Final Report of Fair Pay Review Published.

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Will Hutton today (Tuesday 15 March 2011) published the Final Report and recommendations of the Fair Pay Review, setting out the terms of a new settlement for public service leadership. Senior public servants’ pay will be directly linked to their performance and will be subject to much greater public scrutiny. In return, public service leaders will be in a better position to explain their roles and responsibilities, and defend the ethos of public service that motivates them.

Key Recommendations:

* Will Hutton recommends that senior public servants’ pay should be more strongly linked to their performance through a system of ‘earn back’ pay. Under this system, executives will have an element of their basic pay ‘at risk’, to be earned back each year through meeting pre-agreed objectives. This will allow pay to vary down as well as up with performance, and ensure that public services do not offer rewards for failure.

* There should be significant improvements in transparency over senior pay – all executives’ full pay should be disclosed, along with an explanation of how it relates to job weight and performance and made available online.

* The multiple of chief executive to workforce median pay should be published each year, and any changes explained.

* The Government should not benchmark senior public servants’ pay against that of the Prime Minister, and should not impose a fixed limit on pay multiples (such as 20 to 1). This will allow a more informed and rational public debate on senior pay in public services. Citizens need to understand public service executive pay in the context of job responsibilities. To support this informed debate, the Senior Salaries Review Body should publish Fair Pay Reports each year, detailing pay multiples across public services.

* To make tracking pay multiples normal practice across the economy, Will Hutton recommends that Public Limited Companies (PLCS) should also be required to track and publish their pay multiples – and the Government should consider commissioning annual Fair Pay Reports on PLCs as well as public service organisations.

Publishing the Fair Pay Review Final Report and recommendations, Will Hutton said:

“High quality public services are essential to our society and economy and high quality public services require high calibre leaders to deliver them, especially in difficult fiscal conditions. How we pay our public service leaders will have a crucial influence on the sort of public services this country will get. It is essential that senior public servants are adequately rewarded for their contributions, and that the public service ethos – that sense of mission and public duty that motivates many to work in public services – is preserved and respected. But public trust in public services can only be maintained if senior public servants’ pay is fair and seen to be fair.”

Will Hutton continued:

“In this Final Report, I am therefore presenting a series of recommendations for a new deal on public service leadership, in which senior public servants’ pay is set to reflect their due desert. No pay system can be fair if it fails to reflect individual performance: so I am recommending that all public service executives are required to place an element of their basic pay at risk, to be earned back each year through good performance. So that pay is seen to be fair, I am recommending a huge advance in transparency and public accountability. Organisations delivering public services should publish their pay multiples each year, and disclose and explain executive pay and how it relates to job responsibilities and individual performance. This information should then be brought together in annual Fair Pay Reports from the Senior Salaries Review Body. This will allow an informed public debate on senior pay: citizens will be able to hold organisations to account on how senior pay reflects individuals’ due desert.

“The principles of fairness are not exclusive to public services. Citizens are rightly concerned about wider inequalities in society, and question whether the pay of the highest earners is deserved. Discussing top pay in the language of due desert, and by reference to the pay of ordinary employees should be the norm across the whole economy: that is why I am recommending that PLCs should also be required to publish their pay multiples each year, to allow citizens and shareholders to hold them to account.”

Fair Pay Review Final Report: Summary of Recommendations

1 Using pay multiples to track executive pay against that of all employees

The Government should not cap pay across public services, but should require that from 2011-12 all public service organisations publish their top to median pay multiples each year to allow the public to hold them to account.

2 Informing the public debate through annual Fair Pay Reports
To support citizen accountability, the Government should commission the Senior Salaries Review Body to publish annual Fair Pay Reports, starting from 2011-12. These reports should set out trends in pay multiples across public services, highlight year-on-year changes and identify organisations that fail to produce meaningful, specific and verifiable explanations for their pay multiples and for changes.

3 Re-calibrating the pay of Non-Departmental Public Body chief executives

To address particular concerns that the pay of Non-Departmental Public Body chief executives has become detached from the responsibilities of their roles, the Government should by December 2011 establish a series of pay benchmarks for NDPB chief executives, following advice from the Senior Salaries Review Body.

4 From disclosure to explanation: ensuring complete transparency over executive roles and remuneration
To enable citizens to understand executive remuneration and the nature of executive responsibilities, from 2011-12 the Government should require that all organisations delivering public services disclose in precise numbers the full remuneration of all executives, alongside an explanation of the responsibilities of each role and of how executives’ pay reflects individual performance.

5 Enabling citizen analysis of executive pay
From 2011-12, the Government should require public organisations to submit executive pay data through an online template, and make this data available on data.gov.uk, to allow citizens to access and analyse this data and thus have the information required to hold public service organisations to account.

6 Abandoning arbitrary benchmarks for public service pay
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.

7 Preventing rewards for failure through earn-back pay for senior public servants
To allow pay to vary down as well as up with performance, all public service executives should have an element of their basic pay that needs to be earned back each year through meeting pre-agreed objectives.
The Government should by July 2011 bring forward proposals for Senior Civil Service pay to include an element of base pay at risk, and should encourage the application of earn-back pay to other organisations delivering public services. This earn-back should be conditional upon meeting pre-agreed objectives; excellent performers who go beyond their objectives should be eligible for additional pay.

8 Extending earn-back pay to high performing middle managers
To identify and reward high fliers, once earn-back pay has been implemented at the most senior levels, Government departments and other public service organisations should consider offering this pay structure to middle managers on an opt-in basis.

9 Sharing the rewards of greater productivity
To prevent executives monopolising the rewards of productivity increases, and allow all employees who have contributed to share the benefits, government departments should identify ways of offering gainsharing schemes linked to achievement of the efficiency aspects of their business plans. The Government should also explore options for gainsharing schemes across public services more widely.

10 Opening up opportunities for future generations of public service leaders
To increase the supply of candidates for top positions and reinforce public service management as a career, the Government should facilitate greater opportunities for managers to move across different public services. By the end of 2011 the Government should establish a single online portal for advertisements and applications for public service management roles, and work with major public service employers to establish a passport scheme for middle and senior managers across public services. It should also drive and prioritise ongoing collaboration between public sector graduate recruitment and development programmes.

11 A Fair Pay Code
To embed fairness principles and ensure fair process in executive remuneration, all public service organisations should adopt the Fair Pay Code proposed by this Review. Government departments should by July 2011 bring forward proposals for the application of this Code to all bodies and sectors in which they have an interest.
12 Tracking pay multiples across the economy

To make tracking pay multiples normal practice across the economy, as part of its commitment to improve corporate reporting, the Government should require listed companies to publish top to median pay multiples in their annual reporting from January 2012.
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