Part Two: Governance and finance report – Governance

Governance

Governance is the way we guarantee
independence, deliver our mission
and account for our actions
BBC Annual Report and Accounts 2013/14

85

Governance and finance report – Governance

Executive Board
The Executive Board, chaired by the Director-General, and consistingof executive and non-executive directors, is responsible for the deliveryof BBC services and day-to-day operations across the organisation.
Executive directors at April 2014

Tony Hall, Lord Hall of Birkenhead, CBE
Director‑General since April 2013.

Helen Boaden
Director of Radio since April 2013.

Anne Bulford OBE
Managing Director, Finance and Operations
since June 2013.

Danny Cohen
Director of Television since May 2013.

Tim Davie
CEO, BBC Worldwide and Director,
Global since April 2013. Appointed to
Executive Board 1 April 2014.

James Harding
Director of News and Current Affairs
since August 2013.

James Purnell
Director, Strategy and Digital since
March 2013.

86

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BBC Annual Report and Accounts 2013/14

Non-executive directors
The Executive Board delegatessome of its responsibilities tofour sub‑committees:
In general, the committees meet four times
a year, although this can vary dependingon the business to be considered.

Dame Fiona Reynolds DBE
Senior Independent Director.
Appointed January 2012. Chairman of theRemuneration Committee, Fair Trading
Committee, and Nominations Committee
for non-executive appointments. Master of
Emmanuel College, Cambridge.

Simon Burke
Appointed January 2011. Chairman of
the Audit Committee. Chairman ofBathstore.com

Alice Perkins CB
Appointed April 2014. Chairman of
Post Office Ltd and Coaching Partner
at JCA Group.

Sir Howard Stringer
Appointed January 2014. Non-executive
director of Talk Talk Group.

This is the membership of the Executive
Board as at April 2014. Throughout thereporting year membership has changed.
Please refer to p102 for further details.

BBC Annual Report and Accounts 2013/14

Fair Trading Committee
The Fair Trading Committee ensuresthat the BBC complies with its fairtrading obligations. It is made up of three
non-executive directors, one of whom
is nominated as chairperson. Other
individuals may be invited to attend allor part of any meeting as and whenappropriate. This may include (but not
be limited to) the Managing Director,
Finance & Operations, BBC Group
General Counsel, Head of Fair Trading& Competition Law, external advisersand other relevant BBC members of staff.

Part Two: Governance and finance report – Governance

Sir Nicholas Hytner
Appointed April 2014. Director of the
National Theatre and Trustee of theRoyal Opera House.

Audit Committee
The Audit Committee oversees financial
reporting, internal control and risk
management. The committee is made upof three non-executive directors. The
Director-General, Managing Director,
Finance & Operations, Director of Risk
and Assurance, and external audit
representatives also attend.

Nominations Committee
The Nominations Committee oversees
the process of proposing, appointing anddismissing members of the Board, except
the Chairman, who is appointed by the
BBC Trust. Membership of the committee
depends on whether non-executive or
executive appointments are being made.
Remuneration Committee
The Remuneration Committee decides
the remuneration of executive membersof the Board. It is made up of at least
three non-executive directors and the
Director-General, Managing Director,
Finance & Operations, Director of HR and
Director of Employment may also attend.

87Governance and finance report – Governance

Risks and opportunities
Risks and opportunities affect the ability of the BBC to fulfil its Charter
obligations and public purposes. The Executive Board prioritises the BBC’srisks and monitors whether we are taking too much or too little risk.
As we approach the start of negotiations on licence fee funding
and Charter review, the BBC must put forward a compelling
vision for the Corporation for the next ten years. At the heartof this vision will be our audiences and we will rest our case on
the quality of our programmes and the excellence of the service
we provide. If we fail to make a compelling case we run the riskof not serving our audiences by bringing the best programmes
and services to everyone.
The main risks to properly serving our audiences are set
out in three categories below, but it is clear that they are
all interdependent.

Audiences88

Failure to continue to improve the quality,
distinctiveness and innovation of our output
in all genres whilst delivering a streamlined
BBC could limit our ability to meet audienceneeds and expectations in an ever morecompetitive marketplace.

detailed monitoring of audience performance and reaction
strategy review focusing on creative ambition and with targeted
reinvestment in key genresdevelopment of new online products responding to creative and audience
opportunities
responding to audience demand for more live and interactive experiencesstrategies to build long-term value with under-served audiencesto work with a broader range of media and cultural partners

Failure to uphold our editorial values andstandards in all our content could impact onmaintaining high levels of audience trust anddamage our brand.

effective editorial compliance processes, further strengthened
following publication of reviews
wide-reaching training
serious consideration of complaints and their implications

Inability to build an ever more creative, dynamic
and cohesive organisation could limit our ability
to attract, develop and retain the best creative
talent and our contribution to creative anddigital economies.

proactive articulation of what we offer as an employer to thewidest population and most diverse talent in the marketplacedeveloping our leadership population to continue building a creative,
innovative and collaborative environmentenable managers to recognise and reward significant additional
contribution, growth in skill, capability and experience throughout
the yearactively review and monitor strategies to attract, develop and retain
on-air talent, reflecting the different market conditions within each genre
and service area

Failure to deliver content when and how it isdemanded, or to anticipate the next big trends
in technology and content consumption, could
threaten our connection with audiences.

regular evaluation of our product portfolio to ensure it best reflects
audience demandimmersive experience across devices, tailored to different audience needs
anticipating long-term trends in audience preferences and industry
developments
renewed engagement with key industry partners

A lack of transparency or the inability torespond swiftly, reasonably and proportionately
to significant events or criticisms could impact
on our brand reputation and our efficientdelivery to audiences.

response to major incidents under continual review to ensure alignment
with best practiceregular rehearsals of response procedures
ability to get immediate advice to the Director-General to ensure
effectiveness, speed and proportionality of response

BBC Annual Report and Accounts 2013/14

Deliverypan-BBC review of management structures completed, focusing on single
points of accountability and clear decision-making routes
greater clarity on relationship between Executive Board and BBC Trust
following the completion of governance review
strengthened Executive secretariat function following appointment ofCompany Secretary

Delayed and ineffective implementation ofmajor projects could compromise the deliveryof the BBC’s overall ambitions.

Corporate Project Management Office overseeing delivery of major projects
independent assurance over portfolio of projects
act on lessons learnt from previous projects

Technical failure, infrastructureinterdependencies, industrial action or theactions of third parties, including suppliers,
could lead to interruption of broadcast services.

strong business continuity policies and practices, regularly assessed
and rehearsed
good union relationships with regular dialogue
focus on resilience in key procurements and major projects
exit plans and contingency plans for key suppliers

Failure to keep pace with changes to theinformation security threat could increase our
exposure to vulnerabilities, especially in light ofadvances in technology and content delivery.

continuous security improvement programmes established both in-houseand in third-party IT support company
global staff awareness and education campaigns carrying key security
messagesdevelopment of effective monitoring and forensic capabilities

Inadequate controls could endanger thehealth and safety of individuals, the naturalenvironment and our reputation.

well developed safety procedures with comprehensive written guidance,
supported by expert advisers
robust health and safety training in the UK and overseas, including for staff
operating in inhospitable locations
with other broadcasters, working to inform the consultation on key
proposed safety legislation changes affecting production and to clarify the
impact on the media industryimplementing environmental sustainability strategy to reduce impacts
from BBC operations
working with other broadcasters to raise standards in the industry as a whole

Failure to comply with the broad range of legal
and other regulatory requirements, or to keep
pace with changes, may result in penalties.

training plans regularly refreshed to ensure compliance with newly
introduced legislation
continuing to study and plan for impacts of new legislation, including
working with the industry to monitor and develop best practice solutions
for achieving effective compliancePart Two: Governance and finance report – GovernanceFailure to deliver a flexible, agile and strong
governance structure with clear accountability
will hinder us in making the organisation simpler,
more creative and better able to take focused,value for money decisions.

Financial
Developments in the UK and global economic
situation impact us and all our stakeholders,and could lead to reduced financial flexibility,
potentially impacting on our ability to meetall our ambitions within our means.

contingency planning and business modelling, incorporating potential
variations in funding and inflation
tight management of the implementation of phased savings targets,to enable delivery of strategic vision within available fundingplanning for new funding responsibilities (e.g. World Service)

As competitors achieve scale and consolidate,there is risk of revenue falling and existing
businesses being disrupted, routes to market
being diminished and access to potential
partners being reduced.

mature commercial subsidiary with significant global experience and aregionally focused structure to drive strong, sustainable financial returns,
support the BBC and promote UK creativity and innovation
new global brands and globally branded channels strategy implemented
with key partners to showcase BBC production and commissions
develop services to enhance content availability to UK audiences

Inability or failure to adequately plan for therange of potential changes to our funding model
could limit our capability to deliver distinctive
content to future audiences.

engagement with the Government’s Charter and licence fee
review processparticipation in the Government review of options regarding licence
fee enforcement

BBC Annual Report and Accounts 2013/14

89Governance and finance report – Governance

The BBC’s accountability and internal control processes
The Executive Board is responsible for the operational
management of the BBC (excluding the Trust Unit). This
includes safeguarding its assets and achieving value for moneyby ensuring there is a process in place for managing significant risk
issues to the BBC.
The Executive Board is responsible for establishing, maintaining
and reviewing the effectiveness of the BBC’s system of internal
control and for ensuring that necessary actions are taken to
remedy any significant failings or weaknesses identified. Suchsystems can only provide reasonable and not absolute assurance
against material misstatement or loss. Our system of control isdesigned to manage (rather than eliminate) the risk of failure toachieve business objectives and to provide reasonable assurance
that assets are safeguarded, transactions are appropriately
authorised and material errors or irregularities are either
prevented or detected on a timely basis.
Key elements of our system of internal control include:
Risk identification and management: The Executive Board
co‑ordinates and monitors risk management activity within theBBC. Our process for identifying, evaluating and managing
significant risks to the BBC, which accords with the Turnbull
guidance (Internal Control: Guidance to Directors), has been inplace for the year ended 31 March 2014 and up to the date of
approval of this BBC Annual Report and Accounts. The key
elements of risk management and oversight activity within the
BBC are shown on pages 88-90. These include considerationof a wide range of risks including editorial, operational andfinancial risks.

