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Publishing his report on Fair Pay in March 2011, Will Hutton said on BBC news the aim was to create “a new settlement between the taxpayer and public sector bosses”, resolving the problems related to a lack of understanding about why senior public servants earn such high salaries.

The most radical recommendations are that public sector bosses should have a proportion – at least 10% – of the pay subject to “earn-back” – being paid only if they deliver objectives. Despite the focus on the concept that public servants could lose their basic pay, and suggestions that public services can’t use such approaches, there is plenty of supporting evidence and experience of implementing performance related payments in the public sector and this recommendation makes sense.

Hutton has also suggested the measures of transparency and reporting pay differentials should be applied to the private sector as well as the public sector. The Fair Pay report states the increasing growth rate of very high earners is a private sector phenomenon, “”CEOs of companies with a turnover of between £101 and £300 million earn more than twice their public sector counterparts.

While commentators may express doubts about his recommendations or surprise about his “Damascene conversion“, Hutton has clearly developed a good understanding of the issues that people close to public sector reward (rather than politicians or journalists) have known all along. Pay should reflect the challenge of recruiting and retaining people who are able to perform the role and will be impacted by the external market. The report suggests “Fair Pay” must be -

• proportional to each individual’s contribution, and
• set according to a fair process
• proportional to the value of an individual’s contribution reflecting both:
  • the nature of the post – complexity, influence, and responsibility for their organisations’ outcomes
  • the performance of the post holder

Turning attention to public sector organisations, the report recognises they are creators of wealth and social well-being, entail work that has great responsibility – the consequences of failure are greater than failure by a private firm – and require high standards of accountability. In this context, the report makes it clear the UK has to guard against making the public sector a fundamentally unattractive place for those with talent and drive.

Commenting on the trend for politicians to compare public sector pay with the Prime Minister, Hutton commented “there is no shortage of people coming forward, no problem recruiting or retaining prime ministers”. For some services however, child protection services in Haringey for example, paying”"danger money almost” could be a key recruitment factor. Read the rest of this entry →

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The Hay Group recently considered the issues subject to current public debate surrounding pay and reward. In it’s article, Hay looked at a number of areas where it considered there were myths surrounding the public sector

Myth One – The public sector is overpaid

Overall Hay drew clear and balanced conclusions. Highlighting the impact of the recent recession on earnings in the private sector, it suggested -

• public sector salaries were broadly competitive with the private sector up to experienced professional/middle manager though the public sector provides better benefits - pensions in particular
• at more senior levels, the private sector’s use of annual bonuses, car and health benefits and long term incentives outweighs the value of public sector pensions.

Myth Two – Nobody in the public sector should be paid more than the Prime Minister

Turning attention to the current favourite comparison on public sector pay, Attractor’s favourite quote from the Hay report is -

“Politicians, the media and the public should be less worried about unhelpful comparisons and more concerned with ensuring we get real performance in return for our money.”

Hay point out that pay levels relate to the market for any particular job, a matter that Attractor has commented on before. Pay should be set in a way designed to recruit, retain and motivate people with the required skills and experience.

In relation to the issue of comparing salaries to that of the Prime Minister, Hay highlight the PM has, in addition to his salary, two pension schemes, use of two houses and chauffeur driven cars while in the post plus access to extensive earnings opportunities afterwards. They comment the role of Prime Minister is based on “a political career” with “a constrained recruitment pool” – a very distinct market from other public servants – which makes the comparison “irrelevant”.

Read the rest of this entry →

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The Chartered Institute of Personnel and Development (CIPD) has recommended wider use of performance-related pay in the public sector while Personnel Today’s “Austerity Panel” has rejected this as a technique for improving productivity.

Yet when the government has used performance-related pay and bonuses as an incentive for public sector workers, it has faced criticism. Writers at the Tax Payers Alliance appear to consider public sector workers unworthy of reward for performance!

Personnel Today quoted Graham White, HR Director of Westminster Council and Roger Seifert, Professor of Industrial Relations and HR management at Wolverhampton Business School as contradicting the CIPD’s suggestions – highlighting the difficulties and distorting impact of performance pay.

