Public Accounts Committee - Minutes of EvidenceHC 476

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Oral Evidence

Taken before the Public Accounts Committee

on Monday 9 September 2013

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Stephen Barclay

Guto Bebb

Jackie Doyle-Price

Chris Heaton-Harris

Meg Hillier

Mr Stewart Jackson

Fiona Mactaggart

Austin Mitchell

Nick Smith

Ian Swales

Justin Tomlinson

________________

Amyas Morse, Comptroller and Auditor General, National Audit Office, Gabrielle Cohen, Assistant Auditor General, 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 Executive Board Remuneration Committee, Lord Patten, 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, gave evidence.

Q210 Chair: May I start by declaring an interest? I have a daughter who is employed by the BBC. I do not think there is anybody else who has an interest to declare.

I thank you all for coming this afternoon. We have seven witnesses and probably about a dozen members of the Committee-I have not totted it up-so if we are going to make this a positive occasion that works, that will demand some self-discipline on all our behalves, including answering questions succinctly and trying to keep to the question that is asked. I will try 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 this afternoon to get at the truth, and only you, as witnesses, can help us to do that. It is extraordinary that the Committee has felt the need to ask seven key, top players in the world’s leading public service broadcaster to come together to attempt to establish on behalf of the public and the licence fee payer who knew what at what time and who is responsible, and therefore answerable, for decisions taken by the BBC.

You are all people of assumed integrity, and you have been busy accusing each other of somewhat misleading this Committee-that is probably the best way of putting it-and of saying you are not responsible for certain decisions that have been taken, which I think everybody now believes led to grossly excessive severance payments, which most right-thinking people consider unacceptable.

What we are not here to do is to bash the BBC; we are 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 who work for the BBC. Those employees, like us, must, I am afraid, be looking at the management of the BBC in dismay, particularly when they look at these pay-offs. Probably even to the most seasoned viewer of the BBC’s affairs, the current arrangements under which the BBC operates are bewildering, complex and confusing, and they do little to help the licence fee payer understand who they can hold to account. We are trying, this afternoon, to shine a little more light on those arrangements.

I am going to start with you, Mr Thompson, and I am going to try to focus mostly on the Mark Byford pay-off, but that is simply because it is an example of all the others that we considered in the original Report from the NAO, the subsequent Report from the NAO and the report that the BBC itself commissioned from KPMG.

I accept, Mr Thompson, that this is your first appearance before the Committee on this, so this is your first opportunity to have your say. You will have read and heard how other people have expressed their disbelief and disgust at the size of the pay-offs. Would you have come to the same decision today on Mark Byford in the same circumstances?

Mark Thompson: I think the circumstances in 2010 were very different from today. In 2010 I believed-I believed I had the full support of the non-executive directors of the BBC, and I also believed I had the full support of the BBC Trust-that we had to do something very significant very rapidly to reduce the numbers and the aggregate pay of senior managers in the BBC. Indeed, we launched the programme which ultimately saw, I think, 24%-one in four-of the senior managers of the BBC leaving. The programme was originally expected to last three years; we accelerated it to about 18 months. The act of accelerating, itself, yielded an extra £9.5 million of savings. The programme as a whole has saved about £35 million so far and has led to £19 million of savings for every year into the future. So the ultimate value-for-money argument for this reduction was very 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 also should be seen to be about the BBC reducing its most senior ranks and losing some of the highest-paying posts in the organisation. In the summer of 2010, we identified the possibility-there were arguments against it, by the way; one of the arguments against it was the likely severance payment-that we could potentially make a very big saving and also send out a powerful signal by abolishing the post of Deputy Director-General. That is why, in 2010, we began to think about whether there was a way of doing that. I began to talk to everyone about the best way of doing that and what kind of severance payment it would entail.

Q211 Chair: Can I take you back to my question? With the benefit of hindsight, would you take the same decision today? If you think about Mark Byford’s £1 million, an ordinary worker on average earnings would have to work for 40 years to earn the £1 million that Mr Byford got in redundancy pay. In those circumstances, you can understand the disgust that ordinary licence fee payers feel about their contribution being used in that way. With the benefit of hindsight, would you have given those very generous pay-offs if you had to take the same decision today?

Mark Thompson: You will have seen that at the time, in the so-called Project Silver note, which I wrote for Sir Michael Lyons, I contemplated not going ahead with this because of the size of the severance, but, had we not made Mark Byford redundant, by now the BBC would have spent at least another £1.3 million on salary for him. Although I absolutely recognise that it is a very large amount of money-I recognise the impact it has had-it made better value-for-money sense for the BBC to make the redundancy and save the money than to leave him in post.

Q212 Chair: So would you take the same decision today?

Mark Thompson: I think we are now at a point where we have reduced the overall population of the BBC senior management by a quarter. Colossal savings have been released by that. In a sense, the wider value-for-money case is not as strong now as it was then, so the answer is that it probably would not have made sense today.

Q213 Chair: One is tempted to say that there was colossal waste if you managed the organisation perfectly well with fewer top staff. Do you therefore not agree with Tony Hall, who said the BBC had lost the 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 focused above all-I do not think it was just me; it was the BBC Trust as well-first and foremost on whether we could get the complete pay bill down, and real progress was made on that: £19 million. With the earlier savings, we had made much more than that per year 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 begin to control severance payments. We had capped, for executive directors and then for new senior manager joiners, the amount of money people would get for past service to a year, and we had progressively reduced and then abolished pension augmentation, which, as the NAO Report states, was once a big and expensive part of severance. But it is true that I believe that we-I-achieved a lot in terms of reducing senior manager numbers and the total senior manager pay bill. I would be the first person to say that I did not do as much in terms of controlling and reducing severance payments. The time to reduce severance payments is after you have done your big reduction. If you launch a renegotiation of every single senior manager’s contract at a time when you have told them that between one in five and one in four is about to lose their job, the danger is that that process will hold you up for months or even years.

Q215 Chair: You could have offered Mark Byford one year’s salary-in fact, he worked eight months of a 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 of salary. I completely fail to understand why you did not think that £500,000 in redundancy was enough.

Mark Thompson: I think that what is at debate here is the eight months, not 12 months. In other words, it is about £300,000.

Chair: Focus on the question. Don’t go off it. I have been very generous to you in not interrupting you, as is my usual wont.

Mark Thompson: If I may say so, Chair, it is not £500,000; it is £300,000, represented by the eight months between the announcement and the-

Q216 Chair: Under the terms of the contract, he could have been given one year’s salary, which, give or take a bit, is £500,000. He walked away with, give or take a bit, £1 million. Why was £500,000, which is megabucks for most people, not enough to get rid of somebody whom you decided you no longer needed in your organisation?

Mark Thompson: We were, at this point, in the middle of a massive restructuring of the BBC, which involved losing a quarter of the senior management, and also a massive reorganisation. We were, as you know from other hearings, in the middle of a series of gigantic projects to include Salford and the new Broadcasting House, and also the preparation of the broadcasting of the royal wedding and the Olympic games. We took the decision-it was my judgment, which I put to the executive board and discussed with the BBC Trust-that we wanted Mark Byford, through this difficult transition, fully focused on the enormous task that we had. We did not want him worrying about his future or taking calls from headhunters; we wanted him fully focused. That is why we decided not to ask him to work through his notice. If I may say-

Q217 Chair: Hang on a minute. I am sure others will want to come in on the notice period. You still have not answered the question. Had he left without this discretionary element in his contract to give him the extra 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 most ordinary people, £500,000 is a lot of money. Why, in your view, was that not enough?

Mark Thompson: If I may say so, this entire exercise was about reducing the numbers of high-paying jobs in the BBC.

Q218 Chair: We understand that. That is not the answer to the question. Why did you consider half a million too little as a fair redundancy payment to Mark Byford?

Mark Thompson: I want to be clear. I have said this was not because I thought it was in the interests of Mark Byford that he should carry on working and receive formal notice later on; I believed that it was in the BBC’s interest because of the immense operational challenges that we were facing at the time, and it made sense for the BBC to have a Deputy Director-General who, by the way, we were not ready to make redundant yet-

Q219 Chair: You still have not answered the question, Mr Thompson.

Mark Thompson: In my calculation-

Q220 Chair: Why did you feel that you had to go to the maximum payment allowable under the contract rather than a perfectly generous-massively generous-half a million? Why?

Mark Thompson: Because I wanted Mark Byford to be fully focused.

Q221 Chair: He could have worked his notice and done that.

Mark Thompson: I have explained that what I wanted him to do was to be focused 100% on the task, and not at a point where he was worrying about headhunters.

Q222 Chair: Just a few more questions, and then others are longing to come in. How long have you known Mark Byford?

Mark Thompson: Many years.

Q223 Chair: You came in together at about the same time, did you?

Mark Thompson: Roughly the same time, so over three decades. I went away to Channel 4, but I have known Mark Byford for three decades, yes.

Q224 Chair: And you socialised with him?

Mark Thompson: Sometimes, yes.

Q225 Chair: Did that influence your decision making?

Mark Thompson: No, it did not. One of the things I want to say is that if you look at some of the documents that I submitted to you, I think you can see that I was trying to involve as many other people in the decision-making part of the organisation-non-executive directors and the BBC Trust. The actual negotiations with Mark Byford were led by Lucy Adams, 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 this with the Trust, of not proceeding with it because of the size and the difficulty of the potential settlement.

Q226 Chair: How typical is it for the average BBC employee who is being made redundant to be given not just their statutory redundancy pay-I am talking about someone who is on a 10th or a 20th of Mark Byford’s salary-but a year’s additional pay in lieu of notice? How typical is that?

Mark Thompson: Mark Byford’s contract-

Q227 Chair: How typical is that for others? Go right down. I happened to be escorted through Millbank the day after we had our previous hearing in July by a receptionist who had worked at the BBC for more than 20 years-I think it was 23 years-and who had just been made redundant, and all she got was the statutory basic. She did not get a year in lieu.

Mark Thompson: Mark Byford’s contract, as I understand it-

Q228 Chair: I know about Mark Byford’s contract.

What I am trying to get at is that it feels to this Committee-it felt this in our previous hearing-that this small elite of senior managers, all of whom had worked together and probably known each other from when they were trainee recruits into the BBC, were getting the most generous end of redundancy settlements, while ordinary BBC people were not.

Mark Thompson: A BBC employee who had worked for 31 years-in most cases, or in many cases-in the rank and file would be eligible for a year of pay for each 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 in lieu-

Mark Thompson: No, but they would have got two years in respect of past service. That had been capped in the case of Mark Byford at 12, so the idea of someone of 31 years getting the equivalent of two years’ pay would be widespread across the organisation.

Q230 Guto Bebb: On the specific issue of people who know each other at the top of the organisation, the statistics show very clearly that the higher you were within the organisation, the more likely you were to get a payment which was over and above your contractual entitlement, and even at the managerial level: executive directors-50% over and above their contractual entitlement; senior managers level 1-21% over and above; senior managers level 2-12%. It does give a picture of an organisation looking after people at the top.

Mark Thompson: Do you mean contractual entitlement or contractual minima, as it were?

Guto Bebb: Contractual minimum entitlements according to the NAO Report.

Mark Thompson: Well, there is a difference between those two things. The BBC can decide, for operational reasons, to pay someone and make a payment in lieu of notice. The BBC can do that. In the case of George Entwistle, for example, quite understandably, it was felt he should leave quickly and he was given it. I was involved in some cases where, because of a difficulty with an individual, a senior person left the BBC, and you make a payment in lieu of notice. Making a payment in lieu of notice is not above the contract. The contract is explicit that you can have a year of notice or the BBC may choose to pay you a year’s money in lieu of notice. That is an option under the contract.

Q231 Guto Bebb: It is interesting that the higher you are within the organisation, the more likely it is that that option is exercised. Does that in any way make you concerned about the way in which the BBC operated towards its staff across the country?

Mark Thompson: I do not believe it is favouritism. What may have happened though, and I was not aware of this until I read the NAO Report, was that in particular the cap that began to be placed on how many months would be paid in lieu of past notice, and the reduction and then the elimination of pension augmentation may-that is may-have put more pressure, as it were, in those discussions on HR people to consider more readily for senior people particularly affected by this the possibility of payment in lieu of notice.

Q232 Mr Jackson: Mr Thompson, I think there is a danger of us going down a cul-de-sac where we just go round the Mark Byford situation ad infinitum. The key point seems to me that you pray in aid a public sector ethos of public service, but you wanted private sector pay, terms and conditions in the time that you were Director-General. Let us not forget-and I would like you to respond-that the KPMG report, the NAO Report and our findings essentially say that, under your leadership, there was weak governance on this issue and poor process management, and that in this narrow respect you were leading a dysfunctional organisation.

You will no doubt respond to that, but may I ask you something specifically? You talk about value for money, but in her evidence on 10 July, Lucy Adams specifically made reference to the redundancy payment cap that she sought to bring in as a policy, which she identified you as blocking? If you were interested in value for money, as you said, why did you take that action?

Mark Thompson: I didn’t. I don’t know what you are referring to.

Q233 Mr Jackson: "Coming into the BBC, which had a director general who had been in position for a long time"-you, from 2004 to 2012-"there was a certain way of doing things and, as is evidenced by my failed attempt to get a redundancy level cap in 2011 and to reduce the amount that people were getting at that time, I think that there was only so far that we would go." There was an inference in her evidence that there was a culture of "my way or the highway" when you were Director-General.

Mark Thompson: I simply do not recall ever rejecting the 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 to introduce such a cap.

Much of what we are talking about here is something that was true of the BBC for many years. The reason why there were a lot of cases in this period was because it was a period when we decided, and I decided, to do a great deal to reduce the numbers of senior managers and to reduce senior management pay, so there were a lot of cases going through the system. It is not that there was an earlier period in the BBC when there were tighter controls and fewer benefits. Actually, the story is that we were reducing the number of benefits available in severance packages.

