccountability that would have Lord Reith spinning inhis grave. Nevertheless, I do think that there arecertain points beyond which we should not go. If thereis ever a case where the NAO wants to do something,within the terms of our agreement, that we finddifficult, clearly the issue would arise again.However, at the moment, we welcome the reports thatthe NAO has done. It has contributed to dealing withthe issue that you raised earlier in remarks that Itotally endorse. There is a disjuncture between thetrust that people have overall in the BBC, and theirviews on its efficiency and the way that it uses theirmoney. That is a disjuncture that we have to change.

Q179 Mr Bacon: While we are on the subject ofLord Reith, in passing, may I just say howdisappointed some of us are that you are not wearinga dinner jacket and that neither is Tony Hall? Tonyhad plenty of opportunities to wear a dinner jacket inhis previous job; he really should have made a bitmore effort, frankly.Lord Hall of Birkenhead: I didn’t, as it happened. Iwanted lots of people to feel that they could come tothe Royal Opera House. Wearing a dinner jacket wasnot something that I enjoyed there.

Q180 Chair: May I interject something before youmove off the point? We welcome the co-operationwith the NAO, but we must say that there is alwaysdelay. Whenever I ask the NAO about how they aregetting on, for some reason there is always delay builtin. That seems to show a reluctance on the part of theexecutive—it is probably not an issue for the Trust—to co-operate fully and promptly with the NAO.Lord Hall of Birkenhead: I want to co-operate fullyand promptly with the NAO, and as far as I am nowresponsible, I will make sure that that happens.Amyas Morse: May I say something? I hope that thiswill be a moderate comment. I was very interested bysome of what both Lord Patten and Anthony Fry weresaying about feeling that, sometimes, their own inputwas held pretty strongly at arm’s length. That can beour experience as well. I therefore do not see a greatdifference between our experience and yours, fromtime to time. I think it is very important that we findways to make that a really open portal, rather thansomething where your approach is treated on a need-to-know basis. I do not regard it as something wherewe are really at odds with the Trust. It is somethingwhere both the Trust and, when we are asked to workfor you, the NAO need to have more free access toinformation, so that we can actually give commentsbased on initiative rather than simply on getting inand mining for particular bits of information that wehave had to agree to. I simply say that to you becauseI think for both bodies to do a better job, that wouldbe very helpful. I am not trying to take it any furtherthan that in this discussion.Anthony Fry: I do not think we disagree with thatat all.

Q181 Mr Bacon: One more for Lord Patten. I amlooking at a letter to you from Sir Peter Sutherland,the chairman of the London School of Economics

court and council, dated 14 June, concerning theundercover filming in North Korea. In the conclusion,he says that the limited concessions made by theexecutives—the BBC executives—to the case madeby LSE constitute “a totally inadequate response toserious and justified criticisms”. I understand from theLSE that they are still awaiting a reply. Is it your planto issue a more fulsome apology to the LSE?Lord Patten of Barnes: The issue is being looked atat the moment, under our complaints procedure.

Q182 Mr Bacon: I should point out that not only amI twice a graduate of the LSE, but so is our Chair.Lord Patten of Barnes: I can assure you that that waswhy my answer was going to be even more grovellingthan would otherwise have been the case. The LSEhad a reply from the executive, or two replies, I think,very promptly, which Peter Sutherland did not findacceptable, and which one other complainant did notfind acceptable. Those complaints will be dealt withunder our normal procedure as rapidly as possible bythe editorial standards committee.Can I just make a point that is analogous to what wehave been talking about? A lot of people would like asituation in which the Chairman of the Trustintervenes editorially on issues like that. That wouldbe as bad as my intervening in the way that the BBCis run day to day. We have to balance things, so thatwe can make oversight operate. That depends a hugeamount on trust between the strategic body and theexecutive, and I totally trust what the director generalis doing.Chair: Very quick questions from Justin, Chris andIan, then I will come in, before Steve asks a final one.We’ve got about 10 minutes, guys.

Q183 Justin Tomlinson: Lucy, going forward, howimportant do you think human resources skills will bein ensuring that licence fee payers get value tomoney?Lucy Adams: In relation to severance arrangements?Justin Tomlinson: Yes.Lucy Adams: What Tony and I have done in the lastfew months is put in place a range of governancearrangements, policy changes and communication tomake sure that things are better understood. So inmany ways, because room for exceptional paymentshas been closed down, room for payment in lieu ofnotice has been closed down, and room for anythingabove the cap has been closed down, it will be aneasier role for managers because there will be verylittle room for manoeuvre.

Q184 Justin Tomlinson: But you have had to useyour HR expertise and skills to ensure that thosesystems are watertight.Lucy Adams: Yes.

Q185 Justin Tomlinson: Do you remember yourinterview with the CIPD—an organisation “leadingHR into the future”—in 2010, when you were quotedas saying that you are not an HR person and you donot have a traditional HR background? Do you havethe skills to put those systems in place?



Lucy Adams: I have been a senior HR director forover 10 years now. What I was referring to in thatinterview was that, first and foremost, I am notsomebody who is isolated from the business that I amin. I believe the remainder of the quote was, “I’m firstand foremost a business person”, and that was to pointout that you can have people who understand policyand best practice, but who do not get engaged in thebusiness. I am very keen to be involved in all aspectsof the BBC.

Q186 Justin Tomlinson: Have you ever run abusiness?Lucy Adams: I have not run my own business, no.

Q187 Justin Tomlinson: You are not a businessperson. Secondly, the executive and seniormanagement pay strategy plan, back in 2011, was adocument that I believe you pulled together. Did younot suggest that there should be a 10% uplift in payfor senior managers? I believe it was then pulled.Lucy Adams: I do not recall it—sorry, which paper?Justin Tomlinson: The executive and seniormanagement pay strategy plan in 2011, whichproposed that senior managers should get a 10%uplift, despite the need then to cut the numbers.Lucy Adams: I do not believe that to be the case,because at that stage we were looking to reducenumbers, salaries—

Q188 Justin Tomlinson: It was released underfreedom of information to The Daily Telegraph atthe time.Lucy Adams: But that would be very strange—I willhave to check—because we were looking to reducenumbers and salaries at that time.

Q189 Justin Tomlinson: Okay. Mr Bebb pointed out,very reasonably, that all members of staff hadcontracts, but that decisions were taken—often byyou—to deviate from the standard terms of thecontract for what you believed to be in the bestinterests of the BBC, although often costing us a lotmore money. Under the new NAO proposals, you willget sight of things at a much lower level, so you willhave even more involvement. Will that mean that wewill have even more contracts ignored and moremoney simply given to people to leave?Lord Hall of Birkenhead: May I answer that? Lucyis reporting to me, and we are doing a lot of work onmaking sure that the organisation is simpler. I will notgo into that now, because it is not the point you made,but when you talked about value for money forlicence-fee payers, that is really important. Theanswer is that I am going to be working with Lucyvery closely on all those contracts, to make sure thatthey are proper and that the policies we have told youthat we will deliver, will be delivered on.

Q190 Justin Tomlinson: Turning to page 8, No. 13is on confidentiality clauses. The case studies that wehave looked at today have all raised concerns, but wehave only skimmed the very top of this. There arehuge numbers of others that we do not have theinformation for. I am just speculating that some of

those confidentiality clauses could have been used tohide some perhaps even worse cases. Do you feel thatthat might be the case, or have concerns that thatmight be the case?Lucy Adams: The Comptroller and Auditor Generalcan comment on the methodology, but as I understandit, the methodology employed was what is called apurposive audit—we provided details of all 150 seniormanagers who had left with a severance arrangement,and the auditors chose which ones, not on a randombasis, but on a purposive basis. They looked at thelargest payments and at exceptional payments, and atthe cases involving the largest salaries and the largestpile-on. While a further 90 were not the basis of thestudy, our assumption is that there is no furtherlearning zone—the vast majority of the money iscovered.Chair: Bring in Stephen on that point.

Q191 Stephen Barclay: Thank you, Chair. Myquestion is to Lord Hall, please, building on Justin’spoint. As we have just alluded to, 90 cases have notbeen looked at by the NAO—so the majority have notbeen—and it is unable, under its access rights, topublish the names. Given that the Committee hasagreed to call Mr Thompson back in the autumn, willyou now share with the Committee the names of all150 senior managers who received severancepayments in the three years to December 2012, withthe sign-off and relevant documentation regardingtheir pay-offs?Lord Hall of Birkenhead: We have to have care aboutprotecting—under data protection—those who havebenefited from the BBC’s decision. Our presumption,and we have taken advice from the InformationCommissioner on this, is that we should not do that,unless those people come out themselves and say, “Weare prepared to have our names in the public domain.”What we are very prepared to do, Mr Barclay—on thetop 10 names that are now out there from thisReport—is to tell you the groupings of people whomade those decisions.

Q192 Stephen Barclay: So the legal advice youhave—given you publically say that you have a veryopen culture—is that data protection prevents youfrom sharing that with the Committee.Lord Hall of Birkenhead: There is a balance here,which you probably know better than I do, betweenopenness on the one hand, which is what we want,and protecting the personal data of those peoplewhose data should be protected on the other hand. Itis a very hard balance.

Q193 Stephen Barclay: Indeed it is. In reaching thatbalance, would paragraph 5 of Schedule 2 to the Actnot apply? It imposes a public interest test. Indeed,the High Court ruling that applied to MPs’ expenseshad two limbs to the test: whether it was taxpayers’money; and whether there were allegations ofimpropriety. Both those tests would be met here.Further, the ninth article of the Bill of Rights meansthat no proceedings can be sustained against a witnessto a Select Committee, so Speaker’s counsel hasadvised me that there is no impediment to you sharing



that information with this Committee on the basis ofdata protection. Will you now, therefore, share thatinformation?Lord Hall of Birkenhead: We need to take away whatyou have just said and examine it. I will always lookat that. We need to come back with a consideredjudgment on the things you have referred to, ratherthan just coming out with one here now.On impropriety, one thing I took very strongly fromthe Report was that the NAO are not saying that thereis any impropriety in any of these payments.Stephen Barclay: To avoid potential doubt from BBClawyers, I would also draw your attention to theInformation Commissioner’s guidance about seniority.To put seniority in context, the average severancepayment is £164,200. Paragraph 50 on page 16 of theInformation Commissioner’s guidance on requests forpersonal data about employees says that “it should berecognised that there is an increasing publicexpectation of transparency regarding the expenditureof public money and the performance of publicauthorities. This is especially the case if there is anyevidence of mismanagement by senior staff”. So,again, there is an element of debate there. The figurescited in that guidance relate to staff at the level of£58,200 and above. We are talking here about a groupof people some of whom were paid sums that aresixfold above that.As I have set out, I don’t think that there is anyimpediment to your sharing with the Committee thedetails regarding all 150 cases from a data protectionperspective. Just in case there is any doubt on that,under Standing Order 148(1), Parliament has “thepower to send for persons, papers and records”, and“Erskine May” is very clear—this is on page 839:“Disobedience to the order of a committee madewithin its authority is a contempt of the House”. Iwould therefore like to ask the Chair for theagreement of the Committee that we apply StandingOrder 148(1) in the event that data protection is seenas an impediment, and request the names of all the150 people, and the relevant papers regarding theirseverance.Chair: The Committee is agreed that that is what weshould do.Justin Tomlinson: I think you know that there are farmore issues and that gagging orders were used to hidesome even worse cases. I believe that youcommissioned an Ernst and Young report thathighlighted that, and it would be rather helpful to seethat report. I presume it will not be forthcoming, butSteve’s legal knowledge may very well help us onthat.Stephen Barclay: The Committee can agree, withinthe same part of the Standing Orders, to request thatreport for Mr Tomlinson as part of our evidence.

Q194 Justin Tomlinson: Crucially, throughout theevidence given today, people keep referring back tothe fact that there was a culture of this happening. Itwas nobody’s fault—it was always somebody else, butnobody is prepared to say who that is.One final question for Lord Hall from me: aftereverything that we have heard today, can you have

total faith that Lucy Adams has the skills to delivervalue for money for licence fee payers?Lord Hall of Birkenhead: Yes I can. We have beenworking together very hard over the past threemonths, not just on these issues but on other issues todo with the design of the organisation. As I said inmy letter to you, I think that the BBC is over-complexand over-layered. We need to have a simpler structure,in which people take responsibility for decisions thatare made and there is real authority, and people knowthe authority levels within the organisation.In this case, I feel that the authority levels weredevolved far too low. Lucy Adams has been workingwith me on that and doing some first-rate work, whichI hope will really give better value for the licence feepayers in the medium term.

Q195 Chair: Lord Hall, has anybody who wasresponsible been disciplined?Lord Hall of Birkenhead: Why I wrote to you sayingthat I felt that this was an institutional matter and acultural matter is because people were working withinguidelines and within a framework, which in myjudgment, looking back at this—I could be wrong—was accepted but we all know was wrong.Stephen Barclay: Sorry, could you explain—Lord Hall of Birkenhead: Some—not all—of thepeople who have been responsible for that are nolonger at the BBC. I have concentrated my work ongoing forward and saying, “This is wrong. It isunacceptable,” and looking at how I make sure that Ican stand before you all and say that we have a grip onthis and are giving good value to licence fee payers.

Q196 Stephen Barclay: Could I clarify? Lord Hall,you said that people were working within guidelines.Where was it set out in the guidelines that peoplecould ignore contractual terms?Lord Hall of Birkenhead: I will correct myself there,because I think that you have made an importantpoint. Culturally—as I think Lucy Adams and othershave said, and you have all commented—we had lostthe plot. We had lost the way. We had got bedevilledby zeros on various salaries.

Q197 Stephen Barclay: People were not actingwithin guidelines?Lord Hall of Birkenhead: I think one of the issueswas that there was not enough grip at the very centreof the organisation by the non-execs with theexecutive remuneration committee. There was not asenior management remuneration committee. Thingswere devolved far, far too low down. What I amattempting to do, and will do and am doing, is bringthat back to a proper level at the heart of theorganisation, with me chairing—

Q198 Stephen Barclay: And we do appreciate that,and we appreciate your getting a grip, and weappreciate that there was a loss of grip. But just to bevery clear, people were not acting within guidelines,were they?Lord Hall of Birkenhead: I take the point that therewere things that were outside the policies of the BBC.That is completely right, yes. I accept that.



Q199 Chris Heaton-Harris: I am sorry I was late in.I was actually at a Statutory Instrument Committeewhich, as Lord Patten will remember, is one of theCommittees in this place where you have no choicebut to turn up. It was about the minimum wage, andsticking three pence on a band of one particular partof the minimum wage. You do expect these people topay the licence fee too. The contrast between thefigures I was listening to in Committee Room 11 andthe figures we have been talking about since I walkedin here has been rather stark.I want to ask Lord Hall a question. You have been inthis role since November last year. I wanted to followup on the points being made, because what I haveheard since I walked in referred to a “lack of centraloversight”, which I think was a direct quote from MsAdams, and that it felt way too cosy. I do not want tocall for Ms Adams’s head at all. I do not like doingthat sort of thing, and I do not think that it is cleverpolitics. But I do think that when she starts talkingabout people’s roles, it proves to me that there is sucha culture of cosiness and cliqueyness, where there isnot enough regard for taxpayers’ money and licencefee payers’ money. I wonder how you are going totackle that.Lord Hall of Birkenhead: To correct you on onepoint, I have actually been in the job—and it is awonderful job in many respects—for three months,not since November. I was announced then, but it isthree months.

Q200 Chris Heaton-Harris: Are you enjoyingPublic Accounts so far?Lord Hall of Birkenhead: I am enjoying a lot of theresponsibilities that go with the job, but I also want tomake sure that I can stand before you and also thepeople who pay for us, the license fee payers, and saythat they are getting brilliant value for money. I thinkMr Bacon made the point earlier that there is a lot ofgood will for the BBC, for the programmes that wedo and the services we provide. I want to build onthat. I think the challenge role which you are hintingat is a really important one for our non-executivedirectors.The conversation earlier on with the Trust was aboutbeing ignored. I want our non-executive directors toprovide absolute proper challenge to the executive,and I know that they will do. That is what they arethere to do, in terms of what we do. Not just in termsof pay, but across the range of services that weprovide. I intend to make sure that they provide thatproper challenge. That challenge, in my judgment,looking back, has not been there in anything like thedegree—

Q201 Chair: Directors should also do the jobproperly.Lord Hall of Birkenhead: I completely agree, MadamChairman. It is down to me and the executive team,which I have spent the last little while building. Butregarding the non-executive, I think that the pointbeing made was about culture. I think the cultures oforganisations, which non-executive directors need tobuild into an organisation, is that sense of representingthe outside view and what people outside the

organisation feel, and holding the executive toaccount. I also think that it is up to us, the executives,to make sure that we are listening to what our viewersand our listeners, our audiences, are saying to us. AndI think that we are, now.Amyas Morse: Very quickly, I wanted to ask LucyAdams a question. There have been a lot ofsuggestions about things you might have challengedunder the previous director generalship. Would youfeel that you actually had permission, or a culture thatwas encouraging of challenge at that time?Lucy Adams: That is a very interesting question.Coming into the BBC, which had a director generalwho had been in position for a long time, there was acertain way of doing things and, as is evidenced bymy failed attempt to get a redundancy level cap in2011 and to reduce the amount that people weregetting at that time, I think that there was only so farthat we would go.Amyas Morse: So that would be no, really. Would thatbe a fair summary?Lucy Adams: I don’t think it is fair. I think therewas absolute—Amyas Morse: Pretty tough?Lucy Adams: “Tough” is fair.

Q202 Chair: I am going to come in on this. We hearit all too often when we have witnesses here. It is onedisaster after another, and it is always “Not my fault,guv, it was the person before.” Public money is atstake. I have to say to you, Ms Adams, that you werein that job for four years. You were head of HR. Youare probably a tough cookie. You should have exerteda bit of toughness. It is a big enough organisation thatyou could have done so. It is all too easy to blamepeople who are not in the room. We have people infront of us, and they no doubt have some explanation,but it is always blaming the person before. I wouldlove it if we had an organisation in front of us thataccepted responsibility for what had happened. Youwere there for four years. You were there for the threeyears that are the subject of today’s deliberations.Lucy Adams: Madam Chairman, I would hope thatthe Committee has heard from me throughout thissession that I have accepted responsibility fordecisions that I believe with hindsight were made inerror, and that were not good use of licence feepayers’ money. I am trying to set a context of anambition and an overwhelming regard for trying tomove money out of the organisation and save £20million a year. I hope I have made it clear today thatalongside my colleagues, I take my share ofresponsibility.

Q203 Ian Swales: I have one quick question. TheBBC is almost a byword for complexity—it is stilllampooned in publications like Private Eye for it—soI am not surprised to see a comment in your letter,Lord Hall, saying that there are some 55 separateboards and committees looking at operations andback-office functions. You still have 445 seniormanagers. You made a very welcome comment aboutlooking for simplification. How many seniormanagers do you think the BBC actually needs,approximately?