Project governance: The importance of assurance in supporting
project governance and, ultimately, successful project delivery is
recognised. It is now a requirement of all major projects in the
BBC to put in place a robust set of checkpoints and reviews withthe aim of providing senior stakeholders with assurance that the
project is on track to deliver, and to identify appropriate actions to
be taken if the project is off course. The roles and expectedinterventions of assurance providers, (e.g. Internal Audit orindependent technical experts), are defined within the overall
project plan. The Project Sponsor is responsible for ensuring thatthe programme of assurance is sufficient for the projectthroughout its lifecycle, with independent review and challenge
provided by Internal Audit and the BBC Programme Management
Office.
Staff capability: Processes are in place to ensure that our staff areprofessional and competent. These include recruitment policies,
performance appraisals and development programmes.
The BBC’s internal audit process
Internal audit, Risk management and Investigation Services
combine to form our Business Assurance function, which is led by
the Director of Risk and Assurance. Internal Audit’s authority andindependence is assured by the Director of Risk and Assurance’s
independent and direct access to the Director-General and to the
Executive Audit Committee (EAC).

Internal audit regularly tests the BBC’s control systems and corebusiness processes to ensure they are fit for purpose andconsistently applied. The work plan, which is based on a continuing
assessment of key risks, is agreed annually with the EAC andcovers financial, operational and compliance controls, including
Strategy and financial reporting: The Executive Board approve a
the exercise of the BBC’s right of audit over external suppliers
business plan that aims to deliver the Trust-approved BBCsuch as the independent production companies and service
strategy. Comprehensive monthly, quarterly and annual reporting providers. Any significant control failings or weaknesses identified
processes, both within business groups and up to the Executive
are reported to appropriate levels of management. The status ofBoard, include financial monitoring against plan, regularcorrective actions is reported back to EAC.
reforecasting, analysis of variances and performance reviews
tracking achievements against business plan and strategy.
Whistle-blowing arrangements
We have a ‘whistle-blowing’ (protected disclosure) policy toBusiness policies: Formal policies and procedures are in place forfacilitate the confidential communication via a number of routes
all material business processes to ensure compliance with allof any incident in which there is a suspicion that the BBC’s codes
applicable laws and regulations, that risks are managed andhave been breached. We recognise that there could bethat timely, relevant and reliable information is available acrosssensitivities regarding actual or suspected incidents and so wethe business.
provide a ‘whistle-blowing’ hotline administered by an
Cash management: The BBC undertakes regular treasury and cash independent external company to ensure anonymity.
reporting, which analyses funding requirements and liquidity.
Each incident or suspicion reported is independently investigatedAuthorisation procedures: Clearly stated formal authorisation limits in a confidential manner, a response is communicated and action
and processes cover all financial transactions.
taken as appropriate. The EAC is responsible for ensuring that
there are appropriate arrangements in place for the
proportionate investigation of matters reported and forappropriate follow-up action.

90

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BBC Annual Report and Accounts 2013/14

Governance report
Good governance is about leadership, accountability and openness
BBC Governance review
A major change this year has been the implementation of thereview of BBC Governance, making clearer the respective rolesof the Trust and the Executive. We are also working to make theoperations of the BBC simpler, with proper individual accountability
for decisions and the scrapping of some 60 BBC boards.

opted to adopt best practice and follow the provisions of the
Financial Conduct Authority’s Listing Rules (in accordance withthe 2010 Corporate Governance Code) and the Financial Reporting
Council’s 2012 UK Corporate Governance Code in order to beconsistent with companies quoted on an EU regulated market.

Areas of the UK Corporate Governance Code not
relevant to the BBC
Make up of remuneration (UK Corporate Governance
Code principle D.1.1): The BBC sets levels for executive
remuneration that should be sufficient to attract, retain
and motivate directors of the quality required to run theorganisation successfully, in line with this principle. However,this principle also requires aligning executive remuneration
to the notion of enhancing shareholder value by making
performance-related elements of remuneration a significant
proportion of total remuneration. By virtue of the BBC’s licencefee funding and its public purposes, the amount of variable(or performance-related) remuneration that may be earned
should be limited. Variable pay in the form of bonuses for BBC
executive directors have been suspended indefinitely, with the
exception of Tim Davie (appointed on 1 April 2014) in his
capacity as the Chief Executive Officer of BBC Worldwide.

Areas where compliance with the Charter
overrides the UK Corporate Governance CodeDivision of responsibilities between Chairman andChief Executive (UK Corporate Governance Codeprinciple A.2.1 and A.3.1): As permitted by the Charter, theChairman of the Executive Board is the Director-General, thechief executive officer of the BBC. This does not comply with
the UK Corporate Governance Code which requires a clear
division of responsibilities at the head of the company between
the running of the board and the executive responsible for therunning of the company’s business. Whilst the Director-Generalacts as both Chairman and Chief Executive, the strategic
oversight by the BBC Trust ensures that no single individual has
unfettered powers.

The Executive Board has complied with the requirements of theCharter which has also secured substantial compliance with the
BBC corporate governance framework
UK Corporate Governance Code. The last external evaluation
The BBC’s corporate governance framework is defined in theof the Board was completed in 2009; therefore, provision B.6.2
Royal Charter (the Charter). You can see the Charter on the BBCof the UK Corporate Governance Code has not been complied
Trust’s website at: bbc.co.uk/bbctrust/about/how_we_govern/
with. The BBC, jointly with the BBC Trust, did conduct an internal
charter_and_agreement/
review of governance during the year. The Executive Board
The Charter requires the Executive Board to have regard tobelieves that this does not compromise the quality of the governancegenerally accepted principles of good corporate governance.
arrangements in place during 2013/14 or the execution of the
And whilst the BBC is not a listed company, it has nonetheless
Executive Board’s responsibilities.

Part Two: Governance and finance report – GovernanceInteraction with shareholders (UK Corporate Governance
Code principles B.7.1, B.7.2, D.2.4 and section E): The BBC
is not a profit-oriented company with shareholders and so
provisions relating to interaction with shareholders clearly do
not apply. In some circumstances, however, it is possible toconsider, by analogy, the way in which the BBC Trust engages
with licence fee payers. This is set out in the Trust’s review andassessment in Part One of the Annual Report and Accounts.

Board balance and independence (UK Corporate
Governance Code principle B.1.2): At 31 March 2014 theExecutive Board comprised 11 directors, of whom seven were
executive directors and four non-executive directors providing
a balance of executive and non-executive directors so that noindividual or small group of individuals can dominate decision
taking. This complies with the Charter which specifies that
non-executive directors must not be less than one third andnot equal to or more than one half of the members of the
Executive Board. However, this does not comply with the UK
Corporate Governance Code which requires that at least half
the board, excluding the Chairman, should be independent
non-executive directors. All non-executive directors are
considered independent for the purposes of the UK Corporate
Governance Code.
Evaluation of the Chairman (UK Corporate Governance
Code principle B6.3): The Director-General of the BBC, being
the Chairman of the Board, has his performance evaluated by
the Trust. This is performed by the Chairman of the Trust as
opposed to the Senior Independent Director, as stated in the
UK Corporate Governance Code.

BBC Annual Report and Accounts 2013/14

91Governance and finance report – GovernanceNominations
Committee
For the final quarter of the year the Remuneration Committee
only comprised of two members which, despite being a quorate,
is non-compliant with principle D.2.1 of the UK Corporate
Governance Code. Two new non-executive directors wereappointed as members of the Remuneration Committee in early
2014/15, therefore the BBC are now compliant with this principle.

Board appointments
The Nominations Committee oversees the process of proposing
members of the Board. Appointments are made by the Executive
Board, with non-executive appointments requiring the approvalof the Trust. The only exception is the Chairman, who isappointed by the BBC Trust. Membership of the Nominations
Committee is dependent on whether it is dealing with executive
or non-executive appointments.

There are also a few areas of the UK Corporate Governance
Code that are either not appropriate to the circumstances of the
BBC or where compliance with the Charter overrides compliance The Nominations Committee oversaw a number ofwith the UK Corporate Governance Code.
appointments during the year. Two executive appointments were
made: Danny Cohen, Director, Television (effective 7 May 2013)
Cost of complianceand James Harding, Director of News and Current Affairs
In 2013/14, the BBC incurred compliance costs estimated at(effective 12 August 2013). Helen Boaden, Director, Radio£16.2million (2013: £14.9million) to ensure that we complied with (effective 15 April 2013) and Anne Bulford, Managing Director,
all relevant legislation. This includes the BBC’s annual £2.9million
BBC Finance and Operations (effective 21 June 2013) weresubscription to Ofcom. During the year a number of enquiries
appointed during 2012/13.
continued, the costs incurred to 31 March 2014 on these enquiries
Following approval from the BBC Trust, the Board appointed
was £2.0million (2013: £4.9million).
three new non-executive directors during the year: Sir Howard
Stringer from 1 January 2014, and Nicholas Hytner and Alice
Executive Board
Perkins from 1 April 2014. The term of office for non-executive
The Executive Board meets monthly (except for August),
directors Sally Davis and Brian McBride were concluded during
although additional Board meetings are convened during the year
the year (as planned).
as and when required. Summary minutes of the monthly meetings
are available online at: bbc.co.uk/aboutthebbc/insidethebbc/
managementstructure/seniormanagement/
In practice, the Executive Board delegates some of its
responsibility to other managerial groups and, in accordance withthe requirements and provisions of the Charter, the following
Committees continued to operate last year:
Audit Committee
Fair Trading Committee
Nominations Committee
Remuneration Committee
Any delegation from the Executive Board is stated in the relevant
standing orders for each group and a framework for reporting
and review is established. See: bbc.co.uk/aboutthebbc/
insidethebbc/managementstructure/seniormanagement/subcom.
html
The Executive Board, its sub-committees and other boards towhich it delegates responsibility are responsible for the delivery of
BBC services and day-to-day operations across the organisation.
Induction, performance and development
All new directors receive an induction programme including
Board procedures and directors’ responsibilities. All directors
have access to external independent advice if they wish.
The BBC Trust assesses the performance of the BBC’s
management and its services including an ongoing review ofprogress and an annual performance day. The BBC Trust’s review
and assessment for 2013/14 can be found in Part One.
All the executive directors have their own personal and divisional
objectives, and their performance against them is reviewed by the
Director-General each year.