Q234 Chair: Can we go to Ms Adams to get confirmation of the evidence she gave us in July?

Lucy Adams: Yes, please, because I think that you are misinterpreting what I said the last time I was before the Committee. What I said was that there was a culture and practice in an organisation that had been led by an individual for some time. Absolutely; one would accept that. It certainly was not to imply that it was "my way or the highway". Mark was very open to 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 was a decision taken by the management board at the time in 2011, when I proposed bringing in a cap, but as Mark said earlier, there was reluctance to introduce a cap at the very moment that we had announced significant redundancies among senior managers. On the one hand, we are saying that there was a plan to reduce the management population by 20% and the pay bill by 25%, but the view of the management board at the time-not just Mark, but a number of colleagues-was that it would be inappropriate to introduce a cap at that time.

Q235 Chair: Hang on a minute; you are completely contradicting the evidence-you can’t do that. Looking back at the evidence, you said: "I would also say, going back to the level of challenge that I provided"-because we challenged you on your level of challenge-"to the prevailing culture, that I proposed to the management board in 2011 that a redundancy cap be put in place. I was well aware that this was unsustainable."

Lucy Adams: That is exactly what I said. I proposed it to the management board, and the management board took the view at the time that that wasn’t a cap that it wanted to introduce.

Q236 Q236 Ian Swales: Mr Thompson just said that he didn’t have a cap proposed to him.

Mark Thompson: We introduced a cap in 2008 for new senior management joiners, as I recall.

Lucy Adams: What we did was we put in place a cap on the amount of redundancy they could get in terms of months. In September 2011, at what was then the BDG-the management board-we proposed a number of options. You may not remember it, but there 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 that you have had to apologise to us since the last meeting, given that you claimed not to have seen a document that you substantially authored. I think that we need to take your evidence with a pinch of salt.

Lucy Adams: To draw an inference with that clarification is grossly unfair. You were referring to a document, but I did not understand which document you were talking about at the time. I was shown the document after that meeting, and of course I recognised it as a document with which I had been involved, so I immediately clarified the situation.

Q238 Chair: Just to be clear on that, because I am not having any more lies this afternoon, may I ask the NAO whether that document-the 7 October document, of which we were all given a copy-was also passed to the witnesses? Did they know what we were talking about?

Peter Gray: I believe it was made available to the Committee on that day, or just before, by the Trust.

Lucy Adams: Yes, it was submitted by the Trust; it wasn’t a document that I had seen. I apologise to the Committee that I wasn’t able to identify that document at the time. There was no attempt deliberately to mislead the Committee. I immediately clarified upon Parliament’s return that I recognised the document as one to which I had contributed. In the Committee meeting, I was clear that I couldn’t with absolute certainty recall that document, but I was also clear that I was involved in advising Mark on the terms for Mark Byford. I have never sought to deny my involvement in that.

Q239 Chair: Let me just say that your immediacy was a letter to Mr Jenner on 2 September.

Lucy Adams: On Parliament’s return.

Chair: It was on 2 September, after we had met on 15 July.

Lucy Adams: On 10 July.

Q240 Chair: That is a very funny interpretation of "immediate".

Lucy Adams: When I read the transcript, because I had said that I could not say with absolute certainty and because I had not sought to deny any involvement in the discussions around Mark Byford, I did not believe it needed clarifying. Subsequently, over the ensuing weeks, there has clearly been a lot of discrepancy between one side and the other. At that point, on Parliament’s return, I sought to clarify it.

Chair: Before we move on to who said what to whom, I want to establish the culture. Stephen, can you come in on that question about the nature of the policy, before we try to move on to who actually said anything to anybody, or nothing to anybody?

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

Mark Thompson: Custom and practice is not a legal requirement, did you say?

Stephen Barclay: There is no legal requirement for you to make payments in line with custom and practice.

Mark Thompson: That is perfectly true, but the decision you make when you are a manager in any organisation, whether private or public, is based on not just legal requirements, but what is to the best advantage in terms of value for money, operational success and so forth. There are many issues involved in reaching a settlement with an individual, whether that is one to hire them or to fire them.

Q242 Stephen Barclay: Sure, but the company policy was that you could not go beyond payment in lieu of notice.

Mark Thompson: It is really important to say that the BBC has a number of policy documents in this area in which the emphasis is that they are guidelines. Specifically in redundancy cases, managers are explicitly asked to look at wider value-for-money considerations, and operational and non-financial considerations. In my view, it is an error that the NAO Report talks about a breach of policy. Managers, advised by HR professionals and employment lawyers, are expected to use their best judgment about what is in the overall best interests of the organisation-not the individual, but the organisation.

Q243 Stephen Barclay: So it is your evidence that company policy at the BBC allowed individuals to go beyond payment in lieu of notice.

Mark Thompson: In some cases, yes.

Q244 Stephen Barclay: And you delegated that authority 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 I became Director-General.

Q245 Stephen Barclay: That speaks to the governance, but what it does not speak to is the legal entitlement of the member of staff. A member of staff had no legal entitlement to a payment beyond payment in lieu of notice, did they? They could not force you to pay more than payment in lieu of notice; they had no contractual entitlement to work their notice and be paid a payment in lieu of notice.

Mark Thompson: That is correct. They have a contractual entitlement to be given either a year’s notice or a payment in lieu of notice, or some combination of the two.

Q246 Stephen Barclay: Sure, but they do not have a legal entitlement to both.

Mark Thompson: No, but that is a matter of when you give them formal notice, which is not itself set out in the contract.

Q247 Stephen Barclay: What is set out in the contract is that they do not have a right both to work their notice and to be paid in lieu of notice. That is the position.

Mark Thompson: That is correct.

Q248 Stephen Barclay: So, in making such a payment, you were going beyond what the member of staff was legally entitled to.

Mark Thompson: We took a decision, for the reasons I have already said to the Chair-

Q249 Stephen Barclay: It is a yes or no, surely.

Mark Thompson: We had taken a decision not to issue formal notice-and we made this clear to everyone involved-until June 2011. From that moment, we absolutely followed the contract strictly.

Q250 Stephen Barclay: I understand the reason you are giving. Mr Agius speaks to it in his submission: he thinks that £500,000 would have left Mr Byford so dissatisfied that he could not be relied on to work professionally. What I am saying is that legally he did not have an entitlement to that payment. It was your discretion that led to him being made that payment.

Mark Thompson: It is an operational management decision, in the end, submitted as a proposal to the executive board remuneration committee.

Q251 Stephen Barclay: So to come back to the original question, it is not a legal entitlement of the member 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 to tribunal and say, "I should have had this payment."

Mark Thompson: No. The risk-I say in my submission that I do not believe that it was a large risk, but I was advised about it-was, rather, one of constructive dismissal.

Q253 Stephen Barclay: Sure. So in your opening remarks a few moments ago, if I heard correctly, you said it wasn’t a time for a renegotiation with Mr Byford.

Mark Thompson: This was not a time, in my view, for a complete restructuring of the BBC’s approach to severance across the entire population, because we were in the middle of a very rapid reduction of senior managers.

Stephen Barclay: Indeed. I am just trying to understand-

Mark Thompson: I was not referring to Mark Byford’s case at all.

Q254 Stephen Barclay: I am just trying to understand why legally enforcing a contract is a renegotiation.

Mark Thompson: Those are two quite different points.

Stephen Barclay: No, they are not.

Mark Thompson: Yes they are, if I may say so. What I 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 currently been involved in, of everyone’s contract. I was saying that trying to renegotiate everyone’s contract at a time when you are telling one in five or one in four that they are going to be leaving is a very difficult task. Once you have made a big reduction, it becomes much more achievable, and I think the BBC is making real progress on this point. I was never suggesting that there was any question, or any need, to attempt a renegotiation on Mark Byford’s contract.

Q255 Stephen Barclay: It is not just this restructure, because the three-year sample of the NAO shows these big payments, but the previous three-year sample also shows those. So it is over a six-year period, it is not just a recent thing. What I cannot understand is, if you are very lax in delegating authority and you allow people to go beyond what legally they have to pay, would it not be reasonable to expect those decisions then to go to Mr Agius’s committee as exceptions, for that committee-if that committee means anything-to look at them and approve 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 tell you what I think. Over the time I was Director-General, we tightened the controls so, for example, compromise agreements over a certain point had to be referred up. The largest potential settlements were, throughout the entire period, referred up anyway to the finance committee, and the overall group finance director was involved as well as the group HR director.

Having said that, I absolutely accept that one of the recommendations in the NAO Report, which I believe the BBC is now adopting, of tighter controls further down the system so that there is more oversight and a system of reporting back. There is a role now for the chair of the executive board remuneration committee to report exceptions in the annual report and to have more explicit oversight. All of those recommendations strike me as being very sensible.

Q256 Stephen Barclay: So just to be clear, it is your evidence that it was not lax to have payments beyond what was legally required, with no paper trail when the National Audit Office went in, with multiple people signing them off, with the head of HR not having a clue about a significant number of them until they appeared in the NAO Report, and without them appearing before Mr Agius’s committee as exceptions to the agreed policy for sign-off. None of that was lax; that was all professional in your view.

Mark Thompson: I will work backwards through those points, if I may. The executive board remuneration committee was set up with the specific task of dealing with the remuneration of members of the executive board; it is that kind of remuneration committee. There were, as you know, other committees looking at, and approving, many other severance payments across the organisation.

I have said to you that I think "lax" is too strong. I certainly accept that losing a quarter of your senior management population in 15 months is a very rapid, aggressive change. I thought it was justified; I thought it was possible. Lucy Adams had advised me that it was going to be very difficult and, to be honest, we do not have a standing army of employment lawyers and HR specialists which is ready the whole time for this scale of task. And if you say to me-through the period, but particularly in these three years-that not all the paperwork was done perfectly, and there were examples of laxness, I accept that. But all I would say is: the acceleration of the programme itself yielded an additional £9.5 million of value-for-money savings, and there was a prize of real money that we could take and put on our programmes and services as a result of moving so quickly.

Q257 Ian Swales: You talked about it not being the time to renegotiate contracts, but here we are mainly talking about payments outside contracts. So are you suggesting to the Committee that what you would have liked to do was negotiate more generous contracts so that these payments were inside contracts? That is the only logic from what you say.

Mark Thompson: No. The issue is whether or not it would have been desirable to do what the BBC has done now, which is to introduce into all contracts blanket caps so that under all circumstances, no matter how much service, there would be an absolute limit. I believe that that is the right thing for the BBC to have done now.

Q258 Chair: And you could, at the time, Mr Thompson, have done it all for less. I think that that is the contention of this Committee, working on behalf of licence fee payers. You could have done it for less.

Mark Thompson: My honest view of that, Madam Chairman, is that the price you would have paid in 2009 or 2010 to try to do it would have been a delay that would have ended up costing more. The savings from advancing the programme were much greater than the amount of money at issue in the NAO Report.

Q259 Chair: I think we have to agree to disagree on that. Effective management could have saved the licence fee payer money.

Mark Thompson: This is simple mathematics. The savings were so large, a single month’s delay potentially cost well over £1 million.

Chair: I am going to call Chris and Nick, and then I am going to move to who said what to whom.

Q260 Chris Heaton-Harris: This is on a point of clarification, if possible, Mr Thompson. You say that "we" did this and "we" did that. At one point you were talking about the executive board remuneration committee, and at another point you were talking about something else. I wonder if you could clarify who the "we" was when you were talking about Mark Byford.

Mark Thompson: I am not trying to duck the most central and obvious point, which is that I was the Director-General and chief executive of the organisation. My role is absolutely central. I am a witness who is coming before you not to say "I was somewhere else"; I was absolutely there, and I was making decisions in the real world, with a very big and complex organisation. I was in the middle of it.

But I look-of course-to advice. I looked to advice from colleagues and specialist colleagues in HR and elsewhere; I looked to the line management of big divisions of the organisation and the senior managers there; I looked to the executive board, in particular the non-executive directors on the executive board; and I looked to the BBC Trust ,absolutely, to help them with their role of oversight. It was also because, in my experience, chairs of the BBC-I absolutely include Sir Michael Lyons and Lord Patten in this-are great sources of advice and counsel.

All the way through this process, I am trying to seek advice, support and challenge, because sometimes, the best 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 good challenge on these decisions?

Mark Thompson: I believe that the broad topic of senior management pay and numbers was talked about extensively. I was under ferocious pressure from the BBC Trust and from non-executive colleagues on the executive board to do something big and quick, and I thought they were right. When I say that it was challenging, I did not disagree with them, but there was ferocious pressure continuously from Sir Michael, until he left and Lord Patten arrived, and he put me under ferocious pressure as well. This was a period when the Trust was very clear-whatever one may think about the past-about the then-current public mood on this topic, and they wanted action. So on that topic, there was immense challenge.

On the specifics of, for example, "Should we abolish the role of Deputy Director-General?", again, there was immense discussion and challenge, and often challenge both ways-"You say you think you can do without a Deputy Director-General, but look at all the things he does and at all his responsibilities. Who is going to do them now? Quite apart from the issue of the severance, is it the right thing to do?" Other people, of course, argue the other way and say, "I’m surprised that you didn’t do that six months ago."

Q262 Nick Smith: Mr Thompson, you say that you welcome challenge, particularly from the Trust. Indeed, Ms Adams said that you weren’t the sort of guy who said, "It’s my way or the highway." But there seems to be a contradiction. The last time Mr Fry was in front of us, in July, he said-this was about redundancy caps-"I would be delighted if you had the former Director-General in here…to talk about this issue", because you talked it through on a number of occasions, when, "not to put too fine a point on it, people like me were asked in not particularly pleasant terms to get back into our box."

There seems to be a contradiction about the culture of challenge around pay and conditions at the BBC between what you say-Ms Adams just said how you handled these things-and what Mr Fry told us in July. Who is right? Ms Adams? Or were you putting the BBC trustees back in their box?