Lord Hall of Birkenhead: I cannot give you ananswer to that, because it would be off the cuff, and Ido not like giving that sort of answer. What I cantell you is that I take the agenda of simplifying theorganisation really seriously. I think that will bewelcome, and not just to people outside the BBC whoare pitching for programmes or have an interest in thespending of their money as licence fee payers. As Igo around the country meeting people in the BBC—Iam doing that one day a week—I think it will alsoliberate people within the organisation to have someclarity. It also brings us back to—I think simplificationalso means this—people taking responsibility. If theyare running a project or whatever, they are takingresponsibility for that.

Q204 Ian Swales: I totally accept that. One finalcomment: Mr Bacon talked about how the BBC isloved, but equally, if you are in any doubt about howimportant it is to the public how the money is spent,you only need to go back and look at the debate onlocal radio, whenever it was. I have never heardanything like it in Parliament. That is a part of theBBC that needs protecting. It is a very small amountof your spending, and yet there were plans to axe alot of it. That is exactly what the public do not wantto see. They want to see this agenda that you aretalking about.Lord Hall of Birkenhead: Mr Swales, I have been toa number of local radio stations. The work being donein local radio, with small resources but huge ambition,is absolutely first-rate. We are providing a service tocommunities, for example in Radio Orkney, which noone else is doing. We have got to make sure we canjustify every pound we spend, as if it were our ownmoney, to the people who are paying for us. That is areally important point for the BBC of the future.Lord Patten of Barnes: I think we may be coming toa close. I do not want to cut short this Socraticdialogue, but there is just one point that I want to beclear about. On the point that the Committee ismaking, if the legal advice that the executive has isthat those who received severance payments areentitled to the protection of legislation on data—I amnot talking about the people who made the decisions,but the people who received the payments—is it theCommittee’s position that it will seek to useparliamentary privilege in order to overturn thoserights? I do not know if I am interpreting thatcorrectly, but I think there would be a hell of anargument about what it would do to the BBC’sindependence, which I am statutorily obliged todefend.

Q205 Chair: All I can say to you is that we getinformation about individuals on a number of cases,most recently around the Serious Fraud Office. Weof course have regard to the rights of the individualsconcerned in the way we use that information.Lord Patten of Barnes: Is the Serious Fraud Officeguaranteed by charter its independence?Chair: Probably not.Lord Patten of Barnes: I do not want to find usgetting into unnecessary constitutional or legal

arguments. It would be in both our interests to avoidthat if it is humanly possible.

Q206 Chair: I do not think we would in any waywish to undermine individual rights. I was going toask three quick questions of Tony Hall, just for clarity.Does your £150,000 cap include the lot? Does itinclude any pension top-ups, and all that sort of stuff?Lord Hall of Birkenhead: The lot, but we do not planpension top-ups. That is the lot.

Q207 Chair: That is the lot. Now, for clarity, theissue of health care and car allowances, because it isunclear from the Report—are you stopping that for allcurrent staff, even though they may have had it intheir original contract entitlement?Lord Hall of Birkenhead: Not at the moment. Allnew staff do not have either of those two benefits, asyou know, Madam Chairman. Over the autumn andwinter, Lucy Adams and I will be looking at theremuneration packages that we are offering. We willtry to achieve the very difficult balance between whatthe public expects of us in terms of pay, but also someareas where the market for talent is pretty hot and wedo not want to lose people who are good.

Q208 Chair: I hear that, but those two are currentlycosting you £3 million a year.Lord Hall of Birkenhead: The NAO Report suggeststhat we do a cost-benefit analysis on that, and we willdo so.

Q209 Stephen Barclay: To address Lord Patten’spoint, the legal advice I have received—obviously, itwill be subject to discussion with BBC lawyers—isthat, first, the royal charter does not fetter standingorder 148(1). Secondly, as I set out, I do not thinkthat data protection is a constraint, although that issomething on which Lord Hall will want to takeadvice. I have cited the 2008 case and the publicinterest element. Thirdly, the fact that the Committeeobtains information does not equate to its beingpublished. I cite the precedent from the NationalPolicing Improvement Agency, where we investigateda payment of over £500,000 to a member of staff, butthen accepted representations from Mr Gargan of theNPIA, who gave us good grounds for why the datacould not be shared, which satisfied the Committee.Obviously, it is an issue for further discussion, but thepoint is that ahead of our hearing with Mr Thompson,it strikes me as appropriate that the Committee hasaccess to the details regarding those 150 people. Theyare senior members of staff, and we would not knowwhether any of them was currently being employed asa consultant for the BBC, for example. It is relevantthat that information is available for the Committee,and then the Committee can decide what it does withit.Lord Patten of Barnes: Behind that argument is yourfour-square defence of the integrity and theindependence of the BBC.Stephen Barclay: These are value for money issues.They are not editorial questions.



Chair: On that note, thank you very much indeed forbeing at this session.


Monday 9 September 2013

Members present:

Margaret Hodge (Chair)

Mr Richard BaconStephen BarclayGuto BebbJackie Doyle-PriceChris Heaton-HarrisMeg Hillier

________________

Amyas Morse, Comptroller and Auditor General, National Audit Office, Gabrielle Cohen, Assistant AuditorGeneral, NAO, Peter Gray, Director, NAO and Marius Gallaher, Alternate Treasury Officer of Accounts,

were in attendance.

Examination of Witnesses

Witnesses: Mark Thompson, former Director-General, Marcus Agius, former Chairman of the BBC ExecutiveBoard Remuneration Committee, Lord Patten, Chairman, BBC Trust, Anthony Fry, BBC Trustee, SirMichael Lyons, former Trust Chairman, Lucy Adams, Director, Human Resources, BBC, and Nicholas Kroll,Director, BBC Trust, gave evidence.

Q210 Chair: May I start by declaring an interest? Ihave a daughter who is employed by the BBC. I donot think there is anybody else who has an interestto declare.I thank you all for coming this afternoon. We haveseven witnesses and probably about a dozen membersof the Committee—I have not totted it up—so if weare going to make this a positive occasion that works,that will demand some self-discipline on all ourbehalves, including answering questions succinctlyand trying to keep to the question that is asked. I willtry to keep an order and to keep it going.I want to make just a few remarks at the beginning.We are not a court of law, but we are trying thisafternoon to get at the truth, and only you, aswitnesses, can help us to do that. It is extraordinarythat the Committee has felt the need to ask seven key,top players in the world’s leading public servicebroadcaster to come together to attempt to establishon behalf of the public and the licence fee payer whoknew what at what time and who is responsible, andtherefore answerable, for decisions taken by the BBC.You are all people of assumed integrity, and you havebeen busy accusing each other of somewhatmisleading this Committee—that is probably the bestway of putting it—and of saying you are notresponsible for certain decisions that have been taken,which I think everybody now believes led to grosslyexcessive severance payments, which most right-thinking people consider unacceptable.What we are not here to do is to bash the BBC; weare not here to undermine the BBC. I think all of us—certainly, I hope, round the table and in this room—admire, value and cherish the creative talent and first-class output of the many thousands of people whowork for the BBC. Those employees, like us, must, Iam afraid, be looking at the management of the BBCin dismay, particularly when they look at these pay-offs. Probably even to the most seasoned viewer ofthe BBC’s affairs, the current arrangements underwhich the BBC operates are bewildering, complex andconfusing, and they do little to help the licence fee

Mr Stewart JacksonFiona MactaggartAustin MitchellNick SmithIan SwalesJustin Tomlinson

payer understand who they can hold to account. Weare trying, this afternoon, to shine a little more lighton those arrangements.I am going to start with you, Mr Thompson, and I amgoing to try to focus mostly on the Mark Byford pay-off, but that is simply because it is an example of allthe others that we considered in the original Reportfrom the NAO, the subsequent Report from the NAOand the report that the BBC itself commissionedfrom KPMG.I accept, Mr Thompson, that this is your firstappearance before the Committee on this, so this isyour first opportunity to have your say. You will haveread and heard how other people have expressed theirdisbelief and disgust at the size of the pay-offs. Wouldyou have come to the same decision today on MarkByford in the same circumstances?Mark Thompson: I think the circumstances in 2010were very different from today. In 2010 I believed—Ibelieved I had the full support of the non-executivedirectors of the BBC, and I also believed I had thefull support of the BBC Trust—that we had to dosomething very significant very rapidly to reduce thenumbers and the aggregate pay of senior managers inthe BBC. Indeed, we launched the programme whichultimately saw, I think, 24%—one in four—of thesenior managers of the BBC leaving. The programmewas originally expected to last three years; weaccelerated it to about 18 months. The act ofaccelerating, itself, yielded an extra £9.5 million ofsavings. The programme as a whole has saved about£35 million so far and has led to £19 million ofsavings for every year into the future. So the ultimatevalue-for-money argument for this reduction wasvery strong.We felt it was important, and I felt it was important,that this programme should not just be, as it were,about the middle-ranking senior managers, but alsoshould be seen to be about the BBC reducing its mostsenior ranks and losing some of the highest-payingposts in the organisation. In the summer of 2010, weidentified the possibility—there were arguments


9 September 2013 Mark Thompson, Marcus Agius, Lord Patten, Anthony Fry, Sir Michael Lyons, Lucy Adamsand Nicholas Kroll

against it, by the way; one of the arguments againstit was the likely severance payment—that we couldpotentially make a very big saving and also send outa powerful signal by abolishing the post of DeputyDirector-General. That is why, in 2010, we began tothink about whether there was a way of doing that. Ibegan to talk to everyone about the best way of doingthat and what kind of severance payment it wouldentail.

Q211 Chair: Can I take you back to my question?With the benefit of hindsight, would you take the samedecision today? If you think about Mark Byford’s £1million, an ordinary worker on average earningswould have to work for 40 years to earn the £1 millionthat Mr Byford got in redundancy pay. In thosecircumstances, you can understand the disgust thatordinary licence fee payers feel about theircontribution being used in that way. With the benefitof hindsight, would you have given those verygenerous pay-offs if you had to take the samedecision today?Mark Thompson: You will have seen that at the time,in the so-called Project Silver note, which I wrote forSir Michael Lyons, I contemplated not going aheadwith this because of the size of the severance, but, hadwe not made Mark Byford redundant, by now theBBC would have spent at least another £1.3 millionon salary for him. Although I absolutely recognise thatit is a very large amount of money—I recognise theimpact it has had—it made better value-for-moneysense for the BBC to make the redundancy and savethe money than to leave him in post.

Q212 Chair: So would you take the same decisiontoday?Mark Thompson: I think we are now at a point wherewe have reduced the overall population of the BBCsenior management by a quarter. Colossal savingshave been released by that. In a sense, the widervalue-for-money case is not as strong now as it wasthen, so the answer is that it probably would not havemade sense today.

Q213 Chair: One is tempted to say that there wascolossal waste if you managed the organisationperfectly well with fewer top staff. Do you thereforenot agree with Tony Hall, who said the BBC had lostthe plot on severance? He said, “We had lost the plot.We had lost the way. We had got bedevilled by zeros”.Do you agree with him?Mark Thompson: I want to say that we were focusedabove all—I do not think it was just me; it was theBBC Trust as well—first and foremost on whether wecould get the complete pay bill down, and realprogress was made on that: £19 million. With theearlier savings, we had made much more than that peryear of ongoing savings.

Q214 Chair: You do not think you had lost the plot?Mark Thompson: I do not think we had lost the plot.I think we had done several important things to beginto control severance payments. We had capped, forexecutive directors and then for new senior manager

joiners, the amount of money people would get forpast service to a year, and we had progressivelyreduced and then abolished pension augmentation,which, as the NAO Report states, was once a big andexpensive part of severance. But it is true that Ibelieve that we—I—achieved a lot in terms ofreducing senior manager numbers and the total seniormanager pay bill. I would be the first person to saythat I did not do as much in terms of controlling andreducing severance payments. The time to reduceseverance payments is after you have done your bigreduction. If you launch a renegotiation of everysingle senior manager’s contract at a time when youhave told them that between one in five and one infour is about to lose their job, the danger is that thatprocess will hold you up for months or even years.

Q215 Chair: You could have offered Mark Byfordone year’s salary—in fact, he worked eight months ofa period that would have been part of his notice—rather than giving him a further one year’s salary,which you classified as a year’s notice in lieu ofsalary. I completely fail to understand why you didnot think that £500,000 in redundancy was enough.Mark Thompson: I think that what is at debate hereis the eight months, not 12 months. In other words, itis about £300,000.Chair: Focus on the question. Don’t go off it. I havebeen very generous to you in not interrupting you, asis my usual wont.Mark Thompson: If I may say so, Chair, it is not£500,000; it is £300,000, represented by the eightmonths between the announcement and the—

Q216 Chair: Under the terms of the contract, hecould have been given one year’s salary, which, giveor take a bit, is £500,000. He walked away with, giveor take a bit, £1 million. Why was £500,000, which ismegabucks for most people, not enough to get rid ofsomebody whom you decided you no longer neededin your organisation?Mark Thompson: We were, at this point, in themiddle of a massive restructuring of the BBC, whichinvolved losing a quarter of the senior management,and also a massive reorganisation. We were, as youknow from other hearings, in the middle of a seriesof gigantic projects to include Salford and the newBroadcasting House, and also the preparation of thebroadcasting of the royal wedding and the Olympicgames. We took the decision—it was my judgment,which I put to the executive board and discussed withthe BBC Trust—that we wanted Mark Byford,through this difficult transition, fully focused on theenormous task that we had. We did not want himworrying about his future or taking calls fromheadhunters; we wanted him fully focused. That iswhy we decided not to ask him to work through hisnotice. If I may say—

Q217 Chair: Hang on a minute. I am sure others willwant to come in on the notice period. You still havenot answered the question. Had he left without thisdiscretionary element in his contract to give him theextra year of payment in lieu of notice, though he



worked for eight months of it, he would have got£500,000. What I do not understand is that for mostordinary people, £500,000 is a lot of money. Why, inyour view, was that not enough?Mark Thompson: If I may say so, this entire exercisewas about reducing the numbers of high-paying jobsin the BBC.

Q218 Chair: We understand that. That is not theanswer to the question. Why did you consider halfa million too little as a fair redundancy payment toMark Byford?Mark Thompson: I want to be clear. I have said thiswas not because I thought it was in the interests ofMark Byford that he should carry on working andreceive formal notice later on; I believed that it wasin the BBC’s interest because of the immenseoperational challenges that we were facing at the time,and it made sense for the BBC to have a DeputyDirector-General who, by the way, we were not readyto make redundant yet—

Q219 Chair: You still have not answered thequestion, Mr Thompson.Mark Thompson: In my calculation—

Q220 Chair: Why did you feel that you had to go tothe maximum payment allowable under the contractrather than a perfectly generous—massivelygenerous—half a million? Why?Mark Thompson: Because I wanted Mark Byford tobe fully focused.

Q221 Chair: He could have worked his notice anddone that.Mark Thompson: I have explained that what I wantedhim to do was to be focused 100% on the task, and notat a point where he was worrying about headhunters.

Q222 Chair: Just a few more questions, and thenothers are longing to come in. How long have youknown Mark Byford?Mark Thompson: Many years.

Q223 Chair: You came in together at about the sametime, did you?Mark Thompson: Roughly the same time, so overthree decades. I went away to Channel 4, but I haveknown Mark Byford for three decades, yes.

Q224 Chair: And you socialised with him?Mark Thompson: Sometimes, yes.

Q225 Chair: Did that influence your decisionmaking?Mark Thompson: No, it did not. One of the things Iwant to say is that if you look at some of thedocuments that I submitted to you, I think you can seethat I was trying to involve as many other people inthe decision-making part of the organisation—non-executive directors and the BBC Trust. The actualnegotiations with Mark Byford were led by LucyAdams, the director of the HR division of the BBC,and not by me. Throughout the entire process, because

of its difficulty, I kept the option, and I shared thiswith the Trust, of not proceeding with it because ofthe size and the difficulty of the potential settlement.

Q226 Chair: How typical is it for the average BBCemployee who is being made redundant to be givennot just their statutory redundancy pay—I am talkingabout someone who is on a 10th or a 20th of MarkByford’s salary—but a year’s additional pay in lieu ofnotice? How typical is that?Mark Thompson: Mark Byford’s contract—

Q227 Chair: How typical is that for others? Go rightdown. I happened to be escorted through Millbank theday after we had our previous hearing in July by areceptionist who had worked at the BBC for morethan 20 years—I think it was 23 years—and who hadjust been made redundant, and all she got was thestatutory basic. She did not get a year in lieu.Mark Thompson: Mark Byford’s contract, as Iunderstand it—

Q228 Chair: I know about Mark Byford’s contract.What I am trying to get at is that it feels to thisCommittee—it felt this in our previous hearing—thatthis small elite of senior managers, all of whom hadworked together and probably known each other fromwhen they were trainee recruits into the BBC, weregetting the most generous end of redundancysettlements, while ordinary BBC people were not.Mark Thompson: A BBC employee who had workedfor 31 years—in most cases, or in many cases—in therank and file would be eligible for a year of pay foreach year of service up to a cap of 24. In other words,they would be eligible for two years.

Q229 Chair: They would not have got a year inlieu—Mark Thompson: No, but they would have got twoyears in respect of past service. That had been cappedin the case of Mark Byford at 12, so the idea ofsomeone of 31 years getting the equivalent of twoyears’ pay would be widespread across theorganisation.

Q230 Guto Bebb: On the specific issue of peoplewho know each other at the top of the organisation,the statistics show very clearly that the higher youwere within the organisation, the more likely you wereto get a payment which was over and above yourcontractual entitlement, and even at the manageriallevel: executive directors—50% over and above theircontractual entitlement; senior managers level 1—21% over and above; senior managers level 2—12%.It does give a picture of an organisation looking afterpeople at the top.Mark Thompson: Do you mean contractualentitlement or contractual minima, as it were?Guto Bebb: Contractual minimum entitlementsaccording to the NAO Report.Mark Thompson: Well, there is a difference betweenthose two things. The BBC can decide, for operationalreasons, to pay someone and make a payment in lieuof notice. The BBC can do that. In the case of George



Entwistle, for example, quite understandably, it wasfelt he should leave quickly and he was given it. I wasinvolved in some cases where, because of a difficultywith an individual, a senior person left the BBC, andyou make a payment in lieu of notice. Making apayment in lieu of notice is not above the contract.The contract is explicit that you can have a year ofnotice or the BBC may choose to pay you a year’smoney in lieu of notice. That is an option under thecontract.

