Quality First Annual Report and Accounts 2011/12

Executive Board remuneration report

This report sets out the BBC's remuneration policy and details the remuneration received by the members of the Executive Board. It has been prepared on the basis that the requirements of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 and those of the Financial Services Authority apply to the BBC wherever these disclosure provisions are relevant. The sections on pensions and remuneration received by the Executive Board members are audited by KPMG LLP.

Remuneration Committees: constitution and operation

The Remuneration and Appointments Committee (RAC) of the BBC Trust is responsible for setting the remuneration strategy for the Executive Board and is responsible for all aspects of the remuneration of the Director-General and the non-executive directors.

The Executive Remuneration Committee (ERC) is responsible for implementing the agreed strategy for all executive members of the Executive Board, with the exception of the Director-General. Its members are non-executive directors: Marcus Agius (Chairman), Sally Davis and Brian McBride, who replaced Val Gooding CBE and Robert Webb QC in January and March respectively.

Meetings of the ERC are also attended, on invitation, by the Director-General and the Director, Business Operations, who advise on matters relating to other members of the Executive Board, and the overall performance of the BBC. The ERC has access to internal expertise through the BBC's Head of Reward.

Complying with the UK Corporate Governance Code 2010, the ERC takes specialist advice from external professional advisers on some matters, and particularly those relating to market practice. During the year, independent advice was received from Towers Watson on matters related to market comparability of executive remuneration.

Remuneration of non-executive directors

Non-executive directors' fees are determined by the Trust.

Remuneration of executive directors

Strategy and approach for 2011/12

The strategy set by the Trust is intended to provide remuneration that attracts, motivates and retains the best talent to lead the BBC. In July 2011, the ERC agreed, with the Trust, a new Executive and Senior Management Pay Strategy which set out a revised approach to pay for the period 2011 through to 2015. Key principles within that strategy are:

fewer senior managers, as a continuation of our strategy to reduce the numbers and cost of senior managers across the BBC

• a freeze in bonuses: bonus payments remain withdrawn from executive directors for an indefinite period
• fairness in the BBC reward structure, by phasing out funded private medical insurance and car allowances for new executives and senior managers with effect from August 2011 and April 2012 respectively
• greater transparency, through the publication of pay multiples (median Executive Board pay to median BBC pay) in the Annual Report

The Trust and ERC also agreed to continue the practice of discounting executive directors' pay against the commercial sector. As a result, once again this year, the ERC reviewed independently provided market pay data to ensure levels of pay are consistent with the current and agreed strategy. Data obtained for 2011 showed that total direct compensation for our executive directors (base salary plus variable pay), including the Director-General, is discounted by between 64% and 78% of the level paid by our competitors in the commercial sector. This differential reflects the substantial additional amounts of variable pay (including share-based awards) that are provided in the commercial sector.

Pay multiples

In 2011 Will Hutton published his review of Fair Pay in the Public Sector in which he recommended that organisations track, publish and explain their pay multiples over time – the most appropriate metric being top-to-median earnings. This would ensure organisations delivering public services were accountable for the relationship between the pay of their executives and the wider workforce.

Whilst the BBC was not required to comply with the recommendations of this report, the BBC Executive agreed with the Trust to voluntarily publish, track and explain our pay multiples annually so that the public can see exactly how the remuneration of those at the top of the BBC compares to the rest of the organisation. The methodology we use is to compare the median pay of Executive Board members with the median pay across the rest of the BBC.

As at 31 March 2012 the multiple of median earnings within the BBC to executive directors' median earnings (including the Director-General) was 8.3 (compared to 8.5 the previous year). This figure takes into account the Executive Board's reduced earnings due to the surrender of one month's pay by some Executive Board members in both 2011 and 2012. Using their substantive annual salary the median multiple is 8.7 (compared to 8.9 a year earlier).

The multiple of median earnings within the BBC to the Director-General's earnings for 2012 is 15.1, taking account of the reduced earnings due to the surrender of one month's pay. Using the Director-General's substantive annual salary the multiple is 16.5.

