4 Benchmarking remuneration for public
appointees
Government policy on benchmarking
public appointee pay
61. Our predecessor Committee in the 2009-10 Session
called for the establishment of a Top Pay Commission on executive
pay in the public sector. The previous administration did not
respond directly to this recommendation. The Chancellor of the
Exchequer has clarified the position of the present administration
on this recommendation: he wrote to the Chairman on 20 July 2011
indicating that the Government does not consider it necessary
to establish such a commission in the form recommended by our
predecessors. He set out the recent steps taken by the Government
in respect of senior public sector pay:
- A 5 % pay cut in Ministerial
salaries, which will be frozen for the rest of the Parliament
- A requirement for the Chief Secretary to the
Treasury to sign off any proposed salary in areas under Ministerial
control which exceeds £142,500 (the annual cash remuneration
paid to the Prime Minister)
- Commissioning of a review of senior pay led by
Will Hutton, and (unspecified) progress on implementation of its
recommendations
- Publication of the names, grades, job titles
and annual pay rates for most senior civil servants and officials
of public bodies with salaries above £150,000
- Provision in the Localism Bill to require local
authorities and fire and rescue authorities to explain their approach
to the pay of both senior and the lowest paid staff
- Publication by the Senior Salaries Review Body
of a report setting out benchmarks and evaluation processes for
establishing the pay of chief executives of non-departmental public
bodies.
62. There have already been two instances during
this Parliament where the level of remuneration has been an issue
in public appointments in which this Committee has a role.
63. During negotiations over the salary for the new
Parliamentary and Health Service Ombudsman the Prime Minister
wrote to the current Ombudsman:
As part of the critical process of cutting public
sector expenditure generally, the Government is applying a strict
policy of pay scrutiny and restraint for the recruitment of those
very senior roles that attract annual salaries in excess of £142,500
[the Prime Ministerial salary]. This policy is being consistently
applied across the board, including for those roles, like the
Ombudsman's, that are independent...[46]
64. In this case we disagreed with the Prime Minister
and in our Report on the pre-appointment hearing for Ann Abraham's
successor as Parliamentary and Health Service Ombudsman we concluded:
We recognise and accept the need for restraint in
salaries for the most senior and highly paid public sector officials.
The Government has insisted on abandoning previous practice of
a fixed salary point. Instead, the remuneration arrangements for
the preferred candidate for the post have been negotiated directly
between the individual and the Government. We agree with both
the present Ombudsman and with Dame Julie Mellor that this places
the prospective Ombudsman in an invidious position.[47]
65. We are also concerned by the decision, taken
under the previous administration, to reduce the salary for the
post of the Chair of the UK Statistics Authority. The current
Chair of the UK Statistics Authority expressed his concerns to
us:
I was concerned when I heard that the advertisement
for my successor would be in terms of two days a week and £57,000.
I was concerned that it might have an adverse effect on the quality
of the people who put themselves forward. I have no idea about
that, because I am not part of the process. I was also concerned
that it would be seen as an indication of the Government's regard
for the Authority and that it would be taken as a sign that the
Government thought that the Authority was not really very important.[48]
66. We share Sir Michael's concern. The salary for
such an important post should be assessed very carefully. We note
that the Government, having originally advertised the post in
terms of two days a week and £57,000 salary, has now advertised
the post at two and a half days a week and £71,250 salary,
that is, half the Ministerial salary paid to the Prime Minister.
Hutton Review of Fair Pay in
the Public Sector
67. In June 2010 the Prime Minister and the Chancellor
commissioned Will Hutton to carry out a review which would make
recommendations on promoting pay fairness in the public sector
by tackling disparities between the lowest and the highest paid
in public sector organisations. The final report was published
in March 2011 and included the following recommendation:
Once this framework of recommendations is in place,
the Government should refrain from using the pay of the Prime
Minister or other politicians as a benchmark for the remuneration
of senior public servants, whose pay should reflect their due
desert and be proportional to the weight of their roles and their
performance.[49]
68. When he came before us on 6 September Will Hutton
explained why his report had made this recommendation:
First of all, the Prime Minister's total remuneration
is a great deal higher than £142,500 when you take the inkind
benefits into account, such as the use of Chequers and No. 10
Downing Street and any other benefits that accrue to the Prime
Minister. One estimate I used in the Review was that you could
put his pay as high as £581,000. That is the first point;
[...] Secondly, there are no recruitment and retention issues.