Q231 Guto Bebb: It is interesting that the higher youare within the organisation, the more likely it is thatthat option is exercised. Does that in any way makeyou concerned about the way in which the BBCoperated towards its staff across the country?Mark Thompson: I do not believe it is favouritism.What may have happened though, and I was not awareof this until I read the NAO Report, was that inparticular the cap that began to be placed on howmany months would be paid in lieu of past notice,and the reduction and then the elimination of pensionaugmentation may—that is may—have put morepressure, as it were, in those discussions on HR peopleto consider more readily for senior people particularlyaffected by this the possibility of payment in lieu ofnotice.

Q232 Mr Jackson: Mr Thompson, I think there is adanger of us going down a cul-de-sac where we justgo round the Mark Byford situation ad infinitum. Thekey point seems to me that you pray in aid a publicsector ethos of public service, but you wanted privatesector pay, terms and conditions in the time that youwere Director-General. Let us not forget—and I wouldlike you to respond—that the KPMG report, the NAOReport and our findings essentially say that, underyour leadership, there was weak governance on thisissue and poor process management, and that in thisnarrow respect you were leading a dysfunctionalorganisation.You will no doubt respond to that, but may I ask yousomething specifically? You talk about value formoney, but in her evidence on 10 July, Lucy Adamsspecifically made reference to the redundancypayment cap that she sought to bring in as a policy,which she identified you as blocking? If you wereinterested in value for money, as you said, why didyou take that action?Mark Thompson: I didn’t. I don’t know what you arereferring to.

Q233 Mr Jackson: “Coming into the BBC, whichhad a director general who had been in position for along time”—you, from 2004 to 2012—“there was acertain way of doing things and, as is evidenced bymy failed attempt to get a redundancy level cap in2011 and to reduce the amount that people weregetting at that time, I think that there was only sofar that we would go.” There was an inference in herevidence that there was a culture of “my way or thehighway” when you were Director-General.Mark Thompson: I simply do not recall ever rejectingthe idea of a cap. Indeed, such a cap was introduced

for new senior management joiners under my director-generalship in 2008. One of the things we did was tointroduce such a cap.Much of what we are talking about here is somethingthat was true of the BBC for many years. The reasonwhy there were a lot of cases in this period wasbecause it was a period when we decided, and Idecided, to do a great deal to reduce the numbers ofsenior managers and to reduce senior managementpay, so there were a lot of cases going through thesystem. It is not that there was an earlier period inthe BBC when there were tighter controls and fewerbenefits. Actually, the story is that we were reducingthe number of benefits available in severancepackages.

Q234 Chair: Can we go to Ms Adams to getconfirmation of the evidence she gave us in July?Lucy Adams: Yes, please, because I think that you aremisinterpreting what I said the last time I was beforethe Committee. What I said was that there was aculture and practice in an organisation that had beenled by an individual for some time. Absolutely; onewould accept that. It certainly was not to imply that itwas “my way or the highway”. Mark was very opento discussion and challenge on a number of occasions.We talked about a whole raft of things.In terms of the paper to which you referred, this wasa decision taken by the management board at the timein 2011, when I proposed bringing in a cap, but asMark said earlier, there was reluctance to introduce acap at the very moment that we had announcedsignificant redundancies among senior managers. Onthe one hand, we are saying that there was a plan toreduce the management population by 20% and thepay bill by 25%, but the view of the managementboard at the time—not just Mark, but a number ofcolleagues—was that it would be inappropriate tointroduce a cap at that time.

Q235 Chair: Hang on a minute; you are completelycontradicting the evidence—you can’t do that.Looking back at the evidence, you said: “I would alsosay, going back to the level of challenge that Iprovided”—because we challenged you on your levelof challenge—“to the prevailing culture, that Iproposed to the management board in 2011 that aredundancy cap be put in place. I was well aware thatthis was unsustainable.”Lucy Adams: That is exactly what I said. I proposedit to the management board, and the managementboard took the view at the time that that wasn’t a capthat it wanted to introduce.

Q236 Q236 Ian Swales: Mr Thompson just said thathe didn’t have a cap proposed to him.Mark Thompson: We introduced a cap in 2008 fornew senior management joiners, as I recall.Lucy Adams: What we did was we put in place a capon the amount of redundancy they could get in termsof months. In September 2011, at what was then theBDG—the management board—we proposed anumber of options. You may not remember it, butthere was a paper that looked at a number of options,



one of which was to put in place a cap of £100,000,which was what I proposed at the time.

Q237 Mr Jackson: The Committee will note thatyou have had to apologise to us since the last meeting,given that you claimed not to have seen a documentthat you substantially authored. I think that we needto take your evidence with a pinch of salt.Lucy Adams: To draw an inference with thatclarification is grossly unfair. You were referring to adocument, but I did not understand which documentyou were talking about at the time. I was shown thedocument after that meeting, and of course Irecognised it as a document with which I had beeninvolved, so I immediately clarified the situation.

Q238 Chair: Just to be clear on that, because I amnot having any more lies this afternoon, may I ask theNAO whether that document—the 7 Octoberdocument, of which we were all given a copy—wasalso passed to the witnesses? Did they know what wewere talking about?Peter Gray: I believe it was made available to theCommittee on that day, or just before, by the Trust.Lucy Adams: Yes, it was submitted by the Trust; itwasn’t a document that I had seen. I apologise to theCommittee that I wasn’t able to identify that documentat the time. There was no attempt deliberately tomislead the Committee. I immediately clarified uponParliament’s return that I recognised the document asone to which I had contributed. In the Committeemeeting, I was clear that I couldn’t with absolutecertainty recall that document, but I was also clearthat I was involved in advising Mark on the termsfor Mark Byford. I have never sought to deny myinvolvement in that.

Q239 Chair: Let me just say that your immediacywas a letter to Mr Jenner on 2 September.Lucy Adams: On Parliament’s return.Chair: It was on 2 September, after we had met on15 July.Lucy Adams: On 10 July.

Q240 Chair: That is a very funny interpretation of“immediate”.Lucy Adams: When I read the transcript, because Ihad said that I could not say with absolute certaintyand because I had not sought to deny any involvementin the discussions around Mark Byford, I did notbelieve it needed clarifying. Subsequently, over theensuing weeks, there has clearly been a lot ofdiscrepancy between one side and the other. At thatpoint, on Parliament’s return, I sought to clarify it.Chair: Before we move on to who said what towhom, I want to establish the culture. Stephen, canyou come in on that question about the nature of thepolicy, before we try to move on to who actually saidanything to anybody, or nothing to anybody?

Q241 Stephen Barclay: Just to clarify something,Mr Thompson, custom and practice is not a legalrequirement, is it?

Mark Thompson: Custom and practice is not a legalrequirement, did you say?Stephen Barclay: There is no legal requirement foryou to make payments in line with custom andpractice.Mark Thompson: That is perfectly true, but thedecision you make when you are a manager in anyorganisation, whether private or public, is based onnot just legal requirements, but what is to the bestadvantage in terms of value for money, operationalsuccess and so forth. There are many issues involvedin reaching a settlement with an individual, whetherthat is one to hire them or to fire them.

Q242 Stephen Barclay: Sure, but the companypolicy was that you could not go beyond payment inlieu of notice.Mark Thompson: It is really important to say that theBBC has a number of policy documents in this areain which the emphasis is that they are guidelines.Specifically in redundancy cases, managers areexplicitly asked to look at wider value-for-moneyconsiderations, and operational and non-financialconsiderations. In my view, it is an error that the NAOReport talks about a breach of policy. Managers,advised by HR professionals and employmentlawyers, are expected to use their best judgment aboutwhat is in the overall best interests of theorganisation—not the individual, but the organisation.

Q243 Stephen Barclay: So it is your evidence thatcompany policy at the BBC allowed individuals to gobeyond payment in lieu of notice.Mark Thompson: In some cases, yes.

Q244 Stephen Barclay: And you delegated thatauthority down to a very large number of people.Mark Thompson: Yes. By the way, I should be clear:I did not loosen the financial controls in this area.Those financial controls are ones I inherited when Ibecame Director-General.

Q245 Stephen Barclay: That speaks to thegovernance, but what it does not speak to is the legalentitlement of the member of staff. A member of staffhad no legal entitlement to a payment beyondpayment in lieu of notice, did they? They could notforce you to pay more than payment in lieu of notice;they had no contractual entitlement to work theirnotice and be paid a payment in lieu of notice.Mark Thompson: That is correct. They have acontractual entitlement to be given either a year’snotice or a payment in lieu of notice, or somecombination of the two.

Q246 Stephen Barclay: Sure, but they do not have alegal entitlement to both.Mark Thompson: No, but that is a matter of whenyou give them formal notice, which is not itself setout in the contract.

Q247 Stephen Barclay: What is set out in thecontract is that they do not have a right both to work



their notice and to be paid in lieu of notice. That isthe position.Mark Thompson: That is correct.

Q248 Stephen Barclay: So, in making such apayment, you were going beyond what the member ofstaff was legally entitled to.Mark Thompson: We took a decision, for the reasonsI have already said to the Chair—

Q249 Stephen Barclay: It is a yes or no, surely.Mark Thompson: We had taken a decision not toissue formal notice—and we made this clear toeveryone involved—until June 2011. From thatmoment, we absolutely followed the contract strictly.

Q250 Stephen Barclay: I understand the reason youare giving. Mr Agius speaks to it in his submission:he thinks that £500,000 would have left Mr Byfordso dissatisfied that he could not be relied on to workprofessionally. What I am saying is that legally he didnot have an entitlement to that payment. It was yourdiscretion that led to him being made that payment.Mark Thompson: It is an operational managementdecision, in the end, submitted as a proposal to theexecutive board remuneration committee.

Q251 Stephen Barclay: So to come back to theoriginal question, it is not a legal entitlement of themember of staff, is it?Mark Thompson: It has never come up, so no, it isn’t,and no one has ever suggested it was.

Q252 Stephen Barclay: They couldn’t take you totribunal and say, “I should have had this payment.”Mark Thompson: No. The risk—I say in mysubmission that I do not believe that it was a largerisk, but I was advised about it—was, rather, one ofconstructive dismissal.

Q253 Stephen Barclay: Sure. So in your openingremarks a few moments ago, if I heard correctly, yousaid it wasn’t a time for a renegotiation with MrByford.Mark Thompson: This was not a time, in my view,for a complete restructuring of the BBC’s approach toseverance across the entire population, because wewere in the middle of a very rapid reduction ofsenior managers.Stephen Barclay: Indeed. I am just trying tounderstand—Mark Thompson: I was not referring to MarkByford’s case at all.

Q254 Stephen Barclay: I am just trying tounderstand why legally enforcing a contract is arenegotiation.Mark Thompson: Those are two quite differentpoints.Stephen Barclay: No, they are not.Mark Thompson: Yes they are, if I may say so. WhatI was saying was: the suggestion that Lucy mentioned,the proposal in September 2011 of, for example,introducing a lower cap on payments, would have

meant a renegotiation, which the BBC has currentlybeen involved in, of everyone’s contract. I was sayingthat trying to renegotiate everyone’s contract at a timewhen you are telling one in five or one in four thatthey are going to be leaving is a very difficult task.Once you have made a big reduction, it becomesmuch more achievable, and I think the BBC is makingreal progress on this point. I was never suggestingthat there was any question, or any need, to attempt arenegotiation on Mark Byford’s contract.

Q255 Stephen Barclay: It is not just this restructure,because the three-year sample of the NAO showsthese big payments, but the previous three-yearsample also shows those. So it is over a six-yearperiod, it is not just a recent thing. What I cannotunderstand is, if you are very lax in delegatingauthority and you allow people to go beyond whatlegally they have to pay, would it not be reasonableto expect those decisions then to go to Mr Agius’scommittee as exceptions, for that committee—if thatcommittee means anything—to look at them andapprove them?Mark Thompson: Firstly, I think that the word “lax”is too strong. There was a control system in place.Stephen Barclay: That is the NAO finding.Mark Thompson: I am here as a witness; let me tellyou what I think. Over the time I was Director-General, we tightened the controls so, for example,compromise agreements over a certain point had tobe referred up. The largest potential settlements were,throughout the entire period, referred up anyway tothe finance committee, and the overall group financedirector was involved as well as the group HRdirector.Having said that, I absolutely accept that one of therecommendations in the NAO Report, which I believethe BBC is now adopting, of tighter controls furtherdown the system so that there is more oversight and asystem of reporting back. There is a role now for thechair of the executive board remuneration committeeto report exceptions in the annual report and to havemore explicit oversight. All of those recommendationsstrike me as being very sensible.

Q256 Stephen Barclay: So just to be clear, it is yourevidence that it was not lax to have payments beyondwhat was legally required, with no paper trail whenthe National Audit Office went in, with multiplepeople signing them off, with the head of HR nothaving a clue about a significant number of them untilthey appeared in the NAO Report, and without themappearing before Mr Agius’s committee as exceptionsto the agreed policy for sign-off. None of that was lax;that was all professional in your view.Mark Thompson: I will work backwards throughthose points, if I may. The executive boardremuneration committee was set up with the specifictask of dealing with the remuneration of members ofthe executive board; it is that kind of remunerationcommittee. There were, as you know, othercommittees looking at, and approving, many otherseverance payments across the organisation.



I have said to you that I think “lax” is too strong. Icertainly accept that losing a quarter of your seniormanagement population in 15 months is a very rapid,aggressive change. I thought it was justified; I thoughtit was possible. Lucy Adams had advised me that itwas going to be very difficult and, to be honest, wedo not have a standing army of employment lawyersand HR specialists which is ready the whole time forthis scale of task. And if you say to me—through theperiod, but particularly in these three years—that notall the paperwork was done perfectly, and there wereexamples of laxness, I accept that. But all I would sayis: the acceleration of the programme itself yielded anadditional £9.5 million of value-for-money savings,and there was a prize of real money that we couldtake and put on our programmes and services as aresult of moving so quickly.

Q257 Ian Swales: You talked about it not being thetime to renegotiate contracts, but here we are mainlytalking about payments outside contracts. So are yousuggesting to the Committee that what you wouldhave liked to do was negotiate more generouscontracts so that these payments were insidecontracts? That is the only logic from what you say.Mark Thompson: No. The issue is whether or not itwould have been desirable to do what the BBC hasdone now, which is to introduce into all contractsblanket caps so that under all circumstances, no matterhow much service, there would be an absolute limit. Ibelieve that that is the right thing for the BBC to havedone now.

Q258 Chair: And you could, at the time, MrThompson, have done it all for less. I think that thatis the contention of this Committee, working on behalfof licence fee payers. You could have done it for less.Mark Thompson: My honest view of that, MadamChairman, is that the price you would have paid in2009 or 2010 to try to do it would have been a delaythat would have ended up costing more. The savingsfrom advancing the programme were much greaterthan the amount of money at issue in the NAO Report.

Q259 Chair: I think we have to agree to disagreeon that. Effective management could have saved thelicence fee payer money.Mark Thompson: This is simple mathematics. Thesavings were so large, a single month’s delaypotentially cost well over £1 million.Chair: I am going to call Chris and Nick, and then Iam going to move to who said what to whom.

Q260 Chris Heaton-Harris: This is on a point ofclarification, if possible, Mr Thompson. You say that“we” did this and “we” did that. At one point youwere talking about the executive board remunerationcommittee, and at another point you were talkingabout something else. I wonder if you could clarifywho the “we” was when you were talking aboutMark Byford.Mark Thompson: I am not trying to duck the mostcentral and obvious point, which is that I was theDirector-General and chief executive of the

organisation. My role is absolutely central. I am awitness who is coming before you not to say “I wassomewhere else”; I was absolutely there, and I wasmaking decisions in the real world, with a very bigand complex organisation. I was in the middle of it.But I look—of course—to advice. I looked to advicefrom colleagues and specialist colleagues in HR andelsewhere; I looked to the line management of bigdivisions of the organisation and the senior managersthere; I looked to the executive board, in particular thenon-executive directors on the executive board; and Ilooked to the BBC Trust ,absolutely, to help them withtheir role of oversight. It was also because, in myexperience, chairs of the BBC—I absolutely includeSir Michael Lyons and Lord Patten in this—are greatsources of advice and counsel.All the way through this process, I am trying to seekadvice, support and challenge, because sometimes, thebest thing that people can say to you is, “You’re crazy.Don’t do it.” That is sometimes good advice too.

Q261 Chris Heaton-Harris: Did you get goodchallenge on these decisions?Mark Thompson: I believe that the broad topic ofsenior management pay and numbers was talked aboutextensively. I was under ferocious pressure from theBBC Trust and from non-executive colleagues on theexecutive board to do something big and quick, and Ithought they were right. When I say that it waschallenging, I did not disagree with them, but therewas ferocious pressure continuously from Sir Michael,until he left and Lord Patten arrived, and he put meunder ferocious pressure as well. This was a periodwhen the Trust was very clear—whatever one maythink about the past—about the then-current publicmood on this topic, and they wanted action. So on thattopic, there was immense challenge.On the specifics of, for example, “Should we abolishthe role of Deputy Director-General?”, again, therewas immense discussion and challenge, and oftenchallenge both ways—“You say you think you can dowithout a Deputy Director-General, but look at all thethings he does and at all his responsibilities. Who isgoing to do them now? Quite apart from the issue ofthe severance, is it the right thing to do?” Otherpeople, of course, argue the other way and say, “I’msurprised that you didn’t do that six months ago.”

Q262 Nick Smith: Mr Thompson, you say that youwelcome challenge, particularly from the Trust.Indeed, Ms Adams said that you weren’t the sort ofguy who said, “It’s my way or the highway.” But thereseems to be a contradiction. The last time Mr Fry wasin front of us, in July, he said—this was aboutredundancy caps—“I would be delighted if you hadthe former Director-General in here…to talk aboutthis issue”, because you talked it through on a numberof occasions, when, “not to put too fine a point on it,people like me were asked in not particularly pleasantterms to get back into our box.”There seems to be a contradiction about the culture ofchallenge around pay and conditions at the BBCbetween what you say—Ms Adams just said how youhandled these things—and what Mr Fry told us in



July. Who is right? Ms Adams? Or were you puttingthe BBC trustees back in their box?Mark Thompson: I just want to say that I cannotrecall ever using the words “back in box” or anythinglike that, or ever speaking angrily, disrespectfully orarrogantly to Anthony or any other trustee. All Iwould say is, look at what we did. We reduced the sizeof the executive board substantially. We made colossalreductions to senior management. We froze pay,abolished bonuses and special pension supplements,and dropped car and health allowances. There was anenormous agenda of reform that was driven by theTrust. The Trust was very clear that it wanted to seeaction and we complied with that. The idea that therewas some resistance to that is not borne out by thesimple facts.