In addition to taking account of these pay multiples when setting and considering pay for the Executive Board, the ERC consider each component of the total remuneration package of executive directors broken down as in the following paragraphs.

Base pay

Three factors determine the level of base pay set for an executive director:

• Would the rate be recognised as fair by the market (competitor companies) for the job?
• Does the personal performance of the executive justify the level of base pay?
• Is the level affordable to the BBC and not deemed excessive?

Base pay is aligned at around the market median for total remuneration, discounted by a factor of 50–80% to ensure that the BBC does not lead the market on executive pay in the media sector.

Variable pay

Performance bonuses to a maximum of 10% of base pay have historically been paid to executive directors for achieving efficiency targets and other identified objectives. However, under the current pay strategy, bonuses are indefinitely suspended. As a result, no discretionary bonuses were paid in 2011/12.

Benefits

In addition to pensions, the other main contractual benefits are a car allowance and life assurance. The Director-General is entitled to a car and driver under earlier arrangements but has no entitlement to a personal car allowance or fuel allowance. During 2011/12 there has also been the temporary allocation of a car and driver for the use of the Chief Operating Officer and other members of the Executive Board and BBC Direction Group for the remaining life of the car lease arrangement. Private health insurance continues to be provided to existing executive directors, but it will no longer be offered as a benefit to any future member of the Executive Board.

Pension

Members of the Executive Board who joined the BBC before 1 December 2010 are eligible to participate in the BBC Pension Scheme, which provides for pension benefits on a defined benefit basis.

For employees who joined this Scheme before 1 November 2006, the accrual rate is 1/60th of final pensionable salary for each year of service. For this group of employees, the normal pension age is 60. For employees who joined the Scheme on/after 1 November 2006 and before 1 December 2010, benefits build up on a career average basis and the accrual rate is 1.67% of pensionable salary for each year of service, adjusted in line with RPI inflation. For this group the normal pension age is 65.

For those who joined the Scheme after 31 May 1989 pensionable salary is subject to a maximum annual limit (£129,600 per annum for 2011/12). No maximum annual limit is applied to those who joined on or before 31 May 1989. The Scheme provides for early retirement on medical grounds and life assurance of four times life cover pensionable salary up to a prescribed limit.

Following the introduction of a 1% annual limit on increases in pensionable salary (before the maximum annual limit under the Scheme is applied) for all employees in the Scheme, from 1 April 2011 the BBC introduced a new section Career Average Benefits 2011 (CAB2011) under the Scheme which existing members could join, during a limited period, by opting out of their existing section. There is no 1% annual limit on increases in pensionable salary in this new section CAB2011. Benefits build up on a career average basis and the accrual rate is 1.67% of pensionable salary for each year of service, ordinarily adjusted in line with CPI inflation up to a maximum of 4% each year. Under this section the normal pension age is 65. There is also a maximum annual limit on pensionable salary, which was £127,800 per annum for 2011/12.

Members of the Executive Board who joined the BBC on or after 1 December 2010 are eligible to join LifePlan, which is the BBC's defined contribution arrangement. The BBC pays contributions to LifePlan on a matching, or slightly better, sliding scale. Starting at 4% for employees who pay 4% of pensionable salary, up to a maximum of 10% for employees who pay 8% of pensionable salary or more. There is no maximum pensionable salary for contributions to LifePlan.

Remuneration received

The table Comparison of executive director total remuneration 2010/11 to 2011/12 (below) provides a summary comparison of executive director remuneration by individual from 2010/11 to 2011/12. The table Executive Board remuneration (below) provides full details of the remuneration received by all Executive Board members and the members of the BBC Trust (collectively) for 2011/12 compared to previous year.

Employment contracts

Employment contracts of executive directors have a maximum notice period of 12 months, but are subject to earlier termination for cause. There is no contractual entitlement to any additional remuneration in the event of early termination other than in the case of termination for reason of redundancy.

Outside interests

With the prior agreement of the Director-General and the Nominations Committee, executive members of the Executive Board may hold one remunerated external directorship, with up to 15 days per year permitted to fulfil these duties. Remuneration which arises from directorships may be retained by the individual. Executive directors may also hold non‑remunerated posts outside the BBC.

