Ministers' pay rules fail 'allowed' Ferguson Marine's bonuses scandal

Our sister title The Herald on Sunday revealed that the Scottish Government's public sector pay policy which has maintained a suspension of performance related bonuses since Ferguson Marine was nationalised in 2019, did not apply to the shipbuilding firm, which is under fire over continuing delays and cost overruns of two lifeline ferries.

But it did apply to minister-owned ferry procurers and owners Caledonian Maritime Assets Limited, which is on a long list of public sector bodies that are covered by the pay rules. Ferguson Marine, which has its headquarters in Port Glasgow, remains off the list.

Ministers decided that it did not have to comply with the policy, which was confirmed in an agreed operations framework with the shipbuilders.

That is despite an outcry over the over £2000-a-day remuneration, made up of fees and expenses given to Ferguson Marine's previous Scottish Government-appointed turnaround director Tim Hair who left his post in February, last year.

The Scottish Government defended the payments to Mr Hair (below) as being "in the middle of the industry norm".

It emerged earlier this month that the chief financial officer of Ferguson Marine who is engulfed in the row over £87,000 in bonus payments to managers made in 2020/21 left the nationalised shipyard.

George Crookston – one of those who benefitted from the bonus scheme – left his post in mid February, after being appointed in March 2020. He is also no longer a member of the board, which serves as its governing body.

Mr Crookston, received incentive payments as part of the controversial bonus scheme of approximately £17,500 in 2021/22.

That was on top of a remuneration package made up of approximately £122,500 in salary and £6500 in pension benefits.

Deputy First Minister John Swinney described the bonuses in the wake of a failure to complete long-delayed lifeline ferries as "reprehensible".

The Scottish Government says it was unaware of the bonuses which were not subject to ministers' approval.

Concerns about the bonus payments were first made by Scotland's public spending watchdog Audit Scotland.

Auditor General Stephen Boyle said it was "unacceptable" that the money had not been cleared by the Scottish Government.

The Herald on Sunday also revealed that a 'framework' document drawn up by ministers with the nationalised Ferguson Marine (Port Glasgow) Ltd over powers and responsibilities confirmed that the firm "should not be obligated" to comply with public sector pay rules.

The document, seen by the paper, states that the agreement was made by Scottish ministers "on the basis of evidence presented by officials" and in line with the view of the Scottish Government Remuneration Group - which considers and approves staff pay remit proposals, as well as any new or revised remuneration proposals for chief executives, chairs and board members.

It says that this was on the condition that Ferguson Marine "maintain regular dialogue" with ministers on any pay proposals, with an expectation that these will be "broadly consistent" with the provisions of the pay policy.

It said that any "significant deviations" would require approval.

But the terms "broadly consistent" and "significant deviations" were not defined.

And external auditors looking into financial status of Ferguson Marine said there was a "lack of clarity" and "lack of defined requirements" over the framework.

It is believed that that framework agreement was not finally agreed till March 2022. Before that auditors say it was not sufficiently clear what the Scottish Government’s requirements and expectations were in relation to pay.

External auditors said that any performance that is paid "needs to be subject to appropriate governance, and be transparent in decision making, and subject to independent review and challenge, within Ferguson Marine and Scottish Government as appropriate".

Highlands and Islands MSP Edward Mountain, the former convenor of the rural economy and connectivity committee whose inquiry branded the process procure and construct the two ferries as a "catastrophic failure" said ministers should have ensured that the bonuses were banned.

He said: "Why didn’t the Scottish Government take steps to ban bonuses when they nationalised the shipyard?

“This is yet another expensive oversight and highlights how the Scottish Government have not learnt any lessons about eye-watering payments being made to directors.

“Let’s not forget that the previous turnaround director, Tim Hair, received £2m of payments during his tenure yet failed to turnaround the yard’s fortunes and deliver the vessels our islands desperately need.

“The Scottish Government needs to get its priorities straight when it comes to this taxpayer owned shipyard. Failure should not be rewarded with big hefty pay cheques.”

The employment contracts for the senior management team when Ferguson Marine came into public ownership in late 2019 contained a clause entitling staff to a performance related bonus of up to 20% of their base salary per year.

Audit Scotland says that payment was approved by a remuneration committee made up of the chairman of the Ferguson Marine board Alistair Mackenzie, the controversial turnaround director Tim Hair and two unidentified non-executive directors. It is understood Mr Crookston was not on the committee.

The public spending watchdog said that the committee approved the payment based on a paper prepared by Mr Hair.

Mr Hair, who had led the business since August 2019 and implemented a major transformation programme, departed in February last year following a short handover period.

Ferguson Marine had since appointed David Tydeman (below) as its new chief executive officer to lead the business to "sustainable growth".

He has said the current board of directors and the remuneration committee "accepted the feedback from the Auditor General over performance incentives paid to senior managers for the financial year to the end of March 2022.

It comes as it emerged that due to "persistent design gaps and build errors" progress there have been further delays and cost surges related to the completion of the two lifeline ferries.

Glen Sannox and Hull 802 were due online in the first half of 2018 when Ferguson Marine was under the control of tycoon Jim McColl, with one initially to serve Arran and the other to serve the Skye triangle routes to North Uist and Harris, but they are at least five years late. The last estimates suggested the costs of delivery has quadrupled compared to the original £97m cost.

Glen Sannox is now scheduled for autumn 2023 rather than the end of May 2023 as previously estimated, with what Mr Swinney described as a "contract backstop" of no later than the end of December 2023.

The second vessel, only known as Hull 802 is now not expected to set sail till the autumn of 2024 having already been delayed to the end of March 2024. The contract backstop was stated as being at the end of December 2024.

A Scottish Government spokesperson said: “It is a serious concern that Ferguson Marine Port Glasgow did not inform or seek approval from the Scottish Government before bonus payments were paid to senior managers. This should be done as a matter of good governance.

“However, the new senior management team is committed to consulting with the Scottish Government as required on this issue in the future.

"Significant progress has been made by the Chief Executive and Chair of the Board on the governance structure at the shipyard over the last 12 months.

“The newly appointed Chair of the Board is reconstituting the remuneration committee and is continuing to increase the overall governance arrangements at Ferguson Marine.”