UK: Network Rail warned not to award excessive bonuses

[John Ashworth]

Network Rail warned not to award excessive bonuses this year

Rail regulator and secretary of state urge Network Rail not to repeat level of payouts seen in 2009

* Dan Milmo
* guardian.co.uk, Wednesday 2 June 2010 18.10 BST

Network Rail has been dragged into the row over executive pay at publicly funded bodies as the rail industry's financial regulator warned against handing excessive bonuses to senior managers.

The Office of Rail Regulation (ORR) warned Network Rail against repeating last year's executive rewards for what it described as a "mixed performance" by the company this year – a period in which three rail workers were killed.

The owner of Britain's rail system delivers annual results tomorrow and today appeared to lay the ground for a bonus announcement later this month by trumpeting record punctuality levels that now see more than nine out of 10 services arrive on time.

But the ORR appeared unimpressed: Bill Emery, its chief executive, said that the watchdog was "disappointed" by Network Rail's decision to pay out significant bonuses last year, despite warnings from the regulator over its performance. In 2009 Network Rail's chief executive, Iain Coucher, waived his £300,000 annual bonus but three colleagues received a combined windfall of nearly £800,000.

"We think that Network Rail's remuneration committee needs to exercise the considerable discretion that it has ... to recognise the full performance picture," said Emery.

The new secretary of state for transport, Philip Hammond, has been more forthright in his warnings over remuneration. In a letter to the company's chairman, Hammond said: "Decisions on remuneration for senior executives must display a sensitivity to the wider economic climate … [Senior executives] will need to bear in mind the potential for damage to the company's reputation if senior management remuneration is widely perceived to be excessive."

The previous transport secretary, Lord Adonis, was wary of venting public criticism of Network Rail's bonus scheme because he did not want to challenge the independence of a company whose £22.2bn debt is off the government's balance sheet. The fear was that by leaning on Network Rail's board, and securing lower bonuses, ministers would undermine the company's independence from government and force the Office of National Statistics to consider reclassifying Network Rail's borrowings as public debt.

Service reductions and higher fares were raised at an "austerity summit" between the train operating companies and Hammond today, where the transport secretary discussed ideas for reducing costs and raising revenues in an industry that costs the state around £5bn a year in financial support – with nearly £4bn going to Network Rail.

Rail industry sources said the meeting was a "swapping of ideas": Hammond said he was prepared to offer longer franchise terms and more "flexibility". Operators believe that term encompasses greater control of timetables, including the ability to cut services or run shorter trains at some times of day. Hammond said that he would expect "more investment from [operators] in improving efficiencies and delivering better outcomes" in return.