The approval of a €70,000 bonus to Prof Brendan Drumm in the current climate has provoked sharp criticism, given the HSE's dire financial circumstances, writes CAROLINE MADDEN
UNJUSTIFIABLE. OUTRAGEOUS. Nauseating. Another example of contempt for the taxpayer and incompetence rewarded.
These were some of the milder responses to last week’s revelation that the HSE has approved a €70,000 bonus for its chief executive, Prof Brendan Drumm. It’s hardly surprising that this news doesn’t sit well with a public already incensed by the realisation that they’ve been picking up the tab for former ceann comhairle John O’Donohue’s jet-set lifestyle.
In the current environment, any public servant earning a large salary (Prof Drumm is currently on a basic salary of €371,291), and trousering a fat bonus as well, is going to come under scrutiny, and rightly so. The question is – would Prof Drumm have been awarded a bonus for his performance in 2007 if he didn’t work in the public sector?
Typically in the private sector, the remuneration packages of senior executives consist of a basic salary, a performance-related bonus and various other benefits and perks.
The executive’s contract generally specifies that they will receive a bonus – up to a maximum of a certain percentage of their basic salary – if the company is in a position to pay it (ie it is profitable) and if they have met a set of measurable targets, such as increasing turnover by a certain amount.
In 2007, Prof Drumm was contractually entitled to a performance-related bonus up to a maximum of €80,000, on top of his basic salary of €320,000. However, one would be forgiven for thinking that as his employer, the State, is effectively broke, and his own organisation overran its budget in 2007, a bonus would be unjustifiable.
According to experts in the area of executive remuneration, although most performance- related bonuses are dependent on profitability, this is not always the case.
For example, where a new chief executive is drafted into a company that is already in trouble and is tasked with restructuring the organisation, then that person’s bonus will be based on their actions – which may well be unpopular with employees and the public – even though the company is not profitable at that time.
Of course, the employer in these cases must have significant funds at their disposal to be in a position to pay out bonuses during difficult periods, so generally this scenario is restricted to organisations such as large multinationals, semi-state bodies or perhaps government banks.
This brings us to the second condition – did the executive meet a set of measurable targets? This is where any case in favour of Prof Drumm’s €70,000 reward hits a major stumbling block.
HSE chairman Liam Downey, who sits on the remuneration committee of the organisation, said last week that the bonus payment was “entirely transparent”, but the public remains in the dark as to the criteria upon which the chief executive’s performance was judged. “His targets are so nebulous,” one executive remuneration expert commented. “Nobody knows what they are.”
According to a HSE spokeswoman, the performance- related award scheme is operated “using strongly focused goals and targets which are specific and measurable”.
However, the specifics of what exactly these goals and targets might be were not forthcoming. “The evaluation of the performance of individual members of staff is personal information between the employee and employer,”she said.
Given that taxpayers are ultimately footing the bill, is such reticence justifiable?
Publicly listed companies following good corporate governance guidelines would be expected to disclose to shareholders the basis on which different elements of a chief executive’s performance-related bonus has been granted.
In private companies, such details may not be made public for reasons of commercial sensitivity, but clearly this isn’t an issue in the case of the HSE.
All that the taxpayer does know is that Prof Drumm wrote a five-page letter to the remuneration committee earlier this year setting out his achievements in 2007, and effectively pleading his case in favour of getting a bonus. This letter has created the public perception that his “performance-related” bonus is to a large extent self- assessed, as opposed to objectively assessed against measurable criteria, as is common practice in the private sector.
Prof Drumm may have had a high opinion of his own performance in 2007 (as made clear in his letter), but the Government had grave concerns over the financial management of the HSE that year.
Despite the fact that she said last week that the chief executive “does a fantastic job”, in a letter sent in December 2007 to Mr Downey, Minister for Health Mary Harney said: “I know that you share and understand my deep concern, and that of my colleagues in Government, that the HSE has had to resort to seeking a supplementary estimate of €244 million this year, particularly in circumstances where it has not delivered on many of the approved service developments for which it was funded in last year’s Estimates and Budget. This cannot be allowed to recur.”
Furthermore, in correspondence with Mary Harney, the minister for finance at the time, Brian Cowen, expressed “serious concerns” that the HSE needed to improve its financial management to bring its spending under control. Hardly a ringing endorsement of the chief executive’s performance.
Add to this the many scandals and controversies that beset the HSE in 2007 – from cancer misdiagnosis to long waiting lists and hospital hygiene problems – and it’s hardly surprising that the public considers the awarding of a bonus an outrage.
It could be argued that perhaps the most galling aspect of the whole debacle is that the payment of a bonus in the current climate indicates a disregard for both the country and the HSE’s dire financial circumstances.
True, bonuses will not be paid to public servants for 2008, and last week the Taoiseach said that the bonus related to an “historic situation in 2007”, but does it really matter that it relates to a previous year?
In the private sector, bonus payments have in many cases been cut, deferred or forgone completely, even if the employees met their performance targets and are contractually entitled to the award.
Aside from the anti-bonus sentiment in the air, employers have had little choice but to adjust to the current economic realities. One suspects that impassioned letters penned by hard-done-by employees to their bosses, outlining why they deserve a bonus, would find their way to the nearest bin fairly quickly.
Do you think Prof Drumm should have claimed the bonus?
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