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The pressure of public scrutiny is increasing on senior, well-paid individuals in all areas of work after a Freedom of Information request. Concerns have arisen that senior public servants have been abusing their position by working in ways that are “tax efficient” and thereby inappropriate.

At a time when high pay in the private sector has been a matter of concern, it was pretty obvious that arrangements for senior positions in the public sector would soon come under increased scrutiny and calls for transparency.

With news emerging the Student Loan Company’s chief executive, Ed Lester had his salary paid through a personal service company (a legal framework with no direct employment relationship and tax advantages), the Coalition Government’s focus on reducing tax avoidance has been called into question.

Personal service companies are generally accepted as perfectly legal and legitimate mechanisms for many independent contractors to work with client organisations. This arrangement can be entirely legitimate and suit both parties, particularly where the contractor works independently with multiple clients and where permanent or direct employment is not appropriate. Such companies can be an effective way for contractors to work and have certain tax advantages.

Tax legislation generally prevents such arrangements being abused as, where HMRC takes the view the working relationship is one where direct employment is the “real” situation, the contractor would normally be liable for PAYE and National Insurance in the normal way.

This is managed through the application of IR35, introduced in 2000 with the aim of eliminating inappropriate tax avoidance behaviour and generate tax revenue.

Since the introduction of IR35, tax lawyers have expressed concern that HMRC have been “bashing” truly independent contractors and entrepreneurs with this legislation to raise revenue rather than tackling real tax evaders.

Initially at least, there has been no suggestion the particular case in question has been put in place illegally and no details about the tax treatment of the arrangement have been disclosed, though it has been suggested “tax authorities” had approved it. The SLC has apparently defended the arrangement, producing figures suggesting it was saving the organisation around £88k over two years by avoiding head hunters fees, and tax and national insurance contributions. Commentator have highlighted potential financial benefits of between £25k and £40k for Mr Lester.

Across the public sector, Attractor is aware there is, generally, a strong focus on ensuring appropriate treatment of employment and contractor relationships. Perhaps this is why the judgements made in this case have been called into question. From the details published, it seems the arrangement had been approved at a pretty high level and there may be some suspicion that pressure from politicians had swayed the decision.

With increased focus on the issue, Danny Alexander, the Chief Secretary to the Treasury has ordered an investigation to see if the practice is widespread across government. It will be interesting to see the results of the investigation and it’s certain there will be increased effort to ensure the tax treatment for all senior appointments has been as “clean” as possible.

This might require a change to payment mechanisms and employment relationships or, more simply, a quiet word in the ear of the taxman.

At the end of January 2012, a political storm over high pay in banking, especially in the bailed out and “publicly owned” banks hit the headlines once again. With the Chairman of RBS having already declined his bonus, valued at £1.4m, Stephen Hester the Chief Executive, then came under pressure to waive his bonus, valued at just short of £1m.

With politicians calling for a vote in Parliament, Mr Hester concluded the position was untenable and agreed to waive the payment. Politicians will be very pleased to have influenced some powerful people into “seeing sense”, but it’s unclear where the political influence game might stop.

On the Today programme Robert Peston, the BBC’s Business Editor, highlighted the point that RBS had “come under pressure” to make a decision on bonus payments before most of their competitors … and walked into a trap by doing so.

It seems sensible for politicians to concentrate of shaping the legal and political frameworks within which the business leaders, entrepreneurs and workers can operate independently. This point was made, carefully, by William Haig talking on Radio 4 when he stressed that government ministers should avoid making decisions on individual cases and trying to run banking businesses.

Attractor has said before that pay generally reflects market pressures – people earn what their skills are worth in the labour market. This effects us all!

It’s no wonder the wide variations in earnings between those at the top and bottom of society become exceedingly painful when times are hard and it’s understandable that people consider it invidious to see others pocketing “windfall gains”. But there is a difference between something being undeserved and “not understood”. The fact that we don’t understand how decisions are reached about pay and performance issues in a particular industry does not necessarily mean those decisions are arbitrary or unfair. Read the rest of this entry →

Photo: rracy o; Flickr

The high level of earnings by senior people in private sector companies has hit the headlines once more with a series of outcries in response to news revealed in the Income Data Services report that FTSE 100 Directors experienced an increase of 49% in earnings over the last year.

While the increase in basic pay averaged only 3.2%, this figure was dwarfed by an average bonus payments increase of 23%, from £737,624 in 2010 to £906,044 in 2011 plus  the “crystallised? value of long term incentive plans (LTIP) and share options cashed-in during the year.