Mark Thompson: I just want to say that I cannot recall ever using the words "back in box" or anything like that, or ever speaking angrily, disrespectfully or arrogantly to Anthony or any other trustee. All I would say is, look at what we did. We reduced the size of the executive board substantially. We made colossal reductions to senior management. We froze pay, abolished bonuses and special pension supplements, and dropped car and health allowances. There was an enormous agenda of reform that was driven by the Trust. The Trust was very clear that it wanted to see action and we complied with that. The idea that there was some resistance to that is not borne out by the simple facts.

Q263 Nick Smith: Can we hear what Mr Fry says about Mr Thompson’s remarks? When I looked at Mr Fry as Mr Thompson had his say, he looked a little pained, at the very least. Mr Fry, do you accept what Mr Thompson said, that he was not telling you to get back in your box?

Anthony Fry: I don’t accept that. I am certainly not going to say the actual words that I used, which I said, to put a finer point on it, were to make sure it did not take too much time. I very much regret that the area that we are discussing today, on severance, was not one of the ones that I among others had focused on. I will say that quite openly; I wish that we had done. However, from the time that I joined the Trust and the remuneration committee, I felt that on a whole lot of areas such as perks, the level of pay and the level and appropriateness of bonuses we did not just have one conversation at which we expressed a view. The record, if someone cares to go back through it, will show that there were months and months of arguments between the Trust and the executive, which I as an incoming trustee certainly found in many cases extremely challenging, not least because the very fine line that existed under the way that this was set up between what is policy, where the Trust has a perfectly legitimate area to get involved, and what is the detail of individual remuneration became a battleground.

Yes, I will stand by what I said. Many of those meetings were not easy-I don’t expect meetings to be easy-but I got the distinct view and felt very uncomfortable, as did other colleagues, that basically our views were not being taken with what I believe to be the seriousness that they deserved, at a time when there was a lot of public anxiety about the question of pay 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 these areas, which I welcome-and I think the progress has been fantastic-does not mean that the process of getting there was not extremely difficult. Yes, I think we got pushed back time and time again on a lot of issues including, for example, bonuses.

Q264 Chair: I want to move us on, but can I finally have 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 threats of legal action.

Q265 Chair: We are talking about the top management pay-offs. Did anybody threaten to take legal action?

Mark Thompson: There certainly was a threat of legal action on the removal of the pension supplements.

Q266 Chair: From whom?

Mark Thompson: From senior managers. There were certainly threats of legal action over that, because those were written into contracts.

Q267 Chair: But none of the people you made redundant threatened to take legal action against the BBC.

Lucy Adams: When you are in discussions with somebody about taking their job away, you are weighing up a number of factors, one of which is the possibility of legal action. They do not necessarily have to threaten it for the risk to be there, because we know that it may be a choice between one person and another, there may be issues of discrimination-

Chair: There is always risk. Those of us who have been in the public sector long enough know that you are always given the risk.

Lucy Adams: As a result you are weighing up that balance, so there does not have to be-

Mark Thompson: I can think of at least one example that ended up with a compromise agreement-a slightly different circumstance-where there was definitely 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 that was a compromise rather than a redundancy.

Q269 Chair: Let us move on to who said what and who knew what. Again, the first question is to you, Mr Thompson. Do you stand by your assertion that we were misled by other witnesses when they appeared before us in July?

Mark Thompson: I do. I have to say, my intention here is to set the record straight. I believe that the suggestion that I, perhaps with my colleagues, had withheld important information about the Mark Byford and Sharon Bayley settlements from the BBC Trust-that it was kept in the dark and that it would be "just as interested as you", the PAC, "in why we didn’t know"-is untrue and unfair.

I want to say, though, that I do not understand why those misleading statements were made. I do not want to impute intention to it, but I believe that damaging and unfair misleading statements were made specifically on this point of how much information had been shared with the chairman at the time, Sir Michael Lyons, with the Trust unit led by Nicholas Kroll, with other trustees and subsequently with the BBC Trust. I wanted to set that right. I am not criticising the individuals; I simply do not think it is fair, because I believe that I made sure that the BBC Trust was fully informed in advance about these settlements. Much of this was oral and face to face rather than in documents, and one or two more documents have come to light since I sent you my submission, but I think that the documents I have sent you substantiate that point.

Q270 Chair: I think I have to give the others a chance to respond to that. I think I will start with Lord Patten. Do you want to respond?

Lord Patten: I am in a slightly different position, because I became Chairman of the Trust six months after the Byford and Bayley settlements-

Q271 Chair: But you did make these statements last time.

Lord Patten: Yes. Let me be clear. You said, "So you think that you should have known. I completely understand that those within contractual obligations are an executive decision but, where they exceed contractual obligations, should the Trust have known?" I responded, "Yes, and if you call a previous Director-General of the BBC in due course, I will be as interested as you in why we didn’t know." It is said that that is misleading the Committee, which I take very strongly.

I just want to make three or four very obvious points. First, since the previous Trust did not know that payments had been made outside contract, why should I, as a new Trust Chairman, have known? Is it really likely that the Director-General would say to me, "Look, the previous Trust did not know that these were paid outside contract or paid in what I define as in contract," although that is not the same as the NAO’s view on what a contract is? Is it likely that I would have a briefing that told me that? We have looked through my induction briefing and there is no reference at all to severance payments. I had discussions with Michael Lyons, whose work in pressing for a reduction in pay and in dealing with such matters I very much admire, and he did not mention severance payments or the Bayley and Byford payments. Mark’s point therefore depends on the separate briefings that we both had for the press conference for the annual report of 2010-11. We received different briefings as we would get different questions. My briefing drew on his and actually quoted almost directly from it. His says, "How can we justify paying Sharon and Mark these sums of money for loss of office?" The briefing that both of us had goes on: "These were contractual payments which were essential in order to slim down the executive board." These were contractual payments.

Now, Mark’s contention is I should have been able, through some forensic work of my own, to discover that his view of what a contract was was different from what, today, we know the NAO’s to be; and I just cannot accept that. It is actually much easier than looking at what we were told to say to the press conference. We both appeared in December in front of the Culture, Media and Sport Committee. Question 59, by Paul Farrelly, who is very concerned, and has been for some time, about BBC pay: Paul Farrelly asks me specifically about the Byford payments. I reply with some well-meaning stuff, I hope, about trying to get the pay of the BBC down, and the importance of the Hutton principles, which we had pressed the BBC to introduce that year. Mark then comes in and says, "I agree with all of that. The only thing I would add is that Mark Byford’s terms on departure from the BBC are absolutely standard, as regards notice and months of redundancy in terms of service".

So am I supposed to get from that that there is a different view of what a contractual entitlement is, taken by some in the executive, from the one which you have been enunciating here? All I said to this Committee-and I am in some difficulty about this, because, I repeat, I was not party to any agreements made about Mark Byford; I am in the position in which I am accused of having misled the Committee on something that I never knew and could not have been expected to know.

Q272 Chair: Why, Mr Kroll, wasn’t it in the induction pack?

Nicholas Kroll: Because severance issues were not in the knowledge of the Trust being operated in the way we subsequently discovered, so there wasn’t an issue about severance, as there now is, which we are considering today.

Q273 Chair: Hang on a minute-we will come to Sir Michael, 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 floating around between the Trust and the executive, around the issue of the severance payment of Mark Byford and Baylay.

Nicholas Kroll: Yes, I would be happy to go through why, I am afraid-

Q274 Chair: It is obviously such a contentious-a million quid. I have to say to you, Lord Patten, I think I would have questioned a million quid, and that is having been a non-executive member on a heck of a lot of public bodies; but I take it you did not. I think it should have been in your welcome pack, and I cannot understand, 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’s interpretation of what Mr Thompson has included in his brief is different; so we were not aware of the details of Mark Byford’s arrangement-neither in writing nor from any oral contact; and that is the fact of the matter.

Q275 Chair: We can’t believe that.

Nicholas Kroll: If you want me to explain, I would be very happy to do so. The first thing I think I ought to say, in response to the point in Mark’s submission, is that I personally-as he suggests-was not closely engaged 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 the Trust have asked for amendments to that document. It is difficult to ask for amendments to a document that you can neither find nor know anything about.

Nicholas Kroll: We might come back to that issue, if you want to, in a moment; but if I could explain what that process of commenting involved, it is regular and standard practice for the Trust and the Trust unit, as the secretariat of the Trust, to see papers from the executive before they go final. We do that not somehow to take over the responsibility for drafting the paper but to make sure that papers that are provided for trustees deal with any questions that we know trustees have had, but also are clearly presented.

In the case that we are talking about today, of the paper of 7 October, that was sent to me at 5 o’clock in the afternoon on 6 October-my first sight of it. I offered some comments within three hours of that. My comments were precisely to the sort of issues that our job is to represent, on behalf of trustees, to the executive; so I queried the lack of any reference to the new, stretched responsibilities of the chief operating officer, which flowed from this arrangement, and I queried the presentation of the figures for Mark and Sharon, which were produced originally in aggregate form. That was the limit of our engagement in the composition of the paper.

Q278 Chair: Hang on. What was the content? Just tell the Committee again, what did that 7 October memo say? What did it actually say? Go on.

Nicholas Kroll: The document of 7 October, which was produced by the executive-

Q279 Chair: Yes. What did it set out?

Nicholas Kroll: It set out, in relation to the two individuals, 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 that those redundancies would take place on the basis of the terms set out in their contracts. That was what the paper said. I want to be clear that it was the Director-General’s assurance, and not some assurance that I was party to.

If I can continue, we read those words in the way that they are most naturally read, which is that we had some payments that were in line with the contract. Mark is suggesting that other documents that were available to the Trust-to me and Sir Michael-conveyed a clear story that those words meant something different and were a clear signal of the arrangement that the National Audit Office discovered, which allowed for an additional eight months of work without being netted off for 12 months’ pay in lieu of notice.

Q281 Chair: How long have you worked for the BBC?

Nicholas Kroll: I have worked for the BBC for nine years.

Q282 Chair: When you see a figure of more than £1 million, do you think that that is the minimum contractual basis for a redundancy payment? You are the conduit between the Trust and the executive, and you 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 the Trust, which is responsible to the licence fee payers, that you should have some understanding of the figure? Did you not know from your knowledge of being an employee of the BBC that that meant it was not one year’s salary, but a heck of a lot more than that?

Nicholas Kroll: I would like to be clear on two points. First, absolutely it is a large figure, but the determination of the figure, the scrutiny of the figure and the decision on whether it is the right figure in line with the contract are not matters for the Trust under the charter. They are matters for the executive board remuneration committee, chaired by Marcus Agius. 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 will have a go.

Q285 Chair: The paper was with you because the Trust had some interest in the quantum of these figures.

Nicholas Kroll: The paper was with us. If you relook at the paper, you will see that the sums paid to Mark Byford and Sharon Baylay were one of a number of issues that went to the responsibilities that the BBC Trust has for the structure of the executive board. The issue for which we are responsible is changes to the structure and numbers of the executive board, and that connects absolutely with the paper. I think the DG was telling us about the cases of Mark Byford and Sharon Baylay because those are high-profile names. The Trust would expect to be aware of the announcements of the sums paid to them, and that is the reason for it.

May I add one point? I am ready to go into detail on this, if you would like. It is wrong to assert that the papers available to the BBC Trust would have made it perfectly clear that the figure was not the sum total of what Mark Byford was going to receive. The only paper that was with us in advance of 7 October was the Project Silver note, which I do not think clearly points to that at all, and the two papers subsequently do not do so either.

Q286 Stephen Barclay: Does the 8 October e-mail not signal to the Trust that serving of notice would be delayed?

Nicholas Kroll: It absolutely does that. It announces that serving of notice will be delayed to calendar year 2011. It does not, by the way, indicate that the date in question will be 30 June 2011, even though that date was known within the executive. What it crucially does not do is indicate that Mark’s service-up to whenever in 2011 is indicated by the note-would not be netted off against his 12 months’ pay in lieu of notice. 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 and your staff to highlight some of these issues to me? You have hidden behind the suggestion that Mr Thompson is the executive responsible for negotiating these deals and the issue of severance is not a matter for the Trust. But the issue of protecting the interests of licence fee payers very much is. Having seen the Project Silver note and then received a note that set out the exact total of the settlement to Mr Byford, did you not even think of asking a question as to why that figure had been arrived at? If I were a trustee, that is exactly what I would be expecting you to do. I would not expect to have to do that myself.

Nicholas Kroll: No. This is very much what Sir Michael was-Sir Michael was very keen to do two things. He was very keen to draw the attention of the full Trust to these figures, hence the note.

Q288 Chair: I think he can tell us what he was keen to do. We are asking what you should do.

Nicholas Kroll: My job is to advise the trustees, and Sir Michael among them.

Q289 Jackie Doyle-Price: And that includes establishing the veracity of the information you are given.

Nicholas Kroll: Of course. If this was a figure for which the Trust’s approval was required, we would have gone into an enormous amount of detail before agreeing it; there is no question about that. But the fact of the matter is, as I have said, that the responsibility for getting underneath this headline figure and establishing whether it is in line with the contract, or whether there are other and better ways of doing it, rests with the executive board of the remuneration committee, hence Sir Michael’s insistence at all stages through this process on being sure that they were content.

Q290 Jackie Doyle-Price: But your role is to help the Trust hold the executive board accountable. Of course they are responsible for their decisions, and ultimately the buck does stop with Mr Thompson for this deal; I completely agree with that. But you are not helping the trustees hold the board to account if you do not ask those questions.

Nicholas Kroll: I think I am responsible for asking questions in those aspects of the BBC’s responsibilities that fall to the Trust. I am trying to explain that the issue of specific executive remuneration packages or severance packages is not a responsibility of the Trust.

