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  • Wolves & Sheep

    Posted by Michael Hiteshew on June 3rd, 2004 (All posts by )

    What’s wrong with this picture?

    From the Telegraph:
    Big bonuses for failing rail bosses
    By Alistair Osborne, Associate City Editor
    (Filed: 03/06/2004)

    Network Rail awarded huge bonuses to its directors yesterday despite announcing that they had failed to meet any targets for train punctuality and had made an annual loss of 1.1 billion.

    John Armitt, the chief executive, will receive a bonus of 112,320 on top of his 468,000 basic pay. His deputy, Iain Coucher, gets 99,840 in addition to his 416,000 wage.

    Gee, a bonus of over $100k, on top of his almost half million dollar base pay, for failing to meet company goals. How do I get that job? Who does this guys performance review?

    When I worked at Lockheed, that division had an incentives based contract with the US Navy. Lockheed was graded on a series of milestones every year. The goals were set by the Navy program managers who were responsible for overseeing the contract. The milestones included meeting design and delivery schedules, product performance, cost goals, that sort of thing. Lockheed received a monetary bonus from the Navy for each milestone met. However, there was a minimum number of milestones which we had to meet in order to qualify for any bonuses at all, 75% I believe. We typically achieved 90%+ of our milestones.

    When it came time to distribute the bonus money, where do you guess it went? Part was sent to corporate HQ as profit, the rest was divided among the directors. No one else received anything.

    There seems to be something patently unfair, immoral even, about those stories. Of course, whoever said life was fair? In the first case, directors reward themselves – and everyone else – for doing a poor job. In the second, when an excellent job is being done all, all the rewards are kept by those controlling the money. The only common denominator seems to be the greed of those at the top.

    (For those not registered with The Telegraph, I’ve copied the article below)

    Network Rail awarded huge bonuses to its directors yesterday despite announcing that they had failed to meet any targets for train punctuality and had made an annual loss of 1.1 billion.

    The company, which is subsidised by the taxpayer and is responsible for Britain’s tracks, signals and stations, said it had given its five executive directors bonuses equivalent to 24 per cent of their basic salaries. This was despite almost one in five trains running late.

    Ian McAllister: some targets were achieved

    John Armitt, the chief executive, will receive a bonus of 112,320 on top of his 468,000 basic pay. His deputy, Iain Coucher, gets 99,840 in addition to his 416,000 wage.

    Three other directors – Ron Henderson, the finance chief; Peter Henderson, the engineering boss; and Chris Leah, the safety director – will each receive 75,000 on top of their 312,000 salaries.

    Stewart Francis, the chairman of the Rail Passengers Council, said there had been recent improvement in punctuality but performance was still worse than before the Hatfield rail crash in October 2000.

    “Pre-Hatfield was not good enough anyway,” he said. “The crucial bit that passengers are interested in is punctuality. When are passengers going to get their bonus?”

    Bob Crow, the RMT union boss who is threatening a strike over Network Rail’s decision to close its final salary pension scheme to new staff, said: “If things are improving enough for directors to hand themselves six-figure bonuses, they are improving enough to deliver justice on pensions.”

    Ian McAllister, the Network Rail chairman, admitted that it had failed to hit its target 10 per cent reduction in the number of minutes trains were delayed.

    But Mr McAllister said executives had achieved other targets for improving the condition of the railway’s assets and for “financial efficiency”, such as reducing some costs.

    “I think it is only right that all Network Rail employees will receive a bonus this year,” he said. “The executives earned those bonuses and the bonus system cascades through the company.”

    Senior managers will receive bonuses of seven to 15 per cent of salary while the other 13,500 staff get 683.

    Mr Armitt said the directors had achieved enough targets to get bonuses worth 32 per cent of salary. But this was cut to 24 per cent at the discretion of the remuneration committee “because we had missed the punctuality target”. He justified the bonus system, saying: “When Network Rail was formed it was a condition that it had a bonus system. Can I attract managers saying we have a six-year plan for this business so there’s no bonuses for six years? No I can’t.”

    Over the year, the number of broken rails was reduced from 444 to 334, while temporary speed restrictions were reduced from 537 to 458, triggering bonuses for improving asset condition.

    The company incurred operating losses of 758 million compared with the previous year’s 80 million profit. Some 544 million of the losses were due to the phasing of grants from the taxpayer-backed Strategic Rail Authority into the next financial year, Network Rail said.

    Network Rail’s post-tax losses were 734 million after the company booked a 336 million tax credit. The Inland Revenue has allowed it to offset current losses against anticipated profits in three years’ time.

    Its net debts shot up from 9.4 billion to 12.6 billion, roughly twice the level of Railtrack’s when it was forced into administration in October 2001.

    Network Rail is reliant on a 21 billion support package from the taxpayer to enable it to raise money in the markets. Even so, the Government maintains it is a private company so that it can keep its debt off the public books.

    Theresa May, the shadow transport secretary, said: “The Government said Network Rail would cost the taxpayer less than Railtrack. In fact it is costing much more.”

     

    2 Responses to “Wolves & Sheep”

    1. Giles Says:

      You’re a bit off on the exchange rate

      112 pounds is $206K
      468 pounds is $860K almost a milllion base pay.

    2. Michael Hiteshew Says:

      Thank for pointing that out. I was thinking of Euros. But you’re correct. The bonuses are denominated in pounds.