Failure gets its reward as Northern Rock chief wins £760,000 pay-out

Published on Monday 31 March 2008 22:18

HE WAS the man at the helm of the beleaguered bank from which investors raced to withdraw their savings and which will see more than 2,000 job cuts.

But yesterday Adam Applegarth joined the ranks of chiefs rewarded for spectacular failures when it emerged that he will pocket 760,000 after being sacked in December as Northern Rock's chief executive.

Mr Applegarth's package includes a 2.6 million pension – despite overseeing a 167.6 million loss.

A third of the bank's 6,000-plus jobs will disappear as it attempts to rebalance its books and repay 24 billion in government loans by 2010.

The pay-off – which gives him 63,333 a month until November– is on top of the 785,000 he earned in 2007 and the 1.36 million in 2006.

Vince Cable, the Liberal Democrat treasury spokesman, branded the compensation an "utter disgrace".

He said: "This is a straightforward case of reward for failure. The chief executive who led the disastrous business strategy is being generously rewarded for failures of leadership whereas shareholders get nothing and large numbers of workers are being made redundant."

Labour MP Kevan Jones, whose North Durham constituency includes many of the workers facing the sack, called on Mr Applegarth to surrender the cash.

He said: "I find it incredulous that a man who has already made millions will be paid this amount of money. It will appear to the average person that he is being rewarded for failure."

Northern Rock said Mr Applegarth's termination payment, which emerged with the publication of its annual accounts for 2007, was "substantially less" than he was due.

But Mr Applegarth will continue to enjoy a staff discount on his mortgage and can reclaim almost 6,000 in legal fees. The accounts also reveal that his home has been fitted with 5,000-worth of security measures since the bank's collapse.

He joins the growing number of executives receiving huge pay cheques despite their record in office being held in contempt.

Sir John Gieve, the deputy governor of the Bank of England, tops a list of shame compiled by the Taxpayers' Alliance by taking home 234,467 last year – when he was accused of failing to prevent Northern Rock's descent into crisis. Labour MP John McFall said Sir John had been "asleep in the back shop while there was a mugging out front".

Health Secretary Alan Johnson suspended a 150,000 pay-out to Rose Gibb, who resigned as chief executive of Maidstone and Tunbridge Wells NHS Trust after an outbreak of Clostridium difficile killed 90 people.

Roger Lawson, the chairman of the Northern Rock Shareholders Association Group, said: "A lot of shareholders will be very unhappy with the size of Mr Applegarth's pay-off but it looks like, legally, the company could not have avoided paying that amount.

"Had Mr Applegarth taken the company to court then it could have ended up having to pay him even more, so perhaps it has got away with having to pay slightly less than its legal obligation, so I have to be philosophical about it."

24bn WILL BE REPAID BY 2010

NORTHERN Rock has vowed to repay the 24 billion it owes the Bank of England by 2010 and break even the following year.

It announced a loss of 167.6 million yesterday for the year ending on 31 December. This dramatic reversal – it made profits of 626.7 million in 2006 – was the result of its near collapse in the summer as a result of the US credit crisis, which cost it 461 million.

This resulted in Northern Rock's depositors queuing round the block to withdraw 12.2 billion of savings. The current year is expected to be "significantly loss-making".

Ron Sandler, who was piloted in as the bank's executive chairman on 90,000 a month after temporary nationalisation by the government, said: "Looking ahead, we have developed a business plan that we believe will help drive the bank back towards profitability and ensure it has a sustainable future."

This involves halving the size of the business to 50 billion by 2011, cutting costs by 20 per cent, stopping all business lending and accelerating mortgage redemptions.