'Rewards for failure' row flares at BT

Hugo Duncan
27 May 2009

Telecoms giant BT reignited the row over fat-cat pay tonight after the ousted head of its loss-making Global Services division was handed a whopping "reward for failure" on his departure.

Francois Barrault, who was forced out of the company in November, picked up a staggering £2.9 million for less than a year's work after his earnings of £1.3 million were topped up with a payout of £1.6 million.

Global Services, which is BT's largest division and supplies telecoms and computing services to government departments such as the NHS and multinational companies, racked up massive losses after long-term contracts agreed by Barrault proved far less profitable than expected.

The payout sparked fury among unions and staff at a time when BT is slashing 15,000 jobs on top of the 15,000 already lost, in part because of the disastrous performance of Global Services.

"Francois Barrault's payout is outrageous," said Andy Kerr, deputy general secretary of the Communication Workers Union. "He is being rewarded for failure."

It will also shock investors who have seen the value of BT shares tumble by as much as 70% in the last 12 months. They were up 0.2p at 88p today.

A BT spokesman said: "The company is disappointed at having to make that payment to Francois Barrault, but we had to honour our legal and contractual obligations." The pay - which included allowances for housing and school fees and was outlined in the annual report - meant that Barrault earned more than any of the surviving directors at the firm even though his was BT's worst-performing unit.

Departed chief executive Ben Verwaayen, who oversaw the disaster at Global Services, was also paid more than any of the remaining board - nearly £1.3 million - through his salary of £277,000, bonus of £300,000 and payout of £700,000.

BT has now introduced a clawback system so it can in future reclaim bonuses handed to executives if business turns sour and the payouts are deemed undeserved.

New chief executive Ian Livingston, who has been left to sort out the mess at Global Services, earned £1.2 million last year. He picked up a bonus of £343,000, just 20% of what he could have made if performance targets had been met.

Hanif Lalani - the former BT finance director put in charge of Global Services by Livingston following the departure of Barrault - was paid £805,000. He has asked not to be awarded a bonus.

Chairman Sir Michael Rake earned £630,000 and Eric Daniels, chief executive of part-nationalised High Street bank Lloyds Banking Group, was paid £74,0000 for his role as non-executive director at BT.

BT suffered losses of £134 million in the year to the end of March - against profits of £1.98 billion the previous year - after it was hit by writedowns of £1.6 billion at Global Services.

Unacceptable' legacy of loss

Global Services crashed to a £2 billion loss last year after it was hit by £1.6 billion of writedowns related to over-optimistic assumptions on contracts and restructuring charges at the business.

A significant part of the writedown is thought to come from a £1 billion contract with the NHS, part of the troubled £12.7 billion overhaul of its computer system.

BT is only paid for worked completed on the programme and is understood to have received a fraction of what it has spent doing the work following major delays in London.