92

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BBC Annual Report and Accounts 2013/14

Report of the Senior Independent Director‘‘We are filled with a renewed
sense of determinationand optimism.’’
Dame Fiona Reynolds

2013 was a year of looking forward and looking back. The BBC
Trust appointed Tony Hall as the 16th Director-General of the
BBC and Chairman of the BBC’s Executive Board. Arriving back at
the Corporation on 2 April 2013, Tony brought with him a surgeof optimism. He took over from Tim Davie, who had achievedmuch in a five-month stint as Acting Director-General. The Board
set about moving forward under Tony’s leadership and initiated a
new strategy with a clear and uniting vision for the BBC, focusedon making us accessible, inspiring and invaluable for all ouraudiences.
The early months of this year, however, were marked by a focus
on the past. Investigations into past decisions on severance
payments to departing staff and the failed Digital Media Initiative(DMI) project consumed much of the Board’s time. These
investigations were painful but only added impetus to theinternal energy that was already being applied to remedying
these difficulties. During the year we held a major review of
remuneration policy and practice, led by Sally Davis, the then chairof the Executive Remuneration Committee. I report separately
on the details of this review and the issue of severance pay on
page 77. We also strengthened project management andoverhauled the way we oversee complex major projects, learningfrom the lessons of DMI. We have drawn greater assurance fromthe evidence of tighter management and more open reporting of
projects that is already resulting.

Following the review of BBC governance conducted jointly with
the BBC Trust, we also made significant changes to the nonexecutive membership of the Board. Sally Davis’s term of office
ended in December 2013 and Brian McBride’s in March 2014: wewarmly thank them both. Replacing them are Sir Howard Stringer,
former CEO and Chair of Sony; Alice Perkins, Chair of the Post
Office; and Nick Hytner, Director of the National Theatre. These
new non-executive directors join Simon Burke and me in an
expanded non-executive group on the Board. We plan to appoint
a further non-executive to help us with the digital challenge in the
coming year.

BBC Annual Report and Accounts 2013/14

93Part Two: Governance and finance report – GovernanceThe composition of the Executive Board has changed significantly
this year. Five out of seven executive directors were newly
appointed to the Board in 2013. From outside the BBC wewelcomed Anne Bulford (Managing Director, Finance andOperations), James Harding (News and Current Affairs) andJames Purnell (Strategy and Digital). Danny Cohen (Television)joined the Board from his role as Controller of BBC One, andHelen Boaden (Radio) and Tim Davie (BBC Worldwide andGlobal) took on new roles.

Governance and finance report – Governance

Executive Board and Committee attendance
Executive Board
Ordinary Extraordinary
Number of meetings for the period

11

1

11

1

Lucy Adams

80

Helen Boaden

101Anne Bulford

8/9

1

Danny Cohen

100James Harding

6/7

1

Roger Mosey

1/2

0/0

Zarin Patel

3/3

0/0

James Purnell

111Fran Unsworth

4/4

0/0

11
11
11
8/8
2/2

1
1
0
1
0/0

Audit Committee
MemberAttendeeFair Trading Committee
MemberAttendee53Nominations
Committee
MemberRemuneration Committee
MemberAttendee49Executives
Tony Hall

3

5

2/2

1/2

0/1

4

9

2

8
5/7

Non-executives
Brian McBride
Simon Burke
Dame Fiona Reynolds
Sally Davis
Sir Howard Stringer

3
5
5

3
3

3
3
3

9
1/1
9
8/8

This table does not include business conducted offline and update meetings where no formal business was considered.

Together, the new Executive Board is committed to working
as a team to bring energy, leadership and direction to the BBC.
We are determined to create the conditions that will guarantee
the highest quality of distinctive broadcasting, easily accessible toeveryone who enjoys BBC programmes and products. We want
to inspire our audiences and engage our staff in the new,
purposeful direction for the BBC.
In the coming year we will face further challenges, not least thefact that our new strategy will place significant demands on us
culturally, organisationally and financially. But we are filled witha renewed sense of determination and optimism: the BBC
continues to inform, educate and entertain, and at our best weare sensational. Delivering more, better and more personally are
our watchwords for the future.
Dame Fiona Reynolds
Senior Independent Director
19 June 201494



BBC Annual Report and Accounts 2013/14

Remuneration report‘‘We have appointed the very
best people on salaries that are
significantly discounted against
the commercial sector.’’Dame Fiona Reynolds

Annual statement of the Chair of the
Executive Remuneration Committee
2013/14 was a challenging year for the BBC. We came underintense scrutiny over the payment of substantial severance
payments to senior managers. It was also a year of senior
management change with a number of new Executive Board
appointments in which we were determined to attract the mosttalented leaders on salaries that demonstrated value to thelicence fee payer.
We accepted the findings of the NAO review of senior manager
severance payments. This added to the existing internal impetus
to intensify the challenge and scrutiny of senior manager pay,
benefits and contractual terms. As a result the Executive
Remuneration Committee (ERC) expanded its scope to include
responsibility for the BBC’s subsidiaries; introduced new policies
and practices for senior salaries including severance; improved thegovernance of severance and pay; and introduced greater
challenge and scrutiny of salaries and severance at a greater depth
within the organisation.

We have continued with our policy of discounting senior manager
and executive salaries by between 20% and 80% against thecommercial sector, aligning ourselves more closely with thecommercial public sector. We no longer provide a car allowanceor funded private medical insurance to executive directors andsenior managers joining the BBC. The majority of Executive Board
members are not entitled to receive either benefit and all of our
executive directors have accepted contractual terms that cap
severance at £150,000 and reduce the employer notice period
to six months.

BBC Annual Report and Accounts 2013/14

95

Part Two: Governance and finance report – GovernanceIn line with the new policies agreed, the BBC implemented a capof £150,000 on severance payments in September 2013, ceased
the practice of making payments-in-lieu-of-notice (PILON) in
addition to severance and extended the scope of the newly
established Senior Manager Remuneration Committee (SMRC)
to include responsibility for approving all pay increases above£75,000, all discretionary severance payments and contractual
severance payments above £75,000. The SMRC provides regular
updates to the Executive Remuneration Committee and since
the increased governance was introduced in September 2013
there has been a modest reduction in the headcount and pay billof those earning £75,000 or more. Since September 2013, there
have been no cases of severance paid above £150,000 and nocases where payment-in-lieu-of-notice (PILON) has been paidin addition to severance.

Governance and finance report – Governance2013/14 saw significant change for the BBC’s Executive Board;
six of the seven BBC directors were newly appointed to theirrole in the 2013 calendar year. Throughout the year the ERC hasreviewed the BBC’s progress towards senior manager reductions
against targets set by the 2011 BBC Executive and Senior
Management Pay Strategy to be met by 31 December 2015.
Since 2009, the BBC has reduced senior manager headcount andthe senior manager pay bill by more than a third. Since January
2012, we have continued to make steady progress towards ourtargets, reducing by a further 74 heads (15.3%) against a targetof c70 heads and reducing the pay bill by £6.6million (11.5%)
against a target of c£9million.

Key decisions 2013/14

We have appointed the very best people on salaries that are
significantly discounted against the commercial sector; reflecting
our ability to attract talented leaders motivated by the creative
challenge and public responsibility of leading the BBC.

Strategy for 2014/15

There is more to do. We have an ambition to further reduce
the percentage of employees at senior management gradesfrom 410 (down from 640 in August 2009) and the numbersof senior managers earning more than £150,000. To achievethese ambitions the Committee will continue to challenge theBBC’s senior management to deliver value and transparency
to licence fee payers. We believe we can attract the very bestleaders and highly talented staff through a combination of our
extraordinary output, compelling creative position and strong
public service ethos.
Dame Fiona Reynolds
Senior Independent Director
19 June 201496No salary increase for Executive Board members
Reduction of Executive Board employer notice period
from 12 months to 6 months
Implementation of a £150,000 redundancy payment cap
Introduction of enhanced governance of all salary
proposals over £75,000 per annum
Introduction of enhanced governance for redundancy
payments over £75,000

Removal of the Director, HR role from the Executive
Board
Appointment of the CEO, BBC Worldwide and Director,
Global role to the Executive Board
Continuation of the Executive and Senior Manager
Remuneration Strategy 2011-2015
This report sets out the BBC’s remuneration policy and details
the annual remuneration received by the staff members of the
Executive Board (the executive directors) for the financial year
2013/14. It has been prepared on the basis that the requirementsof the Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008 and Listing Rules apply to the BBC
wherever these disclosure provisions are relevant. The sections
on pensions and remuneration received by the Executive Board
members have been audited by KPMG LLP.

BBC Annual Report and Accounts 2013/14

The remuneration policy for executive directors

1. Remuneration Committees: constitution and operation
The BBC Trust is responsible for setting the remuneration
strategy for the Executive Board and for all aspects of the
remuneration of the Director-General and the non-executive
directors.

2. Executive Board membership and structure
In 2013/14, the BBC made the last of the current round of
appointments to the new Executive Board under Tony Hall’s
leadership. This was the role of Director, News and Current
Affairs. The Committee approved the salary for this appointment.

The Executive Remuneration Committee (ERC) is responsiblefor implementing the agreed strategy for all executive membersof the Executive Board, with the exception of the DirectorGeneral. Its members are non-executive directors: Sally Davis(Chairman until 31 December 2013), Dame Fiona Reynolds andBrian McBride (until 31 March 2014). Dame Fiona Reynolds took
over the chairmanship of ERC from Sally Davis on 1 January 2014.

As at 31 March 2014, the Executive Board comprised sevenexecutive directors and four non-executive directors – detailsof the Executive Board membership and full remuneration isprovided in Table 1 below.

Complying with the UK Corporate Governance Code 2010 and2012, the ERC takes specialist advice from external professional
advisers on some matters, particularly those relating to market
practice. During the year, independent advice was received fromTowers Watson on matters related to market comparability of
executive remuneration.

SMRC members during 2013/14 were: Tony Hall, DirectorGeneral (Chair); Anne Bulford, Managing Director, Finance &Operations; Lucy Adams, Director, HR; and non-executive
directors Sally Davis1, Dame Fiona Reynolds and Brian McBride2.