Q263 Nick Smith: Can we hear what Mr Fry saysabout Mr Thompson’s remarks? When I looked at MrFry as Mr Thompson had his say, he looked a littlepained, at the very least. Mr Fry, do you accept whatMr Thompson said, that he was not telling you to getback in your box?Anthony Fry: I don’t accept that. I am certainly notgoing to say the actual words that I used, which I said,to put a finer point on it, were to make sure it did nottake too much time. I very much regret that the areathat we are discussing today, on severance, was notone of the ones that I among others had focused on. Iwill say that quite openly; I wish that we had done.However, from the time that I joined the Trust and theremuneration committee, I felt that on a whole lot ofareas such as perks, the level of pay and the level andappropriateness of bonuses we did not just have oneconversation at which we expressed a view. Therecord, if someone cares to go back through it, willshow that there were months and months of argumentsbetween the Trust and the executive, which I as anincoming trustee certainly found in many casesextremely challenging, not least because the very fineline that existed under the way that this was set upbetween what is policy, where the Trust has aperfectly legitimate area to get involved, and what isthe detail of individual remuneration became abattleground.Yes, I will stand by what I said. Many of thosemeetings were not easy—I don’t expect meetings tobe easy—but I got the distinct view and felt veryuncomfortable, as did other colleagues, that basicallyour views were not being taken with what I believe tobe the seriousness that they deserved, at a time whenthere was a lot of public anxiety about the question ofpay in general in the aftermath of the banking crisis.So yes, I will stick by what I said to you earlier.The fact that the BBC eventually took action in theseareas, which I welcome—and I think the progress hasbeen fantastic—does not mean that the process ofgetting there was not extremely difficult. Yes, I thinkwe got pushed back time and time again on a lot ofissues including, for example, bonuses.

Q264 Chair: I want to move us on, but can I finallyhave a yes or no to this, please? Did anyone ever

threaten to take legal action on the size of their pay-off?Lucy Adams: Certainly, no executive directors did.There is in a number of cases the possibility of threatsof legal action.

Q265 Chair: We are talking about the topmanagement pay-offs. Did anybody threaten to takelegal action?Mark Thompson: There certainly was a threat of legalaction on the removal of the pension supplements.

Q266 Chair: From whom?Mark Thompson: From senior managers. There werecertainly threats of legal action over that, becausethose were written into contracts.

Q267 Chair: But none of the people you maderedundant threatened to take legal action against theBBC.Lucy Adams: When you are in discussions withsomebody about taking their job away, you areweighing up a number of factors, one of which is thepossibility of legal action. They do not necessarilyhave to threaten it for the risk to be there, because weknow that it may be a choice between one person andanother, there may be issues of discrimination—Chair: There is always risk. Those of us who havebeen in the public sector long enough know that youare always given the risk.Lucy Adams: As a result you are weighing up thatbalance, so there does not have to be—Mark Thompson: I can think of at least one examplethat ended up with a compromise agreement—aslightly different circumstance—where there wasdefinitely the threat of legal action.

Q268 Chair: From a senior manager?Mark Thompson: Yes.Chair: Who got a year in lieu of notice.Mark Thompson: It is a different example, but thatwas a compromise rather than a redundancy.

Q269 Chair: Let us move on to who said what andwho knew what. Again, the first question is to you,Mr Thompson. Do you stand by your assertion thatwe were misled by other witnesses when theyappeared before us in July?Mark Thompson: I do. I have to say, my intentionhere is to set the record straight. I believe that thesuggestion that I, perhaps with my colleagues, hadwithheld important information about the MarkByford and Sharon Bayley settlements from the BBCTrust—that it was kept in the dark and that it wouldbe “just as interested as you”, the PAC, “in why wedidn’t know”—is untrue and unfair.I want to say, though, that I do not understand whythose misleading statements were made. I do not wantto impute intention to it, but I believe that damagingand unfair misleading statements were madespecifically on this point of how much informationhad been shared with the chairman at the time, SirMichael Lyons, with the Trust unit led by NicholasKroll, with other trustees and subsequently with the



BBC Trust. I wanted to set that right. I am notcriticising the individuals; I simply do not think it isfair, because I believe that I made sure that the BBCTrust was fully informed in advance about thesesettlements. Much of this was oral and face to facerather than in documents, and one or two moredocuments have come to light since I sent you mysubmission, but I think that the documents I have sentyou substantiate that point.

Q270 Chair: I think I have to give the others achance to respond to that. I think I will start with LordPatten. Do you want to respond?Lord Patten: I am in a slightly different position,because I became Chairman of the Trust six monthsafter the Byford and Bayley settlements—

Q271 Chair: But you did make these statementslast time.Lord Patten: Yes. Let me be clear. You said, “So youthink that you should have known. I completelyunderstand that those within contractual obligationsare an executive decision but, where they exceedcontractual obligations, should the Trust haveknown?” I responded, “Yes, and if you call a previousDirector-General of the BBC in due course, I will beas interested as you in why we didn’t know.” It is saidthat that is misleading the Committee, which I takevery strongly.I just want to make three or four very obvious points.First, since the previous Trust did not know thatpayments had been made outside contract, why shouldI, as a new Trust Chairman, have known? Is it reallylikely that the Director-General would say to me,“Look, the previous Trust did not know that thesewere paid outside contract or paid in what I define asin contract,” although that is not the same as theNAO’s view on what a contract is? Is it likely that Iwould have a briefing that told me that? We havelooked through my induction briefing and there is noreference at all to severance payments. I haddiscussions with Michael Lyons, whose work inpressing for a reduction in pay and in dealing withsuch matters I very much admire, and he did notmention severance payments or the Bayley andByford payments. Mark’s point therefore depends onthe separate briefings that we both had for the pressconference for the annual report of 2010–11. Wereceived different briefings as we would get differentquestions. My briefing drew on his and actuallyquoted almost directly from it. His says, “How can wejustify paying Sharon and Mark these sums of moneyfor loss of office?” The briefing that both of us hadgoes on: “These were contractual payments whichwere essential in order to slim down the executiveboard.” These were contractual payments.Now, Mark’s contention is I should have been able,through some forensic work of my own, to discoverthat his view of what a contract was was differentfrom what, today, we know the NAO’s to be; and Ijust cannot accept that. It is actually much easier thanlooking at what we were told to say to the pressconference. We both appeared in December in frontof the Culture, Media and Sport Committee. Question

59, by Paul Farrelly, who is very concerned, and hasbeen for some time, about BBC pay: Paul Farrellyasks me specifically about the Byford payments. Ireply with some well-meaning stuff, I hope, abouttrying to get the pay of the BBC down, and theimportance of the Hutton principles, which we hadpressed the BBC to introduce that year. Mark thencomes in and says, “I agree with all of that. The onlything I would add is that Mark Byford’s terms ondeparture from the BBC are absolutely standard, asregards notice and months of redundancy in terms ofservice”.So am I supposed to get from that that there is adifferent view of what a contractual entitlement is,taken by some in the executive, from the one whichyou have been enunciating here? All I said to thisCommittee—and I am in some difficulty about this,because, I repeat, I was not party to any agreementsmade about Mark Byford; I am in the position inwhich I am accused of having misled the Committeeon something that I never knew and could not havebeen expected to know.

Q272 Chair: Why, Mr Kroll, wasn’t it in theinduction pack?Nicholas Kroll: Because severance issues were not inthe knowledge of the Trust being operated in the waywe subsequently discovered, so there wasn’t an issueabout severance, as there now is, which we areconsidering today.

Q273 Chair: Hang on a minute—we will come to SirMichael, and I am sure he is desperate to come in—the paper trail, particularly from the NAO recently,demonstrates that there were lots of e-mails floatingaround between the Trust and the executive, aroundthe issue of the severance payment of Mark Byfordand Baylay.Nicholas Kroll: Yes, I would be happy to go throughwhy, I am afraid—

Q274 Chair: It is obviously such a contentious—amillion quid. I have to say to you, Lord Patten, I thinkI would have questioned a million quid, and that ishaving been a non-executive member on a heck of alot of public bodies; but I take it you did not. I think itshould have been in your welcome pack, and I cannotunderstand, Mr Kroll, why you did not put it in there.Nicholas Kroll: Let me say, the reason for that,Chairman, is that my interpretation and my staff’sinterpretation of what Mr Thompson has included inhis brief is different; so we were not aware of thedetails of Mark Byford’s arrangement—neither inwriting nor from any oral contact; and that is the factof the matter.

Q275 Chair: We can’t believe that.Nicholas Kroll: If you want me to explain, I wouldbe very happy to do so. The first thing I think I oughtto say, in response to the point in Mark’s submission,is that I personally—as he suggests—was not closelyengaged in the preparation of the note of 7 October.

Q276 Chair: Were you engaged at all?



Nicholas Kroll: If I could tell you what I did—

Q277 Stephen Barclay: In e-mails it says that theTrust have asked for amendments to that document. Itis difficult to ask for amendments to a document thatyou can neither find nor know anything about.Nicholas Kroll: We might come back to that issue, ifyou want to, in a moment; but if I could explain whatthat process of commenting involved, it is regular andstandard practice for the Trust and the Trust unit, asthe secretariat of the Trust, to see papers from theexecutive before they go final. We do that notsomehow to take over the responsibility for draftingthe paper but to make sure that papers that areprovided for trustees deal with any questions that weknow trustees have had, but also are clearly presented.In the case that we are talking about today, of thepaper of 7 October, that was sent to me at 5 o’clockin the afternoon on 6 October—my first sight of it. Ioffered some comments within three hours of that. Mycomments were precisely to the sort of issues that ourjob is to represent, on behalf of trustees, to theexecutive; so I queried the lack of any reference to thenew, stretched responsibilities of the chief operatingofficer, which flowed from this arrangement, and Iqueried the presentation of the figures for Mark andSharon, which were produced originally in aggregateform. That was the limit of our engagement in thecomposition of the paper.

Q278 Chair: Hang on. What was the content? Justtell the Committee again, what did that 7 Octobermemo say? What did it actually say? Go on.Nicholas Kroll: The document of 7 October, whichwas produced by the executive—

Q279 Chair: Yes. What did it set out?Nicholas Kroll: It set out, in relation to the twoindividuals, a high-level cost for each.

Q280 Chair: What do you mean by “high-level”?Nicholas Kroll: A single figure for Mark Byford of£1.022 million and for Sharon Baylay of £387,500,with an assurance from the Director-General thatthose redundancies would take place on the basis ofthe terms set out in their contracts. That was what thepaper said. I want to be clear that it was the Director-General’s assurance, and not some assurance that Iwas party to.If I can continue, we read those words in the way thatthey are most naturally read, which is that we hadsome payments that were in line with the contract.Mark is suggesting that other documents that wereavailable to the Trust—to me and Sir Michael—conveyed a clear story that those words meantsomething different and were a clear signal of thearrangement that the National Audit Officediscovered, which allowed for an additional eightmonths of work without being netted off for 12months’ pay in lieu of notice.

Q281 Chair: How long have you worked for theBBC?

Nicholas Kroll: I have worked for the BBC for nineyears.

Q282 Chair: When you see a figure of more than £1million, do you think that that is the minimumcontractual basis for a redundancy payment? You arethe conduit between the Trust and the executive, andyou get this figure. What do you think?Nicholas Kroll: I think that it is a large figure.Unquestionably it is a large figure.

Q283 Chair: Do you not think, on behalf of theTrust, which is responsible to the licence fee payers,that you should have some understanding of thefigure? Did you not know from your knowledge ofbeing an employee of the BBC that that meant it wasnot one year’s salary, but a heck of a lot more thanthat?Nicholas Kroll: I would like to be clear on two points.First, absolutely it is a large figure, but thedetermination of the figure, the scrutiny of the figureand the decision on whether it is the right figure inline with the contract are not matters for the Trustunder the charter. They are matters for the executiveboard remuneration committee, chaired by MarcusAgius. That is the first point. The second point—

Q284 Chair: Why was the paper with you at all?Nicholas Kroll: Michael wants to explain, but I willhave a go.

Q285 Chair: The paper was with you because theTrust had some interest in the quantum of thesefigures.Nicholas Kroll: The paper was with us. If you relookat the paper, you will see that the sums paid to MarkByford and Sharon Baylay were one of a number ofissues that went to the responsibilities that the BBCTrust has for the structure of the executive board. Theissue for which we are responsible is changes to thestructure and numbers of the executive board, and thatconnects absolutely with the paper. I think the DGwas telling us about the cases of Mark Byford andSharon Baylay because those are high-profile names.The Trust would expect to be aware of theannouncements of the sums paid to them, and that isthe reason for it.May I add one point? I am ready to go into detail onthis, if you would like. It is wrong to assert that thepapers available to the BBC Trust would have madeit perfectly clear that the figure was not the sum totalof what Mark Byford was going to receive. The onlypaper that was with us in advance of 7 October wasthe Project Silver note, which I do not think clearlypoints to that at all, and the two papers subsequentlydo not do so either.

Q286 Stephen Barclay: Does the 8 October e-mailnot signal to the Trust that serving of notice wouldbe delayed?Nicholas Kroll: It absolutely does that. It announcesthat serving of notice will be delayed to calendar year2011. It does not, by the way, indicate that the date inquestion will be 30 June 2011, even though that date



was known within the executive. What it cruciallydoes not do is indicate that Mark’s service—up towhenever in 2011 is indicated by the note—would notbe netted off against his 12 months’ pay in lieu ofnotice. That is the crucial point.

Q287 Jackie Doyle-Price: May I just say, Mr Kroll,that if I were a trustee, I would be relying on you andyour staff to highlight some of these issues to me?You have hidden behind the suggestion that MrThompson is the executive responsible for negotiatingthese deals and the issue of severance is not a matterfor the Trust. But the issue of protecting the interestsof licence fee payers very much is. Having seen theProject Silver note and then received a note that setout the exact total of the settlement to Mr Byford, didyou not even think of asking a question as to why thatfigure had been arrived at? If I were a trustee, that isexactly what I would be expecting you to do. I wouldnot expect to have to do that myself.Nicholas Kroll: No. This is very much what SirMichael was—Sir Michael was very keen to do twothings. He was very keen to draw the attention of thefull Trust to these figures, hence the note.

Q288 Chair: I think he can tell us what he was keento do. We are asking what you should do.Nicholas Kroll: My job is to advise the trustees, andSir Michael among them.

Q289 Jackie Doyle-Price: And that includesestablishing the veracity of the information you aregiven.Nicholas Kroll: Of course. If this was a figure forwhich the Trust’s approval was required, we wouldhave gone into an enormous amount of detail beforeagreeing it; there is no question about that. But thefact of the matter is, as I have said, that theresponsibility for getting underneath this headlinefigure and establishing whether it is in line with thecontract, or whether there are other and better waysof doing it, rests with the executive board of theremuneration committee, hence Sir Michael’sinsistence at all stages through this process on beingsure that they were content.

Q290 Jackie Doyle-Price: But your role is to helpthe Trust hold the executive board accountable. Ofcourse they are responsible for their decisions, andultimately the buck does stop with Mr Thompson forthis deal; I completely agree with that. But you arenot helping the trustees hold the board to account ifyou do not ask those questions.Nicholas Kroll: I think I am responsible for askingquestions in those aspects of the BBC’sresponsibilities that fall to the Trust. I am trying toexplain that the issue of specific executiveremuneration packages or severance packages is not aresponsibility of the Trust.Jackie Doyle-Price: That is not the point.

Q291 Mr Jackson: Mr Kroll, as recently as Februarythis year you denied the existence of substantivedocumentary evidence that gave rise to this decision.

You said it didn’t exist, and you had to recant and sayin an e-mail to Mr Thompson and the NAO that thosedocuments did actually exist.Nicholas Kroll: That, if I may say so, is a ratherdifferent issue, which I am happy to deal with now ifyou would like me to.

Q292 Mr Jackson: Please elucidate why that wasthe case.Nicholas Kroll: I will. The original focus of theNAO’s study was into the level and approvalmechanisms for severance. Not unnaturally, givenwhat I have said, the contact that the NAO had withthe BBC was with the executive side of the BBC, whoare responsible for these matters.After Mark Thompson was consulted about the draftNAO Report, he asked a question why the issue of theTrust’s knowledge of these payments and involvementin them was not being covered in the draft Report. Heasked the NAO to explore whether there weredocuments that indicated that that was the case. Weand the executive side of the BBC proceeded to dothat. In the Trust’s case, we had, in fact, already donethe exercise in February, because Sir Michael hadasked us as the work was beginning whether therewere any issues on Trust files that were related toMark Byford’s pay-off. The answer is that there werenot, and the reason that there were not is that ourfiles and processes are connected to and geared aroundTrust approvals and Trust formal business rather thanother issues, and this is not a matter of Trust formalbusiness.I absolutely concede that, as it turned out, even thoughthey were not on our files, we did have some paperson this subject. In fact, it was the Director-General’soffice that did a trawl not by reference to files, but byreference to e-mails, which discovered the documentsof 7 October and the associated e-mail chain aroundthe time of early June, at which point we passed themdirectly to the NAO. Both documents were reflected,I think, in the NAO’s study.

Q293 Chair: Can I ask, Mr Kroll, how much do youget paid?Nicholas Kroll: I get paid £238,000 a year.

Q294 Chair: You seem to have a very short memory.Mr Agius in his evidence said that he had one-to-onemeetings with Sir Michael Lyons. I will come to you,Sir Michael, I promise, it is just that we have slightlydug into this. You had one-to-one meetings in whichissues such as this were discussed; is that true, MrAgius?Marcus Agius: Yes.

Q295 Chair: You don’t remember that, Mr Kroll?Nicholas Kroll: I did not sit in on meetings that SirMichael had with Marcus, and I do not know whetherthe issue of Mark Byford’s severance package cameup in that meeting.

Q296 Chair: Okay, so you did not sit on those. Wewill come to that in a minute. The money that youget—the job of the Trust is to protect the licence fee



payer’s interest. The reason you are gettingastonishment from round this table is that there is notone person round the table who can understand thatthere was no challenge from you at your level to thepay-offs that were agreed with Mark Byford to seewhether they were excessive or appropriate. Wecannot understand why you did not challenge them.Nicholas Kroll: The answer is the answer I havegiven. I am responsible for advising trustees onmatters that fall within their responsibilities and theissue of Mark Byford’s severance package does notfall within the Trust’s responsibilities.

Q297 Fiona Mactaggart: But the Trust made itabsolutely clear that it wished to be informed,consulted and briefed about it. Even if you haveforgotten those e-mail exchanges and the reports thatwere given to the Trust, which everybody in this roomadmits were given to them, when asked about this youcan’t say, “It wasn’t in our job description so wedidn’t do it.” Guess what? All the people round thistable do things that are not in their job description anddo not choose to ignore the fact that they have as youseem to do.Nicholas Kroll: I don’t accept that. One of the reasonsthat the Trust was set up was to establish a mechanismwithin the BBC for governing the BBC which madeclear a distinction between strategic oversight andoperational management.Chair: It isn’t clear. There is a blurred line. It isabsurd to think that.