So what evidence is there on successful use of performance pay in the public sector? Read the rest of this entry →

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The NHS White Paper allows individual employers the freedom to determine pay for their own staff. While this is a relatively small provision in the paper, it has potentially serious implications.

Quickly spotting this and commenting in the Public Finance blog, Duncan Brown has expressed serious reservations about the potential for a major deconstruction of the national pay framework Agenda for Change.

The Tax Payers Alliance recently criticised the treatment of bonuses by the Home Office, which had set aside 8.6% of its pay bill for such payments but was planning to use only 4.4%.

TPA argued cutting the pot for bonuses was not the same as cutting pay, suggesting that civil servants were being paid bonuses they had not earned.

It also commented bonuses would have been paid if there had been enough money to pay for them. Clearly it thinks bonuses shouldn’t apply to public servants.

MP for Cannock Chase, Aidan Burley, TPA said “Surely a bonus is not compulsory…If you’re not performing and therefore not entitled to a bonus, that doesn’t count as a pay cut.” “Quite right.” said TPA and it must be correct that bonuses shouldn’t be taken for granted – period!

But it’s hard to accept suggestions the civil service has an inappropriate bonus culture in the face of practice elsewhere. Paying enormous bonuses to company CEOs and bankers remains commonplace – irrespective of the global performance of their organisations. To be fair, TPA did report these cases but didn’t comment with the same degree of disdain …. despite many bankers bonuses being underpinned by taxpayers financial support.

In the private sector it is argued bonuses reflect success in parts of the business and for personal contributions that have been strong. Reward and recognition are needed to retain the best people it is said. Isn’t it equally important to keep the best public servants so we have positive outcomes and good value for money for taxpayers?

While the Telegraph reported the story in the context of David Cameron’s vow to crack down on ‘crazy’ bonuses, for the majority of public servants, and all low paid employees in both public and private sectors, the annual bonus can be really significant – though it probably doesn’t stretch to pay for “yet another sports car”. Distinguishing “pay” from “bonus” is pretty meaningless when it comes to employers’ costs or people’s spending power and anyone taking home less this year than last experiences a real terms cut in earnings.

Is it fair to suggest bonuses in the civil service are different from those in the private sector? Read the rest of this entry →

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Over past months, the government has warned of a hair shirt public sector employees will need to endure over the coming few years.

In the context of pay reductions borne by private sector employees since the financial crisis began, it seems appropriate (and now necessary) public sector organisations exhibit similar restraint when money is so tight.

The coalition government’s pay freeze, extended to two years, is a pragmatic action to save money while protecting services and jobs.

Additionally, seeking to reduce management costs as a part of money saving efforts is sensible.

Comment in high dudgeon about senior pay has reached crazy levels now and the government is as guilty as the press.

Having started with “the bankers” and other “fat cats”, it seems customary now to call for anyone - especially anyone well paid or senior – to suffer pay cuts and job losses – like that will make a anyone else better off or protect services.

Attractor was crafting a long article about public sector pay and the Hutton Review of Fair Pay in the Public Sector – questioning why such concerns were being applied only to public sector organisations. It is hard to fathom anything special about public service that makes it important -

“to introduce a public sector pay multiple that would mean that no public sector manager can earn over 20 times more than the lowest paid person in their organisation.”

If this is government pay policy, why should it not apply to the private sector? Perhaps it’s relevant that it would be almost impossible to gain acceptance of such a policy, or to police it effectively without driving private sector firms away from the UK!

Reading the Terms of Reference with a cynical eye, there are so many special factors and exceptions to be taken into account, the  review simply appears designed to support the intriduction of a new measure of central control.

Having seen Rick’s comments published earlier today over at Flip Chart Fairy Tales, our draft article has been consigned to the trash – it’s not needed – the point has been well made.

Kent County Council plans to “improve motivation” by paying more for superior performance.

Talks with unions aim to remove annual increments with effect from April 2010, to allow the council more scope to reward better performers at the top of their pay grade.

While performance must be a vital focus of management, performance pay does not suit every business! It is vital to understand the landscape, consider how pay acts as a motivator in the environment and culture of the business and design systems to deliver these outcomes robustly. Read the rest of this entry →