Hutton Review of public sector pay rejects 20 to 1 multiple

The Hutton Review of fair pay in the public sector has rejected calls for a fixed limit on pay multiples in which no manager could earn more than 20 times the lowest paid person in the organisation.

In its final report, it also suggested that senior public servants’ pay should not be benchmarked against that of the Prime Minister.

Rejecting what it called “arbitrary benchmarks”, the review – led by economist Will Hutton of the Work Foundation – instead called for a “new settlement” for senior public service pay.

The key recommendations include:

• All public service organisations should publish their top to median pay multiples each year “to allow the public to hold them to account”
• The Senior Salaries Review Body should publish Fair Pay Reports each year starting from 2011/12, detailing pay multiples across public services. This would support an informed public debate
• The pay of Non-Departmental Public Body chief executives should be re-calibrated
• All organisations delivering public services should disclose – from 2011/12 – 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
• Organisations should be required to submit executive pay data through an online template and make this available through data.gov.uk
• 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." Excellent performers who go beyond their objectives should be eligible for additional pay
• Once earn-back pay has been implemented at the most senior levels, government departments and other public service organisations should consider offering the pay structure to middle managers on an opt-in basis
• The government should facilitate – through development of an online portal – greater opportunities for managers to move across different public services. This would “increase the supply of candidates for top positions and reinforce public service management as a career”
• The Fair Pay Code proposed by the review should be adopted by all public service organisations. “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”
• Listed companies should be required to publish top to median pay multiples in their annual reporting from January 2012.

Hutton argued that in return for greater transparency and a direct link between pay and performance, public service leaders were entitled to expect “improved public appreciation of the responsibilities of senior public service roles, and the ethos of public service that motivates them”.

On calling for his proposed Fair Pay Code to be observed by major suppliers to the public sector, he said: "This may be a demanding requirement for some PLCs whose business is largely in the public services industry – but it will be an important reminder that what they are doing, while privately run, remains in the public domain. Publicness matters, as does fair pay. It will also allow the government to protect itself from charges that it is turning over large parts of the public sector to profiteering private companies.”

Hutton, who was commissioned by the Prime Minister and the Chancellor in June 2010, 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."

In the report, Hutton argued that the accusation that the pay and reward package of public sector executives had got out of hand had been made harder to rebut because of the lack of a robust framework to justify top public sector pay.

“On a gut level, the reaction is understandable – but dangerous,” he said in the foreword. “If the national conversation takes it as a given that the public sector is necessarily a burden and a problem, it can only demotivate public sector staff.” Hutton also argued that attacks on public sector pay would make it difficult to recruit and retain good people.

He concluded that a public sector pay multiple (such as 20 to 1) would not work as the core of a fair system. “The evidence is that a hard cap would be inoperable across a diverse public sector workforce,” he said. “People at the top of very large and complex organisations, with low paid workers, could earn less than people running simpler bodies but whose bottom workers were better paid.”

The full report can be downloaded here.

Philip Hoult