This is taken from The Observer:

BBC faces fury over bosses' bonuses

James Robinson, media correspondent
Sunday July 10, 2005

The BBC is facing a damaging row with staff over controversial bonuses paid to managers. The payments, which topped £800,000 last year, are expected to be unveiled this week when the corporation publishes its annual report. They will anger the BBC's 28,000 employees, many of whom are facing redundancy as part of a plan to cut nearly 3,800 jobs and move thousands more from London to Manchester.

Under the bonus scheme, senior executives are entitled to extra payments of up to 30 per cent of their salaries. In theory, that could net them more than £1million, although it is unlikely the BBC board of governors, who authorise the payments, will award the maximum amounts available. Last year, the 16 members of the executive committee - made up of the heads of the corporation's departments - received £866,000, or 22 per cent of their salaries.

The director-general Mark Thompson is part of the scheme, although BBC insiders say he is unlikely to receive a sizeable bonus while pushing through the biggest round of job cuts in the BBC's history.

The job cuts are part of Thompson's plan to save £355 million over three years in an effort to trim the budget before the BBC's charter renewal next year.

Executives who could receive substantial payments include chief operating officer John Smith, who is responsible for the BBC's commercial arm, BBC Worldwide. It increased profits by 50 per cent to a record £55 million in 2004-05. Last year the former director of news, Richard Sambrook, who is now director of global news, and the director of drama and entertainment, Alan Yentob, also received bonuses of close to £50,000 each.

The bonus payments are likely to anger BBC employees when they are announced on Tuesday. Relations between staff and management are at an all-time low following the announcement of job cuts earlier this year. Employees held a one-day strike last May and further industrial action was only averted at the eleventh hour after Thompson agreed to consult employees. The first divisional level negotiations took place last week. 'Thompson fears he has lost the staff,' said one BBC insider.

The annual report, which must be approved by Parliament, is also expected to show that the BBC has reduced its annual deficit by £61m to £188m, despite taking a £62m charge to cover the cost of the job losses. The BBC received £2.94 billion from the £126.50 a year licence fee last year, an increase of £142m, but it has invested heavily in digital channels in recent years. It is facing intense competition from cable and satellite companies, which typically offer customers up to 300 digital channels, and its total share of viewers is declining.

The report will also disclose the amount of money the BBC spent on its digital channels, and its main terrestrial channels. Total spending on programming is thought to have risen from £2.37bn to £2.47bn in 2005-06. The programmes budget for BBC1 is thought to have increased from £812m to £873m.

The BBC's pension scheme is £422m in deficit, the report is expected to show, although the corporation is committed to keeping its generous 'defined benefit' plan, which guarantees employees a fixed income on retirement. Pension contributions have been raised in recent year in an effort to balance the books.

The report will also reveal that the proportion of British households holding TV licences has fallen for the first time in living memory, from 97.7 per cent to 97.4 per cent. The decline comes despite the BBC's successful crackdown on licence fee evasion, which has dramatically reduced the number of people who avoid paying the tax. Although the decline in TV licences held is small, it means that nearly 100,000 fewer households have a television than last year.

Research carried out by the BBC suggests that more people are choosing not to own a television, partly because they are rarely at home to watch it. Watching programming over other electronic devices, including PCs and mobile phones, may also help to explain the fall.