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Director general George Entwistle came under fire for the BBC's slow and unconvincing response to revelations a former star presenter, the late Jimmy Savile, was a serial paedophile, and for a programme featuring false sex abuse allegations.
Chris Patten, chairman of the BBC Trust, said he had been left with little choice but to agree to a £450,000 pound pay-off for Entwistle who resigned as director general this month after just 54 days in the post.
Patten told parliament's media committee he had agreed to Entwistle receiving 12 months' pay after lawyers said Entwistle could not be sacked and any other outcome could leave the BBC facing an even bigger bill for unfair dismissal.
"450,000 pounds is one hell of a lot of money. But the options I had were absolutely clear," he said.
BBC's flagship Newsnight programme pulled an expose of Savile shortly after his death in October last year and his offences only came to light in a documentary by a rival broadcaster two months ago.
Newsnight compounded its error by airing false sex abuse allegations against a former senior politician. Entwistle quit as questions grew about the competence of his management.
The BBC, which is funded by an annual licence fee levied on viewers, has ordered two independent reviews, one into Savile's abuse over six decades and another into why Newsnight dropped its story.
Patten said these would be expensive because of the number of lawyers involved.
"I am afraid we must bear the costs, however much they are," Patten said. Acting director general Tim Davie said programmes would not suffer and the money would come from a contingency fund.
On Friday, former BBC director general Mark Thompson, and now chief executive of the New York Times Co, was questioned by the second review about what and when he knew about the Savile allegations.
Thompson has told Reuters he did not know about the Newsnight investigation and had had no involvement in the decision to axe the report.
During a heated exchange with Conservative lawmaker Philip Davies, a fierce BBC critic, Patten refused to comment on what he thought of Thompson's position on the issue.
Davies told the committee that 10 days before Thompson left, he had got BBC lawyers to write to a Sunday newspaper to tell them to stop a story which alleged he did know about claims relating to Savile.
"You know perfectly well that I'm not going to reply to questions which are being looked at by Nick Pollard's inquiry," Patten said. Pollard, the former head of Sky News, is due to complete his report before Christmas.