3. Executive director pay components
The ERC is committed to striking the balance between setting
appropriate levels of pay for Executive directors that attracts,
motivates and retains the best people to lead the BBC andproviding value for the licence fee payer. The BBC’s executive pay
strategy should be fair, transparent and broadly consistent withthe approach to pay for all employees at the BBC. Progresscontinues to be made towards these goals, including the phased
diminution of historic differences in approaches to pay andbenefits between senior and other staff.
The BBC receives regular feedback regarding senior pay from
employees during annual pay negotiations through the tradeunions and via the annual staff engagement survey. This feedback
is taken into account when setting the pay strategy for the
executive directors.
When reviewing the pay for the executive directors, theCommittee considers each component of the total remuneration
package broken down as follows:

1 Sally Davis was the non-executive director on the SMRC until 31 December 2013 when
her term expired. Fiona Reynolds and Brian McBride replaced Sally Davis on SMRC
between 1 January and 31 March 2014.
2 Brian McBride’s term as non-executive director ended on 31 March 2014.
BBC Annual Report and Accounts 2013/14

97

Part Two: Governance and finance report – Governance

The ERC established the Senior Manager Remuneration
Committee (SMRC) in September 2012, giving it responsibility
for aligning the operational needs of the BBC within the strategic
framework set by the Trust and implemented by the ERC.
Since 1 July 2013, the SMRC has been required to approve all
redundancies of £75,000 or more and any severance paymentthat is not contractual or that includes a payment that is outsideof policy. The SMRC is also responsible for approving all salaryadjustments or new salaries for any employee earning a full-timesalary of £75,000 or more since 1 September 2013.

The Director, HR role is no longer a member of the Executive
Board after 31 March 2014. The CEO, BBC Worldwide & Director,
Global role was appointed to the Executive Board with effectfrom 1 April 2014.

Governance and finance report – Governance

Component

Purpose and link to strategy

Operation

Maximum opportunity

Base pay

Base pay is aligned to the market
median for total direct remuneration(salary, annual bonus and annualised
long-term incentive).

Three factors are used todetermine the level of base pay
set for an executive director orsenior manager:

There is no prescribedmaximum salary or
maximum increase.

A discount of 50-80% against total
direct remuneration in thecommercial sector is applied to
executive director roles.

would the rate be consistent
with the discounted market
rate for the job?
does the personal
performance of the executive
justify the level of base pay?
is the level affordable to the
BBC and not deemedexcessive?

Discretionary performancebonuses to a maximum of 10%
of base pay were historically paid
to executive directors.

Executive directors with rolesin the public service part of thebusiness are no longer entitled
to receive a performance bonus.

Executive directors employed in
the BBC’s commercial businesses
are contractually entitled to a
performance related annual bonus
funded by the commercial businessand not the licence fee. It is reward
for the achievement of short-term
strategic goals and profit growtheach year.

Payment of contractual bonus in
the BBC’s commercial businesses
is subject to an agreed level of
performance linked to financial
metrics. The levels of profit
performance attracting threshold,target and maximum bonus are
set by the BBC ERC. No payment
is made for performance below
the threshold. Payment of 0-100%of the maximum opportunity ismade between the threshold andthe maximum targets.

Variable pay98

No executive director in the
public service has received abonus since 2008.
The maximum bonus
payable to an executive
director employed in a BBC
commercial business is 70%
of salary where target
bonus is 50% of salary.

BBC Annual Report and Accounts 2013/14

Component

Purpose and link to strategy

Operation

Maximum opportunity

Benefits

Pensions are offered in accordancewith the all employee pension
arrangements.

Executive directors who werealready in receipt of a car
allowance have retained it.

Current policy provides
a defined contribution
scheme with no salary cap.

In addition to pensions, the othermain contractual benefit is life
assurance.

Executive directors who received
a car allowance payment in2013/14 were: Lucy Adams, Helen
Boaden and Danny Cohen.

Existing members of adefined benefit pension
scheme are capped at the
maximum salary for theirpension scheme or are
subject to a cap in
pensionable salary growth.
The Scheme is closed for
new joiners.

In April 2012, the BBC removed the
car allowance benefit for all new
executive directors and senior
managers to ensure that future
policy aligns with arrangements for
all BBC employees. Entitlement to
private health care was also
removed for all executive directors
with effect from April 2011 for thesame purpose.

Danny Cohen had his car
allowance frozen on promotion
to the Executive Board
The Director-General is entitledto a car and driver under earlier
arrangements but has noentitlement to a personal car
allowance or fuel allowance.
During 2013/14 all other executive
directors have had shared accessto a car and driver.

The maximum car
allowance benefit received
by any executive director is£12,900 per annum. This isa historical benefit.

Employment contracts of executive
directors have a maximum notice
period of six months, but are
subject to earlier termination
for cause.

There is no contractual
entitlement to any additional
remuneration in the event of earlytermination other than in the caseof termination for reason of
redundancy.

In the event of redundancy,
all executive directors areentitled to payments equal
to one month per year
served up to a maximum
payment of £150,000.

Other
remuneration

There is no entitlement to any
other remuneration.

Consideration is given to thereputational risks to the BBC
and the level of payment isagreed by the Executive
Remuneration Committee
on a case-by-case basis.

There is no prescribedmaximum.

BBC Annual Report and Accounts 2013/14

Part Two: Governance and finance report – Governance

Employment
contracts andseverance99

Governance and finance report – GovernancePensionExecutive directors who joined the BBC before 1 December
2010 are eligible to participate in the BBC Pension Scheme(the Scheme), which provides for pension benefits on a defined
benefit basis. Executive directors who joined the BBC on or after
1 December 2010 are eligible to join LifePlan which is the BBC’s
defined contribution arrangement. The BBC pays matching
contributions to LifePlan for employee contributions between
4% and 5%. Employee contributions between 6% and 7% arematched plus an additional 1%. Employee contributions of 8%
or more receive the maximum employer contribution of 10%.
There is no maximum pensionable salary for contributions
to LifePlan.

SchemeDate closed
AccrualExecutive directors who decide not to join LifePlan or are notalready an existing member of the Scheme are, subject to meeting
the relevant criteria, automatically enrolled into the National
Employment Savings Trust (NEST). The BBC and employees
currently pay 1% of qualifying earnings to NEST. Individuals canchoose to opt out of this.
Executive directors’ pension arrangements may be reviewed
and amended in response to changes in legislation or similar
developments.
Features of the BBC’s pension arrangements, including normal
pension age, are provided in the table below.
Details of the BBC Pension Scheme are available atbbc.co.uk/mypension/ and details of LifePlan can be found atfriendslife.co.uk/microsite/bbc/‘Old’ benefits
defined benefit‘New’ benefits
defined benefit

CAB 2006
defined benefit

CAB 2011
defined benefit

LifePlandefined contribution

National Employment
Savings Trust (NEST)
defined contribution(auto enrolment
arrangement)

30 September 1996

31 October 2006

30 November 2010

1 January 2012

Open to all eligible
employees

Open to all eligible
employees

60ths accrual

60ths accrual

1.67% accrualadjusted in linewith inflation

1.67% accrualadjusted in linewith CPI

BBC will contribute
1% of qualifying
earnings

Final pensionable

Final pensionable

Career averagerevalued earnings

Career averagerevalued earnings

BBC will contributea maximum of 10%
of salary if employee
contributes 8% withlower sliding scale

60

60

65

65

N/A

N/A

Earnings cap

DOJ before Capped at £141,000
1 June 1989
uncapped, capped
otherwise

Capped at £141,000

Capped at £138,000

Uncapped

Minimum earnings£5,668pa
Maximum earnings£41,450pa

Pensionable salary
growth before theEarnings cap is applied

Limited at 1% p.a.

Limited at 1% p.a.

Limited at 1% p.a.

No restriction

N/A

N/A

7.5%

7.5%

4%

6%

Minimum employee
contribution is 4%

1% of qualifying
earnings

SalaryNormal pensionable age

Employee contribution(% of pensionable salary)

Severance pay
A detailed report on severance pay by the Senior Independent
Director is available online: bbc.co.uk/aboutthebbc/insidethebbc/
howwework/reports/bbc_review_severance_payments_
2013_14.html

Total annual remuneration £000s

Variable remuneration in 2014/15 for BBC Worldwide
The chart represents the potential earnings of the CEO, BBC
Worldwide & Director, Global for the year.
Minimum: a base salary of £400,000, pension related single
figure of £37,000 and taxable benefits of £2,000
Target: the minimum payment plus a bonus of 50% of basesalary (£200,000)

Bar chart shows
Total annual remuneration

Maximum: the minimum payment plus a bonus of 70% ofbase salary (£280,000)

Minimum - £439,000 of which 100% was paid in salary, pension
and benefits
Target - £639,000 of which 69% was paid in salary, pension andbenefits and 31% was paid in bonuses
Maximum - £719,000 of which 61% was paid in salary, pension
and benefits and 39% was paid in bonuses

100 

BBC Annual Report and Accounts 2013/14

4. How does the executive pay policy in the public service
differ from that for all other BBC employees?
The ERC has ceased the payment of bonuses to all executive
directors in the public service and is moving away from theprevious two-tier benefit structure by phasing out private medical
insurance and car allowances, with no new executive director
or senior manager receiving these benefits since August 2011
and April 2012 respectively. These changes have simplified andequalised pay arrangements across our employee population.
A full range of benefits can now be purchased by all staff at alllevels of the organisation under our flexible benefits arrangements.
BBC graded staff are entitled to an annual pay review which isnegotiated and agreed with the National Joint Council of Trade
Unions. These people may also be entitled to a progression
payment, depending on their salary position within range after
three years and six years in post, assuming a satisfactory levelof performance during this period.
Executive directors and senior managers are not automaticallyentitled to any form of annual increment nor are they entitledto any form of progression payment. All senior salaries are
discounted against those of equivalent commercial organisations
and the BBC is increasingly aligning senior pay to the commercial
public sector.

Further to the National Audit Office review ‘Severance payments
and wider benefits for senior BBC managers’ published in June
2013, the ERC commissioned a full review of executive directors’
severance terms and practices in 2013 and expanded the remitof the SMRC to include responsibility for the BBC’s approach toseverance arrangements for senior managers.
As a result of this review, the ERC has changed the employer
notice period for all executive directors from 12 months
to six months, aligning it with senior manager notice periods,
implemented a cap on redundancy payments of £150,000, ceased
the practice of making payments-in-lieu-of-notice (PILON) in
addition to severance and capped outplacement support andlegal fees for compromise agreements at £5,000 and £2,000
respectively. The SMRC are also required to provide regular
reports on senior severance cases to the ERC. A full report on
the implementation of the NAO recommendations can be found
at: bbc.co.uk/aboutthebbc/insidethebbc/howwework/reports/
bbc_review_severance_payments_2013_14.html
6. Consideration of BBC Trust views
The ERC consults with the Trust on all matters relating to the
executive director pay strategy to ensure alignment with thelicence fee payers’ expectations. The ERC provides regular
reports to the Trust outlining progress against senior manager
reduction targets, and seeks feedback from the Trust.

