* British lawmakers: BBC severance payments excessive
* Thompson says payments represented value for money
* Chairwoman: "At best what we have seen is incompetence"
* Thompson says informed BBC Trust over severance payments
By Belinda Goldsmith and Michael Holden
LONDON, Sept 9 (Reuters) - Former BBC Director General Mark Thompson, now chief executive of the New York Times Company, on Monday defended large severance payments to senior BBC bosses that he said had ultimately helped the publicly funded broadcaster cut costs.
British lawmakers are trying to understand why Thompson sanctioned payments at least 1.4 million pounds ($2.19 million) beyond contractual obligations to senior BBC managers during the last three years of his 2004-2012 watch.
"I do not think we lost the plot," Thompson said when asked by the chairwoman of parliament's Public Accounts Committee, Margaret Hodge, about what she called "grossly excessive severance payments".
The payments, he said, represented value for money.
Thompson said severance payments to senior managers - which cost the BBC 25 million pounds from 2009 to 2012 - ultimately helped him reduce costs by at least 35 million pounds.
"In 2010, I believed ... that we had to do something very significant and very rapidly to reduce the numbers and also the aggregate pay of senior managers at the BBC," said Thompson, who quit the BBC last year to join the New York Times Company as chief executive officer and president.
Chairwoman Hodge said she cherished the BBC as a broadcaster but its management had dismayed the British licence fee payer - who has to pay 145.50 pounds a year if they use a colour television - by making such large severance payments.
"The current arrangements under which the BBC operates are bewildering. They are complex and they are confusing and they do very little to help the licence fee payer understand who they can hold to account," Hodge said.
The severance payment row comes after a tumultuous year for the BBC during which Thompson's successor, George Entwistle, resigned in July 2012 to take responsibility for a BBC news report which falsely accused a former politician of child abuse.
"VALUE FOR MONEY"
Thompson, a 56-year-old Oxford graduate, was grilled by lawmakers over 949,000 pounds worth of payments to his deputy, Mark Byford, who left the BBC in 2011 with what the National Audit Office said was the largest BBC severance payment.
Byford received a 474,500 pound redundancy payment and 474,500 in pay in lieu of notice. Byford, who had 31 years of service, could not be immediately reached for comment.
"An ordinary worker on average earnings would have to work 40 years to earn the million pounds which Mr Byford got as his redundancy pay - in those circumstances you can understand the sort of disgust ordinary licence fee payers feel about their contribution being used in this way," Hodge said.
Sometimes waving his hands and glancing sideways at BBC Trust Chairman Chris Patten, whom Thompson has accused of misleading the committee about the extent of his knowledge of the payments, the former BBC director general said it made sense to pay so much.
"It made better value-for-money sense for the BBC to make the redundancy and save the money than to leave him in place," he said, though when pressed he did concede that today he would probably not approve such a large payment for Byford.
"This is an internal BBC matter, which The Times has no comment on," said a New York Times Co spokeswoman. "As it relates to our CEO, Mark Thompson, he continues to have our full confidence."
While a distraction for Thompson, who was lauded by Chairman Arthur Sulzberger, Jr. as a gifted executive on his appointment as CEO, analysts said he would have to slip up badly for there to be immediate impact at the Times Company.
"The only reason it would impact the New York Times is if he gets in trouble," said Ed Atorino an analyst with Benchmark Co.
At times scolding some of the most powerful men in British television, Hodge and her fellow committee members received different versions of who at the BBC knew what about the payments.
Thompson said he had fully informed the BBC Trust about the payments: "I believe I made sure the BBC Trust was fully informed in advance about these settlements."
Patten, a prominent Conservative politician and the last British governor of Hong Kong, said the Trust did not know the full implications of the proposed settlements.
"Since the previous Trust didn't know the payments had been made outside contract, why should I have known as a new Trust chairman?" Patten told the committee. "I'm in the position in which I'm accused of having misled the committee on something that I never knew and couldn't have been expected to know."
Thompson and Patten both refused further comment after the hearing.
After three hours of questioning, the lawmakers said the BBC managers past and present looked at best incompetent.
"At best what we have seen is incompetence," said Hodge. "At its worst what we may have seen is people covering their backs by being less than open."
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