Examination of Witnesses (Questions 40-59)
DEPARTMENT FOR
TRANSPORT, STRATEGIC
RAIL AUTHORITY
AND NETWORK
RAIL
26 MAY 2004
Q40 Mr Steinberg: So approximately £300,000
in bonus?
Mr Armitt: That is what could
be earned if we met all the targets.
Q41 Mr Steinberg: And what do the poorer
executives get?
Mr Armitt: It depends what you
mean by the "poorer executives". The thing about the
bonus system is that it is a company-wide bonus system.
Mr Steinberg: But you get more than the
Prime Minister, and the Prime Minister is running the country
and you are running the railway lines—and not very well!
Mr Curry: He is doing better than the
Prime Minister!
Q42 Mr Steinberg: You want to get back
to the Agriculture Committee!
Mr Armitt: All I can say is that
our objective as a company, and at every level in the company,
is to pay what is regarded as the market rate for the jobs and
the positions held in the company comparable with companies of
a similar size across industry as a whole, and the remuneration
committee takes advice from external and independent advisers
as to what those levels of salary should be to ensure that we
as a company, not only at my level but at others, were able to
attract the right level of skill and experience into the company
if necessary from other sectors across industry as a whole.
Q43 Mr Steinberg: But you did not tell
us what the poorer executives are getting. What is their basic
salary?
Mr Armitt: Clearly our staff within
the company range from, say, £20-25,000—
Q44 Mr Steinberg: But that is not your
executives, is it? That is the fellow who is driving the train
or—not driving the train but digging the rails?
Mr Armitt: There are a number
of senior executives in the company who earn in the order of £100,000.
Q45 Mr Steinberg: And they get bonuses
of anything up to 60%?
Mr Armitt: No. Their bonuses would
be less than that. They could be up to 30%.
Q46 Mr Steinberg: So could you tell us
how much bonus you paid out last year? What were the total bonuses
that were paid—out of company funds, remember. It is not
as though you are making a profit and paying it out of your profits.
You are paying it out of public funds, so what were the total
bonuses you paid out last year?
Mr Armitt: Last year we received
no bonuses as executives because it was felt that insufficient
performance had been achieved in certain key areas. Many employees
in the company did receive a bonus of about £600 for their
parts in a business which had achieved—at least the signallers
and people in Mr Crow's membership would have received bonuses
of about £600 last year.
Q47 Mr Steinberg: Can you understand
the animosity that must be felt amongst the workforce when they
see the possibility of bonuses like that being paid to a privileged—possibly
talented, I am not disputing that—part of the workforce,
and they are getting a pittance compared to that? Can you understand
why they take industrial action?
Mr Armitt: I do not think the
industrial action is related to the bonus issue at all. In fact,
when I go around, as I do from time to time—
Q48 Mr Steinberg: That is not what he
said on the news. He said that the managers were paying themselves
huge bonuses and then he went on to say why they were coming out
on strike. Something to do with the pension and so forth.
Mr Armitt: The issues which people
voted on have got nothing to do with the bonuses. As I say, Bob
Crow may choose to say that he believes that is an issue but my
experience from talking to people across the company at every
level within the company is that it has not been raised with me
as a significant issue. The issues which the dispute is about
are the pay increase, the percentage this year which would apply
across the whole company, the matter of the pension schemes and
the free travel. Those are the three issues. I do not believe
that the bonus issue is a significant factor in this dispute.
Q49 Mr Steinberg: Well, I can only repeat
what I heard him say on the news on the television. Finally, Mr
Bowker, is your job basically to protect the public, or is that
the Rail Regulator's? How do you see your job?
Mr Bowker: I have different aspects
to my job but I do have responsibility as the accounting officer
for the Strategic Rail Authority to be satisfied that the public
funds that go into the railway are value for money, however they
are then disbursed.
Q50 Mr Steinberg: And you agreed to the
bonus scheme, did you not?
Mr Bowker: We agreed to a management
incentive plan at the creation of Network Rail and the principles
of it which are set out very clearly in this Report, which would
incentivise not just the senior executives but the whole company
to deliver excellent performance, and I certainly do accept that
if Network Rail—and they are now responsible; they have
a remuneration committee and the Regulator is responsible for
overseeing the policy of this in the future—achieve the
targets we are talking about here, then the railway and all the
people that work in it are better off as a result.
Q51 Mr Curry: Mr McAllister, I am right,
am I not, that you used to run Ford of Britain and you are a non
executive director of Scottish & Newcastle?
Mr McAllister: That is correct.
Q52 Mr Curry: Did those companies have
shareholders?
Mr McAllister: Yes.
Q53 Mr Curry: And autonomous decision-making?
Mr McAllister: Yes.
Q54 Mr Curry: And the ability to borrow?
Mr McAllister: Yes.
Q55 Mr Curry: Were they exposed to financial
risk?
Mr McAllister: Yes.
Q56 Mr Curry: And did they have competitors?
Mr McAllister: Plenty.
Q57 Mr Curry: In that case, how on earth
is Network Rail described as a private company?
Mr McAllister: Because it is in
the private sector.
Q58 Mr Curry: That is a Jesuit and a
tautological response, if I may say so, but describing it as being
in the private sector does not give it any of the characteristics
of being a private company. Did Ford Motor Company have an "Office
of Internal Combustion Regulation"?
Mr McAllister: No.
Q59 Mr Curry: I see.
Mr McAllister: But if a company
has a monopoly, as Network Rail has a monopoly, of an infrastructure,
then it is standard economic practice to protect the public interest
by having an Office of the Rail Regulator, to ensure that the
actions taken by the company do not exceed the reasonable requirements
of the customer.
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