Councils should claw back severance costs from chief execs who join other local authorities: Audit Commission

A way should be found to allow local authorities to recoup some of a pay-off to a departing chief executive where the individual moves quickly into another top council job, the Audit Commission said this week.

The watchdog also called on councils to consider whether to include “pre-nuptial” clauses in chief executives' contracts, specifying the grounds and payment for severance.

In a report, the Audit Commission acknowledged that severance deals can be in the interests of councils and the taxpayer. However it said not all severance deals involving local authority chief executives can be justified, some competent chief executives have lost their jobs needlessly and less effective individuals have been paid off when they should have been dismissed.

The study of council chief executive job moves over the last 33 months found agreed severance packages for 37 chief executives, totalling £9.5m of which 40% related to pension benefits. The average cost to councils of each severance package was almost double the annual basic salary, but in four cases was more than triple.

Three in ten outgoing chief executives received a pay-off, the research found. But only six of the 37 chief executives  took up other council jobs within a year.

None of the payments were found to be unlawful, although in 18% of cases, auditors reported formally councils concerns about the way councils have dealt with terminations and payments. “The quality of advice and information provided to members is often not good enough for sound decisions to be made,” the Audit Commission said.

Aside from the introduction of claw-back arrangements and “pre-nups”, the watchdog's recommendations include that:

• all severance deals should be more transparent. “They should be reviewed by scrutiny or remuneration committees, with details published shortly after they are agreed”
• the government should review the statutory employment protection mechanisms for chief executives, “considering whether the current system should be reformed or replaced”
• mediation should be used more widely and should take place when problems start, “rather than as a last resort”
• the national model of performance appraisal should be formally adopted and implemented, and
• councils should ensure that during the negotiation of mutual agreement clauses, members do not give grounds for claims for unfair dismissal. “Councils should provide awareness training for senior members on relevant aspects of employment law”.

The Audit Commission said the Local Government Association should improve advice and guidance to its members and officers on the technical and legal aspects of contract terminations and severance negotiations for chief executives, including option appraisals.

Welcoming the report, Communities Secretary John Denham said: “The Audit Commission report shows that too many chief executives are being dismissed because they have fallen out with council leaders – this can cost as much as £500,000 in some cases and is all too often seen as a quick fix solution. Taxpayers' money should not be used to resolve personal differences.

“It is time we find a way to change the rules so that taxpayers' money can be clawed back where the system has been exploited. Councils should also make publicly available what they waste in pay-offs and set up remuneration committees to decide appropriate pay awards and senior structures.”