Thirdly, a great many people would do it for free.[50]
69. We
were concerned to learn that little data was available to the
Hutton Review on top pay across Government departments, largely
because such figures were not collected centrally:
We did try to do some work [on levels of pay across
Government], but we could not get anywhere because the data just
is not there. I make this point in the interim report, that actually
getting hold of the data, even for a dedicated Treasury team,
was pretty difficult. [...]
What is going on across the top of the British public
sector, all the salaries, payscales and so on, is not held centrally.[51]
70. Our predecessors' report on Top Pay in the Public
Sector concluded that "any proposal to use the Prime Minister's
salary as an absolute cap on public sector pay would be little
more than a political stunt". We concur. It may appear straightforward
to challenge Departments to justify pay settlements which exceed
the salary of the Prime Minister, but, for the reasons set out
by Will Hutton above, such comparisons are largely meaningless.
71. Departments are required to apply a value for
money test on all decisions for pay to public sector appointees,
with a strict process of scrutiny and approval for all proposed
salaries above £142,500. We requested information from the
Cabinet Office on the appointments made since 6 May 2010 where
remuneration has been above the £142,500 threshold. Nine
such appointments have been made, including that of the Ombudsman.[52]
The Minister for the Cabinet Office, Rt Hon Francis Maude MP,
told us that there had been "a noticeable reduction"
in the number of salaries proposed at or above the threshold,
indicating a "step-change in the approach to public appointee
salaries": the Cabinet Office and the Treasury were now "systematically
discussing" remuneration with departments and identifying
possible savings. More posts were being advertised at salaries
below the threshold without the need to activate the Treasury
scrutiny and approval process. The Minister claimed that this
represented "best practice on the issue embedding itself
across Whitehall, with departments really focusing on value for
money and challenging existing remuneration levels".[53]
72. More sophisticated
mechanisms for determining appropriate levels of top pay have
been put forward in the final report of the Hutton Review of Fair
Pay in the Public Sector. Mr Hutton indicated that an approach
which focused on prices paid for top salaries belonged "in
the margins" though it could be used as a "deep, deep
longstop"[54]:
a preferable approach would be to establish a pay regime based
on transparent and comparable multiples of basic salaries, together
with a requirement for public appointees to earn back a proportion
of their remuneration package in return for meeting performance
targets.[55] He
recommended that the Senior Salaries Review Body should ultimately
take responsibility for the implementation of a top pay framework:
"it has a competence, it has a capability, it is where much
of the data reside and they are very robust."[56]
73. The Chancellor,
in his letter of 20 July, indicated that "considerable progress"
had been made in implementing the recommendations of the Hutton
report and that further steps to complete this process would be
taken in the coming months. Mr Hutton understood that substantial
work was in train in the Cabinet Office and the Senior Salaries
Review Body to implement his recommendations in respect of earn
back.[57]
74. We recommend
that the Government publish as soon as possible its response to
the report of the Hutton Review of Fair Pay in the Public Sector.
We also recommend that the Government give careful consideration
to the proposal that the Senior Salaries Review Body should be
tasked to implement a framework for top salaries for public appointments
along the lines of the Hutton recommendations.
75. We accept the necessity of pay restraint on top
salaries, but the government should not use the Prime Minister's
salary as a cap. Imposing such a benchmark may be superficially
plausible but it is arbitrary. The true value of the Prime
Minister's total remuneration far exceeds £142,500 and the
job of Prime Minister is not comparable to others in the public
sector. There is a constant danger that a fixed cap discourages
the recruitment and retention of the best talent - something which
the government seems to accept when it has chosen to ignore its
own policy and pay much more in some cases.
76. We urge the government to substitute the arbitrary
cap on salaries of senior
posts in the public sector subject to Ministerial appointment
with a proper system to assess the salaries to be paid for public
appointments, as recommended by the report of the Hutton Review
of Fair Pay in the Public Sector.
While we support the principle of restraint in top salaries in
the current climate, we are concerned that the quality, range
and diversity of candidates applying for senior public appointments
may be adversely affected by the imposition of this benchmark.
46 Public Administration Select Committee, Tenth Report
of Session 2011-12, Remuneration of the Parliamentary and Health
Service Ombudsman, HC 1350, Appendix 1 Back
47
Ibid. para 9 Back
48
Oral evidence taken before the Public Administration Select Committee
on 10 May 2011, HC 910-i, Q 93 Back
49
Hutton Review of Fair Pay in the Public Sector: Final Report,
March 2011, p12 Back
50
Qq 113-116 Back
51
Qq 120-1 Back
52
See Appendix 2 Back
53
Ibid. Back
54
Q144 Back
55
Ibid. Back
56
Q 149 Back
57
Q 133 Back
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