Senior public sector managers’ pay should be performance-related but not subject to a cap at 20 times the salary of their lowest paid staff, an independent review has proposed.
The government-commissioned Fair Pay Review, led by Work Foundation head Will Hutton, the final version of which is published today, U-turned on initial recommendations made in December of a 20:1 maximum pay multiple. The report said that the move would be “illogical” as it would affect only 70 top public servants and “could become a target to which people aspire”.
But it did suggest that pay ratios between top earners and the median pay of workers in public authorities and public limited companies should be published for comparison purposes.
Greater pay transparency in both the public and private sector, along with explanations of job weight and performance, could help to restrain the top pay “arms race” and would “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”, Hutton said.
He also recommended a new “pay for performance” deal that would see about 2,000 senior executives awarded between 10% and 15% of their pay at the end of their year in an “earn back” scheme if annual targets were met. Although the move would only affect a couple of thousand senior leaders initially, it could be broadened out to include middle managers on a voluntary basis over time and so could apply to “tens of thousands” of people.
But excellent performers who exceeded targets should also be eligible for a matching bonus. “No pay system can be fair if it fails to reflect individual performance,” Hutton said.
Other recommendations, meanwhile, included abandoning “arbitrary” benchmarks such as comparisons with the Prime Minister’s pay. Although 9,000 managers ostensibly earned more than David Cameron’s salary of £142,500, such comparisons were “profoundly flawed” as one estimate of the PM’s total package put it at nearer £580,000 if pensions and accommodation were included.
Chancellor George Osborne said that he would give “careful consideration to his recommendations and respond in detail in due course”.