Network Rail has defied government calls for pay restraint and will distribute more than £37 million in bonuses to its staff.
The decision flies in the face of this week’s austerity Budget, in which public sector pay was frozen for two years and spending cuts of at least 25 per cent were proposed for most government departments.
Philip Hammond, the Transport Secretary, condemned the decision to pay the bonuses. “Network Rail is, of course, a private company but one that is dependent on taxpayer funding, so I am very disappointed that executives have accepted bonuses of this scale in the current climate.
“In the week when everyone has been asked to share the burden of reducing Britain’s deficit, people will rightly be asking how NR’s top executives feel this is appropriate,” he said.
The company, which maintains and operates Britain’s railways and stations, will pay £2.25 million to its directors, despite achieving only 71 per cent of its targets for the year. The company’s 37,000 employees will each receive £958.
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The biggest payment goes to Iain Coucher, the departing chief executive, who is arguably Britain’s best-paid civil servant. He will receive £641,349 on top of his annual £613,000 salary.
Mr Coucher, who gave up his bonus last year, chose to take his annual bonus and a long-term incentive plan payout this year. He said last month that he was worth every penny of his £613,000 salary and would not consider taking a pay cut.
Rick Haythornthwaite, the chairman of Network Rail, said that the directors had earned their bonuses. “Network Rail only rewards for success. This is measured against what matters the most to passengers — a better railway with more trains on time. On that basis, awards for the past year have been earned, are a contractual right and should be paid,” he said.
However, in a concession to concerns from the Transport Secretary and the rail regulator, Network Rail’s board decided to cut directors’ bonuses by 20 per cent and froze their salaries. Next year’s bonus scheme has also been suspended while the company’s remuneration committee looks into its future suitability. Mr Haythornthwaite said: “I have ordered a review of how we can better align the executive remuneration with expectations of passengers and public.”
A Department for Transport spokesman said that ministers could not block or curb the bonus payouts, but pointed to the coalition agreement’s pledge to make Network Rail more accountable.
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Mr Hammond said: “The review of the management incentive plan must be far-reaching and fundamental. Bonuses must be earned by exceptional performance: they should not be an entitlement.”
He suggested that Sir Roy McNulty, the former BAA chief who is conducting a review into rail costs, should also consider remuneration as an element of that.
Rail unions joined in the condemnation of the bonus payout, with Bob Crow, general secretary of the RMT, branding Mr Coucher’s payments “a national scandal” and Gerry Doherty, head of the TSSA union, saying Mr Coucher had “got away with daylight robbery”.
There was also criticism from the Office of Rail Regulation. Last month Bill Emery, its chief executive, branded Network Rail’s performance for 2009-10 “mixed” and asked the company to take this into consideration when awarding bonuses.
An ORR spokesman said: “ While it is clear that the committee has considered our assessment of the company’s mixed performance, it has taken a different view on some issues. It will now need to fully justify how it has reached its decisions. We have made clear our concerns, including on safety, asset management and efficiency — and these concerns stand.”
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The performance-related payouts comprised an annual bonus as well as an award under a three-year rolling management incentive plan.