Overall IDS have revealed that -

• CEOs received an average increase of 43.5% (average earnings £3,855,172)
• Finance directors received an average increase of 34.1% (average earnings £2,001,515)
• All other directors received an average increase of 66.5% (average earnings £2,260,033)

In the press release from IDS themselves, the report’s editor, Steve Tatton reflected on the sensitivity of his findings, saying

Overall comment has been pretty negative however with very predictable condemnation from unions. Polly Toynbee has drawn attention to the diverging experience of those at the top and bottom of the earnings range, with the government considering reductions in employment rights and broader protections. Comment on these proposals has been quite dismissive. Attractor has asked the question if employees are Too Hard to Sack and would generally suggest that problems with terminating under-performing people are related to management culture and policy rather than employment law.

So what has happened in 2011? Read the rest of this entry →

With the government implementing a two year pay-freeze to support its “austerity programme” and planning changes to public sector pensions, concerns arise that health-care organisations might be effected by widespread industrial action for the first time since the 1980s.

Unions reluctantly accepted the necessity of the two year pay freeze though are now campaigning for a significant increase for staff when that deal expires in April 2013. Unions are strongly resisting other changes to employment terms, especially the reduction n the value of pensions.

NHS budgets are under more pressure than they have experienced for a decade and employers are contemplating ways to change the Agenda for Change pay systems which were established nationally in 2004.

By the end of 2010, the organisation NHS Employers had proposed a national enabling framework for local pay negotiations which would have allowed local agreement for freezing pay increments in return for a commitment on preventing compulsory redundancies. At that time, with strong indications from the unions that they would reject local pay negotiations, the initiative seemed to stall.

NHS Employers Chief Executive Dean Royles said recently “It is essential that local employers have meaningful discussions with local trade unions and staff about the workforce implications of the financial challenges for their organisations.”

Through 2011, planning conversations have continued on the management side and NHS Employers has recently reflected employers concerns, suggesting current national pay structures place unsustainable pressures on the NHS pay bill and proposing greater flexibility and local pay deals as potential solutions. Foundation Trusts, with their freedom to negotiate local employment terms with their staff, may follow Southend University Hospitals NHS Trust in starting to change the way pay works. The Nursing Times recently highlighted a number of cases where organisations were describing these tentative steps towards devolution -

• Mid Cheshire Hospitals has been quoted as  “working alongside other providers at a regional level to consider options to negotiate alternative terms and conditions” on areas including incremental progression and sick pay,
• University Hospital of South Manchester is said to be considering “proposals for changes to terms and conditions outside of the national framework”,
• Central Manchester University Hospitals’ attempt to withhold pay increments from employees with poor attendance is being challenged by unions,
• Birmingham and Solihull Mental Health was completing an options appraisal “regarding a move away from Agenda for Change” by 2014,
• Royal Surrey County Hospital polled staff to see if they would accept changes to employment terms in exchange for fewer job losses.

Employers understand the NHS employment market is a complex one and history has taught them that competitive behaviour between neighbouring Trusts has been damaging in the past. At present it seems NHS bodies will share thoughts, ideas and opportunities for change, seeking to move “in concert” on a menu of options and proposals to be discussed with local staff.

An even more dynamic strategy seems to be emerging with Calderstones Partnership NHS Foundation Trust working to set up a spin-out social enterprise subsidiary which will employ staff on non-NHS terms and conditions. With new services being established through this vehicle, services might be run at lower cost, though transferring existing services will pose more challenges with both TUPE and equal pay requirements to be met.

So what change could and should be made in NHS organisation’s pay strategy?

Read the rest of this entry →

Photo: kevindooley, Flickr

Over a period of years supporting public sector organisations’ support improvement action in corporate teams, especially with HR, Finance and Payroll, one of the most common topics of discussion with Directors and senior managers has been the proper place for payroll functions.

Some years ago, during a conversation with one (American) Chief Executive working in an NHS Trust that was experiencing problems with payroll services, this experienced leader expressed amazement that NHS organisations used outsourced payroll suppliers when ensuring staff were accurately and properly paid was “the most important responsibility of every employer.

Clearly he did not share the view of payroll as a low-value service, an assumption which might underpin the fact that, in UK public services, outsourcing payroll to a specialist provider is relatively commonplace.

Outsourced Solutions

Historically, payroll services have been the most likely corporate service for public bodies to buy-in from another organisation. Seen as non-core function, any in-house service would be viewed as wasting valuable time and money.

In the past, the challenge of legislative compliance combined with high volumes of relatively simple data driving most payroll processes (e.g. absence records, overtime worked, shift payments due) has made outsourcing the payroll function an attractive option.

This approach sees payroll as a”commoditized service” – a simple function which can and should be organised and delivered in the cheapest manner possible with the essential outcomes being payment accuracy and legal compliance.