Q298 Stephen Barclay: We’ve heard that a lot fromthe Trust. You are right: 24(1)(a) of the royal chartersays that the Trust has a general function of settingthe overall strategy. No one disputes that, which iswhy it will be interesting to hear Mr Agius’scomments on this in due course. Of course, theexecutive board remuneration committee wasresponsible for signing these payments off and fordelegating the authority. No one disputes that, albeitMr Agius said he had extensive consultation andinteraction with the Trust. He had one-to-one meetingswith the chairs and he attended trustee meetings.But going back to the royal charter, Mr Kroll,paragraph 24(1)(c) says that part of your functions are“assessing the performance of the Executive Board indelivering the BBC’s services and activities andholding the Executive Board to account for itsperformance.” Paragraph 23 states: “In exercising allits functions, the Trust must act in the public interestand, in particular, it must—(a) represent the interestsof licence fee payers”, which was Ms Doyle-Price’spoint.In other words, yes, the formal decision was taken byMr Agius’s committee but quite often, according tothe evidence from Mr Thompson, there was impliedapproval from the Trust. There was a sense that theTrust was being asked to give its view and to recordany objections. You seem to be taking a remarkablylimited interpretation of the royal charter if you saythat it was not part of your general duties or functionsto have a view. Surely part of assessing the

performance of the executive board would have givenyou the opportunity to ask questions like this?Nicholas Kroll: The charter is very clear on thesubject of executive board remuneration. The chartersays on that subject: “The RemunerationCommittee… shall determine the remuneration ofexecutive members in accordance with a strategyapproved by the Trust. The terms on which suchmembers are appointed must be compatible with thisrequirement.” So there is a specific provision in thecharter which makes it clear that such matters are theresponsibility of the executive board.Stephen Barclay: No one disputes that.

Q299 Fiona Mactaggart: It isn’t the straightforwardremuneration, it is the cost of making someoneredundant and the cost of abolishing not some minorjob but that of the Deputy Director-General. Tosuggest that the abolition of the post of DeputyDirector-General is not the business of the Trust isextraordinary. I don’t believe you think that.Nicholas Kroll: I don’t think I have anything much toadd about this.

Q300 Nick Smith: Mr Kroll, a simple question tofollow on from that. This was an eye-watering amountof money. Didn’t you think to ask your Trust experton PR and pay, Mr Fry, whether this was the rightthing to do and whether further questions should beasked.Nicholas Kroll: I did not need to ask him thatquestion because he had a paper which included thefigure and he could make that comment himself.

Q301 Chair: Did he have the 7 October memo?Nicholas Kroll: Yes, of course he did.

Q302 Ian Swales: I think this is a very importantpoint. You are saying that the pay is the responsibilitynot of the Trust but of the executive board. But whatabout the executive board themselves? Do they decidetheir own pay, redundancy and so on with noinvolvement from the Trust?Nicholas Kroll: The Trust is responsible for theremuneration and the terms. Severance packages formpart of what is broadly described as remuneration forthe Director-General. That is its specificresponsibility.

Q303 Ian Swales: Only the Director-General?Nicholas Kroll: Only the Director-General.Remuneration of the other members of the executiveboard is the responsibility of the executive boardremuneration committee, which is comprised of non-executive directors, and of which Marcus, at the time,was chairman.

Q304 Chair: Okay. We are getting to the heart ofwho knew what about this, and therefore who hassome responsibility. I know Mark Thompson wants tosay something, but I want to ask people who have notspoken yet. I will go to Marcus Agius first, and thento you, Sir Michael.



Marcus Agius, you took the decision in yourcommittee. How much discussion was there with SirMichael Lyons around the quantum, the justificationfor the quantum, and the whole issue of severancepayments? How much discussion, if any, was therewith other members of the board, and how muchdiscussion have you had with Lord Patten aboutthese issues?Marcus Agius: I had no direct discussions—nor didany of the other committee members, as far as I amaware—with the Trust on this subject. I was aware, asis set out in Mark Thompson’s evidence, that therewas a great deal of what he calls “shuttle diplomacy”,which you might call triangulation. I was certainlyaware that the subject of the redundancies and theamount of money that was involved was a matter ofinterest to the Trust. There was also, as evidenced byvarious e-mails, a great deal of concern about whetherwe were going to approve—not whether we hadapproved—the payments.I got to the point—this message was passed throughto the Trust—where I let it be known that I was happyfor the proposal to go before my committee. Anychairman would do that. If a chairman knew that aproposal was not going to fly, he or she would neverhave it put before their committee. So I knew thatwhat was coming was something that we could talkabout and discuss, but I also knew that it was notcertain that the approval would be forthcoming. Iknew, because we had talked about it generally onthe executive board and among the members of theexecutive board remuneration committee, that therewas a great deal of concern about the redundancies.With Mark Byford, for the obvious reasons thatseveral Committee members have talked about thisafternoon—the seniority of his post and the sum ofmoney involved—we were concerned that thesettlement that was being proposed had to be right,appropriate and would represent, in the round, goodvalue for money for the BBC.I can tell you that the discussion we had at thatcommittee meeting was intense. The other two non-executive members of the committee, Rob Webb andVal Gooding, are both very experienced, veryindependent-minded people with wide businessexperience. Collectively, the three of us challengedand tested Mark Thompson, who was proposing thissettlement, for all the obvious reasons: to make sureit was the right thing for us to be doing in thecircumstances. After sustained challenge and debatewe were finally persuaded that, in the circumstances,it was the right decision on value-for-money grounds.Chair: I think we are astounded that you took thatview. I don’t know how you would explain to aconstituent of mine in Dagenham—or to people inGrimsby, Hackney or any of the constituenciesrepresented here—that it was justified. Theshareholders of the BBC are the licence fee payers,and I cannot for the life of me understand how youcan justify levels of redundancy payment that wereway beyond what the contracts set out was necessaryto achieve the redundancies.

Q305 Mr Jackson: On that point, the evidence thatMr Fry gave to us on 10 July is at variance with yourrecollection. He said of the non-executive directors ofthe executive remuneration committee: “Frankly, notto put too fine a point on it, I thought they werecompletely out to lunch in regards to what theythought was acceptable pay in a public body. I makeno bones about that. I was extremely vociferous.”Marcus Agius: With respect, that is a differentquestion. If you are asking me whether I thought itwas a large amount of money, of course I did. Did Ithink that, when the figure was made public, it wouldcause a great deal of comment and controversy? Ofcourse I did; and it did. My judgment in that respectwas right. I had to look at two things. First, thecontractual entitlements of the gentleman concerned.If we had paid him his severance payment and he hadworked his full term, he would have ended up withthe same number.

Q306 Chair: No, he would not, because he workedfor eight months when, for some inexplicable reason,he was not served his redundancy when the decisionwas taken.Marcus Agius: I understand. That was the second partI was coming to, which is that, when all is said anddone, of course the executive board remunerationcommittee is there specifically to look atremuneration, but we were directors of that board. Asdirectors of that board we were responsible for themanagement of the BBC, delivering the BBC’sobjectives and all the other things that we know andlove about the BBC. We had to listen to and werepersuaded by Mark Thompson that his formulationwas the right formulation in the circumstances tomanage two different things. One was the desire tomake an early announcement on the total programmefor the cost saving reasons he mentioned. Second wasnot wishing to get rid of Mark Byford at that pointbecause he still had a job of work to do. Thereconciliation of those two led us to where we were,which involved—there is no dispute between us—alot of money.Chair: He could have done the job of work duringhis period of notice.

Q307 Mr Jackson: Where is the licence fee payer’sinterest represented here? Where in the papers is thereany documentary evidence that you or your fellownon-executive directors said, “Hold on, this doesn’tsmell right. This must be looked at properly”? Giventhat the culture was that business cases wereincomplete, from the NAO and KPMG.Marcus Agius: I admit that the minutes of thatcommittee meeting were a model of brevity and notparticularly illuminating, but I can tell you from beingin that room that we were absolutely conscious of theneed to manage the BBC during a period ofconsiderable upheaval and turmoil, as Mark has said,in order to keep Mark Byford doing the job that weneeded him to do for a bit longer before we servedformal notice on him a number of months later.



Q308 Mr Jackson: You didn’t think it appropriate tominute properly and record a debate and discussionabout giving £1.4 million of taxpayers’ money totwo individuals?Marcus Agius: With the benefit of hindsight, I wishwe had written 15 pages on the subject, but the factof the matter is that I know what was there. I havemade and sent to you, Madam Chairman, a writtensubmission that was endorsed or blessed—whateverthe word is—by my other trustees who were on thatcommittee with me. We were all in the same roomtogether.

Q309 Chair: I am going to move on. Mr Fry, MrThompson and then I am coming to Sir Michael.Anthony Fry: May I make a very brief point, MadamChairman? The timing of all this is made quitedifficult from my viewpoint, and indeed from MrAgius’s viewpoint, by the following. On 6 October,Mark Byford received from Lucy Adams a formalletter that reads: “I promise to get you a letter whichsets out formally the amounts you would receive atthe point of redundancy and the time frames of yourdeparture from the BBC.” That is dated 6 October andis sent before the Trust gets the document it got dated7 October, and by definition before Mr Agius’scommittee met on 11 October. This is not a letter thatsays, “In various circumstances.” It does not say,“Without prejudice.” It actually lists to what he isentitled and says that he to be was made redundant on30 June.At the very same time, there is an e-mail that is in MrThompson’s pack, again from Lucy, to Jessica Cecilin Mr Thompson’s office, which says: “I am not sureabout this needing to go to the executive remunerationcommittee as they are being made redundant and notreceiving anything other than their contractualentitlement.” My point is that if you read this, youcome to the conclusion that every bit of consultationthat was supposed to be going on—arguably,according to Mr Thompson—with the Trust in thisnote of 7 October and, according to this, with EBRCon 11 October, was frankly spurious, because on thebasis of this letter, I would argue that Mr Byfordwould have had a very good case to go to anemployment tribunal and say, “I have already had myoffer from the BBC.”

Q310 Mr Jackson: Why didn’t you say that in yourprevious evidence on 10 July?Anthony Fry: Because, with respect, sir, I was notaware, first, of the existence of the stuff in ProjectSilver. I was not aware of that. The first I knew aboutany of this was 7 October, and by definition I was notaware that the letter had already been sent to MrByford and I certainly did not have access to the e-mails from Lucy Adams to Jessica Cecil. I didn’t haveany of that.

Q311 Mr Jackson: The reason I ask, Mr Fry, isbecause if we look at document No. 6 in the pack,which is your exchange of e-mails with Mr Thompsonfrom New York, he sent you an e-mail at 4.39 pm on9 July, the day before the hearing, in which he

attempts to set out the case that there was properdebate, discussion and consultation. I assume youaccepted that—I do not see any refutation of his case.The day afterwards, you came and gave evidence asif you had never received this e-mail that sets out hisposition. It looks to me that there was an element ofdisingenuous or even misleading evidence given byyou, because he attempted to set the record straightbefore your evidence at the hearing.Anthony Fry: I was very straightforward about this. Idid receive that e-mail, and you know I received thee-mail because I responded to it in the way that Iresponded. I was working on the assumption that thedocumentation that had been provided to the NationalAudit Office on the basis of the National AuditOffice’s Report and the information with which I hadbeen provided as part of preparing to appear in frontof you was the information. If I received an e-mailfrom somebody providing information, I never saidthat in front of you. In fact, the Chairman challengedme hard on my position on what Mr Thompson wouldsay and on whether I was suggesting that he waslying. I did not say that; what I said was that therewas a disconnect. That disconnect still exists, and Iwould stand by everything I said.If you are asking me a different question, which iswhether I might have taken a different view with theknowledge that the Trust had, as opposed to individualtrustees, had I been aware of the existence of theProject Silver document, I might well have done. ButI cannot tell you today how I would have responded tovarious questions in the absence of the documentation.Frankly, an e-mail from somebody on the day beforeI am due to appear before you did not carry with it—perhaps it is my fault that it did not—the samestanding as the information that I had received as aresult of an independent Report from the NationalAudit Office.

Q312 Meg Hillier: We have a copy of the ProjectSilver options document, which was sent by theDirector-General’s private office to the Trust Unit on17 September. Mr Fry, are you saying that you did notknow anything? The document lays out very clearly,for example: “So the dilemma we are wrestling withis between trying to deal fairly with someone who hasdevoted many years of service to the BBC…as againstnumbers which—even at the contractual minimum—might cause us serious difficulty when they becomepublic.” Well, that was certainly prescient. Myquestion is to Mr Kroll: if that came to the Trust Uniton 17 September 2010, why didn’t the trustees seethe document?Nicholas Kroll: I passed the document to thechairman. It was for a discussion with MarkThompson. It is an options note, and no doubt Michaelwill speak about that issue himself.

Q313 Chair: Okay, we will come to Sir Michael.Very quickly on this one if you can, Mark Thompson.Mark Thompson: We told the chairman of the TrustUnit about the details of the settlement, whichincluded the decision—or the proposal, as it wasthen—to delay the setting of formal notice to the



following year and to make a payment in lieu of noticethen. Once it went through, we told the press. It is nottrue to say that you need the National Audit OfficeReport of 2012 to know what this deal was; all youhad to do was to read the Daily Mail on 12 October.That is the day after the EBRC and the Tuesday afterthe weekend when the Trust saw the 7 Octoberdocument. The ultimate authority here: “In a shockannouncement director general Mark Thompson willtomorrow tell staff that the long-serving BBC boss”—Mark Byford—“who has been at the corporation formore than 30 years, will leave the broadcaster inearly…2011… But the £475,000 a year executive willnot be leaving empty handed, as well as getting ayear’s salary in redundancy pay he will get up to 12months worth of money for his notice period, meaninghis exit deal is worth as much as £950,000… MrByford…will leave the executive board in March after32 years before stepping down fully in…summer.”The Daily Telegraph reported on roughly the sameday, “As well as being paid his salary of £435,000 ayear until he leaves in 2011, Mr Byford is expected toreceive redundancy of between £800,000 and£900,000.”Because we thought we should be transparent aboutwhat we were doing, we briefed about the entire thing.The delay in formal notice and the decision to make apayment in lieu of notice—it was all out in the publicdomain on the Tuesday.

Q314 Chair: A really serious allegation that we haveheard this afternoon is that you took the decision on6 October, before the Trust had seen any of the issuesand before it had been in front of Mr Agius’scommittee. Is that true?Mark Thompson: I am told by the BBC HRdepartment that they accept that that letter wasincorrectly dated. It was actually sent probably on 12October or 13 October and received on 14 October. Iam afraid that it is a bit of HR bureaucracy. Theyobviously had some sort of draft.

Q315 Chair: Is that right, Ms Adams? Just say yesor no, because I want to get on to other stuff.Lucy Adams: I am sure you do want me to say justyes or no.

Q316 Chair: It is a legal document with a date.Mark Thompson: That is Rachel Currie’s view,presumably.Lucy Adams: Yes. One of my team spoke to MarkByford, and he believes that he got it later. But if youlook at the letter that was sent—

Q317 Q317 Chair: No, no, no. Is it right? What isthe date? Did it go on 6 October before the Trust—Sir Michael and Anthony Fry—had seen it and beforeMarcus Agius’s committee had seen it? Is that right?For goodness’ sake!Lucy Adams: In terms of the remuneration committeemaking a decision about whether to press ahead withMark Byford’s redundancy—

Q318 Chair: Stick to this letter. That is theallegation.Lucy Adams: I am trying to answer your question,Madam Chairman. That was the subject of theremuneration committee. We were pushing to makean announcement shortly after that. In order to get tothat committee meeting and to get a resolution for allconcerned, Mark Byford was very keen to understandwhat his contractual position was: 12 months’ noticeand 12 months’ redundancy was the very minimumthat we could pay.

Q319 Chair: I do not understand how that answersthe question. I am happy to let you carry on, but thequestion was: is there a letter dated 6 October with anoffer to—Lucy Adams: It states his contractual position in theevent of a redundancy.

Q320 Chair: And that letter was sent out beforeeither the Trust was given a view on 7 October—Mark Thompson: I believe the HR departmentaccepts that it was not sent until after the EBRC met.

Q321 Chair: Dated 6 October.Mark Thompson: Apparently, the date is wrong.

Q322 Stephen Barclay: Just to be clear about theextent of his contractual position, I assume it statedthat he would be paid for part of his notice and alsowork part of his notice?Lucy Adams: It states that he is entitled to 12 months’notice and 12 months’ redundancy.

Q323 Chair: When did you write this? This is fromyou, Lucy Adams. When did you write it?Lucy Adams: The date is the 6th, so, although mycolleagues are telling me that Mark did not receive ituntil later, I have to accept that it was on the 6th. Itsets out what Mark would receive in the event that hewas made redundant. The discussion then happened atthe remuneration committee and we then followed upwith him to say that the decision had been taken topress ahead with this.

Q324 Stephen Barclay: To be clear, that letter didnot say that he would be asked to work part of thatnotice period?Lucy Adams: I do not believe it goes into the detailsof what he would be expected to work and not work.It sets out that, if we were to make him redundant, hewas entitled to 12 and 12.

Q325 Stephen Barclay: It is just very odd that youwould give him a letter that was different from whatyou were proposing to him.Lucy Adams: Ultimately, we had a discussion at theremuneration committee. The remunerationcommittee believed that the best way to approach thiswas for him to work until June and at that point makehim redundant.

Q326 Chair: Okay, let us go to Sir Michael, who hasbeen sitting there patiently. You will want to reply to



a lot of these issues, but may I start off with thisquestion? If big pay-offs were seen as the best way ofgetting people to go, is that not a strategy that shouldhave been considered by the BBC Trust, rather thansimply be a matter for the executive? If that was thepolicy, it then, in my book, becomes a strategy thatshould have been endorsed by the BBC Trust.Sir Michael Lyons: It is a fair question about whetherwe should have spent more time exploring the processof implementation of the cuts. But let me draw onsome of the evidence that you have already been—

Q327 Chair: So you would agree?Sir Michael Lyons: I think, with hindsight, maybe weshould have, although let me be very clear. You haveheard many times—I am afraid I am going to boreyou by going over it again—that the charter defines asharp separation in terms of the duties of the charter.