Jackie Doyle-Price: That is not the point.

Q291 Mr Jackson: Mr Kroll, as recently as February this year you denied the existence of substantive documentary evidence that gave rise to this decision. You said it didn’t exist, and you had to recant and say in an e-mail to Mr Thompson and the NAO that those documents did actually exist.

Nicholas Kroll: That, if I may say so, is a rather different issue, which I am happy to deal with now if you would like me to.

Q292 Mr Jackson: Please elucidate why that was the case.

Nicholas Kroll: I will. The original focus of the NAO’s study was into the level and approval mechanisms for severance. Not unnaturally, given what I have said, the contact that the NAO had with the BBC was with the executive side of the BBC, who are responsible for these matters.

After Mark Thompson was consulted about the draft NAO Report, he asked a question why the issue of the Trust’s knowledge of these payments and involvement in them was not being covered in the draft Report. He asked the NAO to explore whether there were documents that indicated that that was the case. We and the executive side of the BBC proceeded to do that. In the Trust’s case, we had, in fact, already done the exercise in February, because Sir Michael had asked us as the work was beginning whether there were any issues on Trust files that were related to Mark Byford’s pay-off. The answer is that there were not, and the reason that there were not is that our files and processes are connected to and geared around Trust approvals and Trust formal business rather than other issues, and this is not a matter of Trust formal business.

I absolutely concede that, as it turned out, even though they were not on our files, we did have some papers on this subject. In fact, it was the Director-General’s office that did a trawl not by reference to files, but by reference to e-mails, which discovered the documents of 7 October and the associated e-mail chain around the time of early June, at which point we passed them directly to the NAO. Both documents were reflected, I think, in the NAO’s study.

Q293 Chair: Can I ask, Mr Kroll, how much do you get 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-one meetings with Sir Michael Lyons. I will come to you, Sir Michael, I promise, it is just that we have slightly dug into this. You had one-to-one meetings in which issues such as this were discussed; is that true, Mr Agius?

Marcus Agius: Yes.

Q295 Chair: You don’t remember that, Mr Kroll?

Nicholas Kroll: I did not sit in on meetings that Sir Michael had with Marcus, and I do not know whether the issue of Mark Byford’s severance package came up in that meeting.

Q296 Chair: Okay, so you did not sit on those. We will come to that in a minute. The money that you get-the job of the Trust is to protect the licence fee payer’s interest. The reason you are getting astonishment from round this table is that there is not one person round the table who can understand that there was no challenge from you at your level to the pay-offs that were agreed with Mark Byford to see whether they were excessive or appropriate. We cannot understand why you did not challenge them.

Nicholas Kroll: The answer is the answer I have given. I am responsible for advising trustees on matters that fall within their responsibilities and the issue of Mark Byford’s severance package does not fall within the Trust’s responsibilities.

Q297 Fiona Mactaggart: But the Trust made it absolutely clear that it wished to be informed, consulted and briefed about it. Even if you have forgotten those e-mail exchanges and the reports that were given to the Trust, which everybody in this room admits were given to them, when asked about this you can’t say, "It wasn’t in our job description so we didn’t do it." Guess what? All the people round this table do things that are not in their job description and do not choose to ignore the fact that they have as you seem to do.

Nicholas Kroll: I don’t accept that. One of the reasons that the Trust was set up was to establish a mechanism within the BBC for governing the BBC which made clear a distinction between strategic oversight and operational management.

Chair: It isn’t clear. There is a blurred line. It is absurd to think that.

Q298 Stephen Barclay: We’ve heard that a lot from the Trust. You are right: 24(1)(a) of the royal charter says that the Trust has a general function of setting the overall strategy. No one disputes that, which is why it will be interesting to hear Mr Agius’s comments on this in due course. Of course, the executive board remuneration committee was responsible for signing these payments off and for delegating the authority. No one disputes that, albeit Mr Agius said he had extensive consultation and interaction with the Trust. He had one-to-one meetings with 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 in delivering the BBC’s services and activities and holding the Executive Board to account for its performance." Paragraph 23 states: "In exercising all its functions, the Trust must act in the public interest and, in particular, it must-(a) represent the interests of licence fee payers", which was Ms Doyle-Price’s point.

In other words, yes, the formal decision was taken by Mr Agius’s committee but quite often, according to the evidence from Mr Thompson, there was implied approval from the Trust. There was a sense that the Trust was being asked to give its view and to record any objections. You seem to be taking a remarkably limited interpretation of the royal charter if you say that it was not part of your general duties or functions to have a view. Surely part of assessing the performance of the executive board would have given you the opportunity to ask questions like this?

Nicholas Kroll: The charter is very clear on the subject of executive board remuneration. The charter says on that subject: "The Remuneration Committee… shall determine the remuneration of executive members in accordance with a strategy approved by the Trust. The terms on which such members are appointed must be compatible with this requirement." So there is a specific provision in the charter which makes it clear that such matters are the responsibility of the executive board.

Stephen Barclay: No one disputes that.

Q299 Fiona Mactaggart: It isn’t the straightforward remuneration, it is the cost of making someone redundant and the cost of abolishing not some minor job but that of the Deputy Director-General. To suggest that the abolition of the post of Deputy Director-General is not the business of the Trust is extraordinary. I don’t believe you think that.

Nicholas Kroll: I don’t think I have anything much to add about this.

Q300 Nick Smith: Mr Kroll, a simple question to follow on from that. This was an eye-watering amount of money. Didn’t you think to ask your Trust expert on PR and pay, Mr Fry, whether this was the right thing to do and whether further questions should be asked.

Nicholas Kroll: I did not need to ask him that question because he had a paper which included the figure 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 important point. You are saying that the pay is the responsibility not of the Trust but of the executive board. But what about the executive board themselves? Do they decide their own pay, redundancy and so on with no involvement from the Trust?

Nicholas Kroll: The Trust is responsible for the remuneration and the terms. Severance packages form part of what is broadly described as remuneration for the Director-General. That is its specific responsibility.

Q303 Ian Swales: Only the Director-General?

Nicholas Kroll: Only the Director-General. Remuneration of the other members of the executive board is the responsibility of the executive board remuneration 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 of who knew what about this, and therefore who has some responsibility. I know Mark Thompson wants to say something, but I want to ask people who have not spoken yet. I will go to Marcus Agius first, and then to you, Sir Michael.

Marcus Agius, you took the decision in your committee. How much discussion was there with Sir Michael Lyons around the quantum, the justification for the quantum, and the whole issue of severance payments? How much discussion, if any, was there with other members of the board, and how much discussion have you had with Lord Patten about these issues?

Marcus Agius: I had no direct discussions-nor did any of the other committee members, as far as I am aware-with the Trust on this subject. I was aware, as is set out in Mark Thompson’s evidence, that there was a great deal of what he calls "shuttle diplomacy", which you might call triangulation. I was certainly aware that the subject of the redundancies and the amount of money that was involved was a matter of interest to the Trust. There was also, as evidenced by various e-mails, a great deal of concern about whether we were going to approve-not whether we had approved-the payments.

I got to the point-this message was passed through to the Trust-where I let it be known that I was happy for the proposal to go before my committee. Any chairman would do that. If a chairman knew that a proposal was not going to fly, he or she would never have it put before their committee. So I knew that what was coming was something that we could talk about and discuss, but I also knew that it was not certain that the approval would be forthcoming. I knew, because we had talked about it generally on the executive board and among the members of the executive board remuneration committee, that there was a great deal of concern about the redundancies. With Mark Byford, for the obvious reasons that several Committee members have talked about this afternoon-the seniority of his post and the sum of money involved-we were concerned that the settlement that was being proposed had to be right, appropriate and would represent, in the round, good value for money for the BBC.

I can tell you that the discussion we had at that committee meeting was intense. The other two non-executive members of the committee, Rob Webb and Val Gooding, are both very experienced, very independent-minded people with wide business experience. Collectively, the three of us challenged and tested Mark Thompson, who was proposing this settlement, for all the obvious reasons: to make sure it was the right thing for us to be doing in the circumstances. After sustained challenge and debate we 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 that view. I don’t know how you would explain to a constituent of mine in Dagenham-or to people in Grimsby, Hackney or any of the constituencies represented here-that it was justified. The shareholders of the BBC are the licence fee payers, and I cannot for the life of me understand how you can justify levels of redundancy payment that were way beyond what the contracts set out was necessary to achieve the redundancies.

Q305 Mr Jackson: On that point, the evidence that Mr Fry gave to us on 10 July is at variance with your recollection. He said of the non-executive directors of the executive remuneration committee: "Frankly, not to put too fine a point on it, I thought they were completely out to lunch in regards to what they thought was acceptable pay in a public body. I make no bones about that. I was extremely vociferous."

Marcus Agius: With respect, that is a different question. If you are asking me whether I thought it was a large amount of money, of course I did. Did I think that, when the figure was made public, it would cause a great deal of comment and controversy? Of course I did; and it did. My judgment in that respect was right. I had to look at two things. First, the contractual entitlements of the gentleman concerned. If we had paid him his severance payment and he had worked his full term, he would have ended up with the same number.

Q306 Chair: No, he would not, because he worked for eight months when, for some inexplicable reason, he was not served his redundancy when the decision was taken.

Marcus Agius: I understand. That was the second part I was coming to, which is that, when all is said and done, of course the executive board remuneration committee is there specifically to look at remuneration, but we were directors of that board. As directors of that board we were responsible for the management of the BBC, delivering the BBC’s objectives and all the other things that we know and love about the BBC. We had to listen to and were persuaded by Mark Thompson that his formulation was the right formulation in the circumstances to manage two different things. One was the desire to make an early announcement on the total programme for the cost saving reasons he mentioned. Second was not wishing to get rid of Mark Byford at that point because he still had a job of work to do. The reconciliation of those two led us to where we were, which involved-there is no dispute between us-a lot of money.

Chair: He could have done the job of work during his period of notice.

Q307 Mr Jackson: Where is the licence fee payer’s interest represented here? Where in the papers is there any documentary evidence that you or your fellow non-executive directors said, "Hold on, this doesn’t smell right. This must be looked at properly"? Given that the culture was that business cases were incomplete, from the NAO and KPMG.

Marcus Agius: I admit that the minutes of that committee meeting were a model of brevity and not particularly illuminating, but I can tell you from being in that room that we were absolutely conscious of the need to manage the BBC during a period of considerable upheaval and turmoil, as Mark has said, in order to keep Mark Byford doing the job that we needed him to do for a bit longer before we served formal notice on him a number of months later.

Q308 Mr Jackson: You didn’t think it appropriate to minute properly and record a debate and discussion about giving £1.4 million of taxpayers’ money to two individuals?

Marcus Agius: With the benefit of hindsight, I wish we had written 15 pages on the subject, but the fact of the matter is that I know what was there. I have made and sent to you, Madam Chairman, a written submission that was endorsed or blessed-whatever the word is-by my other trustees who were on that committee with me. We were all in the same room together.

Q309 Chair: I am going to move on. Mr Fry, Mr Thompson and then I am coming to Sir Michael.

Anthony Fry: May I make a very brief point, Madam Chairman? The timing of all this is made quite difficult from my viewpoint, and indeed from Mr Agius’s viewpoint, by the following. On 6 October, Mark Byford received from Lucy Adams a formal letter that reads: "I promise to get you a letter which sets out formally the amounts you would receive at the point of redundancy and the time frames of your departure from the BBC." That is dated 6 October and is sent before the Trust gets the document it got dated 7 October, and by definition before Mr Agius’s committee met on 11 October. This is not a letter that says, "In various circumstances." It does not say, "Without prejudice." It actually lists to what he is entitled and says that he to be was made redundant on 30 June.

At the very same time, there is an e-mail that is in Mr Thompson’s pack, again from Lucy, to Jessica Cecil in Mr Thompson’s office, which says: "I am not sure about this needing to go to the executive remuneration committee as they are being made redundant and not receiving anything other than their contractual entitlement." My point is that if you read this, you come to the conclusion that every bit of consultation that was supposed to be going on-arguably, according to Mr Thompson-with the Trust in this note of 7 October and, according to this, with EBRC on 11 October, was frankly spurious, because on the basis of this letter, I would argue that Mr Byford would have had a very good case to go to an employment tribunal and say, "I have already had my offer from the BBC."

Q310 Mr Jackson: Why didn’t you say that in your previous evidence on 10 July?

Anthony Fry: Because, with respect, sir, I was not aware, first, of the existence of the stuff in Project Silver. I was not aware of that. The first I knew about any of this was 7 October, and by definition I was not aware that the letter had already been sent to Mr Byford and I certainly did not have access to the e-mails from Lucy Adams to Jessica Cecil. I didn’t have any of that.

Q311 Mr Jackson: The reason I ask, Mr Fry, is because if we look at document No. 6 in the pack, which is your exchange of e-mails with Mr Thompson from New York, he sent you an e-mail at 4.39 pm on 9 July, the day before the hearing, in which he attempts to set out the case that there was proper debate, discussion and consultation. I assume you accepted that-I do not see any refutation of his case. The day afterwards, you came and gave evidence as if you had never received this e-mail that sets out his position. It looks to me that there was an element of disingenuous or even misleading evidence given by you, because he attempted to set the record straight before your evidence at the hearing.

Anthony Fry: I was very straightforward about this. I did receive that e-mail, and you know I received the e-mail because I responded to it in the way that I responded. I was working on the assumption that the documentation that had been provided to the National Audit Office on the basis of the National Audit Office’s Report and the information with which I had been provided as part of preparing to appear in front of you was the information. If I received an e-mail from somebody providing information, I never said that in front of you. In fact, the Chairman challenged me hard on my position on what Mr Thompson would say and on whether I was suggesting that he was lying. I did not say that; what I said was that there was a disconnect. That disconnect still exists, and I would stand by everything I said.