The BBC continues the practice of discounting BBC executive
directors’ pay against the commercial sector and has maintained
the freeze in pay of executive directors. The agreed discountremains at between 50% and 80% below commercial sector
comparisons. In order to ensure that levels of pay are consistent
with the agreed strategy the committee obtains and reviews
external market pay data via an independent advisor. This
information was reported to the Trust and provided assuranceof our continued delivery against the policy: we maintained a
discount against commercial sector executive roles of 72% for thelast two years. This discount also reflects the substantial additionalamounts of variable pay (including bonus and long-term incentives)
provided in the commercial sector that are not available toexecutive directors working for the public service BBC.

BBC Annual Report and Accounts 2013/14

101

Part Two: Governance and finance report – Governance

The ERC uses the BBC pay multiples, ratios of the DG andexecutive directors’ median earnings to the BBC median earnings,
The committee provides an annual assurance report to the Trust
as a cap to ensure that the BBC continues to reduce the levelfor consideration and feedback.
of remuneration for executive directors relative to othermembers of staff.
Members discussed the report, which covered executive director
pay, benefits and terms and conditions. It was noted there had
5. The executive pay strategy and policy for 2013/14 –been no ‘in role’ salary increases for executive directors and that
progressing towards greater consistency and transparency
the discount factor against remuneration of commercial sector
Continued reduction of executive and senior manager pay
competitors was within the range agreed by the Trust.
and salary discounts
Throughout 2013/14, the ERC worked to manage and reduce
both senior managers’ pay and numbers by ensuring compliancewith the BBC Executive and Senior Management Pay Strategy.
This was agreed with the Trust in July 2011 with targets to bedelivered by the end of 2015. Since January 2012, the BBC has
reduced by 74 senior managers against a target of c70 and by£6.6million against a target of c£9million.

Governance and finance report – Governance

Executive Board annual remuneration report
1. Annual remuneration of the Executive Board – detail of remuneration received (audited)
Table 1 provides full details of the remuneration received by all Executive Board members and the total remuneration for Trustees
for 2013/14 compared to previous year. Table 2 details pension benefits for those members of the Executive Board who are membersof a defined benefit scheme.
Table 1: Executive Board remuneration
2013/14

Other Compensation
PensionFee/
Taxable remunerfor loss related single
base pay benefits
ation
of officefigure
£000
£000
£000
£000
£000
(Note 14) (Note 15)(Note 17)

Total
remuneration
includingpensionrelated single
figure£000

Executive directors
Executive directors as at 31 March 2014
Tony Hall (Note 1)

449

18

–

–

–

467

Lucy Adams (Note 2)

320

16

–

–

42

378

Helen Boaden

340

15

–

–

59

414

Anne Bulford (Note 3)

304

–

–

–

–

304

Danny Cohen (Note 4)

287

9

–

–

31

327

James Harding (Note 5)

217

–

–

–

–

217

James Purnell (Note 6)

295

–

–

–

22

317

2,212

58

–

–

154

2,424

Total executive directors as at 31 March 2014
Former executive directors serving on the Executive Board in 2013/14
Tim Davie (Note 7)

1

–

–

–

–

1

Graham Ellis (Note 8)

8

2

–

–

–

10

Roger Mosey (Note 9)

25

2

–

–

–

27

Zarin Patel (Note 10)

81

3

–

–

–

84

Fran Unsworth (Note 11)

66

5

–

–

–

71

Total former executive directors serving on the Executive Board in 2013/14

181

12

–

–

–

193

Total former executive directors on the Executive Board prior to 2013/14

–

–

–

–

–

–

2,393

70

–

–

154

2,617

Total executive directors
Non-executive directors
Non-executive directors as at 31 March 2014
Simon Burke

37

–

–

–

–

37

Brian McBride

33

–

–

–

–

33

Dame Fiona Reynolds (Note 12)

47

–

–

–

–

47

Howard Stringer (Note 13)

8

–

–

–

–

8

125

–

–

–

–

125

Total non-executive directors as at 31 March 2014
Former non-executive directors serving on the Executive Board in 2013/14
Sally Davis

28

–

–

–

–

28

Total former non-executive directors serving on the Executive Board in 2013/14

28

–

–

–

–

28

Total former non-executive directors on the Executive Board prior to 2013/14

–

–

–

–

–

–

Total non-executive directors
Total Executive Board
Total Trustees
Total

102 

153

–

–

–

–

153

2,546

70

–

–

154

2,770

525

1

–

–

–

526

3,071

71

–

–

154

3,296

BBC Annual Report and Accounts 2013/14

2012/13Fee/base pay£000

TaxableOther
benefits remuneration
£000
£000
(Note 16)

Compensation
Pensionfor loss
Total related single
of office remuneration
figure
£000
£000
£000
(Note 17)

Total
remuneration
includingpensionrelated single
figure
£000

–

–

–

–

–

–

9

–

–

181

12

193

340

14

81

–

435

61

496

–

–

–

–

–

–

–

Appointed to Executive Board 21 June 2013

–

–

–

–

–

–

–

Appointed to Executive Board 7 May 2013

–

–

–

–

–

–

–

Appointed to Executive Board 12 August 2013

10

–

–

–

10

–

10

Appointed to Executive Board 19 March 2013

522

23

81

–

626

73

699

397

11

–

–

408

41

449

Stepped down from Executive Board 1 April 2013

74

4

–

–

78

9

87

Stepped down from Executive Board 14 April 2013

166

6

–

–

172

–

172

Stepped down from Executive Board 6 May 2013

352

14

–

–

366

40

406

Stepped down from Executive Board 21 June 2013

–

–

–

–

–

–

–

Appointed to Executive Board 1 April 2013.
Stepped down from Executive Board 11 August 2013

1,114

989

35

–

–

1,024

90

1,081

38

154

1,153

2,426

58

2,484

2,592

96

235

1,153

4,076

221

4,297

40

–

–

–

40

–

40

35

–

–

–

35

–

35

43

–

–

–

43

–

43

–

–

–

–

–

–

–

118

–

–

–

118

–

118

36

–

–

–

36

–

36

36

–

–

–

36

–

36

61

–

–

–

61

–

61

215

–

–

–

215

–

215

2,807

96

235

1,153

4,291

221

4,512

531

1

–

–

532

–

532

3,338

97

235

1,153

4,823

221

5,044

BBC Annual Report and Accounts 2013/14

Appointed to Executive Board 2 April 2013

Part Two: Governance and finance report – Governance–
172

Left 31 March 2014
Joined 1 January 2014

Joined 1 January 2012. Left 31 December 2013103

Governance and finance report – GovernanceNotes to Table 1: Executive Board remuneration
Note 1: Tony Hall
Tony Hall joined the BBC on 2 April 2013 as Director-General.
Note 2: Lucy Adams
Lucy Adams resigned from her role as Director, HR. Lucy cameoff the Executive Board with effect from 31 March 2014 and leftthe BBC on 4 April 2014. The Director, HR role is no longer on
the Executive Board.
Note 3: Anne Bulford
Anne Bulford joined the BBC on 1 June 2013 as Managing
Director, Finance & Operations. This was a new executive
director role encompassing Finance, Legal, Human Resources
and Operations that was appointed to the Executive Board
on 21 June 2013. The remuneration reflects her earnings from21 June 2013.
Note 4: Danny Cohen
Danny Cohen was promoted to the role of Director, Television,joining the Executive Board with effect from 7 May 2013. His
remuneration reflects his earnings as Director, Television.
Note 5: James Harding
James Harding joined the BBC on 12 August 2013 as Director,
News and Current Affairs.
Note 6: James Purnell
James Purnell joined the BBC on 19 March 2013 as Director,
Strategy & Digital in a new executive director role.
Note 7: Tim Davie
Tim Davie was Acting Director-General from 11 November 2012
until Tony Hall assumed the role on a permanent basis on 2 April
2013. Base pay includes a temporary acting allowance equivalentto £50,000 per annum received whilst Acting Director-General.

Note 11: Fran Unsworth
Fran Unsworth was Acting Director, News between 11 November
2012 and 20 December 2012 and also covered this role whilst
Helen Boaden was on leave between 19 March 2013 and 31 March
2013. On both occasions, Fran did not join the Executive Board or
receive any additional remuneration and was therefore excluded
from the table previously. Fran was appointed Acting Director,
News and Current Affairs, joining the Executive Board, with effectfrom 1 April 2013. Fran stepped down from the Executive Board
when James Harding assumed the role of Director, News andCurrent Affairs on 12 August 2013. The remuneration reflects her
earnings from 1 April 2013 to 11 August 2013.
Note 12: Dame Fiona Reynolds
Dame Fiona Reynolds joined the Board on 1 January 2012 as a
non-executive director and assumed the role of Senior Independent
Director on 1 December 2012
Note 13: Howard Stringer
Howard Stringer joined the BBC on 1 January 2014 as a nonexecutive director.
Note 14: Pension
Employee pension contributions are ordinarily made via a salarysacrifice arrangement as an employer contribution, with acorresponding reduction in salary. Base salaries for executive
directors have not been adjusted to reflect the impact of salarysacrifice to enable like-for-like comparison with prior years before
salary sacrifice was introduced.
Note 15: Taxable benefits
Taxable benefits are: car allowance/benefit, private medical
insurance and taxable expenses.

Note 16: Other remuneration 2012/13
In 2012/13, the BBC published the legal and related costs borneby the BBC in respect of those directors that gave evidence toNote 8: Graham Ellis
the Pollard Review. These figures were published inclusive ofGraham Ellis was appointed Acting Director, Audio & Music withincome tax and National Insurance due, pending agreement ofeffect from 1 December 2012. Base pay includes temporary actingthat figure with HMRC. Agreement has now been reached withallowance. Graham stepped down from the Executive Board on
HMRC regarding the associated tax and National Insurance due
14 April 2013. The remuneration reflects earnings from 1 April
and the costs of the fees paid on behalf of executive directors in2013 up to 14 April 2013.
2012/13 has changed. The total cost has reduced from £294,000
Note 9: Roger Mosey
to £235,000.
Roger Mosey was appointed Acting Director, Vision with effectNote 17: Pension related single figure
from 20 August 2012. Base pay includes temporary acting
The pension related single figure represents the value of pension
allowance. Roger stepped down from the Executive Board andsavings made during the year on behalf of directors. It is a new
became Director, Editorial Standards when Danny Cohen assumed
reporting requirement. The valuation is based on the calculation
the role of Director, Television on 7 May 2013. The remuneration
which tests pension savings against the annual allowance (AA),reflects his earnings from 1 April 2013 to 6 May 2013. Roger has
in line with HMRC regulations. The director’s own contributions
since left the BBC.
are deducted and for defined benefits the figure is calculated as
Note 10: Zarin Patel
20 times (rather than 16 as applies for AA purposes) the increase
Zarin Patel resigned from the Executive Board with effectin the accrued pension over the year after adjusting for inflation.
from 21 June 2013 and left the BBC on 31 October 2013.
In some cases this may result in a zero value.
The remuneration reflects her earnings from 1 April 2013
to 21 June 2013.