During the year no executive director held any other remunerated external directorship. To obtain the Executive Board's register of interests visit About The BBC

It is recognised that non-executive directors are likely to have other directorships and the restrictions applying to executive directors do not apply to them.

Remuneration in the BBC's commercial businesses

The BBC has three commercial subsidiaries:

• BBC Worldwide
• BBC Studios and Post Production
• BBC World News

The remuneration policy for the subsidiaries includes the contractual provision of annual bonus and long-term incentive plans (LTIPs) available to eligible permanent staff, including directors. The full cost of base pay, annual bonus and the LTIPs are self-funded by the commercial revenues of each subsidiary company and are not subsidised by the licence fee. Remuneration within the commercial subsidiaries is not governed by the BBC's remuneration policy and governance arrangements.

Report of the Chairman of the Executive Remuneration Committee

Since 2009 the BBC has endeavoured to balance the continuing need to recruit, retain and motivate high-calibre leaders and staff, whilst reducing its spend on pay and on the number of senior managers. We are fortunate that a combination of the unique employment offering of the BBC and the strong public service ethos of our people has meant that we are currently able to retain great people whilst making significant reductions in senior management spend.

The targets set by the Trust in 2009 for senior management pay bill and headcount reduction were achieved by December 2011: we reduced the pay bill by £21.1million, 26.9% against our target of 25%, and reduced headcount by 156, a reduction of 24.4% against a 20% target.

Since 2009 we have made sure that, wherever possible, there is a significant reduction in the spend on Executive Board remuneration. Executive pay has been frozen for four years and bonuses removed indefinitely. We have removed pension supplements for all executive directors with effect from April 2011, and during 2011, reduced the remuneration of new, replacement executive directors on average by 32.7%. 2012 also sees the second of two years of voluntary pay surrender by all those executive directors who were on the Board in March 2011 and remain in executive director positions in March 2012.

The Board Committee undertook its regular assurance exercise to benchmark BBC Executive pay against the market at the end of 2011, and this confirmed that Executive Board pay is discounted on average by 70% against the commercial sector which is in line with the current and future strategy agreed by the Trust and an improvement of 12 percentage points to the discount in 2010 (58%).

The focus for 2012/13 will be continued remuneration constraint while retaining a sufficiently competitive executive pay offer to ensure that we retain the very best leaders for the future.

We have agreed with the Trust a new Senior Manager and Executive Pay Strategy for 2011-2015. This strategy sets out clear policy direction for the ongoing management of executive pay including the continuation of the bonus freeze for executive directors, the discounting of executive pay and our intention further to reduce the number of senior managers in the BBC by 70 by the end of 2015. We expect to achieve these reductions principally by natural attrition. We have also removed the provision of private healthcare and car allowance for new senior hires with effect from 1 August 2011 and 1 April 2012 respectively.

In recent years the BBC has led the way in executive pay transparency by publishing, in full, the salaries of our most senior leaders, and in July 2011 we became early adopters of many of the principles set out in the Hutton Review of Fair Pay in the Public Sector, including the publication of the ratio of executive director median pay to BBC median pay which is now provided annually in our remuneration report. The publication of this pay multiple allows the public to see exactly how the remuneration of those at the top of the BBC compares to the rest of the organisation. We hope that other broadcasters and public sector employers adopt a similar, transparent approach to the BBC, allowing the public to make a comparison. Since first publishing the multiple in July 2011, the figure has reduced marginally from 8.9 to 8.7 (excluding the impact of the Executive Board one month's voluntary pay surrender).

The Committee remains committed to ensuring that the BBC's investment in executive pay delivers value and transparency to the licence fee payer at a time when pay growth across the whole economy is minimal and many licence fee payers are living within a reduced annual income. We are proud of the success with which the organisation has delivered substantial savings in the pay bill for senior managers while retaining motivated and talented leaders. As we further reduce numbers in the coming year our focus will be on continuing to deliver reductions while taking a close look at retention rates and succession strength to ensure that our executive pay strategy does not damage the calibre and motivation of our current and future leadership talent.

