NETWORK Rail, under fire over level crossing safety, is to reduce the bonuses that can be earned by its top directors. But under the new bonus regime proposed today, NR’s bosses could still get deferred annual bonuses totalling 20% of salary.
This means that if performance targets are met, NR chief executive Mark Carne who is on £675,000 a year, could get an annual bonus of up to £135,000.
To be voted on at NR’s annual meeting in July, the new bonus scheme ends the existing scheme which saw top executives not only eligible for a performance-related annual bonus worth up to 60% of salary but also a three-year rolling bonus worth up to 100% of salary.
In January this year, the subject of NR bonuses was raised in a Court of Appeal judgment which saw NR lose its appeal over a £150,000 fine over a 2010 level crossing incident at Beccles in Norfolk in which a 10-year-old boy suffered life-changing injuries.
The Court of Appeal said: “If ... a bonus incentivises an executive director to perform better, the prospect of a significant reduction of a bonus will incentivise the executive directors on the board of companies such as Network Rail to pay the highest attention to protecting the lives of those who are at real risk from its activities.”
In March this year, the House of Commons Transport Committee, in a report on level crossing safety which was highly critical of NR, said: “Given that Network Rail has recently been held responsible for the serious accident at Beccles in July 2010 we would be very concerned if its remuneration committee awarded bonuses to executive directors this year. “
In addition, NR may have felt that it was under more pressure over bonuses due to a change of accounting procedures which means that the company’s net debt of around £30 billion, already guaranteed by the Government, will be officially on the Government’s balance sheet from September this year - thus adding to the national debt.
The proposed new bonus structure, to cover the five-year period starting April 2014, period , covers not only Mr Carne, but also NR group finance director Patrick Butcher, network operations managing director Robin Gisby and route strategy director Paul Plummer.
For the 12 months ending March 2013, Mr Butcher was on a salary of £391,000, with Mr Gisby on £368,000 and Mr Plummer on £346,000.
To get the new 20% bonus, the bosses will have to beat targets set in areas such as passenger, public and employee safety, train punctuality, cost reduction, investment delivery and passenger satisfaction levels.
Any awards made will be deferred for three years, to allow the NR remuneration committee to satisfy itself that performance was achieved sustainably.
NR chairman Richard Parry-Jones said: “We believe that at the start of a new five-year programme, the time is right to reconsider the bonus structure for our executive directors.
“The potential to earn large bonuses is no longer sustainable in the environment in which this company operates. The executive directors and the board both recognise this and have responded by putting forward this radical new bonus proposal that sees directors bonuses massively reduced.”
He went on: “We do understand that this will move our remuneration for executive directors further down against comparable benchmarks.
“However, we are confident that the unique challenge of having the executive responsibility to decide how to most effectively run Britain’s railway infrastructure is a huge motivation in itself for the kind of leaders that we need.”
Mr Carne said: “No other company can offer its people the sense of satisfaction and pride that comes from delivering a public service, which is so critical to the country’s infrastructure and economy. This is our unique selling point and why I’m confident that we will continue to retain and attract the best people.
“My team and I have a huge responsibility to deliver a £38 billion programme over the next five years. We are up for the challenge and will make the tough decisions required to drive continued improvement through the business for the benefit of rail users and taxpayers.”
Shadow transport secretary Mary Creagh said: “We welcome the end of NR’s mega-bonuses. Most hard-working people struggling with the cost-of-living crisis receive no bonus for doing their jobs, let alone one that more than doubles their salaries.
“Commuter rail fares have risen 20% in four years. Labour would introduce a tough cap on rail fares.”
Transport Secretary Patrick McLoughlin said: “I am pleased that the NR board is proposing to reduce the bonuses to their senior executives and that bonuses will be awarded only if demanding targets for train punctuality and passenger satisfaction are beaten. This will help to maintain public trust in the essential service it provides.”
He went on: “NR has had a challenging year and I want to see performance improve. It demonstrated its professionalism by fixing the rail line at Dawlish (in Devon) in time for Easter after the devastation caused by the recent storms.
“Now passengers need to see NR’s investment across the network improving passenger journeys and performance year-on-year.”
Mick Cash, acting general secretary of the RMT transport union, said: “It is important that there is a fair and decent pay and reward structure across NR that recognises the hard work of all staff and not just an elite few.
“However, the bonus issue diverts attention from the savage cuts to the safety-critical staff out on the tracks who keep the services running.
“It is those cuts which not only lead to cancellations and delays as maintenance and renewal works slip but which also jeopardise rail safety. The Government-led cuts to our rail infrastructure need to be dragged under the spotlight.”
Manuel Cortes, leader of the TSSA rail union, said: “We welcome the sinner that repententh, even at the 11th hour. We have been arguing the case against double-your-salary bonuses for 10 years and now, after taking £10 million in such unmerited bonuses, NR’s top bosses have finally listened.
“Their appalling record on level crossing deaths meant they should not have qualified for any bonuses at all, let alone the six-figure bonuses they took on a regular basis.
“We hope that this is not just a PR move to appease their critics, with basic salaries quietly hiked to compensate for bonus losses.
“That would be sharp practice. NR is a public company funded by the taxpayer to the tune of £4 billion a year. Safety should be its number one priority, not imitating the get-rich-quick mentality of bonus-driven wide boys in the City.”