104 

BBC Annual Report and Accounts 2013/14

Defined benefit schemes
Details of defined benefit entitlements are shown below.
Table 2

Executive Directors

Age as at
31 March 2014

Accrued pension
31 March 2014 Accrued pension
Director(or retirement/
1 April 2013
defined benefit
leaving the BBC(or joining the contributions (via
if earlier)
Board if after)
salary sacrifice)Section
£000
£000
£000
(Note 7)Pension-related
single figure£000(Note 8)

Lucy Adams
Helen Boaden

49
58

CAB 2006
Old benefits

11
74

8
69

6
16

42
59

Danny Cohen1
Tim Davie2
Graham Ellis3
Roger Mosey4
Zarin Patel5
Fran Unsworth6

40
46
60
56
53
56

CAB 2006
CAB 2011
Old benefits
Old benefits
New benefits
Old benefits

15
3
10
133
34
95

13
3
10
137
33
94

6
–
1
9
3
6

31
–
–
–
–
–

BBC Annual Report and Accounts 2013/14

105Part Two: Governance and finance report – Governance

Notes
1 Danny Cohen was appointed as a director on 7 May 2013. The pension shown includes the period before he was appointed as a director.
2 Tim Davie became an active member of the CAB 2011 section as at 1 January 2012 and retains a deferred pension in the new benefits section for service up to that date. The accrued
pension shown relates to CAB 2011 only.
3 Graham Ellis came off the Board on 14 April 2013. The accrued pension shown includes the period of Scheme membership before he was appointed as a director where he continues
to build up benefits.
4 Roger Mosey came off the Board on 6 May 2013 and left the BBC on 30 September 2013. The accrued pension shown includes the period after he came off the Board.
5 Zarin Patel stepped down from the Executive Board on 21 June 2013 and left the Scheme on 31 October 2013.
6 Fran Unsworth was temporarily appointed as a director from 1 April 2013 to 11 August 2013. The accrued pension shown includes the period before she was a director.
7 Directors’ defined benefit contributions are made via salary sacrifice arrangement as an employer contribution, with corresponding reduction in salary. Base salaries for executive
directors have not been adjusted to reflect the impact of salary sacrifice to enable like-for-like comparison with prior years before salary sacrifice was introduced. To avoid doublecounting, the salary sacrifice contribution is treated as a contribution from the director for the purpose of calculating the pension-related single figure.
8 The pension-related single figure has been calculated on a pro rata basis to reflect the period each director served as a member of the Board.
9 Tony Hall and Anne Bulford are not currently contributing to a BBC pension arrangement and do not receive any payments in lieu of pension related benefits in respect to their current
period of employment.
10 James Harding was appointed to the Board on 12 August 2013 and was subsequently automatically enrolled into the National Employment Savings Trust. The BBC matches 1% of James’
qualifying earnings. The employer contribution for 2013/14 was £149.05.
11 James Purnell is an active member of LifePlan. In 2013/14 the employer contribution to this scheme was £22k.

Governance and finance report – Governance2. Comparative pay across the BBC public service:
how does executive director pay compare to thatof other BBC employees?
In 2011, the BBC voluntarily agreed to report the top to medianearnings multiple as proposed in the Hutton report ‘Fair Pay
in the Public Sector’. Since 2011, the BBC has published thesefigures on an annual basis.
The table below provides a summary of the Director-General to
BBC median earnings and executive directors’ to median earnings
figures since 2011. The Director-General multiple has reduced
again from 11.0 to 10.9.
2014

2013

2012

2011

Director-General earnings

10.9

11.0

16.5

16.8

Executive directors’
median earnings

8.2

8.1

8.7

8.9

The following tables provide a summary of the changes tothe Director-General’s cash earnings for 2013/14 versus
the change in pan BBC median earnings over the same period.
This demonstrates a positive increase in median earnings acrossthe BBC whilst there has been no change in the earnings of the
Director-General. In addition, through the BBC Executive andsenior manager reduction programme, the BBC has achieved a
reduction in total cash earnings and earnings as a proportion of
total salary costs for BBC executive directors and senior managers.
2014
£000

Changefrom 2013

Director-General cash earnings

450

0.0%

Pan BBC median earnings

41

1.0%

Percentageof paybill

Salary andallowance
costs£mPercentageof paybill

2.49

0.3%

2.30

0.3%

Senior manager cash
earnings

50.73

6.0%

54.25

6.6%

All other BBC staff cash
earnings

786.0993.7%

759.90

93.1%

Total

839.32

Executive director cash
earnings

Earnings calculation includes: basic pay, bonus, continuing allowances, overtime, and other.

Over the past two years there have been a number of changes
in membership of the Executive Board which has impacted on
the published multiples. On 31 March 2013, three of the sevenexecutive director roles were filled on a temporary basis.
Although these interim appointments attracted a temporary
acting allowance, the acting executive directors were paid lessthan the permanent members of the Executive Board. As a resultof these acting arrangements, the multiple was temporarily
reduced to 8.1 in March 2013.
By August 2013, all of the permanent appointments were in place
and the new Executive Board was complete. The multiple ofmedian earnings within the BBC to the median earnings of theexecutive directors for 2014 is 8.2.
Over the past five years, the Director-General’s earnings, in realterms, have been reduced as illustrated in the following chart,
and earnings growth at the most senior levels of the BBC has
been minimised.

106 

2013

2014
Salary andallowancecosts£m816.45

These tables refer to the BBC public service and are exclusiveof employees in the BBC’s commercial business. For the purposesof the calculations, annualised values have been used. Employer
pension costs, employer national insurance contributions andrestructuring costs are not included in these values.

BBC Annual Report and Accounts 2013/14

Delivering the strategy in 2014/15
During 2014/15, the ERC will continue to review, challenge andassess senior pay strategy and practice at the BBC in line withthe agreed executive and senior manager strategy 2011-2015
to ensure that the number and paybill of the most senior
managers at the BBC continues to reduce. The committee willconsider all potential executive director appointments andseverance cases to ensure alignment with BBC policy and thecurrent remuneration strategy.

Changes to Director-General remuneration £000s

Outside interests
In 2013/14, with the prior agreement of the Director-Generaland the Nominations Committee, executive members of the
Executive Board were permitted to hold one remunerated
external directorship with up to 15 days per year permitted
to fulfil these duties.
Remuneration which arises from directorships may beretained by the individual. Executive directors may also hold
non-remunerated posts outside the BBC.
These arrangements are currently under review.
During the year no executive director held any other
remunerated external directorship. To see the Executive Board’s
register of interests visit: bbc.co.uk/aboutthebbc/insidethebbc/
managementstructure/seniormanagement/
The BBC’s commercial businesses
The BBC has staff employed with three commercial subsidiaries:
BBC Studios and Post Production
BBC Global NewsThe remuneration policy for the subsidiaries includes thecontractual provision of an annual bonus available to eligible staff,
including directors. The full cost of base pay and incentive plans
are self-funded by the commercial revenues of each subsidiarycompany and are not subsidised by the licence fee.
Remuneration within the commercial subsidiaries is not governedby the BBC’s remuneration policy and governance arrangements.
The BBC’s SMRC approves all remuneration for the most seniorstaff in the commercial businesses with the exception of theexecutives for BBC Worldwide for whom the BBC’s ERC
approves all remuneration.

BBC Annual Report and Accounts 2013/14

Changes to Director-General remuneration
31st March 2010: Mark Thompson’s total was £870,000 of which £668,000
was Salary £163,00 was pension supplement £7,000 was benefits and£32,000 was pension
31st March 2011: Mark Thompson’s total was £808,000 of which £613,000
was Salary £163,00 was pension supplement £3,000 was benefits and£29,000 was pension
31st March 2012: Mark Thompson’s total was £661,000 of which £613,000
was Salary £9,000 was benefits and £39,000 was pension
31st March 2013: Tim Davie’s total was £502,000 of which £450,000 was
Salary including temporary acting allowance £11,000 was benefits and£41,000 was pension
31st March 2014: Tony Hall’s total was £468,000 of which £450,000 was
Salary and £18,000 was benefits
Tony Hall’s total remuneration was a reduction of 46% compared to MarkThompson’s 31st March 2010 total

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Part Two: Governance and finance report – GovernanceBBC Worldwide

Bar chart showsGovernance and finance report – Governance

Audit Committee report‘‘Our activities continue to befocused on ensuring the BBC has
effective controls – and applies
those controls – to protect anduse wisely its licence fee money.’’
Simon Burke

Report of the Chairman of the Executive Audit Committee
Overview
The BBC has faced a number of challenges in recent years and thisyear has seen the settling in of a new management team and arenewed focus on the future. Alongside this I have maintained the
Audit Committee’s focus on ensuring the integrity of the BBC’s
financial reporting and the appropriateness of its system ofinternal control.
We have sought to learn from previous incidents, such as failureof the DMI project, by looking specifically this year at projectassurance processes across the BBC. We are satisfied that actions
are being taken to strengthen project management capability andto build in independent project assurance – both technical andgovernance – at key stages in the life of BBC projects. This is anarea to which we will continue to pay close attention.
We are also working to refine risk assessment and mapping acrossthe BBC and to integrate this better with the various assurance
activities undertaken not just by Internal Audit but other specialist
assurance providers and management functions. For example, aspart of our review and approval of the Internal Audit plan we
discussed how well it addressed key strategic risks and whether
there were any assurance gaps which we needed to address.
The BBC is facing a challenging time financially and we have madesure that sufficient Internal Audit effort is also directed at corefinancial and operational processes providing us with assurance
that these are working as intended.
We endeavour at all times to keep the interests of our audienceand the licence fee payers at the forefront of our thinking.
Role
The main purpose of the Executive Audit Committee (EAC) is to
examine, on behalf of the Board, whether the financial statementsof the BBC have been prepared with integrity and if the BBC ismaintaining and operating a sound system of internal control andrisk management. In order to gain assurance on these matters, theEAC has responsibility for:monitoring and reviewing the integrity of the financial
statements of the BBC and the significant reporting judgments
contained within themreviewing the effectiveness of the BBC’s system of internal
control
reviewing the process for the management of risk
reviewing the assurance processes in place to test and monitor
the operation of controls designed to manage key risks
reviewing the appropriateness of the BBC’s relationship withthe external auditor, including auditor independence, fees andthe provision of non-audit services
making recommendations regarding the appointment of theexternal auditor
The EAC’s Standing Orders set out in more detail our
responsibilities. These are reviewed annually and were last
updated in March 2014: downloads.bbc.co.uk/aboutthebbc/
insidethebbc/managementstructure/seniormanagement/
subcommittee/pdf/executive_audit_committee_standing_orders_2013.pdf