If you are asking me a different question, which is whether I might have taken a different view with the knowledge that the Trust had, as opposed to individual trustees, had I been aware of the existence of the Project Silver document, I might well have done. But I cannot tell you today how I would have responded to various questions in the absence of the documentation. Frankly, an e-mail from somebody on the day before I am due to appear before you did not carry with it-perhaps it is my fault that it did not-the same standing as the information that I had received as a result of an independent Report from the National Audit Office.

Q312 Meg Hillier: We have a copy of the Project Silver options document, which was sent by the Director-General’s private office to the Trust Unit on 17 September. Mr Fry, are you saying that you did not know anything? The document lays out very clearly, for example: "So the dilemma we are wrestling with is between trying to deal fairly with someone who has devoted many years of service to the BBC…as against numbers which-even at the contractual minimum-might cause us serious difficulty when they become public." Well, that was certainly prescient. My question is to Mr Kroll: if that came to the Trust Unit on 17 September 2010, why didn’t the trustees see the document?

Nicholas Kroll: I passed the document to the chairman. It was for a discussion with Mark Thompson. It is an options note, and no doubt Michael will 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 Trust Unit about the details of the settlement, which included the decision-or the proposal, as it was then-to delay the setting of formal notice to the following year and to make a payment in lieu of notice then. Once it went through, we told the press. It is not true to say that you need the National Audit Office Report of 2012 to know what this deal was; all you had to do was to read the Daily Mail on 12 October. That is the day after the EBRC and the Tuesday after the weekend when the Trust saw the 7 October document. The ultimate authority here: "In a shock announcement director general Mark Thompson will tomorrow tell staff that the long-serving BBC boss"-Mark Byford-"who has been at the corporation for more than 30 years, will leave the broadcaster in early…2011… But the £475,000 a year executive will not be leaving empty handed, as well as getting a year’s salary in redundancy pay he will get up to 12 months worth of money for his notice period, meaning his exit deal is worth as much as £950,000… Mr Byford…will leave the executive board in March after 32 years before stepping down fully in…summer."

The Daily Telegraph reported on roughly the same day, "As well as being paid his salary of £435,000 a year until he leaves in 2011, Mr Byford is expected to receive redundancy of between £800,000 and £900,000."

Because we thought we should be transparent about what we were doing, we briefed about the entire thing. The delay in formal notice and the decision to make a payment in lieu of notice-it was all out in the public domain on the Tuesday.

Q314 Chair: A really serious allegation that we have heard this afternoon is that you took the decision on 6 October, before the Trust had seen any of the issues and before it had been in front of Mr Agius’s committee. Is that true?

Mark Thompson: I am told by the BBC HR department that they accept that that letter was incorrectly dated. It was actually sent probably on 12 October or 13 October and received on 14 October. I am afraid that it is a bit of HR bureaucracy. They obviously had some sort of draft.

Q315 Chair: Is that right, Ms Adams? Just say yes or no, because I want to get on to other stuff.

Lucy Adams: I am sure you do want me to say just yes 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 Mark Byford, and he believes that he got it later. But if you look at the letter that was sent-

Q317 Q317 Chair: No, no, no. Is it right? What is the date? Did it go on 6 October before the Trust-Sir Michael and Anthony Fry-had seen it and before Marcus Agius’s committee had seen it? Is that right? For goodness’ sake!

Lucy Adams: In terms of the remuneration committee making a decision about whether to press ahead with Mark Byford’s redundancy-

Q318 Chair: Stick to this letter. That is the allegation.

Lucy Adams: I am trying to answer your question, Madam Chairman. That was the subject of the remuneration committee. We were pushing to make an announcement shortly after that. In order to get to that committee meeting and to get a resolution for all concerned, Mark Byford was very keen to understand what his contractual position was: 12 months’ notice and 12 months’ redundancy was the very minimum that we could pay.

Q319 Chair: I do not understand how that answers the question. I am happy to let you carry on, but the question was: is there a letter dated 6 October with an offer to-

Lucy Adams: It states his contractual position in the event of a redundancy.

Q320 Chair: And that letter was sent out before either the Trust was given a view on 7 October-

Mark Thompson: I believe the HR department accepts 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 the extent of his contractual position, I assume it stated that he would be paid for part of his notice and also work 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 from you, Lucy Adams. When did you write it?

Lucy Adams: The date is the 6th, so, although my colleagues are telling me that Mark did not receive it until later, I have to accept that it was on the 6th. It sets out what Mark would receive in the event that he was made redundant. The discussion then happened at the remuneration committee and we then followed up with him to say that the decision had been taken to press ahead with this.

Q324 Stephen Barclay: To be clear, that letter did not say that he would be asked to work part of that notice period?

Lucy Adams: I do not believe it goes into the details of what he would be expected to work and not work. It sets out that, if we were to make him redundant, he was entitled to 12 and 12.

Q325 Stephen Barclay: It is just very odd that you would give him a letter that was different from what you were proposing to him.

Lucy Adams: Ultimately, we had a discussion at the remuneration committee. The remuneration committee believed that the best way to approach this was for him to work until June and at that point make him redundant.

Q326 Chair: Okay, let us go to Sir Michael, who has been sitting there patiently. You will want to reply to a lot of these issues, but may I start off with this question? If big pay-offs were seen as the best way of getting people to go, is that not a strategy that should have been considered by the BBC Trust, rather than simply be a matter for the executive? If that was the policy, it then, in my book, becomes a strategy that should have been endorsed by the BBC Trust.

Sir Michael Lyons: It is a fair question about whether we should have spent more time exploring the process of implementation of the cuts. But let me draw on some of the evidence that you have already been-

Q327 Chair: So you would agree?

Sir Michael Lyons: I think, with hindsight, maybe we should have, although let me be very clear. You have heard many times-I am afraid I am going to bore you by going over it again-that the charter defines a sharp separation in terms of the duties of the charter.

Q328 Chair: We all understand that, but when it becomes a policy-all senior management got big pay-offs. In all the studies we have had-not all, but most: the two studies from the NAO and the KPMG study-all the evidence demonstrates that that became a policy. In my book, that is part of strategy, which ought to have been a focus of debate and endorsement by the BBC Trust.

Sir Michael Lyons: Chairman, these things do look different at different points in time. Let me just go back to where we were. I absolutely accept the validity of your point made now. Anthony Fry has said, and I would agree, that perhaps we should have spent more time looking at severance payments, but let me just go back. I arrived on the scene in 2007-the Trust newly set up-and from the very beginning we were clear that we had inherited very generous terms of payment for the most senior managers and leaders of the BBC, including very substantial pension supplements, expectations of up to 30% bonuses and salaries which had been quite generously linked to the private sector, rather than to public sector comparators. Pretty much from the beginning, we regarded that as something that had to be tackled.

I have to say, if there is a weakness here, and I might accept that I had this, it is that this proved quite difficult to negotiate-I will come back to that in a moment-and I might have been a bit blinkered. For me, and for my colleagues on the Trust, the issue was to get down the amount of money we were paying to senior managers, both individually and collectively; that was the ambition. We started a series of discussions with the Director-General-Tony Fry, of course, joined slightly later. My memory of those is that, actually, they were not always straightforward, but let me concede that when the Director-General, at each and every step in this process, was convinced of the need for action, he was diligent in carrying it through.

These were difficult times. A lot of energy was used, and I think Anthony’s comments about exchanges relate to the period between my writing to the Director-General and Mr Agius at the beginning of 2009-February 2009, if I recollect correctly-laying down the Trust’s expectation that a new policy would be developed that would enable us to make fast and substantial savings and a reduction in the number of senior managers, believing that that was not only in the interests of licence fee payers, but in the interests of a healthy BBC.

Q329 Chair: You could have done it for less. The whole premise from us is that you could have done it for less.

Sir Michael Lyons: I have heard your message. I am not personally convinced that that is the case. My judgment tends towards that of the Director-General here, because this was not just, "Let’s make these cuts come whatever"; it was, "We want to make these cuts, and we want to do them quickly"-in fact, we then accelerated the process-"but we do not want any disruption of BBC services or of the series of very substantial projects in the pipeline."

Some of you, I know-either as Ministers or in your professional lives-will have been involved in the process of rapid reductions in senior management. Let me tell you, it is not easy; it is very difficult. I have had 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 be seen in Stechford and in Barking and Dagenham-look eye-watering, of course they do. But that goes for many other posts, whether in the civil service or in private industry.

Q330 Q330 Chair: We are talking not about recruiting and retaining people, but about making them redundant, and these payments look to be more generous than most private sector redundancy payments I have ever seen.

Sir Michael Lyons: Then we might differ in our experience of that. [Interruption.] Well, let’s not get into that point. Frankly, I hear what you say: you think we should have done it for less. With the benefit of hindsight, maybe we should have spent more time being clear. I think the price of that would have been that it would have taken longer and the savings would have been smaller.

Q331 Stephen Barclay: It is not just our view; it is the National Audit Office view. Do you accept the evidence you have just given is at odds with the NAO’s finding that this was poor value for money and put public trust at risk?

Sir Michael Lyons: The Comptroller and Auditor General has his responsibilities and his views; I had my responsibilities, and I have my views. You have asked me to come along and share my views, not to enter into a debate about whether my views or his should prevail. You are guided by his advice-I understand that.

Q332 Stephen Barclay: Indeed. I am just clarifying that you are saying, "We couldn’t have done it quicker without risks attached." The NAO has obviously looked at that.

Could I take you to your e-mail of 30 May? Via the BBC, you told the National Audit Office and, therefore, this Committee that you had "no memory" of a detailed written submission of proposed terms for Mr Byford and Ms Baylay. Is that still your evidence?

Sir Michael Lyons: Could I just check? I became aware from a journalist today that there is a summary of my e-mail circulating that came from the NAO. I don’t know the background to that; I haven’t had time nor perhaps would I have had access. I had agreed with the Trust yesterday that people should see things in my own words. It is quite important that you do so.

Q333 Stephen Barclay: I am quoting your own words.

Sir Michael Lyons: That is fine. I just want to be clear about that, because there is some nuance and colour there that is quite important.

Q334 Stephen Barclay: Indeed. Perhaps I could repeat the question, please, Sir Michael. I am quoting from your e-mail, your own words, of 30 May sent at 14.45. You were in Italy at the time. It says, "I have no memory of detailed discussions which might have justified the claim that the package as approved by the executive board remuneration committee was done so with the knowledge and approval of the Trust chairman. This would most certainly have required a) a detailed written summary of proposed terms."

Sir Michael Lyons: You have missed out a couple of words, I think, that are quite important. I am sorry to be pedantic but can I just go back? "I am in Italy at present. I am sure that Mark made me aware of the fact that he was drawing up exit plans for both the named individuals." So, I am absolutely clear at that stage that there have been discussions. I am very clear about that. I then go on to say, "I have no memory of detailed discussions which might have justified the claim that the package that was approved by the executive board remuneration committee was done so with the knowledge and approval of the Trust chairman."

I make the point that the approval of the Trust chairman, which is frankly no power with me, the approval of the Trust is not given lightly and would only be on the basis of a document actually there for approval. Not discussions, not briefings. If I was being asked whether I had approved this, categorically I am not aware of any document that would suggest that I had approved it.1

Q335 Stephen Barclay: Could we just unpick that, because it is a very carefully constructed and legal answer? There was no requirement on the Trust to approve, was there?

Sir Michael Lyons: No.

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 at all. That wasn’t sent.

Q337 Stephen Barclay: Was it a detailed written summary of proposed terms?

Sir Michael Lyons: No, it isn’t it. Can we turn to the Silver document? It is very important. It is not, these are the terms we are offering Mark Byford. This is the Director-General coming to me right at the beginning of the discussion. As he says, he first informs me in September, that as part of the reductions he is going to make he is thinking about deleting the post of Deputy Director-General. There is a reference also at that point to Sharon Baylay.

He then sends me this document, which essentially lays out three options. I think we can disregard the first one. The second one is what I think is referred to as contractual obligations. The purpose of the note, as I read it and remember it now, is to focus on the third option, which is that, by introducing some flexibility, it might be possible to get the headline cost of Mark Byford’s severance down from the £1 million figure to a figure close to £700,000. There can be no doubt about the appeal of that. Broadly, I think Mark and I have exactly the same memory of those discussions. I say I don’t think there is any difference between us on this document, inasmuch as I think we discussed it in a phone call on 21st of the ninth and again probably at 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, which was a concern I continued to have all the way through, because of the history of problems around deputising for Mr Thompson. I am not going into chapter and verse here, but if you need it I can give it to you. Secondly, I took the opportunity to underline that whatever we did here, the executive board remuneration committee really must scrutinise the package very carefully to make sure that we could be assured of value for money, and that they were fully satisfied 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 be about big sums, trustees were sighted on the eventual deal. It was very clear that that was not the deal.

Q338 Stephen Barclay: For someone who had no memory, you have given us a very long answer of your memory of discussions. When we had our last hearing, we were told that there was no such document 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 memo that I sent and which you have in front of you. I am not aware of any document which could be regarded as 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 in our public life-I struggle to understand how someone can read Project Silver setting out three detailed options, and then have a host of discussions on it. Of course you were not being asked for your formal approval-that was not the governance process-but when we had our last Committee hearing, we were told that the Trust was not involved.

In fact, so concerned was I personally about this that I wrote to the National Audit Office ahead of our hearing, because I found it incredible. I thought, "How could Mr Thompson be senior enough to run an organisation like the BBC and not discuss his No. 2 going?" I actually wrote to the NAO ahead of our hearing, and I raised it with Mr Fry at the hearing, where I said that the implication, if he hadn’t discussed it with the Trust, was that he was being incompetent. At no point at our last hearing, or with your discussions with the NAO, did this document come to light. It only came to light when Mr Thompson then requested this. Yet today, you are giving us a very detailed recollection of your discussions.

