An industry analyst today described the recent row about Network Rail bonuses as “a storm in a teacup and a great example of the dissemination of inaccurate information.”
Network Rail is obliged to have a Management Incentive Plan (MIP) under the terms of licence from the Office of Rail Regulation (ORR). On 24 March 2011, Bill Emery of ORR wrote to the Network Rail Remuneration Committee stating: “..it is now for you to design your management incentive plan framework so that it aligns with the objectives and the other requirements of the licence condition.”
After further discussions, Richard Price, Chief Executive of the ORR, wrote to the Remuneration Committee “..the MIP needs to be designed so as to enable Network Rail to recruit, retain and motivate individuals with the right skills, knowledge, experience and competencies.
“The MIP also has to incentivise the delivery of the outcomes the company has committed to, rewarding both company and personal performance. A significant proportion of the remuneration needs to be in variable rather than fixed payments.”
The Remuneration Committee acted on this and other advice from the ORR and came up with a proposal for a Management Incentive Plan.
This proposal was to have been presented to the Network Rail Board today, Friday 9 February.
Then, once an agreed MIP was in place, the remuneration Committee would be able to use that framework to calculate any management bonuses once the performance of the company could be judged after the end of the financial year.
So currently there is no Incentive Scheme in place, although a proposal is ready, and no figures can be calculated anyway until after the end of the year.
However, some people who had seen a draft copy of the proposal did their own calculations assuming that the proposed scheme was accepted without alteration and that Network Rail would meet all of its planned objectives. They then published these figures which were accepted as “fact” and the whole row blew up.
Even the Secretary of State was deceived by this misinformation, stating that she would vote against these bonuses (which didn’t exist and which had been calculated against a scheme framework that hadn’t been approved).
To try and diffuse the situation, Network Rail executives declared that, if they happened to be awarded any bonuses, they wouldn’t accept them but would donate the money to a level crossing safety fund. However, even this was reported as “Network Rail bosses turn down bonuses” – which they couldn’t as, so far, they haven’t been awarded any!
Talk about confusion!
So the proposal for a Management Incentive Scheme will now not be presented to the Board. However, as Network Rail is obliged to have one, it will have to be at some time. What headlines will be bandied about then?
