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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: bullionvault, Flickr

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 →

Photo: pajp, Flickr

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 →

Photo: rracy o, Flickr

The bonus pot for bankers has returned to the normal level according to the Centre for Economics and Business Research (CEBR) at £7bn (compared to £11bn in 2009).

For 2010, the government will take a larger slice of the bonus cake than bankers after the introduction of a 50% tax rate for income over £150,000.

With the backdrop of the current crisis, it is “bankers” who are facing the heaviest criticism from the public, not public servants or senior managers.

With people feeling they are being made to pay for the mistakes of bankers, it is the high bonuses being paid there which annoys people most.

Attractor has examined the issues surrounding high earnings in particular sectors before. In the past we have looked at the pay of top managers, performance pay for public servants, bonuses in public services, top public servants and public services generally. So what about bankers? Read the rest of this entry →

The BBC’s Panorama programme entitled “Because We’re Worth It” explored the issues of top public servants pay, the recent government interventions and perceived value for money.

While the programme included a pretty superficial session where members of the public ranked public servants value in Trafalgar Square, it also contained some valuable insights into factors driving earnings for top public servants.

BBC researchers used the Freedom of Information Act to collate earnings information for over 38,000 top public sector roles and have published the data on their website.

The BBC explained it’s research revealed some enlightening facts about the pay of top public servants including the following -

• 220 civil servants earned more than the Primer Minister
• 385 teachers earned more than £100k and 17 headteachers earned more than the Prime Minister
• 97 people at the BBC earned more than £160k
• 428 quango heads earned more than the Prime Minister
• the highest paid local government CEO earned £299k

Attractor has said before it is pretty meaningless to compare public servants earnings to those of the Prime Minister. Career politicians and other public servants inhabit different environments. Other commentators have highlighted the pay of senior politicians excludes the potential external earnings available in this field, before, during and after their elected service.

Panorama also highlighted the fact the Prime Minister’s pay had been reduced by both Gordon Brown and David Cameron from £197,000k to £142,000 over the last 18 months. Reducing pay in this way significantly shifts the number of top public sector roles that attract earnings above the Prime Minister …. from less than 1,000 to over 9,000.

While this sends a clear political signal on national pay restraint, and responds to similar moves made in some areas of the private sector, expecting this to translate across public service was probably no more realistic than expecting all private sector CEOs to take pay cuts.

So what else did the programme and the BBC data reveal? Read the rest of this entry →

Photo: Material Boy, Flickr

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 →

Photo: HowardLake, Flickr

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.