Q328 Chair: We all understand that, but when itbecomes a policy—all senior management got bigpay-offs. In all the studies we have had—not all, butmost: the two studies from the NAO and the KPMGstudy—all the evidence demonstrates that that becamea policy. In my book, that is part of strategy, whichought to have been a focus of debate and endorsementby the BBC Trust.Sir Michael Lyons: Chairman, these things do lookdifferent at different points in time. Let me just goback to where we were. I absolutely accept thevalidity of your point made now. Anthony Fry hassaid, and I would agree, that perhaps we should havespent more time looking at severance payments, butlet me just go back. I arrived on the scene in 2007—the Trust newly set up—and from the very beginningwe were clear that we had inherited very generousterms of payment for the most senior managers andleaders of the BBC, including very substantial pensionsupplements, expectations of up to 30% bonuses andsalaries which had been quite generously linked to theprivate sector, rather than to public sectorcomparators. Pretty much from the beginning, weregarded that as something that had to be tackled.I have to say, if there is a weakness here, and I mightaccept that I had this, it is that this proved quitedifficult to negotiate—I will come back to that in amoment—and I might have been a bit blinkered. Forme, and for my colleagues on the Trust, the issue wasto get down the amount of money we were paying tosenior managers, both individually and collectively;that was the ambition. We started a series ofdiscussions with the Director-General—Tony Fry, ofcourse, joined slightly later. My memory of those isthat, actually, they were not always straightforward,but let me concede that when the Director-General, ateach and every step in this process, was convinced ofthe need for action, he was diligent in carrying itthrough.These were difficult times. A lot of energy was used,and I think Anthony’s comments about exchangesrelate to the period between my writing to theDirector-General and Mr Agius at the beginning of2009—February 2009, if I recollect correctly—layingdown the Trust’s expectation that a new policy would

be developed that would enable us to make fast andsubstantial savings and a reduction in the number ofsenior managers, believing that that was not only inthe interests of licence fee payers, but in the interestsof a healthy BBC.

Q329 Chair: You could have done it for less. Thewhole premise from us is that you could have done itfor less.Sir Michael Lyons: I have heard your message. I amnot personally convinced that that is the case. Myjudgment tends towards that of the Director-Generalhere, because this was not just, “Let’s make these cutscome whatever”; it was, “We want to make these cuts,and we want to do them quickly”—in fact, we thenaccelerated the process—“but we do not want anydisruption of BBC services or of the series of verysubstantial projects in the pipeline.”Some of you, I know—either as Ministers or in yourprofessional lives—will have been involved in theprocess of rapid reductions in senior management. Letme tell you, it is not easy; it is very difficult. I havehad to do that in my professional life; it is not easy.So I am not going to sit here and pretend that,somehow, this was a walk in the park for the Director-General or, indeed, for his executive board; it was not.The sums for the ordinary person in the street—Chair,I absolutely agree with you about how they would beseen in Stechford and in Barking and Dagenham—look eye-watering, of course they do. But that goesfor many other posts, whether in the civil service orin private industry.

Q330 Q330 Chair: We are talking not aboutrecruiting and retaining people, but about makingthem redundant, and these payments look to be moregenerous than most private sector redundancypayments I have ever seen.Sir Michael Lyons: Then we might differ in ourexperience of that. [Interruption.] Well, let’s not getinto that point. Frankly, I hear what you say: you thinkwe should have done it for less. With the benefit ofhindsight, maybe we should have spent more timebeing clear. I think the price of that would have beenthat it would have taken longer and the savings wouldhave been smaller.

Q331 Stephen Barclay: It is not just our view; it isthe National Audit Office view. Do you accept theevidence you have just given is at odds with theNAO’s finding that this was poor value for money andput public trust at risk?Sir Michael Lyons: The Comptroller and AuditorGeneral has his responsibilities and his views; I hadmy responsibilities, and I have my views. You haveasked me to come along and share my views, not toenter into a debate about whether my views or hisshould prevail. You are guided by his advice—Iunderstand that.

Q332 Stephen Barclay: Indeed. I am just clarifyingthat you are saying, “We couldn’t have done it quickerwithout risks attached.” The NAO has obviouslylooked at that.



Could I take you to your e-mail of 30 May? Via theBBC, you told the National Audit Office and,therefore, this Committee that you had “no memory”of a detailed written submission of proposed terms forMr Byford and Ms Baylay. Is that still your evidence?Sir Michael Lyons: Could I just check? I becameaware from a journalist today that there is a summaryof my e-mail circulating that came from the NAO. Idon’t know the background to that; I haven’t had timenor perhaps would I have had access. I had agreedwith the Trust yesterday that people should see thingsin my own words. It is quite important that you do so.

Q333 Stephen Barclay: I am quoting your ownwords.Sir Michael Lyons: That is fine. I just want to be clearabout that, because there is some nuance and colourthere that is quite important.

Q334 Stephen Barclay: Indeed. Perhaps I couldrepeat the question, please, Sir Michael. I am quotingfrom your e-mail, your own words, of 30 May sent at14.45. You were in Italy at the time. It says, “I haveno memory of detailed discussions which might havejustified the claim that the package as approved by theexecutive board remuneration committee was done sowith the knowledge and approval of the Trustchairman. This would most certainly have required a)a detailed written summary of proposed terms.”Sir Michael Lyons: You have missed out a couple ofwords, I think, that are quite important. I am sorry tobe pedantic but can I just go back? “I am in Italy atpresent. I am sure that Mark made me aware of thefact that he was drawing up exit plans for both thenamed individuals.” So, I am absolutely clear at thatstage that there have been discussions. I am very clearabout that. I then go on to say, “I have no memoryof detailed discussions which might have justified theclaim that the package that was approved by theexecutive board remuneration committee was done sowith the knowledge and approval of the Trustchairman.”I make the point that the approval of the Trustchairman, which is frankly no power with me, theapproval of the Trust is not given lightly and wouldonly be on the basis of a document actually there forapproval. Not discussions, not briefings. If I was beingasked whether I had approved this, categorically I amnot aware of any document that would suggest that Ihad approved it.1

Q335 Stephen Barclay: Could we just unpick that,because it is a very carefully constructed and legalanswer? There was no requirement on the Trust toapprove, was there?Sir Michael Lyons: No.1 Note by witness: the point I was seeking to make might have

been clearer if I had said “I seek to make the point that Idon’t believe the Chairman of the Trust has personal powerto approve any matter and approval by the Trust itself wouldnot be given lightly and only on the basis of a documentspecifically seeking such approval, even where it has thenecessary authority. Informal discussions and briefings donot constitute approval.”

Q336 Stephen Barclay: It was Mr Agius’s decision.So the note was not sent to you for formal approval,was it? The Project Silver note?Sir Michael Lyons: The Silver document? No, not atall. That wasn’t sent.

Q337 Stephen Barclay: Was it a detailed writtensummary of proposed terms?Sir Michael Lyons: No, it isn’t it. Can we turn to theSilver document? It is very important. It is not, theseare the terms we are offering Mark Byford. This is theDirector-General coming to me right at the beginningof the discussion. As he says, he first informs me inSeptember, that as part of the reductions he is going tomake he is thinking about deleting the post of DeputyDirector-General. There is a reference also at thatpoint to Sharon Baylay.He then sends me this document, which essentiallylays out three options. I think we can disregard thefirst one. The second one is what I think is referred toas contractual obligations. The purpose of the note, asI read it and remember it now, is to focus on the thirdoption, which is that, by introducing some flexibility,it might be possible to get the headline cost of MarkByford’s severance down from the £1 million figureto a figure close to £700,000. There can be no doubtabout the appeal of that. Broadly, I think Mark and Ihave exactly the same memory of those discussions. Isay I don’t think there is any difference between uson this document, inasmuch as I think we discussed itin a phone call on 21st of the ninth and again probablyat a routine meeting on 22nd of the ninth.The issues that I was focused on at that point were,first, whether it was right to delete this post, whichwas a concern I continued to have all the way through,because of the history of problems around deputisingfor Mr Thompson. I am not going into chapter andverse here, but if you need it I can give it to you.Secondly, I took the opportunity to underline thatwhatever we did here, the executive boardremuneration committee really must scrutinise thepackage very carefully to make sure that we could beassured of value for money, and that they were fullysatisfied that this was the right solution.Also at that time, I said that I wanted to ensure that,given any predictable controversy that there would beabout big sums, trustees were sighted on the eventualdeal. It was very clear that that was not the deal.

Q338 Stephen Barclay: For someone who had nomemory, you have given us a very long answer ofyour memory of discussions. When we had our lasthearing, we were told that there was no suchdocument and that the Trust could not provide it.Given that you can now recollect it with such clarity,why did we not have this document at the time?Sir Michael Lyons: I must take you back to the memothat I sent and which you have in front of you. I amnot aware of any document which could be regardedas constituting the basis for approval—

Q339 Stephen Barclay: No one is saying approval,Sir Michael, but it is simply not credible.



With great respect—you are a very senior figure inour public life—I struggle to understand how someonecan read Project Silver setting out three detailedoptions, and then have a host of discussions on it.Of course you were not being asked for your formalapproval—that was not the governance process—butwhen we had our last Committee hearing, we weretold that the Trust was not involved.In fact, so concerned was I personally about this thatI wrote to the National Audit Office ahead of ourhearing, because I found it incredible. I thought, “Howcould Mr Thompson be senior enough to run anorganisation like the BBC and not discuss his No. 2going?” I actually wrote to the NAO ahead of ourhearing, and I raised it with Mr Fry at the hearing,where I said that the implication, if he hadn’tdiscussed it with the Trust, was that he was beingincompetent. At no point at our last hearing, or withyour discussions with the NAO, did this documentcome to light. It only came to light when MrThompson then requested this. Yet today, you aregiving us a very detailed recollection of yourdiscussions.Sir Michael Lyons: Let me try to be helpful on this.I understand the point that you are making. First—you heard Mr Kroll underline this earlier on—beforethe NAO had even started its work, I wrote to theTrust unit and asked for all documents relating to thisperiod. I was told that there were no documents; I willcome back to that in a moment.There is no doubt that, as you look at my response,while I was on holiday, as I remember it, I respondedimmediately when I got the message, so it was ratherquickly put together. The one thing I am absolutelyclear about is that there have been discussions. I saythat in the note. The other thing that I am absolutelyclear about is that there is nothing at all that couldconstitute approval by me.Looking back on it, although I had been told that therewere no documents, perhaps I should have been a bitmore cautious—

Q340 Stephen Barclay: But if the Chairman of theTrust has said that he had objections, of course it wasnot an approval by you. With respect, I just don’t findit credible for the BBC to make a payment of£250,000 a year to Mr Kroll to say that he cannotsearch for a document because it had a codename. Itis standard business practice dealing, whether it is amerger and acquisition or something else. We aretalking about the second most senior executive.[Interruption.] I know that Mr Thompson wants tocome in.It just doesn’t strike me as credible for the Trust to besaying what it did for this, most material ofdocuments, which the NAO itself says is an importantdocument that would have influenced its Report. It isnot credible for you to say, when dealing with thesecond most senior executive of the BBC, “We can’tfind the most important document because it had acodename.”Sir Michael Lyons: I can’t really account for that, canI? I wasn’t with the Trust at the time. How do youthink I felt when subsequently, the reason you have

the Silver document is because, after the challengeand hearing from Mark Thompson, Lord Patten, quiteproperly, said, “Let’s go back and check to make surethat there really isn’t any documentary evidence”?

Q341 Stephen Barclay: So the first hearing wasn’timportant enough to do it properly?Sir Michael Lyons: Please do not keep asking mequestions that should be related to the Trust.Stephen Barclay: Mr Kroll?Sir Michael Lyons: Let me just finish—Mark Thompson: I have something to add which Ithink is relevant. Somebody—a whistleblower, Iguess—from inside the BBC sent me this document,which is a letter from the NAO to Nicholas Kroll on19 July. This is immediately after, I think, the ProjectSilver document had been discovered: “I must say weare concerned with this development. As you will beaware, during clearance of our report we made aspecific request to see copies of any communicationbetween Mark Thompson and the BBC Trust relatingto the severance awarded to Mark Byford and SharonBaylay. We made a parallel request to the BBC. Wewere initially informed the Trust did not have anydocuments on file and that it did not have anyrecollection of being privy to the details of MarkByford’s severance package and had not received adetailed summary.” So that is 19 July. The sense, evenat that stage in the game, is that the NAO has not beengiven a complete picture, either in terms of documentor recollection.

Q342 Stephen Barclay: Mr Kroll, would you liketo comment?Nicholas Kroll: It is true—and I really regret—thatthe Project Silver document did not emerge earlier on.The documents which we have been talking aboutpreviously—

Q343 Chair: Why did you not remember it? That iswhat we are all astounded by. This is a major thing—why did you not remember it?Nicholas Kroll: I am sorry, Chairman. I do not thinkthat I am the only person who failed to remember it.We asked both our executive colleagues and—

Q344 Chair: You amended these documents, but youdo not remember them?Mark Thompson: It is incomprehensible.Chair: You have got to understand that, at your level,one would expect something more.Nicholas Kroll: I am sorry that you feel that, and MrThompson’s comments from the side, but the fact ofthe matter is that this document had been preparedclose on three years previously. I regret that I did notremember it, but I did not remember it.The fact, Mr Barclay, that there was a problem wasabsolutely and explicitly related to the codeword. Wedid our best at a full electronic search of our e-mails,using the obvious search terms linked to Mark Byford,but we did not—Amyas Morse: Mr Kroll, you wrote to us, very kindly,on 16 July and you said to us, “However, with LordPattern’s agreement, I was yesterday in touch with Sir



Michael Lyons to seek an agreement to trawl hisarchived e-mails. We have now done this and, inparallel, Sir Michael has checked his own private e-mail account.” And in that process a document hadcome to light. May I know where that document was,please? In which particular e-mail account was it?Nicholas Kroll: Sir Michael found it—Amyas Morse: You personally found it in your owne-mail?Sir Michael Lyons: Yes.Nicholas Kroll: In parallel, Sir Michael’s office—nowLord Pattern’s office—found it at roughly the sametime. The difficulty is a straightforward one and Iregret it, but the fact was that the codename hadprecluded it emerging from the electronic search.Amyas Morse: Just to make sure I have got thisstraight. Sir Michael, this was in your personal e-mail account.Nicholas Kroll: Can I just add, because I think Ishould, that although Sir Michael found it, it had beensent through the normal channels, even though thesearch had not revealed it because of the codename.This search we conducted on—Chair: Chris has been waiting patiently. I will go toGuto quickly and then to Chris.Sir Michael Lyons: Could I just pick up one point? Iam a little uneasy about what Amyas is trying to pointto here.Amyas Morse: I am not trying to point to anything.Sir Michael Lyons: Let me just make sure you arenot, Amyas. This document came into the Trust; itwas then conveyed to me by Nicholas Kroll. Let mebe clear: I did not recollect this document. All I knewwhen I was contacted while I was in Sicily was thatthere was nothing that I had approved; of that I wassure. And, of course, this document is not one seekingapproval; it is a document about the basis ofdiscussions.Mr Jackson: You have already said that.Sir Michael Lyons: Fine. Thank you.

Q345 Guto Bebb: Mr Kroll, you mentioned inpassing that you are not the only one who failed torecall this document, so who had sight of it apart fromyou, Sir Michael and Mark Thompson?Nicholas Kroll: I think there was a colleague in theTrust unit, but obviously I do not know, on theexecutive side, who had sight of this document—

Q346 Chair: On the Trust side?Nicholas Kroll: No; I am saying that on the Trust sideit was myself, Sir Michael and, I think, a Trust unitcolleague. I am trying to make the point that thefailure to recall it was also on the executive side, butI do not know who on the executive side would haveseen it.

Q347 Guto Bebb: Can you explain why you did notfeel it necessary to share that with the other Trustmembers?Nicholas Kroll: With the other Trust members? Thatwas an issue for Sir Michael.Sir Michael Lyons: That is for me to answer. Let mebe very clear about this. This was the beginning of the

process. The Director-General sent me this paper forhim and me to discuss. It was marked “private andconfidential”. Throughout my life as chairman, notonly in this organisation but elsewhere, when the chiefexecutive comes to the chair for a discussion, you donot immediately send the documentation to the othermembers of the board.

Q348 Guto Bebb: You mentioned in your evidencethat the first option could be discarded, because it wasnot important, as it was not likely to be delivered,but I find the first option the most disturbing one; thecustoms and practice of the BBC would have led to apay-off, in this case, of £2.5 million, yet you do notfeel it is necessary to share these types of exampleswith the Trust members.Sir Michael Lyons: What I was clear about indiscussions with the Director-General was that thiswas an issue that the Trust would be interested in, andthat trustees would need to be involved. I was veryclear about that at that stage.

Q349 Guto Bebb: So when were you planning toinform them?Sir Michael Lyons: At that stage, of course, theDirector-General had not determined that he wasgoing to press ahead with the redundancy. The paperthat is in front of you makes that very clear. He wasweighing the pros and cons, the costs involved andthe public response to the salary, and that is what theconsultation was about. There are a range of possibleterms that might be involved. I made it clear that ifhe decided to go ahead with redundancy, the point atwhich a package is shaped up and finalised is when itshould be shared with the other trustees.

Q350 Chair: Do you accept Mark Thompson’sevidence that you had a say in whether there wouldbe extra money put into the pension pot?Sir Michael Lyons: I absolutely raised that question.I was concerned about making sure of that.

Q351 Chair: But you did not think to ask abouthaving in effect two years’ redundancy, rather than theone to which he was contractually committed?Mark Thompson: That is incorrect. For the reasonswe said earlier, he was entitled both to a year inrespect of past service and a year’s notice. I want to beclear about this. You may disagree, but I was formallyadvised that at the time. The only reason the phrase“on the basis of the contract”, or whatever it is, is inthere is because I was advised that it was contractual.The NAO Report does not in fact say that it was notcontractual. It uses a phrase about the “maximumpossible payment”, which must mean the maximumpossible payment under the contract. There is a bigcanard here about whether it was contractual or not.Lord Patten is incorrect to say that the NAO foundthat this deal was above the contract. There are somedeals that are. The George Entwistle settlement wasabove the contract. I have a lot of sympathy for whyit was done in that way, but that is an example of asettlement that was above the contract. I was advisedthat this one was contractual.



Amyas Morse: I just point out that the reason thatit is contractual was because serving the notice wasdeliberately delayed until well after it was known thatthe person was going to go, so I do not really find thatconvincing at all.Chair: Quite. I think we understand that.

Q352 Chris Heaton-Harris: Earlier today, TonyHall, the current Director-General, sent an e-mail toall BBC staff, saying that this was a very difficult dayfor the BBC. I do not know whether any of the sevenof you actually feel that this has been a particularlyedifying episode for the corporation so far. It is themost bizarre game of “Whac-A-Mole” I have everseen in my life. You hit one fact down and out popsanother bunch of questions. I feel sorry for some ofthe staff at the BBC who are watching this at thecurrent time. I just wonder whether one of you mightlike to take some responsibility for some of this.Mark Thompson: If I may say so, I think I have rightfrom the start said that I was the Director-General atthe time and that I ultimately made these proposals. Ithink I have taken responsibility. What is sofrustrating about this debate—I will not deny that it isa real debate and a real disagreement—is that I thinkevery single person on this side of this meeting, all ofwhom I have worked with, is united in believing inthe BBC and what it stands for, wanting it to succeedand not damaging it. What has happened as part ofthis process is that a significant disagreement abouthow fully the Trust was briefed on these redundancieshas emerged, but I don’t think you should draw fromthat the conclusion that we disagree about the valueof the BBC, or that we wish to damage it.