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BBC Annual Report and Accounts 2013/14

Membership
The EAC comprises three non-executive directors, of whom one
must have recent and relevant financial experience. The members
who served during the financial year are:Simon Burke
Fiona Reynolds
Brian McBride
The committee considers that Simon Burke has significant,recent and relevant financial experience. When appropriate,
we augment the skills and experiences of our members withadvice from internal and external audit professionals – forexample, on matters such as developments in financial reporting.
Our meetings are also attended by the Director-General, theManaging Director, Finance and Operations, the BBC’s LegalCounsel, the Director of Risk and Assurance and representatives
from internal audit, risk management and the external auditors.
We also meet privately, without any member of management
present, with both Internal Audit and the external auditors ona regular basis.
Meetings
We held five meetings during 2013/14, at key times in thereporting and audit calendar.

Key areas of focus for EAC in the past year
We spent our time on the following areas:
Internal controls
We reviewed the effectiveness of the system of internal controls,
taking account of the findings from internal and external audit
reports. Our work in this area was influenced by the Directorof Risk and Assurance’s reports on the effectiveness of internal
control, identified frauds and losses and assurance mapping.
We considered a number of specific areas during the year:we sought assurance from management that control issues
identified by Internal Audit are being addressed. This is anarea we follow up at every meeting to ensure that agreed
actions in respect of any weaknesses found are being properly
addressed. We would like to see these dealt with more
speedily and are working with management to achieve thiswe focused in particular on controls relating to payroll andemployee access, including the development of systems for
ensuring that access to buildings and confidential material is
granted and removed on a timely basis when employees join,move or leave roles
how the BBC is progressing the delivery of its DQF savings
programme and the assurance activities, connected withthis programme

Financial reporting
We reviewed the Group financial statements and how these arepositioned within the wider Annual Report. To assist this review
we considered reports from management and from the internaland external auditors to assist our consideration of:
the quality and acceptability of accounting policies, including
their compliance with accounting standards
key judgements made in preparation of the financial statements
compliance with legal and regulatory requirements
the clarity of disclosures and their compliance with relevant
reporting requirements
whether the Annual Report as a whole is fair, balanced andunderstandable and provides the information necessary toassess the BBC’s performance and strategy
Risk management
We considered the processes for managing significant risks within
the BBC. This work is influenced by the assessment of the BBC’s
principal risks set out on pages 88-90. During the year we had
detailed presentations from management on:how the BBC is managing its information security risks
how the BBC is managing its key strategic projects
We continue to have an interest in project assurance so that we
can ensure that the lessons learned from DMI are taken forward.
Our review of the Internal Audit plan considered how audit workon project assurance was integrated with management’s own
project assurance activities. We satisfied ourselves that projectassurance activity covers both governance and technicalassurances.
Fraud detection processes and whistle-blowing arrangements
We reviewed the levels of fraud and theft reported and detected
and the arrangements in place to prevent, minimise and detectfraud and bribery. We are pleased to note that no significant
frauds were uncovered in the past year.
Internal audit
We continued to oversee the work of Internal Audit. This is aregular item at each of our meetings. During the year we have:approved the plan of work for the coming year, ensuring thatit strikes a balance between providing assurance over corebusiness processes and assurance over key projects and areasof significant corporate risk
considered the trends and themes emerging from theoutcomes of audits, focusing on any unsatisfactory results
and management’s plans to address theseconsidered the resource requirements for Internal Auditheld regular private discussions with the Director of Risk
and Assurance

BBC Annual Report and Accounts 2013/14

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Part Two: Governance and finance report – Governance

Minutes from our meetings are made available to the Executive
Board and to the BBC Trust. Additionally, the Chairman of our
Committee reports back to the Board after each meeting on
any issues where action or improvement is required. We also
produce a formal report to the Board each year and provide
our views on the integrity of the financial statements before
the Annual Report is approved by the Board as a whole.

Major reviews
We reviewed implementation of the actions recommended byexternal and internal reviews in respect of child protection, andthe use of freelance and personal service company arrangements
by the BBC. We received regular reports on progress and asked
for internal audits to be carried out where appropriate.

Governance and finance report – Governance

Relationship with external auditors
We oversaw the relationship with the external auditors,
including the scope and approach to their work, their fees, theirperformance and independence (including the approval andcompliance with policy on non-audit work). Specific areas offocus this year have included:

Significant financial judgements and reporting for 2014
We considered a number of areas where significant financial
judgements were taken which have influenced the financial
statements:

We identified through discussion with both management and theexternal auditor the key risks of misstatement within the BBC’s
audit risk identification and alignment of this with management financial statements. We discussed these risks with management
risk assessment
during the year, and with the auditor at the time we reviewed andagreed the external auditors’ audit plan during the year and also atour challenge to the auditors on how they addressed these
the conclusion of the audit. We set out in the box below how we
audit risks
satisfied ourselves that these risks of misstatement had been
appropriately addressed.
our private discussions with the auditors without
management presentour review of the effectiveness of the external audit process
which we carried out through a survey of key stakeholders
formal tender for the provision of external audit services,
subsequently won by Ernst & Young (more detail on this isprovided later in this report)
Level of provisions
The financial statements include provisions in relation to
restructuring of £53.7million as part of the BBC’s DQF
programme. Judgements in this area are largely related tothe timing of recognition of these provisions, the quantum
recognised and the amount which has been utilised inprevious years. Other provisions totalling £56.4million require
judgements regarding the assumptions used in quantifying
the BBC’s exposure to claims from various parties, and thelikelihood of success of those claims.
Pension scheme deficit valuation
The financial statements include a significant liability for the
deficit of £1,508.5million in the BBC’s defined benefit pension
scheme. Judgements are required regarding the underlying
assumptions used by the actuaries in calculating the pension
deficit, combined with a change in accounting standard whichleads to a prior year adjustment. Changes in these assumptions
can result in large swings in the final numbers disclosed.

Treatment of property assets
The BBC holds a significant property portfolio which combines
properties held under freehold with those held under financeand operating leases. Within this it is also holding some vacantbuildings as it rationalises its property estate. Judgements relate
to the future intentions for those vacant buildings and related
timescales, which can change the appropriate accounting
treatment and affect the carrying value on the balance sheet.

Other areas of financial statement risk
Other areas where an inappropriate decision could lead tosignificant error include:the recognition of commercial revenue on new contracts
andthe treatment of expenditure related to capital contracts

110 

We reviewed and discussed the level of provisions withmanagement. This included consideration of new provisions andany release and utilisation of existing provisions. Management
confirmed to us that they have applied a consistent approach to
the recognition and release of provisions across the BBC Group.
We also considered the views of the external auditors in respectof the provisions and associated disclosures in the accounts.
We concluded that we were satisfied with the level of provisions
carried and the disclosure in respect of those provisions.
We took advice from independent actuaries and the external
auditor on the appropriateness of the assumptions used,
including how these compare with those used by otherorganisations. We focused in particular on the assumptions
used regarding discount rates, inflation rates and mortality/life
expectancy and obtained an understanding of how changes
in these assumptions would affect the financial statements.
We also considered any movements in these from prior years.
We are satisfied that the assumptions used in the financial
statements are reasonable, appropriate to the BBC andsupported by independent actuarial specialists.
We reviewed the overall BBC property strategy, along withdetailed reports from management which explained thetreatment for the most significant buildings, including the
projected timescales for future activity and rationale fortreatment. We also considered the auditors’ views on theaccounting treatment for these buildings. We are satisfied
that the treatment of these properties within the financial
statements is consistent with management intention and isin line with accepted accounting standards.
We consider that the BBC’s existing financial control systems
should ensure that such items are properly treated in thefinancial statements. We have discussed the external auditors’
findings in these areas and also drawn on relevant Internal Audit
work. There were no issues of concern reported to us in theseareas and consequently we are satisfied that the systems areworking as intended.
BBC Annual Report and Accounts 2013/14

Management confirmed to us that they were not aware of any
material misstatements or immaterial misstatements madeintentionally to achieve a particular presentation. The external
auditors reported to us the misstatements that they had foundin the course of their work and we are satisfied that no material
amounts remain unadjusted. We confirm that we are satisfied
that the auditors have fulfilled their responsibilities with diligence.
After reviewing the presentations and reports from management
and consulting where necessary with the auditors, we are satisfied
that the financial statements appropriately address the criticaljudgements and key estimates (both in respect to the amounts
reported and the disclosures). We are also satisfied that thesignificant assumptions used for determining the value of assets
and liabilities have been appropriately scrutinised and challenged,
and are sufficiently robust.
Appointment of our external auditors
The EAC periodically considers the reappointment of theexternal auditor and the rotation of the Group Audit Partner
in order to ensure that the external audit remains effective
and independent.

organisation and capability
audit approach and delivery
audit quality
resourcing and engagement teamfees and value for money
The selection process comprised three stages:
interviews with key stakeholders in the BBCwritten proposals
presentation to a selection committee comprising the Audit
Committee chairman, the Managing Director, Finance andOperations and five others.
We concluded that Ernst & Young best met the criteria
for appointment, including independence. Accordingly, we
recommended them for appointment as the BBC’s external
auditors for a period of three years with the option to extend
this for a further two years. The Trust, and subsequently the
Secretary of State for Culture, Media and Sport, have approved
this appointment which takes effect for the financial year 2014/15.