Marcus Agius
Chairman of the Executive Remuneration Committee
21 June 2012

Comparison of executive director total remuneration 2010/11 to 2011/12

2010/11			2011/12
Executive Director	Remuneration received 4 £000s		Executive Director	Remuneration received 4 £000s
Mark Thompson Director-General	779		Mark Thompson Director-General	622
Jana Bennett Director, Vision	440		George Entwistle Director, Vision	261
Mark Byford Director of Journalism Group	447		Helen Boaden Director, News Group	354
Tim Davie Director, Audio & Music	422		Tim Davie Director, Audio & Music	349
Erik Huggers Director, Future Media & Technology	414
Ralph Rivera Director, Future Media1	26		Ralph Rivera Director, Future Media	309
Zarin Patel Chief Financial Officer	403		Zarin Patel Chief Financial Officer	337
Caroline Thomson Chief Operating Officer	385		Caroline Thomson Chief Operating Officer	328
Lucy Adams2 Director, BBC People	367		See note 2	—
Sharon Baylay3 Director, Marketing, Communications & Audiences	254		Role not replaced	—
Peter Salmon2 Director, BBC North	436		See note 2	—
Total	4,373		Total	2,560

1. Ralph Rivera was appointed to Executive Board 1 March 2011.
2. Lucy Adams and Peter Salmon stepped down from the Executive Board in March 2011 but remain at the BBC in the roles of Director of Business Operations and Director of BBC North respectively.
3. Sharon Baylay stepped down from the Executive Board in November 2010 and left the BBC in June 2011. The role of Director, Marketing, Communications & Audiences was not replaced.
4. Remuneration includes annual salary, taxable benefits and other remuneration received during the financial year but excludes compensation for loss of office.

Executive Board remuneration

The remuneration of the Executive Board directors and the membership of the BBC Trust during the year is shown below:

		FY 2010/11					FY 2011/12
		Fee/base pay £000	Taxable benefits £000	Other remuneration £0008	Compensation for loss of office £000	Total remuneration 2010/11 £000	Fee/base pay £0006	Taxable benefits £000	Total remuneration 2011/12 £000
Executive directors
Helen Boaden	Appointed to BBC Board 1 April 2011	—	—	—	—	—	340	14	354
Tim Davie		335	15	72	—	422	335	14	349
George Entwistle	Appointed to BBC Board 1 May 2011	—	—	—	—	—	248	13	261
Zarin Patel		322	13	68	—	403	322	15	337
Ralph Rivera1	Appointed toBBC Board 1 March 2011	25	1	—	—	26	295	14	309
Mark Thompson		613	3	163	—	779	613	9	622
Caroline Thomson		307	15	63	—	385	307	21	328
Lucy Adams	Stepped down 31 March 2011	293	15	59	—	367	—	—	—
Sharon Baylay2	Stepped down 30 November 2010	207	10	37	392	646	—	—	—
Jana Bennett	Left 6 February 2011	353	13	74	—	440	—	—	—
Mark Byford 3	Stepped down 31 March 2011	435	12	—	949	1,396	—	—	—
Erik Huggers	Left 25 February 2011	345	13	56	—	414	—	—	—
Peter Salmon	Stepped down 31 March 2011	344	17	75	—	436	—	—	—
Total executive directors		3,579	127	667	1,341	5,714	2,460	100	2,560
Non-executive directors (note 5)
Marcus Agius		47	—	—	—	47	47	—	47
Simon Burke	Joined 1 January 2011	10	—	—	—	10	37	—	37
Sally Davis	Joined 1 January 2012	—	—	—	—	—	6	—	6
Mike Lynch		33	—	—	—	33	33	—	33
Brian McBride	Joined 1 March 2012	—	—	—	—	—	—	—	—
Dame Fiona Reynolds	Joined 1 January 2012	—	—	—	—	—	7	—	7
Val Gooding	Left 31 December 2011	37	—	—	—	37	31	—	31
Robert Webb4	Left 29 February 2012	123	—	—	—	123	115	—	115
David Robbie	Left 31 December 2010	31	—	—	—	31	—	—	—
Samir Shah	Left 31 December 2010	27	—	—	—	27	—	—	—
Total non-executive directors		308	—	—	—	308	276	—	276
Total Executive Board		3,887	127	667	1,341	6,022	2,736	100	2,836
Total Trustees7						588			492
Total		3,887	127	667	1,341	6,610	2,736	100	3,328

