Ferguson Marine 'at risk' without executives' bonuses

Mr Miller, who is leading the review into the payment structure at the yard, said the bonuses were "retention payments" and that senior managers were legally entitled to them under their employment contracts.

Mr Miller, was quizzed after it was revealed that a secret bonus bill to Ferguson Marine management has reached £134,218 over two years, while two long-delayed lifeline ferries - Hull 801 and 802 -  are still to be delivered with costs expected to quadruple from the original £97m contract.

In April, First Minister Humza Yousaf told the Scottish Parliament that it was "his expectation" that bonuses should not be paid for the 2023/24 financial year.

Mr Miller was asked at the Scottish Parliament's Public Audit Committee whether the First Minister had been forcing his hand to break employment contracts.

READ MORE: Auditor concerns over shake-up of bonus culture at Ferguson Marine

Mr Miller, who denied he was under political pressure to make changes said: "No, he was making a statement but you know, we have to pay due regard to the contractual obligations under the employment contracts that were set many, many years ago in some instances and as I say, we're reviewing the situation with input from the senior management team to try and come to a conclusion, which is acceptable by both parties."

The bonuses are part of a 17 and a half per cent bonus that is paid to certain members of the management team for performance.  

The chairman was asked if it was perfectly reasonable that performance payments continue to be paid in this financial year.

He said: Yes, it is because it is contractual, [these are] points of law and they do exist, and it's very difficult to say to someone we're just pulling that from your contract."

The Scottish Government had previously said that the bonuses for 2021/22 and 2022/23 were legally required to be paid.

It comes as the head of Scotland's public spending watchdog said moves for a shake-up over governance rules at Ferguson Marine have still to be resolved despite a row over the bonuses paid to executives.

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A revised performance framework for Ferguson Marine's senior managers and chief executive is still awaiting approval and consideration by the Scottish Government

Auditor General Stephen Boyle said last month that he doubted the controversial bonuses paid to bosses at Ferguson Marine can be recovered and described the payments as “unacceptable”.

At the end of April, the deputy first minister and finance secretary Shona Robison confirmed that the first of two instalments of £23,609 each has already been processed for 2022/23.This first payment was made in [Ferguson Marine's] April 2023 payroll with the second payment of £23,609 due in June, subject to ongoing discussions involving the board chairman Andrew Miller.

But Mr Miller has insisted some sort of bonus scheme should be retained at FMPG in the future for the company to be viable.

Shona Robison

"FMPG is a commercial enterprise, it works in a highly competitive market. It's very important that we find the talent for the senior management," he said.

"It's also very important that we retain the talent for the senior management in terms of completing our journey towards the eventual profitability in our five year plan. 

"That's all very important to achieve. There is £250m of available work suitable for the yard and we must make sure we have the right talent in place to achieve that. 

"I don't understand the narrative around the term 'bonus'. These are retention payments. They are payments because some of the senior staff have parts of the remuneration at risk and they have to achieve certain targets which are in control of the board in terms of the KPIs [Key Performance Indicators] that we have.

"And these are reviewed regularly before any payments are made. Some of these payments are contractual from employee contracts that go way back over 10 years and they are personal to the individuals and any changes to these contracts.
He said the review by the remuneration committee will make sure the terms and conditions of these contracts are "correct and proper as we try to maintain a competitive position in the marketplace". 

"But we have to show good regard to employment contracts, employment law and as I say some of these people go way back to prior to the first administration in terms of their employment contracts, which have got to be observed. It would take individual negotiation between the people who do qualify to remove some of these elements. But if these elements are removed, without being competitive the future of Ferguson Marine yard is at risk."

The continuing bonus culture comes 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.

READ MORE: CalMac ferry remains sidelined months after rust and engine issues

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

The yard, which was rescued from administration by the Scottish Government in 2019, has struggled to complete two lifeline ferries, with further delays also announced by the yard in March. pushing the delivery date for the Glen Sannox and as-yet-unnamed hull 802 to the end of this year and 2024, respectively, five and six years later than originally planned.

Mr Boyle last month re-stated his opposition to the bonuses and said it was unclear why they were paid.

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.

The bonus is said to be in two parts, 7.5% to be paid upon delivery of the hull of the Glen Sannox and “a further 10% discretionary element”.

Committee convener Richard Leonard responded to Mr Miller saying: " It's an interesting analysis. So what about having good regard to public accountability? I mean, in the end, we are talking about a project, a procurement for two vessels, which are five years late and counting.   And three and a half times over budget. So in that environment [it has been said] it beggars belief that these bonus payments have been made."

Mr Miller said he had "due regard to public money that's been invested in the yard and went on to defend the "incentive payments".

He said that they are paid across a "wider range of issues" including the progress of the ferries, and the chief executive David Tydeman's ability to access the market for new work "beyond the completion of these vessels".

"The new business is a component part of the overall programme of the KRAs [Key Responsibility Areas] which David and his team have delivered in terms of new work from BAE for instance. So therefore, against the KPIs [Key Performance Indicators] and KRAs that are set, certain elements trigger performance payments."

He added: "I understand that we are accountable, but at the same time, as I've said, the business has got to remain competitive in the open market and being competitive is having the right people that can deliver in terms of the future growth of the business."

“The bonuses that have been paid relate to a decision made by the remuneration committee of Ferguson Marine without consultation with the government in November 2022.

“Those bonuses, I have asked if they can not be paid and the advice coming back is that they are a contractual obligation.

“For any future discussion or consideration of bonuses, I have made it clear there should not be bonuses paid in relation to vessels 801 and 802.”

The First Minister went on to say it was “his expectation” that bonuses should not be paid for the 2023-24 financial year.

READ MORE: All you need to know about the Ferguson Marine bailout

Kilmarnock and Irvine Value MSP and committee member Willie Coffey said the public would find it hard to understand how the bonuses could continue to be maintained.

He said: "I think the point the committee and perhaps the public were making Mr Miller is that there's a reasonable expectation that, that bonuses or incentives would be somehow connected to performance and delivery, rather than to competitiveness and retention of staff. 

"I think that's the point that we're making, and we are genuinely surprised to learn as the government was surprised to learn that that system was not connected to performance and delivery because [the ferries] are clearly five years late and well over budget."

The Scottish Government's accountable officer for the yard, the general economy director Gregor Irwin said  there was an expectation within the Scottish Government over bonus payments that "such an eventuality didn't occur again".

He said: "It is right to incentivise good work, but it's not appropriate to reward work that's not met agreed standards. We will listen carefully to the advice of the Auditor General in this regards and we absolutely want to make sure that we get the balance right, and that we address concerns around the current remuneration structure."