HC 1658 Committee of Public AccountsWritten evidence from BBC Trust

Following our discussion at the Public Accounts Committee on 21 November please find attached a note from Mark Thompson responding to the Committee’s request for clarification on BBC Worldwide and John Smith’s remuneration policy.

I hope this is helpful to you and the Committee.

Dear Chairman,

As promised in the PAC hearing on 21 November, please find below a note clarifying BBC Worldwide and John Smith’s remuneration policy.

In the first instance it is important to clarify that, although a wholly-owned subsidiary of the BBC, BBC Worldwide is a commercial entity, operating and competing in international commercial markets. It has a remit to make profits from the exploitation of BBC and other high-quality content around the world, in order to deliver growing financial returns to the BSC. The higher the profit, the bigger the benefit to the TV licence fee payer.

In the last financial year some 56% of its revenues came from overseas and there is a clearly articulated strategy for this to increase in future years. This year that figure will rise to over 60%. The business receives no public funding from the TV licence fee and its staff and executives are paid through commercial revenues. As such comparing its activity and its remuneration to the publicly funded domestic BBC is erroneous.

As BBC Worldwide’s Chief Executive Officer, John Smith’s remuneration is made pUblicly available in BSC Worldwide’s Annual Review each year. As Mr Barclay has correctly stated, in 2011 Mr Smith was paid a base salary of £440,000 which represented no change since September 2009. This is a considerable discount to salaries paid for comparable positions in other global media companies, a benchmark BBC Worldwide uses because this is the pool from which executives and staff tend to be recruited.

John Smith’s total remuneration, which has been disclosed in BBC Worldwide’s Annual Review 2010–11, is £898,000. This falls short of the £1 million figure cited by Mr Barclay in the Public Accounts Committee, which is incorrect given that it includes hypothetical pension contributions and deferred payments and does not reflect actual earnings. Similarly, the payment made to Mr Smith for his non-executive directorship of Burberry represents separate earnings, which is received from a third party and should not be considered as part of his BSC Worldwide remuneration. Such nonexecutive directorships are in keeping with best practice in the commercial market.

Mr Smith’s remuneration package is the result of participation in BBC Worldwide’s incentive schemes, which are designed to drive up the financial performance of the company and are only paid in the event that growth targets for the company are met. Such schemes represent variable pay which is at risk, and they are not guaranteed. The remuneration figure also includes a deferred bonus of £138,000 which was earned in previous years, but which the CEO reinvested into the future growth of the company.

Remuneration is determined by the BBC Worldwide Remuneration Committee and in the case of the CEO is approved by the BBC Executive Remuneration Committee.

In 2011, BBC Worldwide’s turnover was up 7.8% to £1,158 million and profit was up 10.3% to £160 million, a four-fold increase during Mr Smith’s tenure as CEO. Indeed, over the last seven years, BBC Worldwide has returned over £1 billion to the BBC, and £182 million in the last financial year, despite mixed economic conditions.

I’d like to conclude by clarifying the figure of £348,000 cited by Ms Patel in the Public Accounts Committee. This figure represents that portion of the CEO’s remuneration which was earned while he was a member of the BBC’s Executive Committee, up to 30 September 2009, and which is therefore disclosable in the BBC’s own Annual Report.

30 November 2011

Prepared 5th March 2012