Q353 Chris Heaton-Harris: What we see on thisCommittee is that it has been only for a few years thatthe National Audit Office has had any access to whatgoes on within the BBC, and pretty much every timewe scratch the surface, something pretty horribleappears. It is a huge shame. Those of us who went toSalford enjoyed Salford, and there is the DMI; we cango through a list of these things. I was wonderingwhether the governance of the Trust is broken in thisparticular regard.Sir Michael Lyons: Clearly the Trust is damaged bythese sets of discussions; I have no doubt about thatat all. The debate about whether the Trust was theright model has continued from the day that it was setup, really, and there are some peculiarities. I myselfwrote on 8 July 2010 to the then new Secretary ofState, Jeremy Hunt, to say that I really thought thatthe separation around remuneration of seniormanagers was dysfunctional, and that it should besorted. Similarly, there was the decision to put theaudit function on the executive board. Both of those,in my view, should have been part of the Trust andthe Trust’s responsibilities.The problem is that at the time when the charter wasagreed, everybody was preoccupied with the issue ofregulation, rather than the issue of how you made surethat the BBC had the strongest possible governance.That has been a point that I have made in speeches on

a number of occasions, and my experience justreinforced that for me.Let me come back to the Chairman’s challenge aboutwhat this must feel like to staff in the BBC. I amabsolutely clear that, in the actions that I took inseeking to make big reductions in the cost of seniormanagement, I was focused not only on licence feepayers but also on folks within the BBC, where therewas very considerable controversy. That was—I admitit—what I was after, in a rather blinkered way. Couldthat have been done more cleverly? I would concedethat it could, but this is not a group of people whofailed to work together effectively on most things.Take Mark Thompson’s submission to you: I read ityesterday and I think I would agree with about 85%of it, word for word. There are some very significantpoints on which I disagree with it. We have not yetcome on to one of those, which is whether I was evertold that, in the negotiations, we were now going totake the issue of payment in lieu of notice whileworking without netting off, which had been in theoption that would have given us a £700,000 cost, andthat we had now got the negotiations to a point wherethat was part of the package that was costing us over£1 million. I am absolutely sure that, whatever wasintended to be understood, I never understood thatpoint, because if I had, it would have been clear to mein the context of the options paper that we weremaking concessions from the one that was supposedto cost us less money and going into option two.Mark Thompson: How do you think we got to£950,000, then?Sir Michael Lyons: Well, Mark, all I can say is that,looking back over these documents, the document thatwas prepared for trustees—and frankly, I should sayto your colleagues, Chair, that it is not the job of theTrust to scrutinise separately matters coming fromthe executive—

Q354 Mr Jackson: I am sorry, Sir Michael, but I’mafraid you are misleading the Committee.Sir Michael Lyons: I certainly do not want to do that.Mr Jackson: Well, I think you are, because you wereintimately involved in the debate and discussion aboutthe error made by BBC people and by Lucy Adams’sstaff in respect of the Deputy Director-General’sseverance payments, in terms of the evidence she hasgiven. There were detailed phone calls between MarkThompson and the chairman on Mark Byford’spotential exit package. The e-mail was produced thatgave rise to that discussion three days before ProjectSilver was made available to the Trust, so I wouldcontend that you were aware of that. The context alsois that you had the conference, you had dinner andyou had briefings, so it just seems to beggar beliefthat you were not in a position to make a valuejudgment on whether it was prudent to pay nearly £1million to one individual in your role.Sir Michael Lyons: Let me help you on that point. I,too, saw that quote from Lucy Adams, and the onlyway that I can understand it is that the way in whichthe Director-General raised that issue with me is in thebriefing note—the so-called Silver note—that came tome a couple of days later. I do not believe that there



was any previous discussion of contracts. Indeed, ifyou look at the way that note is constructed, it veryclearly says, “These are the things that I am thinkingabout. These are the possible options. Can we have adiscussion about that?”

Q355 Mr Jackson: Did you discuss the error—answer the question with a yes or a no, please—inLucy Adams’s department that was made in respectof the severance payment being doubled?Sir Michael Lyons: The one and two years?Mr Jackson: Yes. With Mark Thompson.Sir Michael Lyons: You can see for yourself in theSilver note from Mark Thompson—he actuallyexplains that there is only one year’s entitlement.

Q356 Mr Jackson: No, I did not ask that question; Iasked whether you discussed it with him as one of theparties to the e-mail that had been received that gaverise to—Sir Michael Lyons: No, I never received that e-mail.

Q357 Mr Jackson: But he will have discussed itwith you, won’t he?Sir Michael Lyons: No. Basically, the Silver note ispost that discussion and at the point where it has beenestablished that the entitlement is one year.Mark Thompson: I think the point here is that we hada phone call—according to Lucy’s e-mail, I had tomake a phone call to tell you that our earlierdiscussions had been based on the wrong contract.That happened before the Silver note. That is myrecollection, for what it is worth. It is not acontentious point, in itself.

Q358 Chair: I am going to Lord Patten, because thequestion Chris really asked was about governance,and seeing you all squabbling on the head of a pinsuggests to me that the governance is broke.Lord Patten: May I respond to that? I very much takeyour point; I think a lot of people listening to thisdiscussion will have started to lose the will to live.There are an awful lot of pinheads. I think that it isperfectly possible to have a system of governance inwhich there is a separation between responsibility andpower—power to implement. I have to say, on thebasis of this experience, that I do not hugelyrecommend it, but I think it can work, and I hope wecan demonstrate in the next couple of years that wecan make it work; otherwise, all of you will be tiedup again in another attempt to provide the perfectgovernance for the BBC, which always ends up withhaving to devise another system of governance for theBBC, and it is rather tiresome.I think one example of the difficulty of making thiswork is reflected in the very important letter thatMichael Lyons wrote to Jeremy Hunt in the summerof 2010, in which he said that we needed to have abit more clarity on the relationship between strategyon pay, and so on, and on who does what. He referredin particular—not being unpleasant about this—to therole of the non-executive directors in relation to theTrust. However, can I say that I think there is a muchbigger and more difficult issue, and one on which we

all have to put on a hair shirt? While most of thisdiscussion, understandably, has been about what theCommittee thinks is the most egregious example ofexcessive payment—and I agree with them—I thinkthere are one or two others that are a problem. JanaBennett I think is a problem. I think Roly Keating isa problem, although he has very decently respondedto that.

Q359 Chair: Caroline Thomson.Lord Patten: While all that is true, and while ofcourse it was true that it was difficult to implementthis policy of rapid reductions without some cost, andmistakes were made, and occasionally people werepaid more, maybe for good reason—while that standsup to some extent, what, for me, is really important isto compare the KPMG report with the subsequentNAO Report. That shows that there was exactly thesame problem from 2006 to 2010 as existed after that.The figures are uncannily similar. For the KPMGperiod, there was £1.9 million spent over contractualobligation. In the second period, in the NAO’sexcellent Report, there was £1.9 million paid over thetop. That is a reflection not just of having to managethings occasionally by spraying money over people; Ithink there is a cultural issue there that we really haveto recognise, apologise for, and deal with veryrobustly.Michael is entirely correct when he says that trying toget people to face up to lowering salaries and toreducing the number of managers was an uphillstruggle. I remember, when I first became chairmanof the Trust, going to a lunch at the top of a Barclaystower to talk about executive pay and making a verysimple point: the best cultural director in the world,Neil MacGregor, got £180,000 a year for running theBritish Museum. I said, “How many people at theBBC get paid more than that, and how can we justifythat?” Working for the BBC is a fantastic privilege,and the way we have been running this system hasbeen unfair to the other people in the BBC, and veryunfair to the licence fee payer.Unless we can demonstrate that having responsibilitywithout having executive power can be made to workin the next couple of years, of course people are goingto say that we need a completely different system ofgovernance. I think it is possible to prove that thesystem can work, but it sure as hell has not workedvery well in relation to this, not just since 2010 butsince 2006, before the Trust was created. Who knows,if we were doing a survey for the three previous yearsunder a board of governors, what we would see out ofthat. It is a cultural issue, and we have to grip it.

Q360 Mr Bacon: Lord Patten, do you rememberwhat Stanley Baldwin said in the 1931 by-election inSt George’s ward about Rothermere andBeaverbrook? I think it was that they had “powerwithout responsibility—the prerogative of the harlotthroughout the ages.” I hear in what you say that youwould like to give it another go, but I think many ofus around this table listening to Mr Kroll—I came intothis meeting quite agnostic about whether the structureneeded tinkering with. You are right; it is very



tiresome. But surely the case has been overwhelmingproven, hasn’t it, against having this form of dividedresponsibility and accountability? It made me hankerafter the old days of the BBC governors, to be honest,listening to Mr Kroll. He did not sound, frankly, likehe was running an organisation in the Trust unit thathad a full grip. It sounds like it is broken. It is broken.The bicycle is not working properly and it needsfixing now.Lord Patten: I know it is not fashionable for peopleto do it these days, but I would defend Mr Kroll tothe limit. If executives get things wrong, and if theyare thought to get things wrong, then the peopleultimately who have to take responsibility are thosewho are in a ministerial or quasi-ministerial role. Iabsolutely take your point: we do have to demonstratethat we can make this work. I think we can.Mr Bacon: That was not meant to be a personal attackon Mr Kroll. It was really a questioning of thearchitecture. If Mr Kroll is operating in anenvironment where it is not clear who is responsiblefor what, or who needs to know what when, then it ishardly surprising that you end up in a mess.

Q361 Chair: What are you going to change? What isgoing to happen? We round the table all feel that it isbroke; that is what you come out of this whole episodefeeling. What are you going to change that would giveus the confidence that there is proper accountability,and that these decisions are taken properly?Lord Patten: I said in my evidence last time that I wasinherently sceptical about the argument that wheneveranything went wrong you had to change theinstitutions. Sometimes things go wrong because ofindividuals. I think that the Trust and the executive,today, partly because of the experience of the last fewyears, will have a different and good relationship; andif that doesn’t happen I dare say you will have tospend a certain amount of your time in the run-up to2017 slaving away over what sort of governancesystem could work.

Q362 Chair: I am genuinely sceptical of that answer,because if any structure depends on the relationshipbetween individuals it is not sustainable over thelonger term, and what has happened in this particularinstance is you have had an executive taking one setof decisions; you have had non-executive directors onthe executive board taking decisions; you have hadthe Trust involved—everybody, I am afraid, runningaway a little bit from responsibility. Perhaps—okay—people are shaking their heads. That’s the feel.Mark Thompson: I honestly don’t think I am runningaway from it, actually.

Q363 Chair: No, okay; I accept you haven’t runaway. That’s the thing—you are all now, suddenly,going to be responsible; but you cannot buildsustainable structures on the personal relationshipsbetween two individuals who happen to hold posts ata particular point in time. You can’t do it.Lord Patten: What this—not just the NAO report—what the NAO report and the KPMG report togetherindicate is that, as Sir Michael Lyons said in his letter

to Jeremy Hunt, you may well have to look at theextent to which a supervisory body is more involvedin the audit function, and whether it should be moreinvolved in remuneration; but I can’t imagine, forexample, handing the regulatory power to Ofcom andOfcom wanting to be involved in determiningremuneration. There are all sorts of models which aresuggested out there, but none of them seem to menecessarily to be huge improvements, and the lastone—the single board and governance—was scrappedbecause of the imbroglio surrounding broadcasting onthe Iraq war.Mr Bacon: On which you got it largely right, by theway.Lord Patten: Well, I agree with that.

Q364 Jackie Doyle-Price: Just to follow up on thepoints you have just made: you are quite right to cometo the defence of Mr Kroll, because actually I wasn’tattacking him personally. What I was trying tohighlight was that there is a systemic failure here, andI think this systemic failure probably could bewitnessed in a lot of organisations. That is because ofthe increasing reliance on e-mail. If we are going tohave real confidence in our governance procedures,there has got to be a way of capturing papers thatcome in by e-mail, so that when, Lord Patten, you askto be briefed, you can be confident that the full suite ofpapers that should be considered are being considered.What we have heard today—things being done bydocument search, and then coming out in Sir MichaelLyons’s e-mails—shows a structure that just is notworking. When you get an incident like this, it all fallsdown. I would also say there are issues here as wellfor you, Mr Thompson, because I kind of get theimpression—and by all means challenge me if I ambeing unfair—that quite a lot of the time e-mails aresent to the Trust as a back-covering exercise, ratherthan as a method of governance. Taken together, thosetwo issues are really ones we need to tackle. It is notnecessarily about throwing the baby out with thebathwater, but let’s actually get the system working.Mark Thompson: If I may say so, you only see partof the story, because so much of this kind of sequenceof events is done in oral discussions—phone calls andface-to-face meetings.

Q365 Jackie Doyle-Price: You need minutes.Mark Thompson: Well, there are points—the 7October note, for example, is clearly a more formalmoment in the process; but what the Committeecannot hear any more are the conversations. I believethat both Lucy Adams and I disclosed completely theterms that we were proposing should be made to thesetwo individuals.

Q366 Jackie Doyle-Price: I can see that you are alltelling me the truth as far as you see it; but to thepublic it looks like somebody is lying, because wehaven’t got these clear audit trails. That is what ismissing in this governance.Sir Michael Lyons: This is important, as you draw aconclusion. Mark Thompson clearly does believe thathe conveyed to me, at least to me, that the severance



terms that were being negotiated for Mark Byfordwould basically double-dip in that he would worksome time, but he would be paid in lieu of notice. Itis an important point. I do not think that I was giventhat information. I will, quite separately, respond tothat part of his document to you showing why I donot think that that is possible, just in terms of the dateson which we met, but the critical thing that I wouldfocus you on is the document that was prepared forMark Thompson that came to the Trust on 7 Octoberand that was seen by the trustees. That document issilent on this issue despite the fact that the similarreport prepared for Marcus Agius’s committee only afew days later actually covers the point explicitly.Now there has been some criticism here about howcome the secretariat did not scrutinise this or deal withthis. Indeed Mark Thompson himself alleges that thisis a jointly prepared document. Nothing could befurther from the truth. It is a document that has comefrom the executive. The Trust unit has asked somequestions to try to improve the quality of thatdocument to help trustees. I have just focused you onthat moment. I do not want to say any more.Mark Thompson: I have an e-mail here, which washanded to me just today, from Nicholas Kroll to SirMichael Lyons on 8 October—this is the day after the7 October note arrived. Here Nicholas Kroll says toSir Michael Lyons, “Jessica tells me it is not yet clearwhen the individuals will get their formal and finalletters confirming their redundancy arrangement, butin both cases it is likely to be in calendar 2011. It isnot yet possible to say which financial year this willfall into and so when disclosure will arrive.” In otherwords, the final letters and formal notice will not begiven to them into calendar 2011 and potentially inthe next financial year. In my clear recollection, thatbacks up verbal conversations had by me and indeedby Lucy with Trust unit officials as well as with theChairman. I absolutely appreciate that recollectionscan differ, but it is not just the memories, it is the e-mail trail. This e-mail, which as I say was sent on theFriday, backing up further evidence and further factualmaterial about the severance payments after the 7October note, supports the case.Nicholas Kroll: Chairman, may I respond to that?Mark is producing various bits of paper likefirecrackers. Happily, by strange chance I have thisone in my pack as well. I did of course report to SirMichael Lyons what Jessica Cecil said in her e-mailto me, but that e-mail was silent on the key issue thatMichael has raised that Mark Byford received not justa single payment of a year’s pay in lieu of notice andthe redundancy payment as well, but that in additionthere would be eight months’ pay which would not benetted off against the pay in lieu of notice. Mark’sproposition is that within the Trust unit we should dosome sort of jigsaw puzzle analysis of various piecesof paper in order to work out what he means, but Ithink the Trust can have a reasonable expectation thatwhen it gets a note from the Director-General settingout what appears to be a clear statement of a sum ofmoney within contractual entitlement, that’s it.Mark Thompson: But why would we brief the DailyMail correctly and not brief the Trust?

Nicholas Kroll: That is exactly the question.Mark Thompson: If I may say so, every trustee couldhave read the whole thing not just in the Daily Mailbut across the media on the Tuesday. We should beclear that there is not any communication back fromthe Trust on this. We go and announce that we havemade the payment, which you have talked about atlength, to Mark Byford of getting on for £1 million.The topic of senior management’s severance is nevermentioned by the Trust that I can find in itscommittees or to me. Sir Michael Lyons steps backand Lord Patten arrives, but it is just never mentioned.I think it is Claude Rains in “Casablanca” who says,“I’m shocked, shocked to find that gambling is goingon in here!” The truth is that these very largepayments were extensively in the press. The detailswere in the press. It was a topic of very livelyconversation. There were briefings in front of theannual report 2011. There were briefings in front ofthe annual report 2012. Parliamentary colleagues inCommittees were asking questions about it, and theTrust did not raise it at all until the George Entwistlesettlement and the NAO Report.Chair: I want to bring this quite quickly to an end.

Q367 Stephen Barclay: I will be quick. Can I bringup two cases that have not been discussed so far: PeterFincham and Roly Keating? Mr Thompson, did youtake legal advice about whether disciplinary actioncould be taken against Peter Fincham?Mark Thompson: I have to say—this is based on myrecollection, rather than after having checked therecords—I believe we were advised that we did nothave grounds for dismissal.

Q368 Stephen Barclay: Right. Because he got paid£500,000, even though he was implicated in—Mark Thompson: Again, it is quite like the situationwith George Entwistle. This is a situation where youhave a really prominent leader, a great controller ofBBC 1, and there has been an editorial disaster. Manypeople inside, and indeed outside, the BBC—becausemany of the core problems happened at theindependent producer that made the programme inquestion—were responsible, but Peter, unfortunately,who was controller of BBC 1, was the person whostood up and said it. Having looked at the report,which was compiled into this saga by Will Wyatt, Ifelt that it would be appropriate for Peter to go. Theclear advice, however, was that we did not havegrounds for dismissal. We decided that we would gofor a consensual termination, where he would depart.It was a compromise agreement.

Q369 Stephen Barclay: Was that communicated tothe Trust at any point?Mark Thompson: I remember briefing theChairman—not on every detail, but explaining that wewere going through a difficult lawyer-to-lawyernegotiation. It was different from a redundancysituation, where you have a contract that you can readout; it was a negotiation. I have to say that Peterbehaved, from first to last, very honourably. There



was, without question, a risk of legal actionafterwards.

Q370 Stephen Barclay: But, to be clear, you diddiscuss the case of Peter Fincham with the Trust?Mark Thompson: I did not discuss the whole—Sir Michael Lyons: Can we be clear about what wasdiscussed? We are as one on the fact that there werediscussions. Indeed, on behalf of the Trust, I wasadamant that there had to be consequences from themistakes, and the Director-General acted diligently onthat basis. He then briefed me on what his intensionwas. However, the package was never discussed withthe Trust.

