15 March 2011
Top earners in the public sector should be subject to performance-related pay but should not have their salaries capped, Will Hutton has recommended.
Hutton, executive vice-chair of the Work Foundation, today published the final report of his independent review of senior pay in the public sector.
As well as an expansion of performance-related pay, Hutton called for greater transparency on pay and for similar openness requirements to be imposed on the private sector.
But he rejected the setting of a specific permitted multiple of ‘top’ to ‘bottom’ pay. Hutton's interim report, published in December, found ‘a strong case’ for chief executive pay to be no more than 20 times that of the lowest-paid employee. The use of arbitrary benchmarks, such as pegging public sector pay to the prime minister’s salary, was also dismissed.
Instead, Hutton said all public bodies should be required to publish the multiple of their top pay against their median pay, which he said gave a more meaningful comparison.
‘Public sector executives and their remuneration committees are highly conscious of public scrutiny, and they will increase pay when the case is close to indisputable,’ he said.
‘But in case this is not enough, I propose a system of enforcement which escalates from public admonition to direct intervention if pay rises in an unjustified fashion.’ This could ultimately lead to central direction of pay levels in errant organisations.
‘While the British public is very sympathetic to frontline delivery staff, it is hostile to public sector managers… and even more hostile to their pay,’ he said.
Public sector executive pay had increased ‘for reasons no less opaque than in the private sector’, he said, adding that taxpayers had the right to know that pay was fair, under control and designed to drive improved performance.
Under Hutton’s plan, a proportion of senior managers’ pay would be withheld unless they achieved set objectives, so they would receive only a guaranteed ‘due desert’, with a penalty for failure and a reward for success.
This ‘due desert’ pay and publication of differentials should also be required from all public sector suppliers as ‘an important reminder that what they are doing, while privately run, remains in the public domain’, he recommended.
And Hutton urged the government to require all quoted private companies to publish similar ‘fair pay’ information.
Jonathan Baume, general secretary of the FDA, said the proposals on performance-related pay were ‘ill-conceived’ and would cause conflict with ministers who have ultimate responsibility for taking spending decisions and setting priorities.
Baume said: ‘Will Hutton pays insufficient attention to the complex political environment in which senior civil servants and many other public sector leaders operate.
‘Particularly
in the current economic climate, the public are unlikely to offer support for
more bonuses, and public servants themselves will find the proposals demotivating.’
‘The majority of its recommendations reinforce practices already common in local authorities,’ she said. ‘We absolutely endorse the emphasis on transparency and democratic accountability and support calls for fair and accurate comparisons to be made of the relative remuneration of different roles in the public sector.
But she added: ‘It is important to keep the level of senior council salaries in perspective. Senior staff pay makes up around 2.5% of the total local authority pay bill, while the ratio of average top pay to average lowest pay in local government is 9 to 1. We believe that is a proportionate approach to pay increments in a sector where chief executives are responsible for huge organisations which deliver vital services to every family in Britain.’
