Examination of Witnesses (Questions 40-59)
MR DAVID
BARRASS
1 NOVEMBER 2006
Q40 Mr Mudie: No, we are not arguing
with that. The specific question is, where do you envisage the
casual work force reductions ending? At what level? You will obviously
have to have room for peaks and troughs but you have had these
people for some time by the look of the annual report. What is
the figure?
Mr Barrass: If you push me, I
would have to say there are probably another 30-35 casuals in
addition to the 46 so far. Of the casuals that will then remain,
a small number we will take on to the permanent payroll because
over time they have become key to our processes, and the rest
of them would be volume-related and, depending on which month
you measured them in, that would either be a high number or a
close to zero number.
Q41 Mr Mudie: In your Finance Director's
scoping, he mentioned employing Knox D'Arcy for 40 weeks at a
cost of £1.7 million. Have you gone ahead with that?
Mr Barrass: We are employing Knox
D'Arcy as our advisers on this and we are working very closely
with them. That programme was triggered at the beginning of August.
Q42 Mr Mudie: Is the figure of £1.7
million accurate?
Mr Barrass: I would not want to
give you an answer in public as to exactly what our commercial
terms are with them. They are clearly commercially sensitive as
far as Knox D'Arcy are concerned.
Q43 Mr Mudie: The Western Mail
got the £1.7 million from Peter's document so it must be
there.
Mr Barrass: As a scope number,
yes, they did.
Q44 Mr Mudie: Scoped again?
Mr Barrass: A scoped number, yes.
Q45 Mr Mudie: This scope figure is
a new factor in financial affairs. What on earth are Knox D'Arcy
doing for you that your bright young executive board cannot do?
Mr Barrass: While my bright young
executive board are running the business, we have taken seven
of our much younger, probably much brighter junior people out
of their full-time jobs, trained them in terms of the business
improvement programme and they are working alongside a team from
Knox D'Arcy so we have a team of about 14-15 people who are working
on this programme for us. What are they doing? They are assessing
everything that we do in minute detail, challenging it, looking
at different ways that we could...
Q46 Mr Mudie: This Committee would
have done it for nothing. No, do not go there!
Mr Barrass: No. I have been told
that you guys do the jokes and I have to be very serious. These
guys are assessing every aspect of the way we do business. Although
I guess we would refer to them as consultants, they are an outside
agency, it is not consultants in the way I think those of us who
are cynical about consultants—and I am one of those—would
imagine their work to be. They are not just looking at things,
telling me where the problems are and then charging me a bill
for it. They are looking in great detail at what we are doing,
how we could do it differently, then training our people to do
it differently, helping us rewrite the procedures and the manuals,
so that once we have these changes in place, we embed them in
the organisation and do not lose them so that we do not have to
come back in two or three years' time and go through the same
exercise again. They are much more than consultants. Within the
real commercial number—your number is a scoped £1.7
million—there is a significant amount of hands-on training
of our work force, a lot of which we have undergone already. The
feedback from all levels of the work force who have undergone
this training is very positive.
Q47 Mr Mudie: But, as you said, you
have made some progress in the financial year in as much as you
have halved the deficit down to £1.6 million.
Mr Barrass: Yes.
Q48 Mr Mudie: Even though you are
reluctant to tell us the figure, trying to get £1.6 million,
you put £1.7 million back in, or a figure that you will not
divulge for consultants straight away, which from outside looks
strange. In this atmosphere with the trade unions, with people
losing their jobs, and it is Wales and an area where this is an
important employer, this is all bad news, yet a remuneration committee
is set up and their first act is to increase directors' salaries
by, I reckon, over 15%. Do you think that is sensible in the atmosphere
that "We are all in this together" and people are losing
their jobs and the remuneration committee award a 15% increase
to directors?
Mr Barrass: I understand exactly
what you are saying, and if that recommendation came through from
a remuneration committee now, as chief accounting officer, I would
have a major problem with it. In terms of the timing on that,
we are looking at the senior management change happening during
that financial year. We are now looking at a situation halfway
through the following financial year, and I think the number will
be a fairly small number of compulsory redundancies.
Q49 Mr Mudie: When you look at when
that decision was recommended and implemented, you had lost £3.5
million. If it were coming this year, there is an argument to
say you have halved the deficit, you have worked well, but they
were facing a £3.5 million deficit in the financial year.
How on earth can you justify directors getting that sort of increase?
Mr Barrass: What the remuneration
committee did was they had each of the jobs appraised, they went
through Hay—another set of consultants, unfortunately, as
you have to—to have them evaluated, and they then compared
them with other public service sector workers doing as comparable
jobs as we could find—obviously, there is not another mint
in the public sector. Similar responsibilities, similar Hay evaluation
points, if you will, and all those increases did was to bring
the directors up to the level that was in existence at that time.
So we are already almost two years out of date on that.
Q50 Mr Mudie: Disgraceful really,
but then you bring in a bonus scheme. It is a short-term bonus
scheme. How short-term is it? Why is it named "short-term"
and what does "short-term" mean, so we know in future
years what the life of it is?