During a time of austerity and cuts in public services, it seems more fashionable than ever before to outsource such services, having them delivered by a specialist payroll or multi-faceted corporate shared services provider. From 2007 onwards, public services have been seeking cost reductions in support functions by moving these services out to shared services organisations. The expectation for these projects is a combination of simplification, standardisation, automation and economies of scale will reduce costs while maintaining or improving standards. There should be no surprise there are both strong proponents and opponents of these projects, but everyone agrees delivering the benefits is pretty challenging.

For a shared services project to succeed in delivering savings while protecting quality, some fundamental changes are required, with significant review and redesign of functional roles and the business processes they are responsible for. With the trend for considering outsourcing a wider range of  administrative functions, the potential to buy in a combination of “HR and Payroll” or “Accounts and Payroll” is becoming increasingly common. In such cases the perspective of the client organisation about these support functions can be an important driver for the suitability of a particular solution. Read the rest of this entry →

Photo:Flying Fin, Flickr

In our personal lives, we tend to stick with tried and trusted solutions until we are personally convinced the grief involved in learning something new is worthwhile and the benefits we will gain justify all the effort we assume is required to make the switch.

It’s pretty common for people to overestimate the difficulty in switching and many service companies rely upon this reluctance to switch – retaining customers is always easier than winning new ones. This is why companies often prefer to grow their market-share through acquisition rather than organically.

People are right to consider changes carefully. It’s rare to make a switch that involves no “pain”.

Apprehension

Change can be uncomfortable and almost always requires significant effort to unlearn old routines and learn new ways of doing things. While on the “learning curve”, we slip back to being “consciously incompetent” – things are unfamiliar.  We recognise how much there is to learn in the new environment and can become concerned when proficiency seems so far out of reach.

These concerns are magnified when we consider new-fangled practices might be dangerous or risky – just watch anyone learning to swim or ride a bike to observe behaviour that seeks to avoid or delay being asked to leave safe ground.

Given the inertia most people show in their personal lives, why do people expect us to feel differently when our organisations are changing the way we work? After all, we aren’t even the ones choosing to enter into the unknown, “they” are doing this to us and we have no control over what is happening!

In that context, why is it individuals’ reticence or concerns are sometimes treated like difficult behaviour? Instead of “managing resistance”, change projects would benefit from encouraging people to voice and share their worries and concerns, listening carefully to the issues raised and supporting people through their individual learning journeys, tackling area of anxiety and helping them to re-establish their “conscious competence”as quickly as possible. Read the rest of this entry →

Working with public sector organisations, you will often hear (from corporate functions) that front-line managers cant operate self-sufficiently and need a lot of hands-on support from the corporate teams in finance, HR, procurement etc.

Does this reflect a clear and robust understanding of managers’ capacity and an organisational need for particular ways of working and higher levels of resource …. or simply excuses for maintaining out-moded models of operating?

Wouldn’t it be better for these teams to relinquish day-to-day control of the operational management of staffing an other issues, “letting go” while encouraging and supporting their managers to operate independently?

Public services may have a higher level of investment in professional education and training than private companies might expect and this might be a justification for higher resource levels in HR. Of course, many public services organisations have a high proportion of “professional practitioners”, creating a management layer naturally more interested in their professional responsibilities (i.e. patient care, social work, children’s education, catching criminals) than in managing staff and especially dealing with HR procedures.

It is that same professional context that can also create additional challenges when managing staffing problems that are more tricky to handle (see article Too Hard to Sack). In that context, we all recognise the temptation to procrastinate when there is something unpleasant to do and public sector managers can always justify focussing on public service outcomes first rather than having uncomfortable conversations. It’s possible this forms part of the context of a high-touch approach from HR teams.

Recently, we looked at the issue of HR ratios and explored whether it was possible to arrive at a magic “right number” using some kind of formula. Having decided this was almost certainly over-simplistic, we considered the kind of support and service models that HR might need to provide for managers. The Cranfield Study we referred to there showed organisational sector had a high correlation with the size of the HR function. Presumably this reflects the fact there will be many common features shared by organisations working in the same industry -

• similar workforce profiles with common working patterns etc.
• managers and staff with shared experiences and comparable skill sets,
• the same kinds of performance, conduct and other issues which require HR support.

It seems likely however these factors don’t reflect the whole picture. Read the rest of this entry →

If your CEO asks the question posed in the title, it probably isn’t acceptable to respond with the plain truth answer “It depends on how you want HR to contribute to the business!”

While this wouldn’t be an answer many would welcome, it is important to consider what role and purpose the HR department plays in your organisation – how it delivers value for the business. Form and size should follow function and purpose – do you need a large administrative function or a smaller team of highly skilled professionals?

If leaders want a “back to basics” personnel support function, the HR team might include a small number of “professional staff” with more administrative support people – helping managers to comply with the obligations of employment law and effective employment practice.

