One part of NR’s structure that could see change is its membership. The company’s 41 ordinary members (and one ‘special member’ from the DfT) act as quasi-shareholders, in approving accounts and board appointments at annual general meetings. They once numbered more than 100, and were formed to provide the semblance of a public company owned by shareholders.
Although the DfT special member held the power to dismiss all the members in the event of a ‘fundamental financial failure’ of the company, the structure provided sufficient distance between the DfT and NR not to fall foul of previous European accounting rules. In this way, NR could remain classed as a private body. The DfT could also appoint a special director who would sit on the remuneration and appointments committees, but it never did so.
Network Rail members
Now that NR has been reclassified, there appears little need to keep the pretence of being a private sector company. The company’s road equivalent, the Highways Agency, does not have members - it simply has a board appointed by the Department for Transport.
If NR is to be accountable to Parliament (and the MPs sitting therein), it has no need of members. Dispensing with NR’s members almost returns to the situation of April 1 1994, when Railtrack was first established as a government-owned company, with its directors appointed by the Secretary of State. Railtrack was later floated and sold to shareholders, before its financial collapse following October 2000’s fatal accident at Hatfield.
DfT has always had the power to dismiss NR members in their entirety (and only in their entirety). While NR was in the private sector, this power was limited to the single situation of fundamental financial failure, but that constraint disappeared when NR became a public body, and was confirmed in late August when NR’s members voted to change the articles of association that govern the company.
Members will now be appointed by the special member who is the Transport Secretary (or his appointee). Before reclassification, the board appointed members. There remains no minimum or maximum number of members.
Further comparison between Network Rail and the Highways Agency shows a gulf in executive directors’ pay. NR pays its directors on the basis that it needs to compete with the private sector. HA’s directors are appointed under senior civil service pay scales, which are considerably lower, even though it also needs to compete for the best people.
Even taking into account the difference in size of the two bodies, in 2011/12 NR’s chief executive received almost four times the salary of his HA counterpart (see panel, page 48). There will also be differences in the salaries below executive director level, as NR’s board acknowledged in its April meeting.
Pay packets for directors fall under the remit of remuneration committees. For the HA, as a DfT executive agency, the committee is chaired by the DfT’s permanent secretary (its senior civil servant) together with the DfT’s directors general and a non-executive director.
