War breaks out over Andium executives' pay

Thursday 24 October 2019

War has this morning broken out between Andium and the government over whether it was mismanagement by the social housing provider’s board, or the Treasury’s own lack of proper policy, that led bonuses and pay rises totalling over £100,000 to be wrongly paid to two executives.

The current and former Chief Ministers have now traded blows over the root cause of the vociferous four-year dispute, which has been laid bare in a hotly anticipated report released today by Comptroller and Auditor General, Karen McConnell.

Focused on the topic of executive and non-executive remuneration at States-owned bodies, the report reveals how Andium’s CEO and COO’s pay shot up from £118,000 and £87,000 to £193,000 and £144,000 in fewer than five years,  in breach of an agreement requiring them to obtain prior government approval, and recommends the creation of a new board to oversee pay arrangements at all States-owned bodies to provide better governance in future.

It comes during a week that has seen fierce criticism directed at the social housing provider by the Chief Minister and the subsequent resignation of Andium’s Vice-Chair, Heather Bestwick. Andium's Chairman, the former Senator Frank Walker is also due to step down soon.

Pictured: The Chief Minister hit out at Andium in the States Assembly this week.

Tensions between Treasury and the social housing provider first spilled into the public domain last week when the resignation letter of Andium Finance Director and COO John Hamon was leaked to the media, in advance of today's highly critical report.

In it, he complained of “dictatorial” behaviour from government and unfair scrutiny of his salary. 

But the C&AG’s report has shown how that letter came in the context of attempts by Treasury to reduce his salary and claw back bonuses awarded to him and CEO Ian Gallichan – both of whom, the Chief Minister said in the States this week, are believed to be on a final salary pension scheme.

The report shows how the first cracks emerged between the government and Andium over pay fewer than six months after Andium was first created with the aim of providing affordable housing for islanders in July 2014.

Its agreement with the government explicitly provided that: "any material changes to either the structure or quantum of remuneration paid to the Directors for their executive responsibilities in the business are to be approved by the Guarantor in advance of their taking effect."

Proposals to increase the pair’s salaries were flatly declined by the then Treasury Minister, Senator Alan Maclean, who said the rise was not “warranted or justified."

In May 2015, the Minister once again refused plans to increase the CEO’s pay from £118,706 to £166,000 (a 40% rise) and the COO’s from £87,202 to £135,000 (a 55% rise). 

Pictured: Comptroller and Auditor General, Karen McConnell.

After a tug-of-war lasting nearly a year, the government relented with a “compromise” of £150,000 and £120,000 to take effect from July 2016. 

But that was the last moment for around two years that the government was involved in pay discussions.

In November 2016, Andium decided to adopt a ‘market median policy;’ then in January 2017 it was agreed, without government involvement, that the two executives’ pay could rise to £189,000 and £141,000.

11 months later, Andium’s board approved a 2% base pay budget increase, and created a new ‘Discretionary Reward Scheme’ – solely for the executive directors – that would see them handed bonuses for meeting targets in Andium’s Business Plan. Again, government officials were not involved in the discussion.

The change meant that the CEO and COO’s pay hit £193,000 and £144,000 by January 2018, which were followed by recommendations for bonuses to be paid to both of them in May.

It wasn’t until June 2018 – following the elections and a new Council of Ministers being formed – that government officers became aware of what Ms McConnell termed “substantial pay increases to the Executive Directors” when they received the company’s annual reports.

Pictured: Andium CEO Ian Gallichan, who was awarded pay rises and bonuses, without the necessary explicit government approval. (Andium)

Months of discussions followed, with the Assistant Treasury Minister “reluctantly” agreeing to increases in Mr Gallichan and Mr Hamon’s basic pay, but ordering that any bonuses awarded be given back. 

However, the report noted that the Assistant Minister had only been aware of some of the pay changes, and hadn’t realised that, in offering his agreement to the ordinary resolutions during Andium’s 2018 AGM, he was also endorsing a 2% basic pay rise. 

In November 2018, the Assistant Minister wrote to Frank Walker (pictured top, right) – Chair of the Andium Board, which maintains financial oversight of the company – to demand that the CEO and COO’s salaries were reduced  to 2016 levels and that bonuses were given back. 

Mr Walker made alternative proposals in April 2019, but these were rejected by the Assistant Minister who said they were “not aligned” to the findings of a report conducted by independent consultants hired by the government to review Andium salaries. 

As the scrutiny of his pay intensified, Mr Hamon stepped down in August, but the government didn’t learn of his departure until this month.

Pictured: Chief Minister Senator John Le Fondré described the pay at Andium as "excessive".

Facing a barrage of questions over the pay dispute during a States Assembly meeting this week, the Chief Minister explained that the government was now looking at a new pay policy, as he made further criticisms of the “excessive” pay levels at Andium.

His words came as a blow to Andium’s Board, which is responsible for the financial governance and strategic direction of the company, and led to the first casualty since the fall-out entered the public domain: Vice-Chair Heather Bestwick. 

In her resignation letter, Mrs Bestwick said she couldn’t accept her integrity being “impugned” by the Chief Minister.

In a statement this morning, the Chief Minister reiterated the concerns he expressed in the States Assembly – backed by the C&AG’s report – that Andium acted “in breach of its Memorandum of Understanding in awarding substantial pay rises and bonuses for two senior executives without informing the Government or seeking the explicit prior approvals required.” 

He further expressed disappointment that the rises had come “at a time when pay rises across the public sector have been constrained”. 

Andium, meanwhile, hit back at any suggestion it had not acted properly.

Pictured: Andium's headquarters in Don Street.

A statement explained the company believed there was a “complete absence” of “appropriate policy and process” regarding senior executives’ pay.

It added that board members had been doing “all they could to decide the correct levels of salary” for their executive directors, who they claimed had been “singled out” by the government. 

“The one-off performance-related bonuses they received… pale into insignificance when compared to those awarded elsewhere,” the statement read.

The board went on to claim that the Treasury itself had also breached the MoU on some occasions, complaining that officials often didn’t provide information or reach decisions within 10 days as stipulated in the agreement.

“You cannot run a successful business while waiting months for a decision,” Chair Frank Walker, who will be stepping down shortly, commented. 

He said that the remaining members of the board would work to find a resolution to the dispute and implement any of the C&AG’s recommendations. 

The government is now looking to appoint an Independent Non-Executive Director to Andium’s board within the next few weeks. 

This Director will specifically focus on resolving the outstanding issue of executive remuneration, and recruiting a new Chair and other board members at what was described as a “critical time."

TIMELINE: Scroll for the full chain of events...