The BBC's governors have given their assessment of the corporation's performance over the last 12 months in the annual report for 2005-6.
Last year's target of saving £105m has been met, which represents good progress and a considerable achievement, according to the governors.
A further £112m must be saved this financial year, which means "the pressure is still on" to reach the annual cash savings target of £355m proposed from 2007-8. "Strong change management" is needed, they said.
Director general Mark Thompson was paid £619,000 in 2005-6, up from £459,000 the previous year - although he took up his position part way through 2004-5. For the second year running, he has waived his right to a bonus.
His deputy, Mark Byford, took a basic salary of £403,000, plus a bonus of £40,000 and expenses of £13,000 - a total of £456,000.
The total paid to the BBC's executive board fell by more than £100,000 compared with the previous year as a result of new bonus arrangements, the report said.
The corporation now has 23,515 employees. A total of 1,132 posts were closed in 2005-6. More than 2,000 more will leave their jobs this year.
Fewer viewers are watching BBC One and BBC Two and the rising audiences for digital channels BBC Three and BBC Four are not large enough to fill the gap, the report said.
Younger people are turning off BBC television channels in disproportionately high numbers.
They are switching from analogue to digital services, but do not use these as often. Music downloads are stealing young people away from BBC radio services.
The audience for TV news is down in the UK but there is a record reach for global news services. Some 76% of people choose BBC News to give the most fair, balanced and impartial coverage of major events.
Viewers think the quality of BBC programming is increasing. But they are wary of - and can spot - "tired" formats that no longer appeal.
Audience expectations are changing fast. More work will be done to determine how the BBC can provide round-the-clock and on-demand services on TV, radio and online for audiences at home or the move.
CHANNELS AND PROGRAMMING
BBC One had an outstanding year. BBC Two is increasing its appeal. BBC Three must broaden its reach among young people. BBC Four is praised highly.
A creative overhaul of CBeebies, for young children, is needed. Local television and radio are performing strongly. The BBC's website is making good progress in reshaping itself and is now accessed by 15.3 million people in the UK each month.
The output of BBC News is strong and this has been demonstrated on a number of major stories such as the London bombings. A set of principles on impartiality must be delivered to ensure audiences continue to turn to the BBC and believe it is truly independent.
The number of repeats on prime-time BBC One has fallen by less than 1% to 8.9%. From 2008-9, no more than 5% of evening programmes on BBC One should be repeats.
There has been increased investment in comedy - which will benefit mostly BBC One and BBC Two - and drama, with additional investment for BBC Three in this area.
The BBC must keep encouraging people to go digital by continuing to provide high-quality content and giving them good reasons to switch from analogue TV.
One third of homes now has both digital TV and broadband. But the BBC's digital services do not have enough "new" users. A change in the way digital services are marketed would help bring people to the BBC's online services for the first time.
Digital television channels and DAB radio stations are a good use of the licence fee. The benefits of DAB should be outlined to a greater extent in marketing activities.
The BBC cannot do everything it wishes to with digital services because of technical and financial barriers. Digital terrestrial TV cannot be expanded further until analogue channels are switched off, for instance.
It is committed to launching a free-to-air satellite service, the equivalent to Freeview but with a dish.