Independence of our external auditors
The EAC has set, and regularly reviews, a policy to safeguard andsupport the external auditors’ ability to remain impartial andobjective. This policy defines the types of services which theexternal auditors can and cannot provide. Additionally, it includes
fee thresholds above which any proposed non-audit work to be
carried out by the external auditors must be approved in advanceAs anticipated in last year’s report, we have, during the year underby the EAC. It also defines when work must be submitted forreview, carried out an external audit tender process. This wascompetitive tender.
managed by a team including the Chairman of our Committee
and the Managing Director, Finance and Operations. We sought
Our external auditor, KPMG, was not considered for work whichinterest from established audit providers on our supplier
might have compromised its ability to give independent opinion onframework including all the ‘Big Four’ audit firms as well as otherthe BBC’s financial statements. Recruitment from KPMG into any
smaller and more specialist providers. Due to the BBC’ssenior management position in the BBC required the prior approvalcomplexity, geographical spread and size, we took forward those of the EAC. These arrangements will apply to Ernst & Young for
expressions of interest from firms we judged able to provide the the duration of their team as our external auditor.
necessary audit resources to audit the BBC effectively.
Simon Burke
Chairman of the Executive Audit Committee
19 June 2014

BBC Annual Report and Accounts 2013/14

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Part Two: Governance and finance report – Governance

KPMG LLP has been the BBC’s auditor since 1995. Theirappointment as external auditor to the BBC was subject toprevious testing by the EAC through a formal tender process in2008. Subsequent internal reviews extended the appointment
to the current year. The Corporate Code requires a rotation of
the Group Audit Partner every five years. In view of recent changes
in the BBC management team and ongoing system developments,
the mandate of the audit partner had been extended by two
years to maintain continuity and enhance audit quality. A new
partner from KPMG was appointed for the 2013/14 audit.

Those firms participating in the process were required to submit
their audit proposals against the following criteria:

Governance and finance report – GovernanceFair Trading report
Membership and remit of the Executive Fair Trading Committee
The key function of the Executive Fair Trading Committee (EFTC)
is to oversee the BBC Executive’s compliance with our Fair
Trading obligations. The EFTC comprises three non-executive
directors: although during 2013/14, up to 31 December 2013,
there were only two non-executive directors sitting on thecommittee, these being Dame Fiona Reynolds (Chair), and Sally
Davis (until December 2013) and one vacancy. Alice Perkins
replaced Sally Davies on the EFTC in April 2014. The EFTC
meetings are also attended by the Managing Director, Finance &Operations, Group General Counsel, Assistant General Counsel,
Head of Fair Trading & Competition Law and the Director of
Risk and Assurance. See page 94 for the Executive Board andCommittee attendance table.
Responsibilities of the EFTC include:keeping under review the BBC’s Fair Trading Guidelinesdealing with Fair Trading complaints against the BBC throughthe appointment of a Fair Trading Complaints Panel which ischaired by and includes a majority of non-executive directorsreviewing ongoing compliance with the BBC’s Four
Commercial Criteria

Having received reports from relevant senior management, theBBC Executive is satisfied that BBC Worldwide and BBC Global
News have met the above criteria for the period 1 April 2013 to
31 March 2014. In the case of BBC Studios and Post Production,
the BBC Executive considers it appropriate to await the outcomeof additional work reviewing the operations of BBC Studios andPost Production (which is currently being undertaken at thedirection of the BBC Trust) which will help inform the Executive’sview of BBC Studios and Post Production’s compliance with theabove criteria.
The BBC has a published Fair Trading complaints and appeals
process, which can be found at: bbc.co.uk/bbctrust/governance/complaints_framework/fair_trading.html
The BBC received one Fair Trading complaint during the year.
Details of this complaint, and of previous Fair Trading complaints
and those that went to appeal to the BBC Trust can be found in
our Fair Trading Bulletin at: bbc.co.uk/aboutthebbc/insidethebbc/
howwework/policiesandguidelines/fairtrading/complaints_bulletins.html and on the BBC Trust’s Complaints and Appeals
Board page: bbc.co.uk/bbctrust/our_work/complaints_and_appeals/cab.html

commissioning the annual Fair Trading audit by independent
auditors
The BBC has a detailed operational Fair Trading framework whichapplies to all our activities and is outlined in our Fair Trading
Guidelines, found at: bbc.co.uk/aboutthebbc/insidethebbc/
howwework/policiesandguidelines/fairtrading.html
These arrangements are subject to annual audit by independent
auditors and separately have been accredited with the ISO
9001:2008 quality standard. The auditor’s report is set out on
page 114.
The BBC Agreement requires the BBC Executive to ensure that
all our commercial services meet the following criteria.
Commercial services must:
fit with public purposes
show commercial efficiency
not jeopardise the good reputation of the BBC or the valueof the BBC brandcomply with the BBC’s Fair Trading Guidelines, and in particular
avoid distorting the market

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‘‘The BBC has a responsibility toensure that we trade fairly andpay regard to the impact of ouractivities on the wider market.’’Dame Fiona Reynolds

Report of the Chairman of the Executive Fair
Trading Committee
As a public service broadcaster, funded by the licence fee, theBBC has a responsibility to ensure that we trade fairly and pay
regard to the impact of our activities on the wider market.
The BBC has a well-established Fair Trading regime which is
subject to both internal and external scrutiny.
At a time of change, the Fair Trading team has worked closely withstaff throughout the BBC to ensure that new internal processes
and initiatives comply with Fair Trading requirements. In particular,
the Fair Trading team was involved in the development of the
BBC Store project in the lead up to gaining regulatory approval
from the Trust in March.
This year there was one Fair Trading complaint. Following a
response from the Executive Fair Trading Committee, thecomplainant appealed to the BBC Trust. The BBC Trust did not
uphold the appeal but did direct the BBC Executive to re-examine
its arrangements in the relevant business area and to reportback to the Trust within six months. This is being taken forward
by the Executive. It also tasked the Trust Unit with developing
a plan with the Executive to improve processes as part of theTrust’s forthcoming triennial review of its Fair Trading Policies
and Framework.
In anticipation of this review, the Executive Fair Trading Committee
has done some preparatory work to ensure that the Fair Trading
regime remains up to date in the fast moving external
environment, and that its processes are efficient and effective.

Dame Fiona Reynolds
Chairman of the Executive Fair Trading Committee
19 June 2014

BBC Annual Report and Accounts 2013/14

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The Fair Trading regime continues to operate effectively with an
unqualified audit opinion. The Committee will continue to ensurethat the BBC’s regulatory requirements are adhered to throughan approach to compliance which is robust, efficient andproportionate. Fair Trading will also be kept high on the Executive
Board’s agenda. All stakeholders, including licence fee payers andthose who might be affected by the BBC’s activities, can be
confident that the BBC remains committed to, and compliant
with, our Fair Trading obligations.

Governance and finance report – GovernanceIndependent Fair Trading Auditors’ reportto the BBC for the year ended 31 March 2014
We have audited, in our role as the BBC’s Fair Trading auditors,
the system of internal controls established within the BBC toprovide the BBC with reasonable assurance that the BBC
Executive (‘the Executive’) has complied with the requirementof the BBC Trust’s Fair Trading Policies & Framework and the
Fair Trading Guidelines for the year ended 31 March 2014(‘the Fair Trading Arrangements’).
Our instructions for this engagement, including the scope ofwork to be undertaken, were agreed with the BBC’s Executive
Fair Trading Committee (the ‘EFTC’). These instructions include
agreement that our audit should be conducted in accordancewith International Standard on Assurance Engagements (‘ISAE’)
3000, agreement on the limit of our liability in respect of thiswork and agreement that our duty of care in respect of thiswork is solely to the BBC. We are satisfied that the agreed
scope of our audit was sufficient to enable us to express theopinion set out below.

Our approach
We have performed a reasonable assurance engagement as
defined in ISAE 3000. The objective of a reasonable assurance
engagement is to perform such procedures as to obtain
information and explanations which we consider necessary
in order to provide us with sufficient appropriate evidence
to express a conclusion on the BBC’s compliance with its
Fair Trading Arrangements for the year ended 31 March 2014.
Our work consisted of enquiry and testing to enable us to forma view as to whether an appropriate system of internal controls
was in place. We also reviewed the processing of a sample ofmaterial transactions to provide us with reasonable assurance
that the system of internal control had been applied.

Respective responsibilities of BBC Trust, BBC Executive
and Fair Trading auditors
The Trust is responsible for ensuring that the Executive trades
fairly. It is also responsible for preparing the section within the
BBC’s Annual Report entitled ‘Trading Fairly’ which includes astatement on Fair Trading.

Inherent limitations
As with any system of control, it is not practicable to ensure thatno errors or irregularities have occurred without being detected.
Our audit work was designed to give the Executive reasonableassurance as to the adequacy of the system of internal controls
which was in place and being applied to deliver compliance withthe requirements of its Fair Trading Arrangements for the year
ended 31 March 2014. Further, because Fair Trading issues require
judgements which ultimately might be tested in a court of law,competition authority or elsewhere, there is always a risk ofchallenge even where the system of internal controls has been
followed and decisions have been taken with the greatest care.

The Executive is charged by the Trust with establishing andoperating a system of internal controls designed to ensurecompliance with the BBC’s Fair Trading Arrangements for theyear ended 31 March 2014, including identifying and assessing
risks that could threaten Fair Trading and designing andimplementing responses to such risks.

OpinionBased on the results of our procedures, in our opinion the BBC
has established and has applied a system of internal controls thatprovide reasonable assurance that it has complied with therequirements of the Fair Trading Arrangements for the year
ended 31 March 2014.

As the BBC’s Fair Trading auditors, it is our responsibility to form
an independent view, based on our audit work, as to the extent
to which the BBC has established, and applied, a system ofinternal controls which provide reasonable assurance that it hascomplied with the requirements of its Fair Trading Arrangements
for the year ended 31 March 2014. We have reviewed specificdecisions reached by the BBC on Fair Trading issues only in so
far as this is necessary to form an opinion on the application of
the system of internal controls. We have also reviewed whether
the Trust’s statement on Fair Trading reflects our findings of theBBC’s compliance with its system of internal controls and wereport if it does not.

Deloitte LLP
Chartered Accountants
London19 June 2014

Our opinion has been prepared for and only for the BBC inaccordance with our instructions which were agreed with the
EFTC on behalf of the BBC. We do not, in giving this opinion,
accept or assume responsibility for any other purpose or to any
person other than the Trust or the Executive to whom thisreport is shown or in to whose hands it may come, and no otherperson shall be entitled to rely on our opinion, save where
expressly agreed by our prior consent in writing.

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