Hutton recommends constraints on top public sector pay

1 Dec 10
There is a 'strong case' for the maximum pay in public bodies to be linked to that of the lowest earners, the interim report on public sector pay said today

By Jaimie Kaffash

1 December 2010

There is a ‘strong case’ for the maximum pay in public bodies to be linked to that of the lowest earners, the interim report on public sector pay said today.

The head of the review, Will Hutton, recommended that the top earner’s salary should not exceed that of the lowest by a given multiple except in ‘exceptional circumstances’. Any organisation that exceeded the multiple should have to justify the top salary. Although the review has not yet recommended a ratio, Prime Minister David Cameron originally suggested it should be set at 20:1.

The differentials between top and bottom salaries in the public sector grew between 2001 and 2008, the report said. This was most pronounced in hospital trusts, where chief executive pay rose by an average of more than 6% compared with 4.5% for the lowest earners, and in local government, at 5.25% and 3.25% respectively.

The research also showed that heads of universities are among the highest earners, with the median salary at £200,000 a year, rising to a top level of £350,000. The average council chief executive earns around £175,000, with the top earner taking home £250,000. 

Hutton acknowledged that there had been a change in public sector culture that meant some of these salaries were justified. ‘We have to be mindful that we are giving public sector bodies more autonomy,’ he said. Chief executives are ‘pound for pound being paid significantly less’ than their job complexities deserve according to independent assessments.

However, he added: ‘It is that nexus web (of third parties valuing the organisation’s work) that drives up pay. Unless you have some pay principles, such as a comply or explain multiple, you will always have trouble ahead.’

High salaries can be justified by high performance, he said, citing the case of Mark Elms, head teacher of a primary school in Lewisham, south London. Parents and pupils said he deserved his £200,000-plus salary.

Hutton told Public Finance: ‘You set performance metrics, you explain them to the country at large, and if the person meets the metrics – which need to be suitably large – then yes, exceptional performance would count. We are talking about fair pay that is earned.’

The interim report also recommended improved governance and transparency and better use of performance-related pay. The final report, due in spring next year, will detail how these principles can be applied in practice.

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