Q371 Stephen Barclay: But that is not what I wastold by the BBC Trust. I wrote about that specificpoint on 9 July to the Clerk of the Committee: “CanI please check the BBC are saying that no papers existregarding discussions, e-mails, meetings, between theexecutive and the Trust, regarding the other casesreported in the media, other than the Byford/Baylaycase?” What you are saying is that there werediscussions of other cases.Sir Michael Lyons: Absolutely, there werediscussions. I would have briefed colleagues on thatbasis. There may be no documents—I would bewilling to concede that, but it is a different point.Chair: Okay, can I—Stephen Barclay: Can I ask one more?Chair: Fine.

Q372 Stephen Barclay: Ms Adams, you told us lasttime you were here that you consulted your linemanager, Caroline Thomson, about the Roly Keatingpay-off, and that Mark Thompson was also involved.Lucy Adams: No, I didn’t say that Mark wasinvolved. You asked me, Mr Barclay, “Did youapprove the Roly Keating payment?” And I said,“Yes, I did.”

Q373 Stephen Barclay: You said it was “after aconversation he had had with Mark”, and then youwent on to say—Lucy Adams: Yes, after he had spoken to Mark aboutthe British Library role. Mark had never beeninvolved in the discussions with Roly Keating abouta severance arrangement. That was my discussionwith him.

Q374 Chair: So you decided that although he hadgot another job, he should still get severance, did you?Lucy Adams: I went through this last time, MadamChairman, if you remember. I took the decisionbecause Mr Keating explained to me that he would beunlikely to take the British Library role unless therewas a severance offer. It is an important point, becauseit is an issue about the money and the decision that Itook. We were going to be making the role redundant,but probably not for at least 18 months. In my view,that would have meant a two-year payment forredundancy, plus his notice, plus his salary.

Q375 Chair: No—a year.

Lucy Adams: Mr Keating was entitled to six months’notice and two years’ redundancy.

Q376 Stephen Barclay: You said in your evidence,“I consulted with my line manager at the time,Caroline Thomson”.Lucy Adams: Yes.

Q377 Stephen Barclay: I have an e-mail from MsThomson saying explicitly the opposite.Lucy Adams: We may have different recollections onthat. I remember consulting her. I was very clear thatI took the decision.

Q378 Stephen Barclay: So clearly there are twoversions. Someone cannot be correct.Lucy Adams: As I said, people recollect differentthings. I recollect it differently, but I said that I tookthe decision.

Q379 Stephen Barclay: May I just ask you about acultural point? Was it your sense—we have discussedculture—that these payments beyond contractualterms were, in essence, sweeteners to BBC staff? Wasthat how you saw it?Lucy Adams: We were trying to—in the event, wedid—take out 195 senior people in a three-year period.Each one of those conversations was difficult and withpeople who had been with the BBC for a long, longtime. Very often, they did not want to leave their jobs.

Q380 Chair: Was it difficult for the receptionist?Lucy Adams: Let me finish my answer. We wereweighing up against the risk of litigation—

Q381 Chair: I have to say that this attitude that thetop cadre of people at the BBC face greater difficultywhen they get redundancy, as opposed to areceptionist or someone working lower down, isoffensive.Lucy Adams: I am not suggesting that. I amsuggesting that you are weighing up the issues of therisk of litigation, duty of care to the individual and thedisruption to the business if the individual leaves inan unamicable way. If you look at the total amountspent on severance, 8% of that was spent above thecontractual entitlement. I don’t see those assweeteners; I see those as sensible business decisions.

Q382 Stephen Barclay: Indeed. We have beenthrough those arguments. My question was veryspecific: did you suggest to HR colleagues—this is acultural point—that these sorts of payments should beviewed by them as sweeteners?Lucy Adams: As sweeteners? I think that that is astrange term. What we are talking about is enablingpeople to leave the business in a way that minimisesdisruption and avoids legal risk. It was a shorthandterm, possibly, but I do not recollect it.

Q383 Stephen Barclay: Sorry, but is it your evidencethat you would not have viewed the payments assweeteners? I am talking about the culture and thelead. You were head of HR. We have talked about the



fact that authority was delegated, and we have talkedabout the fact that payments were made beyond whatwas legally required. I find it very odd that HRprofessionals were not intervening and saying, “Weshould not be paying beyond what we have to.” Yousay it is a strange term, but were you giving aninstruction to your HR staff that they should be laxabout this, because they should view the paymentsas sweeteners?Lucy Adams: Certainly not lax. We were trying to getpeople out of the door, to minimise disruption and toreduce the risk of litigation. In some instances, in 8%of the cost—£1.9 million against a £20 millionsaving—it was the case that we went abovecontractual entitlement to enable that to happen.

Q384 Stephen Barclay: So you deny giving that sortof steer to HR staff.Lucy Adams: What I would be saying to my staff isthat we need to be moving the senior managementpopulation down.

Q385 Chair: Did you use the word “sweetener”?Lucy Adams: I cannot honestly recall using that word.HR professionals all over the world recognise thatoccasionally you have to pay above the contractualentitlement.

Q386 Stephen Barclay: But in an e-mail you didexactly that. You said, “Can I get a sense of the scaleof the sweetener?” It seems that that is anotherdocument that you are forgetful of writing. You couldnot remember the 7 October e-mail.Lucy Adams: Can you show me this document please,Mr Barclay?

Q387 Stephen Barclay: I am very happy to share itwith the Comptroller and Auditor General so that hecan verify the document. I would have thought thatthat would be satisfactory. It is a leaked document, soI cannot share it with you, but I am happy to share itwith the Comptroller and Auditor General.Lucy Adams: I am more than happy to comment onthe document if you show it to me. I may have usedthe term by means of an incentive to get to a swiftresolution.

Q388 Stephen Barclay: So you might have used theterm, even though you regard it as strange.Lucy Adams: I find it strange because, as I said, wewere trying to reduce the number of senior managers.Occasionally, you have to find a way of making ithappen more quickly while minimising disruption, oryou have to find a way of avoiding legal risk.

Q389 Stephen Barclay: It says something about theculture that public money is bandied around,particularly at the more senior level, as Mr Bebb hashighlighted, and the head of HR is saying, “Use thelicence fee money for sweeteners.”Lucy Adams: As I say, please do share the documentthat you are referring to with me and I can commenton it. On occasion, we would always advise peoplewho were trying to manage and arrange to get people

out of the door to minimise disruption, avoid legalrisk and address duty of care issues with theindividual, and, occasionally—for 8% of the costs—we did that. A sum of £1.9 million was spent movingthese people out of contractual entitlement, against asaving of £20 million a year.Chair: We are hearing the same thing, time and timeagain. Meg, can you quickly raise another issue?

Q390 Meg Hillier: I wanted to raise the issue aboutJana Bennett, who left, of course, in October 2012.She had moved previously to BBC Worldwide and herredundancy package was originally paid by theBBC—so I suppose I am looking at Lucy Adams andprobably Mark Thompson on this one—but later theBBC acknowledged that it should have been paid byBBC Worldwide. That was a pretty big error. Why didit happen?Lucy Adams: When Jana moved to Worldwide, weagreed that she would have a two-year period whereshe would be protected. She would get a year’s salaryagainst her previous entitlement, as a sort of carry-over agreement—

Q391 Meg Hillier: Protected salary?Lucy Adams: She was moving to a lower salary. So,in order to encourage her to take the Worldwide job,which initially she didn’t want to do because shedidn’t want to leave her role as director of television,that seemed like the best solution for everybody allround. It was nil cost; it was good for Worldwide,because she had a level of expertise that they couldbenefit from; and it was good for the BBC publicservice, because we were able to refresh—

Q392 Meg Hillier: I am not so much talking aboutwhy she moved; it is about the payment.Lucy Adams: There was a mistake and an error wasmade—a misjudged view that, in the event of arestructuring of Worldwide, the BBC public serviceshould pick up this liability. That should never havehappened. It has been recharged. As I say, it shouldnever have happened in the first place.

Q393 Meg Hillier: But it was not really reflected inthe accounts. It did not come out readily—even expertauditors from the National Audit Office did not find it.Lucy Adams: Because the data that we provided tothe NAO was all based on HR data—so, paymentsthat were made to individuals. This was an inter-company recharge from Worldwide to the BBC. Assoon as it became known to us that this had happened,we took it to the NAO and asked them to considerwhether they should include it in the second Report.

Q394 Meg Hillier: I just want to touch on the widerrelationship between the BBC and Worldwide. MrThompson, I think I am right in saying that asDirector-General—when you were the Director-General—you were responsible, although it is aslightly independent body, for signing off the pay andremuneration of the chief executive of Worldwide. Isthat right?



Mark Thompson: Worldwide has its ownremuneration board, with non-executive directors, andhad the primary responsibility for setting the chiefexecutive’s remuneration, but I think there was areport to the executive board remuneration committeejust to keep an extra level of oversight over it.Lucy Adams: That is correct. In fact, one of the thingsthat has come about since the NAO Report is thatwe have abolished having two sets of remunerationcommittees, for Worldwide and for the executive, sothere is only one remuneration committee now, andthat is for the executive board remunerationcommittee that would deal with the chief executive ofWorldwide and also the executive directors of theBBC board. Then there is the senior managementremuneration committee, which approves severanceand remuneration over £75,000 for public service, and£75,000 and £125,000 in terms of severance andremuneration for Worldwide.Meg Hillier: Hopefully quick questions and quickanswers.Chair: Last one.

Q395 Meg Hillier: Chair, I need to pursue this; wediscussed that beforehand. Were there any otherexecutives transferred to BBC Worldwide Ltd whoreceived severance payments that were recharged tothe BBC, or was it just Jana Bennett and never anyothers in the history of Worldwide BBC? Just yes orno?Lucy Adams: I don’t know about the history ofWorldwide BBC, but certainly in the sample periodthat we looked at—but as I say, that money has nowbeen recharged back to the commercial—

Q396 Meg Hillier: Mr Thompson, what discussionsdid you have about John Smith’s departure before youleft the BBC in September 2012?Mark Thompson: None.

Q397 Meg Hillier: Nothing at all? He left about fiveweeks later.Mark Thompson: The decision for him to depart wastaken by my successor, George Entwistle.

Q398 Meg Hillier: So, five weeks before you left—?Mark Thompson: I had heard it was likely that JohnSmith was going to go, but the decision for John todepart from BBC Worldwide was not mine—it wasreally made by my successor.

Q399 Meg Hillier: So really, five weeks before hewent, you had no idea? Because it was quite welltrailed—Mark Thompson: No, I’m saying that I had heard thathe was likely to go.

Q400 Meg Hillier: You had not discussed any termswith him?Mark Thompson: I had heard he was likely to go,but the decision—it is possible that George Entwistlewould have talked to John before he formally took upoffice. But George in the late summer of 2012 wasbeginning to think about his top team; part of that was

an understanding that he wanted to make a change atWorldwide; and although I heard those conversationswere going on, I was not a party to them, because thatwas going to be the next chapter in the BBC.

Q401 Meg Hillier: Ms Adams, were you havingdiscussions five weeks before he announced he wasleaving?Lucy Adams: Yes, I was involved in discussions withJohn Smith. As Mark says, it was very much George’sview to refresh that team.

Q402 Meg Hillier: I referred to BBC WorldwideLtd’s annual report and financial statements for theyear ending 31 March 2013. John Smith’s totalpackage for that year was £1.6 million. Is that right?Lucy Adams: That was his salary and the severancearrangement that we reached with him.

Q403 Meg Hillier: He already had a job to go to,didn’t he?Lucy Adams: He subsequently returned six months ofhis notice period.Meg Hillier: Okay. That’s very helpful to know.Amyas Morse: On a point of order. I have just beenshown an e-mail forwarded to Mr Barclay by awhistleblower that appears to have arisen from yourusing the word “sweetener.” I want to let you go awayfrom here. I appreciate that you want to see it, andyou do need to see it, but may I just ask you to reserveyour position and we will look into it later on?Lucy Adams: Absolutely. I am more than happy tohave a look at that document. As I say, what we weretrying to do was to find a way of moving people outof the organisation. Very occasionally, legalentitlements in the contract of employment—

Q404 Chair: You’re developing a habit, Ms Adams,of changing your evidence after the hearing.Lucy Adams: No, that’s unfair. That is really unfair,Madam Chairman.

Q405 Chair: I don’t think it is.Lucy Adams: No, that’s very unfair. All I asked is tosee the document.

Q406 Meg Hillier: I want to ask Lord Patten, aschairman of trustees, about BBC Worldwide. I do nothave time to go into it, but there is certainly evidencethat there were big, generous payoffs over a decadeago at Worldwide. In your remit to try to clean up thismess, will you be looking at BBC Worldwide as well?Lord Patten: The new chief executive of Worldwideis, I think, paid less than half—I cannot give you theexact figure, but it is considerably less—and he is wellaware of some of those issues. He is already getting agrip. I think he is outstanding, and I think he will givegreat leadership to Worldwide.

Q407 Meg Hillier: Does the current Director-General’s cap, which I presume you back, apply toBBC Worldwide?Lord Patten: Sorry?



Meg Hillier: Does the cap of £150,000, which TonyHall set, apply to Worldwide as well?Lord Patten: Absolutely. Tim Davie is applying thatto Worldwide. Any payment of £75,000 or above isgoing to be referred to the remuneration committee ofthe main BBC.

Q408 Ian Swales: I would like to come back to LordPatten on the question of culture. It seems that thesummary of a lot of what we have been hearing is thata lot of senior managers in the BBC have effectivelyhad a one-way bet. In other words, they have hadprivate sector style salaries while enjoying a lot ofpublic sector style benefits in terms of contracts,management structures and so on.Ms Adams’s evidence to the Committee last time, forexample, said that the benchmarking for severancepayments—the ones that were going on—wastypically more favourable than in the private sectorbut about in line with the public sector. Add to thatthe number of managers and the types of structures.Lord Hall’s evidence last time was that there are 55boards looking at various aspects of operations andback office functions, I am quite sure Sky TV, forexample, does not have 55 boards looking at backoffice functions. Going back to your point about a topculture leader being paid £180,000 a year, what doyou think needs to happen? Does the BBC need tohave high salaries and become more private sector inthe way it operates, or should it start operating likethe public service broadcast organisation that we thinkit is?Lord Patten: I have two opening comments and thena serious reply. First, Tony Hall is trying to strip outsome of the boards at the moment. Although I do notimagine that Sky has the same number, people whowork for Sky are paid a lot more than people whowork for the BBC. Sky is in the private sector, andthere is a discount in BBC pay against the privatesector. The main point I want to make is that that issomething that we have to recognise, because in myview the BBC is the greatest broadcaster in the worldand people get considerable pleasure from workingfor it. If they do their job well, it doesn’t make it moredifficult for them to get other jobs afterwards. Whilethere is a point beyond which you can’t discountwithout losing some very good people—and there willbe a danger of that in the next few years—nevertheless, we should take account of the fact thatthe BBC is a great organisation. As a public servicebroadcaster it can’t behave, as I have said in the past,like a bank.Marcus Agius: May I just reinforce what Lord Pattenhas said and add to it, when he refers to this discount?You said that the people at the BBC enjoy privatesector salaries. They don’t. The remuneration policyof the BBC is not to pay any senior staff more thanhalf of what they can get in the commercial world,ideally less.The benchmarking that has been done over a longperiod of time indicates that the average discount thatis suffered or enjoyed, depending on your point ofview, is north of 60%. That is exactly as it should bebecause there are, as Lord Patten said, many benefits

from working for the BBC. But if you have a workforce who could notionally walk out of the door andget twice as much or more the next day that does putextra pressures on managing the staff that don’t existin other commercial organisations.

Q409 Ian Swales: I did not expect to get quite thatanswer, because when we spoke about Ms Adams’pay at the last hearing we heard that it was roughly inline with a FTSE 100 HR director. That was part ofwhat we discussed. That is my point. I think it needstesting by the trustees. I won’t go as far as calling itmythology, but clearly it is felt in the BBC that mostof the people could go out and double their salary.I just think that needs testing against all the variouscontracts. That is the conclusion that I would get,particularly when we don’t get the evidence thatpeople get fired in the way that they would in theprivate sector. So, with the DMI fiasco or the LonelyPlanet fiasco, I don’t know how many people got firedfor those things, but certainly in the private sector alot of—Mark Thompson: You need to be a little bit carefulabout that. DMI was one of seven—

Q410 Chair: We are going to come back to DMI.Mark Thompson: Seven or eight projects.

Q411 Chair: We are going to come back to DMI. Weare going to have the pleasure probably of most ofyour company when we return to DMI.Mark Thompson: Don’t forget the projects that wentwell. Lonely Planet was a failure, but in the contextof Worldwide doubling its turnover and quadruplingits profits, despite Lonely Planet. There is a slightdanger of focusing only on the ones that go wrongand, in this case, focusing only on the payments thatenabled the bigger savings, forgetting the fact thatgigantic savings were made.

Q412 Chair: I am going to draw it to a close. We arelooking forward, Lord Patten, to receiving the detailsand names of the 150 that you are in the process, Iunderstand, of writing to. We hope that that willhappen. Those are data that this Committee has said itwants and will treat in confidence. So we are lookingforward to that. All of us round the table, and I amsure you do down that end as well, really believe andvalue and recognise the absolute central importanceof the BBC as an institution. It is one that we want toprotect and promote.That is why in my view this has been a grosslyunedifying occasion, which can only damage thestanding and reputation of the BBC. We regret thatand we hope that you regret that. Have we got anywiser? I don’t know. We will have to see when welook at the details of the transcript when it is broughtto us. At best, I think what we have seen isincompetence, a lack of central control, and a failureto communicate for an organisation whose business iscommunication. At worst, we may have seen peoplecovering their backs by being less than open. That isnot good for the thousands of people who work forthe BBC and who produce the fantastic content that



enriches all of our lives. Thank you for your presencetoday. Let us hope that people learn the lessons ofthis experience.Lord Patten: May I add one point, Chair? I wouldlike to thank the NAO and KPMG for Reports that Ithink will help to transform the BBC and make it amore trusted national institution—more trusted than itis today, which is reasonably high but not as high asit should be.On the names, we received, I think on 3 September,your argument about the public interest case for

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knowing the names. We, as an employer with ourresponsibilities under the Data Protection Act,recognising parliamentary privilege, wrote to the 150or, rather, the 146—four of the names are already inthe public arena—on 5 September, and we have givenpeople until 19 September to respond. We willcontinue to talk to the Clerk of the Committee onthese matters. I think we have had a good relationshipin trying to deal with this issue with the parliamentaryauthorities and the Clerk.Chair: Okay. Thanks very much indeed.