1. Ralph Rivera was issued a relocation package on appointment to BBC (prior to Board appointment). Relocation spend during the 2011/12 year was £14,231, this value is not included in the numbers above.
2. It was announced in November 2010 that Sharon Baylay would step down from the Executive Board on 30 November 2010 and leave the BBC in June 2011. Included in the 2010/11 total remuneration is compensation for loss of office of £392,000, this was paid during 2011/12.
3. It was announced in November 2010 that Mark Byford would step down from the Executive Board on 31 March 2011 and leave the BBC in June 2011. Included in the 2010/11 total remuneration is compensation for loss of office of £949,000, this was paid during 2011/12.
4. As well as his non-executive director role Robert Webb was non-executive Chairman of both BBC Commercial Holdings Limited and BBC Worldwide Limited. In recognition of these additional responsibilities he received fees of £82,500 during the 2011/12 financial year. Robert left the BBC in February 2012.
5. Non-executive directors are appointed initially for a period of two years, except the Senior Independent Director, who is appointed for an initial three-year period. Sally Davis, Brian McBride and Dame Fiona Reynolds surrendered a month's fees in March 2012.
6. Employee pension contributions are ordinarily made via a salary sacrifice arrangement as an employer contribution, with a corresponding reduction in salary. Base salaries for executive directors have not been adjusted to reflect the impact of salary sacrifice to enable like-for-like comparison with prior years before salary sacrifice was introduced. The total salary sacrifice by executive directors during the year was £98,178 (2011: £94,000). In addition executive directors have surrendered an additional one month’s base salary in the financial year ending 31 March 2012. (This excludes new members Ralph Rivera, Helen Boaden and George Entwistle, whose appointments were effective, respectively, on 1 March 2011, 1 April 2011 and 1 May 2011).
7. Full detail of Trustee pay for FY 2011/12 can be found in Part 1 of this report.
8. Other remuneration in 2010/11 related to pension arrangements; providing cash supplements for directors subject to the maximum annual limit. These cash supplements were voluntarily surrendered from 1 April 2011

Defined benefit schemes

Executive directors	Age as at 31 March 2012	Section	Increase in accrued pension over year £000	Total accrued pension at 31 March 2012 £000	Transfer value of accrued pension at 31 March 2012 £000	Transfer value of accrued pension at 31 March 2011 £000	Director's contributions (excluding contributions paid via the salary sacrifice arrangement) £000	Increase/ (decrease) in transfer value less director's contributions £000
Helen Boaden1	56	Old Benefits	6	62	1,213	991	0	222
Tim Davie2	44	New Benefits	2	14	164	127	0	37
		CAB2011	1	1	4	0	0	4
George Entwistle3	49	Old Benefits	5	59	877	710	0	167
Zarin Patel	51	New Benefits	3	29	436	349	0	87
Ralph Rivera4	50	DC LifePlan	See notes
Mark Thompson	54	New Benefits	3	17	293	221	0	72
Caroline Thomson	57	Old Benefits	6	81	1,713	1,436	0	277

1. Helen Boaden was appointed as a director on 1 April 2011, although she joined this Scheme on 1 February 1993. The figures shown include the period before she was appointed as a director.
2. Tim Davie became an active member of the CAB2011 section as at 1 January 2012 and retains a deferred pension in the New Benefits section for service up to that date. The transfer value as at 31 March 2012 in respect of each section has been shown separately in this table.
3. George Entwistle was appointed director on 1 May 2011, although he joined the Scheme on 1 August 1990. The figures shown include the period before he was appointed as a director.
4. Ralph Rivera is a member of the LifePlan Defined Contribution Pension Scheme. The total contributions made are currently 25% of base salary. Of this 10% are employer contributions and between 1 April 2011 and 31 March 2012 the BBC paid a total of £29,500 to the Scheme.

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