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-before the NAO had even started its work, I wrote to the Trust unit and asked for all documents relating to this period. I was told that there were no documents; I will come 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 responded immediately when I got the message, so it was rather quickly put together. The one thing I am absolutely clear about is that there have been discussions. I say that in the note. The other thing that I am absolutely clear about is that there is nothing at all that could constitute approval by me.

Looking back on it, although I had been told that there were no documents, perhaps I should have been a bit more cautious-

Q340 Stephen Barclay: But if the Chairman of the Trust has said that he had objections, of course it was not an approval by you. With respect, I just don’t find it credible for the BBC to make a payment of £250,000 a year to Mr Kroll to say that he cannot search for a document because it had a codename. It is standard business practice dealing, whether it is a merger and acquisition or something else. We are talking about the second most senior executive. [Interruption.] I know that Mr Thompson wants to come in.

It just doesn’t strike me as credible for the Trust to be saying what it did for this, most material of documents, which the NAO itself says is an important document that would have influenced its Report. It is not credible for you to say, when dealing with the second most senior executive of the BBC, "We can’t find the most important document because it had a codename."

Sir Michael Lyons: I can’t really account for that, can I? I wasn’t with the Trust at the time. How do you think I felt when subsequently, the reason you have the Silver document is because, after the challenge and hearing from Mark Thompson, Lord Patten, quite properly, said, "Let’s go back and check to make sure that there really isn’t any documentary evidence"?

Q341 Stephen Barclay: So the first hearing wasn’t important enough to do it properly?

Sir Michael Lyons: Please do not keep asking me questions 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 I think is relevant. Somebody-a whistleblower, I guess-from inside the BBC sent me this document, which is a letter from the NAO to Nicholas Kroll on 19 July. This is immediately after, I think, the Project Silver document had been discovered: "I must say we are concerned with this development. As you will be aware, during clearance of our report we made a specific request to see copies of any communication between Mark Thompson and the BBC Trust relating to the severance awarded to Mark Byford and Sharon Baylay. We made a parallel request to the BBC. We were initially informed the Trust did not have any documents on file and that it did not have any recollection of being privy to the details of Mark Byford’s severance package and had not received a detailed summary." So that is 19 July. The sense, even at that stage in the game, is that the NAO has not been given a complete picture, either in terms of document or recollection.

Q342 Stephen Barclay: Mr Kroll, would you like to comment?

Nicholas Kroll: It is true-and I really regret-that the Project Silver document did not emerge earlier on. The documents which we have been talking about previously-

Q343 Chair: Why did you not remember it? That is what 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 think that I am the only person who failed to remember it. We asked both our executive colleagues and-

Q344 Chair: You amended these documents, but you do 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 Mr Thompson’s comments from the side, but the fact of the matter is that this document had been prepared close on three years previously. I regret that I did not remember it, but I did not remember it.

The fact, Mr Barclay, that there was a problem was absolutely and explicitly related to the codeword. We did 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 Lord Pattern’s agreement, I was yesterday in touch with Sir Michael Lyons to seek an agreement to trawl his archived e-mails. We have now done this and, in parallel, Sir Michael has checked his own private e-mail account." And in that process a document had come 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 own e-mail?

Sir Michael Lyons: Yes.

Nicholas Kroll: In parallel, Sir Michael’s office-now Lord Pattern’s office-found it at roughly the same time. The difficulty is a straightforward one and I regret it, but the fact was that the codename had precluded it emerging from the electronic search.

Amyas Morse: Just to make sure I have got this straight. Sir Michael, this was in your personal e-mail account.

Nicholas Kroll: Can I just add, because I think I should, that although Sir Michael found it, it had been sent through the normal channels, even though the search had not revealed it because of the codename. This search we conducted on-

Chair: Chris has been waiting patiently. I will go to Guto quickly and then to Chris.

Sir Michael Lyons: Could I just pick up one point? I am a little uneasy about what Amyas is trying to point to here.

Amyas Morse: I am not trying to point to anything.

Sir Michael Lyons: Let me just make sure you are not, Amyas. This document came into the Trust; it was then conveyed to me by Nicholas Kroll. Let me be clear: I did not recollect this document. All I knew when I was contacted while I was in Sicily was that there was nothing that I had approved; of that I was sure. And, of course, this document is not one seeking approval; it is a document about the basis of discussions.

Mr Jackson: You have already said that.

Sir Michael Lyons: Fine. Thank you.

Q345 Guto Bebb: Mr Kroll, you mentioned in passing that you are not the only one who failed to recall this document, so who had sight of it apart from you, Sir Michael and Mark Thompson?

Nicholas Kroll: I think there was a colleague in the Trust unit, but obviously I do not know, on the executive side, who had sight of this document-

Q346 Chair: On the Trust side?

Nicholas Kroll: No; I am saying that on the Trust side it was myself, Sir Michael and, I think, a Trust unit colleague. I am trying to make the point that the failure to recall it was also on the executive side, but I do not know who on the executive side would have seen it.

Q347 Guto Bebb: Can you explain why you did not feel it necessary to share that with the other Trust members?

Nicholas Kroll: With the other Trust members? That was an issue for Sir Michael.

Sir Michael Lyons: That is for me to answer. Let me be very clear about this. This was the beginning of the process. The Director-General sent me this paper for him and me to discuss. It was marked "private and confidential". Throughout my life as chairman, not only in this organisation but elsewhere, when the chief executive comes to the chair for a discussion, you do not immediately send the documentation to the other members of the board.

Q348 Guto Bebb: You mentioned in your evidence that the first option could be discarded, because it was not important, as it was not likely to be delivered, but I find the first option the most disturbing one; the customs and practice of the BBC would have led to a pay-off, in this case, of £2.5 million, yet you do not feel it is necessary to share these types of examples with the Trust members.

Sir Michael Lyons: What I was clear about in discussions with the Director-General was that this was an issue that the Trust would be interested in, and that trustees would need to be involved. I was very clear about that at that stage.

Q349 Guto Bebb: So when were you planning to inform them?

Sir Michael Lyons: At that stage, of course, the Director-General had not determined that he was going to press ahead with the redundancy. The paper that is in front of you makes that very clear. He was weighing the pros and cons, the costs involved and the public response to the salary, and that is what the consultation was about. There are a range of possible terms that might be involved. I made it clear that if he decided to go ahead with redundancy, the point at which a package is shaped up and finalised is when it should be shared with the other trustees.

Q350 Chair: Do you accept Mark Thompson’s evidence that you had a say in whether there would be 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 about having in effect two years’ redundancy, rather than the one to which he was contractually committed?

Mark Thompson: That is incorrect. For the reasons we said earlier, he was entitled both to a year in respect of past service and a year’s notice. I want to be clear about this. You may disagree, but I was formally advised that at the time. The only reason the phrase "on the basis of the contract", or whatever it is, is in there is because I was advised that it was contractual. The NAO Report does not in fact say that it was not contractual. It uses a phrase about the "maximum possible payment", which must mean the maximum possible payment under the contract. There is a big canard here about whether it was contractual or not. Lord Patten is incorrect to say that the NAO found that this deal was above the contract. There are some deals that are. The George Entwistle settlement was above the contract. I have a lot of sympathy for why it was done in that way, but that is an example of a settlement that was above the contract. I was advised that this one was contractual.

Amyas Morse: I just point out that the reason that it is contractual was because serving the notice was deliberately delayed until well after it was known that the person was going to go, so I do not really find that convincing at all.

Chair: Quite. I think we understand that.

Q352 Chris Heaton-Harris: Earlier today, Tony Hall, the current Director-General, sent an e-mail to all BBC staff, saying that this was a very difficult day for the BBC. I do not know whether any of the seven of you actually feel that this has been a particularly edifying episode for the corporation so far. It is the most bizarre game of "Whac-A-Mole" I have ever seen in my life. You hit one fact down and out pops another bunch of questions. I feel sorry for some of the staff at the BBC who are watching this at the current time. I just wonder whether one of you might like to take some responsibility for some of this.

Mark Thompson: If I may say so, I think I have right from the start said that I was the Director-General at the time and that I ultimately made these proposals. I think I have taken responsibility. What is so frustrating about this debate-I will not deny that it is a real debate and a real disagreement-is that I think every single person on this side of this meeting, all of whom I have worked with, is united in believing in the BBC and what it stands for, wanting it to succeed and not damaging it. What has happened as part of this process is that a significant disagreement about how fully the Trust was briefed on these redundancies has emerged, but I don’t think you should draw from that the conclusion that we disagree about the value of the BBC, or that we wish to damage it.

Q353 Chris Heaton-Harris: What we see on this Committee is that it has been only for a few years that the National Audit Office has had any access to what goes on within the BBC, and pretty much every time we scratch the surface, something pretty horrible appears. It is a huge shame. Those of us who went to Salford enjoyed Salford, and there is the DMI; we can go through a list of these things. I was wondering whether the governance of the Trust is broken in this particular regard.

Sir Michael Lyons: Clearly the Trust is damaged by these sets of discussions; I have no doubt about that at all. The debate about whether the Trust was the right model has continued from the day that it was set up, really, and there are some peculiarities. I myself wrote on 8 July 2010 to the then new Secretary of State, Jeremy Hunt, to say that I really thought that the separation around remuneration of senior managers was dysfunctional, and that it should be sorted. Similarly, there was the decision to put the audit function on the executive board. Both of those, in my view, should have been part of the Trust and the Trust’s responsibilities.

The problem is that at the time when the charter was agreed, everybody was preoccupied with the issue of regulation, rather than the issue of how you made sure that 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 just reinforced that for me.

Let me come back to the Chairman’s challenge about what this must feel like to staff in the BBC. I am absolutely clear that, in the actions that I took in seeking to make big reductions in the cost of senior management, I was focused not only on licence fee payers but also on folks within the BBC, where there was very considerable controversy. That was-I admit it-what I was after, in a rather blinkered way. Could that have been done more cleverly? I would concede that it could, but this is not a group of people who failed to work together effectively on most things. Take Mark Thompson’s submission to you: I read it yesterday and I think I would agree with about 85% of it, word for word. There are some very significant points on which I disagree with it. We have not yet come on to one of those, which is whether I was ever told that, in the negotiations, we were now going to take the issue of payment in lieu of notice while working without netting off, which had been in the option that would have given us a £700,000 cost, and that we had now got the negotiations to a point where that was part of the package that was costing us over £1 million. I am absolutely sure that, whatever was intended to be understood, I never understood that point, because if I had, it would have been clear to me in the context of the options paper that we were making concessions from the one that was supposed to 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 that was prepared for trustees-and frankly, I should say to your colleagues, Chair, that it is not the job of the Trust to scrutinise separately matters coming from the executive-

Q354 Mr Jackson: I am sorry, Sir Michael, but I’m afraid 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 were intimately involved in the debate and discussion about the error made by BBC people and by Lucy Adams’s staff in respect of the Deputy Director-General’s severance payments, in terms of the evidence she has given. There were detailed phone calls between Mark Thompson and the chairman on Mark Byford’s potential exit package. The e-mail was produced that gave rise to that discussion three days before Project Silver was made available to the Trust, so I would contend that you were aware of that. The context also is that you had the conference, you had dinner and you had briefings, so it just seems to beggar belief that you were not in a position to make a value judgment on whether it was prudent to pay nearly £1 million 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 only way that I can understand it is that the way in which the Director-General raised that issue with me is in the briefing note-the so-called Silver note-that came to me a couple of days later. I do not believe that there was any previous discussion of contracts. Indeed, if you look at the way that note is constructed, it very clearly says, "These are the things that I am thinking about. These are the possible options. Can we have a discussion about that?"

Q355 Mr Jackson: Did you discuss the error-answer the question with a yes or a no, please-in Lucy Adams’s department that was made in respect of 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 the Silver note from Mark Thompson-he actually explains that there is only one year’s entitlement.

Q356 Mr Jackson: No, I did not ask that question; I asked whether you discussed it with him as one of the parties to the e-mail that had been received that gave rise to-

Sir Michael Lyons: No, I never received that e-mail.

Q357 Mr Jackson: But he will have discussed it with you, won’t he?

Sir Michael Lyons: No. Basically, the Silver note is post that discussion and at the point where it has been established that the entitlement is one year.

Mark Thompson: I think the point here is that we had a phone call-according to Lucy’s e-mail, I had to make a phone call to tell you that our earlier discussions had been based on the wrong contract. That happened before the Silver note. That is my recollection, for what it is worth. It is not a contentious point, in itself.

Q358 Chair: I am going to Lord Patten, because the question Chris really asked was about governance, and seeing you all squabbling on the head of a pin suggests to me that the governance is broke.

Lord Patten: May I respond to that? I very much take your point; I think a lot of people listening to this discussion will have started to lose the will to live. There are an awful lot of pinheads. I think that it is perfectly possible to have a system of governance in which there is a separation between responsibility and power-power to implement. I have to say, on the basis of this experience, that I do not hugely recommend it, but I think it can work, and I hope we can demonstrate in the next couple of years that we can make it work; otherwise, all of you will be tied up again in another attempt to provide the perfect governance for the BBC, which always ends up with having to devise another system of governance for the BBC, and it is rather tiresome.

I think one example of the difficulty of making this work is reflected in the very important letter that Michael Lyons wrote to Jeremy Hunt in the summer of 2010, in which he said that we needed to have a bit more clarity on the relationship between strategy on pay, and so on, and on who does what. He referred in particular-not being unpleasant about this-to the role of the non-executive directors in relation to the Trust. However, can I say that I think there is a much bigger and more difficult issue, and one on which we all have to put on a hair shirt? While most of this discussion, understandably, has been about what the Committee thinks is the most egregious example of excessive payment-and I agree with them-I think there are one or two others that are a problem. Jana Bennett I think is a problem. I think Roly Keating is a problem, although he has very decently responded to that.

Q359 Chair: Caroline Thomson.