Mr Barrass: The short-term bonus
scheme that we ran during the financial year that the annual report
covers is literally a 12-month scheme. It had a shelf life of
12 months. The result of that bonus scheme was that there were
zero bonuses paid out under that scheme because it was very specific
in terms of the pay-out clauses and, as you can see, we lost £1.6
million that year. There were no bonuses paid in that year.
Q51 Mr Mudie: No, but you are skilfully,
if not deliberately avoiding the question. Is the answer that
each year you are going to have a new short-term bonus scheme?
Mr Barrass: That would be the
intention, to have a specific and specifically targeted to recognise
. . .
Q52 Mr Mudie: But the permanent features
of it would be that, at chairman level or chief executive level,
he or she could earn up to 30% of their salary in bonuses and
the other directors 20%.
Mr Barrass: Yes.
Q53 Mr Mudie: On the surface, I can
see why you did not pay money out last year, except they did better
than the year before, but the bonus scheme, as I see it, is divided
into two. It is divided into corporate and individual. How does
this bonus scheme work?
Mr Barrass: I am sorry I do not
have the details of the schemes here, but you are absolutely right;
there are corporate and personal elements to any proper bonus
scheme at this sort of level. The way that the scheme worked in
that particular year for all of the bonus schemes that we were
running at the Mint, with the exception of the sales force, was
a gate that you had to go through before any calculation was made,
and that gate was that the company had to make money. If the company
lost £1, then none of the bonuses became payable. Clearly,
we lost significantly more than £1 and therefore all of the
bonuses became non-payable in the year.
Q54 Mr Mudie: Do you set individual
targets on a personal level? Did you set for the financial year
in question individual targets for that part of the bonus scheme
for these individuals?
Mr Barrass: I do not believe my
predecessor set specific individual targets for the guys, but
their individual performance would have been recognised through
the piece.
Q55 Mr Mudie: They got nothing, so
clearly none of them met even their individual targets.
Mr Barrass: No. We could have
had some guys who performed very well against their individual
targets but, because the company did not break through that first
threshold of not losing money, everything was null and void.
Q56 Mr Mudie: Staff resistance. There
is a very interesting thing the Royal Mint spokesman is again
saying: "On this occasion staff and unions have been involved
from the start." That implies that in the past this has not
happened. This better working programme—is that a joint
programme, and are these seven people that have been put on representative
of the whole work force?
Mr Barrass: I think maybe I have
confused you with the seven people, if I can just clear it up.
Those seven people are not part of the consulting group. Those
seven people are actually part of the task force team who are
out there in the Mint, day after day, striving to make these improvements.
The consultation group is a group of eight people. That is myself,
the HR director, one regional representative from each of the
three trade unions that are there, and three of the Mint employees
who were also the trade union senior shop stewards. So that eight
is the consultation group. What the spokesman meant by that was
right from the launch of this better working programme on 1 August,
that very afternoon, we had our first consultation group as those
eight and we have kept the unions up to date and consulted with
them and taken their input. We have had three or four meetings
with them to date and the next meeting is already timetabled in
to continue that process.
Q57 Mr Mudie: One last question,
which you can duck if you like, because this is a question on
last year's report. We are over halfway through the financial
year now. What can you tell us? What is it looking like financially
for this year?
Mr Barrass: I am quite happy to
give you a feel for it. I would not be happy to give you the numbers.
We have six months in the can and I have an early view of what
month seven looks like because we have really speeded up the reporting.
The first six months look very positive. There is a health warning
coming at the end of this. We are ahead of plan, ahead of forecast,
and at this point we are profitable. The health warning is that
we have had a rather unusual occurrence this year in that the
call-off of UK coinage usually happens across the first three
quarters of our financial year and, for various reasons nothing
to do with the Mint, there has been a much heavier than usual
call-off in the first six months and we have benefited from that
because we invoice out our coinage as it is delivered. So we know
that some of that benefit is phasing and we should be expecting
it in the third quarter but we have already banked it in the second
quarter. Notwithstanding that, we are in a very positive position.
We are ahead of where we benchmarked ourselves to be and, with
the benefit of the better working programme, which is not in the
plan or the forecast, the two plus 10 forecast that we were working
on, with the benefit of that still to come in the fourth quarter,
I am hoping to hold that position that we have at the first half
and build on it through the second half, but the second half is
going to be trickier than it normally would be because we have
already taken the benefit of UK coinage.
Q58 Mr Mudie: Do you think your executives
will be out of bonuses this year?
Mr Barrass: The executives currently
do not have the bonus scheme laid out for them because at the
beginning of the year what I was going to do, knowing the things
I was likely to have to do, it was going to be very difficult
to lay out numeric targets for the guys because they were either
going to be very easy, depending on the success of whatever programmes
I put in place, or they were going to be totally unachievable,
again, depending on the programmes. My own personal philosophy
on bonuses is that they have to be stretched but achievable and
even today I am uncomfortable in putting targets down for these
guys but there is a remuneration committee next week and I know
those guys are going to be putting me under pressure to put something
in place.
Q59 John McFall: Given that it seemed
that the targets which the previous remuneration committee had
were quite easy to achieve, could you share with us the information
from that remuneration committee and what you will be doing as
a result of that?
Mr Barrass: I am not sure what
you mean by the targets were easy to achieve.
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