A more strategic perspective, incorporating organisation development and combined with a devolved approach to people management can see the HR function with slightly larger number of more specialist team-members – highly adapted to providing advise on complex issues while expecting managers to do more for themselves – offering less administrative support – particularly where it has deployed smart self-service solutions.

So what is the answer to the level of resources needed?

Read the rest of this entry →

While inheriting and accepting many features of the outgoing government’s strategy on productivity and efficiency, the Coalition Government has, at times, seemed less than enthusiastic about the delivery of corporate functions through shared service centres.

In the context of many reports of failing shared services projects in the public sector, it would have been astonishing if the government had not wanted to assure itself about these projects before setting out a strategy for the future.

In July 2011 the government published short paper setting out it’s views. Government Shared Services : A Strategic Vision summarises its findings and conclusions.

The government has set out an approach to consolidate back office “transactional services” in HR, Finance, Payroll and Procurement between and across Central Government organisations and Arms Length Bodies (ALBs).

It suggests the existing shared services operations, while not delivering optimum results, have already delivered savings (£13m per annum at the Home Office, £20m at Ministry of Justice and £35m per annum at Department for Work and Pensions) through moving back office transactions to shared service centres. It is relatively common for shared services projects to encounter difficulty in establishing a baseline position on service quality and costs and there are no details provided on how these figures have been derived.

The government’s new vision consists of -

• A Central Government oversight function to lead a new governance structure to accredit independent Shared Services Centres (ISSCs),
• A small equitable market (maybe 2 providers) of accredited ISSCs will be available for Government Departments and their ALBs to choose between,
• ISSCs will operate independently from customer organisations, delivering “outcome based services” using standardised simplified processes against established performance benchmarks.
• ISSCs can adopt different business models (i.e. public, mutual, private), leverage capability and financial investment needed to deliver services and can operate virtually or from integrated delivery centres.
• Departments can make a case to continue to use their own “standalone” corporate services if they can match ISSC performance using the agreed benchmarks.
• If a department can show better performance than ISSCs, they may be able to begin offering services to others but a Department may be compelled to become a customer of an ISSC, or at least meet the same standards, if they are falling shot of performance standards.

The Cabinet Office Efficiency and Reform Group Shared Services team will be working on a migration plan and a strategic outline business case for November 2011. Overall, the paper does seem to set out a pragmatic approach to the challenge, recognising that one-size might not fit all and providing some flexibility for the larger organisations to continue providing in-house services.

In relation to the shared services delivery model, the government has suggested it will learn five important lessons from the experience of early shared services adoption in government -

• Independence is important to incentivise a better quality of services at a lower cost.
• Delivery of shared services is not a core Government skill and bringing in operational and commercial expertise is vital to improving current capability.
• On-boarding to a bespoke service can be expensive and issues on charging between public organisations can act as a barrier, e.g. smaller organisations need an affordable solution.
• Shared Services comprises a range of key components that influence cost and require standardisation – infrastructure, IT platform, ERP solution, business change, business processes.
• Strong governance is essential and efficiency gains are proportional to the level of mandation in the use of shared services.

While these lessons look fine (if not very new), does this strategy make sense in its broader context?

Read the rest of this entry →

Photo: dgray_xplane, Flickr

A number of systems thinkers suggest all projects seeking to improve services and costs through economies of scale the efficient management of business processes and doomed to failure and inherently wrong-headed. Their message is economies of scale are “a myth” – based on plausible theories which have little or no supporting empirical evidence.

Even amongst those engaged in providing such services, there is often acceptance that delivering “world-class” service can be extremely stretching and remains out of reach for many service providers and their clients.

While suggesting there is “no benefit” in scaling up services is an over-simplification, the systems thinkers’ criticisms are more fundamental.

In addition to the issues of service and organisational design which are explored below, the “command and control” management culture and inappropriate use of targets and measurement are also highlighted as major issues.

Taken as a whole, systems thinkers claim shared services solutions deliver no real benefit and will highlight a number of failed projects to support that view. There are so many cases where shared services or outsourcing projects are ill-conceived, poorly managed and badly delivered, the task of finding failures is all too easy.

However, there are areas where running bigger operations provides clear advantages but there are problems and challenges inherent in scale too. Taken as a whole the drivers of success and failure require far more careful attention than simply concentrating on scale. Too many projects seem to start with a poor appreciation of the challenges and an over-optimistic belief in suggestions benefits will be easily delivered and it is useful to understand both the benefits and drawbacks of scale before deciding whether shared services are worth pursuing.

Attractor has reviewed and summarised the positive benefits and the pitfalls below, attempting to draw attention to the issues that matter most.

Read the rest of this entry →