Lord Patten: While all that is true, and while of course it was true that it was difficult to implement this policy of rapid reductions without some cost, and mistakes were made, and occasionally people were paid more, maybe for good reason-while that stands up to some extent, what, for me, is really important is to compare the KPMG report with the subsequent NAO Report. That shows that there was exactly the same problem from 2006 to 2010 as existed after that. The figures are uncannily similar. For the KPMG period, there was £1.9 million spent over contractual obligation. In the second period, in the NAO’s excellent Report, there was £1.9 million paid over the top. That is a reflection not just of having to manage things occasionally by spraying money over people; I think there is a cultural issue there that we really have to recognise, apologise for, and deal with very robustly.

Michael is entirely correct when he says that trying to get people to face up to lowering salaries and to reducing the number of managers was an uphill struggle. I remember, when I first became chairman of the Trust, going to a lunch at the top of a Barclays tower to talk about executive pay and making a very simple point: the best cultural director in the world, Neil MacGregor, got £180,000 a year for running the British Museum. I said, "How many people at the BBC get paid more than that, and how can we justify that?" Working for the BBC is a fantastic privilege, and the way we have been running this system has been unfair to the other people in the BBC, and very unfair to the licence fee payer.

Unless we can demonstrate that having responsibility without having executive power can be made to work in the next couple of years, of course people are going to say that we need a completely different system of governance. I think it is possible to prove that the system can work, but it sure as hell has not worked very well in relation to this, not just since 2010 but since 2006, before the Trust was created. Who knows, if we were doing a survey for the three previous years under a board of governors, what we would see out of that. It is a cultural issue, and we have to grip it.

Q360 Mr Bacon: Lord Patten, do you remember what Stanley Baldwin said in the 1931 by-election in St George’s ward about Rothermere and Beaverbrook? I think it was that they had "power without responsibility-the prerogative of the harlot throughout the ages." I hear in what you say that you would like to give it another go, but I think many of us around this table listening to Mr Kroll-I came into this meeting quite agnostic about whether the structure needed tinkering with. You are right; it is very tiresome. But surely the case has been overwhelming proven, hasn’t it, against having this form of divided responsibility and accountability? It made me hanker after the old days of the BBC governors, to be honest, listening to Mr Kroll. He did not sound, frankly, like he was running an organisation in the Trust unit that had a full grip. It sounds like it is broken. It is broken. The bicycle is not working properly and it needs fixing now.

Lord Patten: I know it is not fashionable for people to do it these days, but I would defend Mr Kroll to the limit. If executives get things wrong, and if they are thought to get things wrong, then the people ultimately who have to take responsibility are those who are in a ministerial or quasi-ministerial role. I absolutely take your point: we do have to demonstrate that we can make this work. I think we can.

Mr Bacon: That was not meant to be a personal attack on Mr Kroll. It was really a questioning of the architecture. If Mr Kroll is operating in an environment where it is not clear who is responsible for what, or who needs to know what when, then it is hardly surprising that you end up in a mess.

Q361 Chair: What are you going to change? What is going to happen? We round the table all feel that it is broke; that is what you come out of this whole episode feeling. What are you going to change that would give us 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 was inherently sceptical about the argument that whenever anything went wrong you had to change the institutions. Sometimes things go wrong because of individuals. I think that the Trust and the executive, today, partly because of the experience of the last few years, will have a different and good relationship; and if that doesn’t happen I dare say you will have to spend a certain amount of your time in the run-up to 2017 slaving away over what sort of governance system could work.

Q362 Chair: I am genuinely sceptical of that answer, because if any structure depends on the relationship between individuals it is not sustainable over the longer term, and what has happened in this particular instance is you have had an executive taking one set of decisions; you have had non-executive directors on the executive board taking decisions; you have had the Trust involved-everybody, I am afraid, running away 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 running away from it, actually.

Q363 Chair: No, okay; I accept you haven’t run away. That’s the thing-you are all now, suddenly, going to be responsible; but you cannot build sustainable structures on the personal relationships between two individuals who happen to hold posts at a 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 together indicate is that, as Sir Michael Lyons said in his letter to Jeremy Hunt, you may well have to look at the extent to which a supervisory body is more involved in the audit function, and whether it should be more involved in remuneration; but I can’t imagine, for example, handing the regulatory power to Ofcom and Ofcom wanting to be involved in determining remuneration. There are all sorts of models which are suggested out there, but none of them seem to me necessarily to be huge improvements, and the last one-the single board and governance-was scrapped because of the imbroglio surrounding broadcasting on the Iraq war.

Mr Bacon: On which you got it largely right, by the way.

Lord Patten: Well, I agree with that.

Q364 Jackie Doyle-Price: Just to follow up on the points you have just made: you are quite right to come to the defence of Mr Kroll, because actually I wasn’t attacking him personally. What I was trying to highlight was that there is a systemic failure here, and I think this systemic failure probably could be witnessed in a lot of organisations. That is because of the increasing reliance on e-mail. If we are going to have real confidence in our governance procedures, there has got to be a way of capturing papers that come in by e-mail, so that when, Lord Patten, you ask to be briefed, you can be confident that the full suite of papers that should be considered are being considered.

What we have heard today-things being done by document search, and then coming out in Sir Michael Lyons’s e-mails-shows a structure that just is not working. When you get an incident like this, it all falls down. I would also say there are issues here as well for you, Mr Thompson, because I kind of get the impression-and by all means challenge me if I am being unfair-that quite a lot of the time e-mails are sent to the Trust as a back-covering exercise, rather than as a method of governance. Taken together, those two issues are really ones we need to tackle. It is not necessarily about throwing the baby out with the bathwater, but let’s actually get the system working.

Mark Thompson: If I may say so, you only see part of the story, because so much of this kind of sequence of events is done in oral discussions-phone calls and face-to-face meetings.

Q365 Jackie Doyle-Price: You need minutes.

Mark Thompson: Well, there are points-the 7 October note, for example, is clearly a more formal moment in the process; but what the Committee cannot hear any more are the conversations. I believe that both Lucy Adams and I disclosed completely the terms that we were proposing should be made to these two individuals.

Q366 Jackie Doyle-Price: I can see that you are all telling me the truth as far as you see it; but to the public it looks like somebody is lying, because we haven’t got these clear audit trails. That is what is missing in this governance.

Sir Michael Lyons: This is important, as you draw a conclusion. Mark Thompson clearly does believe that he conveyed to me, at least to me, that the severance terms that were being negotiated for Mark Byford would basically double-dip in that he would work some time, but he would be paid in lieu of notice. It is an important point. I do not think that I was given that information. I will, quite separately, respond to that part of his document to you showing why I do not think that that is possible, just in terms of the dates on which we met, but the critical thing that I would focus you on is the document that was prepared for Mark Thompson that came to the Trust on 7 October and that was seen by the trustees. That document is silent on this issue despite the fact that the similar report prepared for Marcus Agius’s committee only a few days later actually covers the point explicitly. Now there has been some criticism here about how come the secretariat did not scrutinise this or deal with this. Indeed Mark Thompson himself alleges that this is a jointly prepared document. Nothing could be further from the truth. It is a document that has come from the executive. The Trust unit has asked some questions to try to improve the quality of that document to help trustees. I have just focused you on that moment. I do not want to say any more.

Mark Thompson: I have an e-mail here, which was handed to me just today, from Nicholas Kroll to Sir Michael Lyons on 8 October-this is the day after the 7 October note arrived. Here Nicholas Kroll says to Sir Michael Lyons, "Jessica tells me it is not yet clear when the individuals will get their formal and final letters confirming their redundancy arrangement, but in both cases it is likely to be in calendar 2011. It is not yet possible to say which financial year this will fall into and so when disclosure will arrive." In other words, the final letters and formal notice will not be given to them into calendar 2011 and potentially in the next financial year. In my clear recollection, that backs up verbal conversations had by me and indeed by Lucy with Trust unit officials as well as with the Chairman. I absolutely appreciate that recollections can differ, but it is not just the memories, it is the e-mail trail. This e-mail, which as I say was sent on the Friday, backing up further evidence and further factual material about the severance payments after the 7 October note, supports the case.

Nicholas Kroll: Chairman, may I respond to that? Mark is producing various bits of paper like firecrackers. Happily, by strange chance I have this one in my pack as well. I did of course report to Sir Michael Lyons what Jessica Cecil said in her e-mail to me, but that e-mail was silent on the key issue that Michael has raised that Mark Byford received not just a single payment of a year’s pay in lieu of notice and the redundancy payment as well, but that in addition there would be eight months’ pay which would not be netted off against the pay in lieu of notice. Mark’s proposition is that within the Trust unit we should do some sort of jigsaw puzzle analysis of various pieces of paper in order to work out what he means, but I think the Trust can have a reasonable expectation that when it gets a note from the Director-General setting out what appears to be a clear statement of a sum of money within contractual entitlement, that’s it.

Mark Thompson: But why would we brief the Daily Mail correctly and not brief the Trust?

Nicholas Kroll: That is exactly the question.

Mark Thompson: If I may say so, every trustee could have read the whole thing not just in the Daily Mail but across the media on the Tuesday. We should be clear that there is not any communication back from the Trust on this. We go and announce that we have made the payment, which you have talked about at length, to Mark Byford of getting on for £1 million. The topic of senior management’s severance is never mentioned by the Trust that I can find in its committees or to me. Sir Michael Lyons steps back and 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 going on in here!" The truth is that these very large payments were extensively in the press. The details were in the press. It was a topic of very lively conversation. There were briefings in front of the annual report 2011. There were briefings in front of the annual report 2012. Parliamentary colleagues in Committees were asking questions about it, and the Trust did not raise it at all until the George Entwistle settlement and the NAO Report.

Chair: I want to bring this quite quickly to an end.

Q367 Stephen Barclay: I will be quick. Can I bring up two cases that have not been discussed so far: Peter Fincham and Roly Keating? Mr Thompson, did you take legal advice about whether disciplinary action could be taken against Peter Fincham?

Mark Thompson: I have to say-this is based on my recollection, rather than after having checked the records-I believe we were advised that we did not have 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 situation with George Entwistle. This is a situation where you have a really prominent leader, a great controller of BBC 1, and there has been an editorial disaster. Many people inside, and indeed outside, the BBC-because many of the core problems happened at the independent producer that made the programme in question-were responsible, but Peter, unfortunately, who was controller of BBC 1, was the person who stood up and said it. Having looked at the report, which was compiled into this saga by Will Wyatt, I felt that it would be appropriate for Peter to go. The clear advice, however, was that we did not have grounds for dismissal. We decided that we would go for a consensual termination, where he would depart. It was a compromise agreement.

Q369 Stephen Barclay: Was that communicated to the Trust at any point?

Mark Thompson: I remember briefing the Chairman-not on every detail, but explaining that we were going through a difficult lawyer-to-lawyer negotiation. It was different from a redundancy situation, where you have a contract that you can read out; it was a negotiation. I have to say that Peter behaved, from first to last, very honourably. There was, without question, a risk of legal action afterwards.

Q370 Stephen Barclay: But, to be clear, you did discuss 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 was discussed? We are as one on the fact that there were discussions. Indeed, on behalf of the Trust, I was adamant that there had to be consequences from the mistakes, and the Director-General acted diligently on that basis. He then briefed me on what his intension was. However, the package was never discussed with the Trust.

Q371 Stephen Barclay: But that is not what I was told by the BBC Trust. I wrote about that specific point on 9 July to the Clerk of the Committee: "Can I please check the BBC are saying that no papers exist regarding discussions, e-mails, meetings, between the executive and the Trust, regarding the other cases reported in the media, other than the Byford/Baylay case?" What you are saying is that there were discussions of other cases.

Sir Michael Lyons: Absolutely, there were discussions. I would have briefed colleagues on that basis. There may be no documents-I would be willing 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 last time you were here that you consulted your line manager, Caroline Thomson, about the Roly Keating pay-off, and that Mark Thompson was also involved.

Lucy Adams: No, I didn’t say that Mark was involved. You asked me, Mr Barclay, "Did you approve the Roly Keating payment?" And I said, "Yes, I did."

Q373 Stephen Barclay: You said it was "after a conversation he had had with Mark", and then you went on to say-

Lucy Adams: Yes, after he had spoken to Mark about the British Library role. Mark had never been involved in the discussions with Roly Keating about a severance arrangement. That was my discussion with him.

Q374 Chair: So you decided that although he had got another job, he should still get severance, did you?

Lucy Adams: I went through this last time, Madam Chairman, if you remember. I took the decision because Mr Keating explained to me that he would be unlikely to take the British Library role unless there was a severance offer. It is an important point, because it is an issue about the money and the decision that I took. 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 for redundancy, 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 Ms Thomson saying explicitly the opposite.

Lucy Adams: We may have different recollections on that. I remember consulting her. I was very clear that I took the decision.

Q378 Stephen Barclay: So clearly there are two versions. Someone cannot be correct.

Lucy Adams: As I said, people recollect different things. I recollect it differently, but I said that I took the decision.

Q379 Stephen Barclay: May I just ask you about a cultural point? Was it your sense-we have discussed culture-that these payments beyond contractual terms were, in essence, sweeteners to BBC staff? Was that how you saw it?

Lucy Adams: We were trying to-in the event, we did-take out 195 senior people in a three-year period. Each one of those conversations was difficult and with people who had been with the BBC for a long, long time. 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 were weighing up against the risk of litigation-

Q381 Chair: I have to say that this attitude that the top cadre of people at the BBC face greater difficulty when they get redundancy, as opposed to a receptionist or someone working lower down, is offensive.

Lucy Adams: I am not suggesting that. I am suggesting that you are weighing up the issues of the risk of litigation, duty of care to the individual and the disruption to the business if the individual leaves in an unamicable way. If you look at the total amount spent on severance, 8% of that was spent above the contractual entitlement. I don’t see those as sweeteners; I see those as sensible business decisions.

Q382 Stephen Barclay: Indeed. We have been through those arguments. My question was very specific: did you suggest to HR colleagues-this is a cultural point-that these sorts of payments should be viewed by them as sweeteners?

Lucy Adams: As sweeteners? I think that that is a strange term. What we are talking about is enabling people to leave the business in a way that minimises disruption and avoids legal risk. It was a shorthand term, possibly, but I do not recollect it.

Q383 Stephen Barclay: Sorry, but is it your evidence that you would not have viewed the payments as sweeteners? I am talking about the culture and the lead. You were head of HR. We have talked about the fact that authority was delegated, and we have talked about the fact that payments were made beyond what was legally required. I find it very odd that HR professionals were not intervening and saying, "We should not be paying beyond what we have to." You say it is a strange term, but were you giving an instruction to your HR staff that they should be lax about this, because they should view the payments as sweeteners?

Lucy Adams: Certainly not lax. We were trying to get people out of the door, to minimise disruption and to reduce the risk of litigation. In some instances, in 8% of the cost-£1.9 million against a £20 million saving-it was the case that we went above contractual entitlement to enable that to happen.

Q384 Stephen Barclay: So you deny giving that sort of steer to HR staff.

Lucy Adams: What I would be saying to my staff is that we need to be moving the senior management population 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 that occasionally you have to pay above the contractual entitlement.

Q386 Stephen Barclay: But in an e-mail you did exactly that. You said, "Can I get a sense of the scale of the sweetener?" It seems that that is another document that you are forgetful of writing. You could not 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 it with the Comptroller and Auditor General so that he can verify the document. I would have thought that that would be satisfactory. It is a leaked document, so I cannot share it with you, but I am happy to share it with the Comptroller and Auditor General.

Lucy Adams: I am more than happy to comment on the document if you show it to me. I may have used the term by means of an incentive to get to a swift resolution.

Q388 Stephen Barclay: So you might have used the term, even though you regard it as strange.

Lucy Adams: I find it strange because, as I said, we were trying to reduce the number of senior managers. Occasionally, you have to find a way of making it happen more quickly while minimising disruption, or you have to find a way of avoiding legal risk.

Q389 Stephen Barclay: It says something about the culture that public money is bandied around, particularly at the more senior level, as Mr Bebb has highlighted, and the head of HR is saying, "Use the licence fee money for sweeteners."

Lucy Adams: As I say, please do share the document that you are referring to with me and I can comment on it. On occasion, we would always advise people who were trying to manage and arrange to get people out of the door to minimise disruption, avoid legal risk and address duty of care issues with the individual, and, occasionally-for 8% of the costs-we did that. A sum of £1.9 million was spent moving these people out of contractual entitlement, against a saving of £20 million a year.

Chair: We are hearing the same thing, time and time again. Meg, can you quickly raise another issue?

Q390 Meg Hillier: I wanted to raise the issue about Jana Bennett, who left, of course, in October 2012. She had moved previously to BBC Worldwide and her redundancy package was originally paid by the BBC-so I suppose I am looking at Lucy Adams and probably Mark Thompson on this one-but later the BBC acknowledged that it should have been paid by BBC Worldwide. That was a pretty big error. Why did it happen?

Lucy Adams: When Jana moved to Worldwide, we agreed that she would have a two-year period where she would be protected. She would get a year’s salary against 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 she didn’t want to leave her role as director of television, that seemed like the best solution for everybody all round. It was nil cost; it was good for Worldwide, because she had a level of expertise that they could benefit from; and it was good for the BBC public service, because we were able to refresh-

Q392 Meg Hillier: I am not so much talking about why she moved; it is about the payment.

Lucy Adams: There was a mistake and an error was made-a misjudged view that, in the event of a restructuring of Worldwide, the BBC public service should pick up this liability. That should never have happened. It has been recharged. As I say, it should never have happened in the first place.

Q393 Meg Hillier: But it was not really reflected in the accounts. It did not come out readily-even expert auditors from the National Audit Office did not find it.

Lucy Adams: Because the data that we provided to the NAO was all based on HR data-so, payments that were made to individuals. This was an inter-company recharge from Worldwide to the BBC. As soon as it became known to us that this had happened, we took it to the NAO and asked them to consider whether they should include it in the second Report.

Q394 Meg Hillier: I just want to touch on the wider relationship between the BBC and Worldwide. Mr Thompson, I think I am right in saying that as Director-General-when you were the Director-General-you were responsible, although it is a slightly independent body, for signing off the pay and remuneration of the chief executive of Worldwide. Is that right?

Mark Thompson: Worldwide has its own remuneration board, with non-executive directors, and had the primary responsibility for setting the chief executive’s remuneration, but I think there was a report to the executive board remuneration committee just to keep an extra level of oversight over it.

Lucy Adams: That is correct. In fact, one of the things that has come about since the NAO Report is that we have abolished having two sets of remuneration committees, for Worldwide and for the executive, so there is only one remuneration committee now, and that is for the executive board remuneration committee that would deal with the chief executive of Worldwide and also the executive directors of the BBC board. Then there is the senior management remuneration committee, which approves severance and remuneration over £75,000 for public service, and £75,000 and £125,000 in terms of severance and remuneration for Worldwide.

Meg Hillier: Hopefully quick questions and quick answers.

Chair: Last one.

Q395 Meg Hillier: Chair, I need to pursue this; we discussed that beforehand. Were there any other executives transferred to BBC Worldwide Ltd who received severance payments that were recharged to the BBC, or was it just Jana Bennett and never any others in the history of Worldwide BBC? Just yes or no?

Lucy Adams: I don’t know about the history of Worldwide BBC, but certainly in the sample period that we looked at-but as I say, that money has now been recharged back to the commercial-

Q396 Meg Hillier: Mr Thompson, what discussions did you have about John Smith’s departure before you left the BBC in September 2012?

Mark Thompson: None.

Q397 Meg Hillier: Nothing at all? He left about five weeks later.

Mark Thompson: The decision for him to depart was taken by my successor, George Entwistle.

Q398 Meg Hillier: So, five weeks before you left-?

Mark Thompson: I had heard it was likely that John Smith was going to go, but the decision for John to depart from BBC Worldwide was not mine-it was really made by my successor.

Q399 Meg Hillier: So really, five weeks before he went, you had no idea? Because it was quite well trailed-

Mark Thompson: No, I’m saying that I had heard that he was likely to go.

Q400 Meg Hillier: You had not discussed any terms with him?

Mark Thompson: I had heard he was likely to go, but the decision-it is possible that George Entwistle would have talked to John before he formally took up office. But George in the late summer of 2012 was beginning to think about his top team; part of that was an understanding that he wanted to make a change at Worldwide; and although I heard those conversations were going on, I was not a party to them, because that was going to be the next chapter in the BBC.

Q401 Meg Hillier: Ms Adams, were you having discussions five weeks before he announced he was leaving?

Lucy Adams: Yes, I was involved in discussions with John Smith. As Mark says, it was very much George’s view to refresh that team.

Q402 Meg Hillier: I referred to BBC Worldwide Ltd’s annual report and financial statements for the year ending 31 March 2013. John Smith’s total package for that year was £1.6 million. Is that right?

Lucy Adams: That was his salary and the severance arrangement 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 of his notice period.

Meg Hillier: Okay. That’s very helpful to know.

Amyas Morse: On a point of order. I have just been shown an e-mail forwarded to Mr Barclay by a whistleblower that appears to have arisen from your using the word "sweetener." I want to let you go away from here. I appreciate that you want to see it, and you do need to see it, but may I just ask you to reserve your position and we will look into it later on?

Lucy Adams: Absolutely. I am more than happy to have a look at that document. As I say, what we were trying to do was to find a way of moving people out of the organisation. Very occasionally, legal entitlements 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 to see the document.

Q406 Meg Hillier: I want to ask Lord Patten, as chairman of trustees, about BBC Worldwide. I do not have time to go into it, but there is certainly evidence that there were big, generous payoffs over a decade ago at Worldwide. In your remit to try to clean up this mess, will you be looking at BBC Worldwide as well?

Lord Patten: The new chief executive of Worldwide is, I think, paid less than half-I cannot give you the exact figure, but it is considerably less-and he is well aware of some of those issues. He is already getting a grip. I think he is outstanding, and I think he will give great leadership to Worldwide.

Q407 Meg Hillier: Does the current Director-General’s cap, which I presume you back, apply to BBC Worldwide?

Lord Patten: Sorry?

Meg Hillier: Does the cap of £150,000, which Tony Hall set, apply to Worldwide as well?

Lord Patten: Absolutely. Tim Davie is applying that to Worldwide. Any payment of £75,000 or above is going to be referred to the remuneration committee of the main BBC.

Q408 Ian Swales: I would like to come back to Lord Patten on the question of culture. It seems that the summary of a lot of what we have been hearing is that a lot of senior managers in the BBC have effectively had a one-way bet. In other words, they have had private sector style salaries while enjoying a lot of public sector style benefits in terms of contracts, management structures and so on.

Ms Adams’s evidence to the Committee last time, for example, said that the benchmarking for severance payments-the ones that were going on-was typically more favourable than in the private sector but about in line with the public sector. Add to that the number of managers and the types of structures. Lord Hall’s evidence last time was that there are 55 boards looking at various aspects of operations and back office functions, I am quite sure Sky TV, for example, does not have 55 boards looking at back office functions. Going back to your point about a top culture leader being paid £180,000 a year, what do you think needs to happen? Does the BBC need to have high salaries and become more private sector in the way it operates, or should it start operating like the public service broadcast organisation that we think it is?

Lord Patten: I have two opening comments and then a serious reply. First, Tony Hall is trying to strip out some of the boards at the moment. Although I do not imagine that Sky has the same number, people who work for Sky are paid a lot more than people who work for the BBC. Sky is in the private sector, and there is a discount in BBC pay against the private sector. The main point I want to make is that that is something that we have to recognise, because in my view the BBC is the greatest broadcaster in the world and people get considerable pleasure from working for it. If they do their job well, it doesn’t make it more difficult for them to get other jobs afterwards. While there is a point beyond which you can’t discount without losing some very good people-and there will be a danger of that in the next few years-nevertheless, we should take account of the fact that the BBC is a great organisation. As a public service broadcaster it can’t behave, as I have said in the past, like a bank.

Marcus Agius: May I just reinforce what Lord Patten has said and add to it, when he refers to this discount? You said that the people at the BBC enjoy private sector salaries. They don’t. The remuneration policy of the BBC is not to pay any senior staff more than half of what they can get in the commercial world, ideally less.

The benchmarking that has been done over a long period of time indicates that the average discount that is suffered or enjoyed, depending on your point of view, is north of 60%. That is exactly as it should be because there are, as Lord Patten said, many benefits from working for the BBC. But if you have a work force who could notionally walk out of the door and get twice as much or more the next day that does put extra pressures on managing the staff that don’t exist in other commercial organisations.

Q409 Ian Swales: I did not expect to get quite that answer, because when we spoke about Ms Adams’ pay at the last hearing we heard that it was roughly in line with a FTSE 100 HR director. That was part of what we discussed. That is my point. I think it needs testing by the trustees. I won’t go as far as calling it mythology, but clearly it is felt in the BBC that most of the people could go out and double their salary. I just think that needs testing against all the various contracts. That is the conclusion that I would get, particularly when we don’t get the evidence that people get fired in the way that they would in the private sector. So, with the DMI fiasco or the Lonely Planet fiasco, I don’t know how many people got fired for those things, but certainly in the private sector a lot of-

Mark Thompson: You need to be a little bit careful about 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. We are going to have the pleasure probably of most of your company when we return to DMI.

Mark Thompson: Don’t forget the projects that went well. Lonely Planet was a failure, but in the context of Worldwide doubling its turnover and quadrupling its profits, despite Lonely Planet. There is a slight danger of focusing only on the ones that go wrong and, in this case, focusing only on the payments that enabled the bigger savings, forgetting the fact that gigantic savings were made.

Q412 Chair: I am going to draw it to a close. We are looking forward, Lord Patten, to receiving the details and names of the 150 that you are in the process, I understand, of writing to. We hope that that will happen. Those are data that this Committee has said it wants and will treat in confidence. So we are looking forward to that. All of us round the table, and I am sure you do down that end as well, really believe and value and recognise the absolute central importance of the BBC as an institution. It is one that we want to protect and promote.

That is why in my view this has been a grossly unedifying occasion, which can only damage the standing and reputation of the BBC. We regret that and we hope that you regret that. Have we got any wiser? I don’t know. We will have to see when we look at the details of the transcript when it is brought to us. At best, I think what we have seen is incompetence, a lack of central control, and a failure to communicate for an organisation whose business is communication. At worst, we may have seen people covering their backs by being less than open. That is not good for the thousands of people who work for the BBC and who produce the fantastic content that enriches all of our lives. Thank you for your presence today. Let us hope that people learn the lessons of this experience.

Lord Patten: May I add one point, Chair? I would like to thank the NAO and KPMG for Reports that I think will help to transform the BBC and make it a more trusted national institution-more trusted than it is today, which is reasonably high but not as high as it should be.

On the names, we received, I think on 3 September, your argument about the public interest case for knowing the names. We, as an employer with our responsibilities under the Data Protection Act, recognising parliamentary privilege, wrote to the 150 or, rather, the 146-four of the names are already in the public arena-on 5 September, and we have given people until 19 September to respond. We will continue to talk to the Clerk of the Committee on these matters. I think we have had a good relationship in trying to deal with this issue with the parliamentary authorities and the Clerk.

Chair: Okay. Thanks very much indeed.


[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 I don’t believe the Chairman of the Trust has personal power to approve any matter and approval by the Trust itself would not be given lightly and only on the basis of a document specifically seeking such approval, even where it has the necessary authority. Informal discussions and briefings do not constitute approval.”

Prepared 13th December 2013