Hutton calls for fair pay cap on bosses’ earnings
Top executives in the public sector should not be paid more than twenty times the salary of their organisation’s lowest paid staff, a review of fair pay among public servants has recommended.
An interim report by the Fair Pay Review recommends that the government bring in a “maximum pay multiple” aimed at keeping the earnings of senior staff bound to what their employees receive.
Will Hutton, executive vice-chairman of the Work Foundation, who was appointed by the government to head the review, said executive pay had been rising faster than medium and low earners, creating greater pay “dispersion” over the past decade.
“When the economy grew there were fewer concerns about fairness in general and fair pay in particular. Now the economy is under pressure, how fairly society distributes its benefits and burdens has suddenly become more pressing.”
The Fair Pay Review’s study found that more than 20,000 public servants earn more than £117,000.
Average salaries for executives were £200,000 for heads of universities, £150,000 for NHS Hospital Trust chief executives, £117,000 for local authority chiefs, £170,000 for four star generals in the armed forces and £160,000 for permanent secretaries in government departments.
The NHS alone now has more than 1,000 managers earning in excess of £117,000 a year. Anyone who earns more than £117,523 a year is in the top 1 percent of all workers.
More than one million public sector workers earn less than £7 per hour Dave Prentis, general secretary of Unison
Typical pay for top NHS managers increased at an average of six per cent a year between 2001 and 2008, while pay for council bosses grew by 5.5 per cent a year during the same period.
Mr Hutton described an “arms race” in the pay of public bodies which reflected top private sector pay deals.
He said: “The range of top pay deals across the public sector has little coherence or relationship to the public’s priorities in generating genuine public value.
“Without clear principles there is every prospect of the rise and potentially irrational range in senior pay settlements continuing – which will accentuate already growing concerns about pay fairness.”
He said that although only the minority of bosses in the public sector were recruited from private companies, where they were, they were often brought in on inflated salaries.
The report cites two examples. It says the current chief executive of the Forensic Science Service was recruited from the private sector in 2009 on a salary of just over £200,000 – a big leap from the previous, internally-recruited, chief executive who received a salary of £132,000 in 2008.
John Lewis restricts the chief executive’s pay to 75 times the average of non-management staff
Another example was when the Met Office recruited its current chief executive from the private sector in 2007. He was granted a salary of £155,000-160,000, about two thirds more than the £90,000-95,000 salary of his internally-recruited predecessor.
Mr Hutton, whose own salary at the Work Foundation is reported to be £180,000, also criticised high salaries in the private sector, saying ministers should do more to expose the exceptionally high pay of some top earners.
He argued there is a strong case for companies to adopt pay multiples for executives “as one means of preventing top executives’ pay from becoming too far detached from the value of their actual work efforts”.
There is precedent for private sector companies adopting pay multiples. John Lewis restricts the chief executive’s pay to 75 times the average of non-management staff and John Pierpoint Morgan, the great Wall Street banker, limited salaries in the 1920’s at JP Morgan to 20 times that of junior employees.
The Hutton Review found that most public sector bodies remain below the ratio of 20:1, but warned that on current trends many – including councils and big hospitals – will breach it within a decade.
Dave Prentis, general secretary of Unison, said: “By concentrating on the 20:1 pay ratio, that affects a minuscule 0.0001 percent of the public sector workforce, the report misses the elephant in the room, namely the scandal of low pay across the sector.
“The government likes to talk about fairness, but actions speak louder than words. Public spending cuts, plus the drive to privatise local services, is depressing wages, fragmenting the workforce and undermining moves towards fairness.
“More than one million public sector workers earn less than £7 per hour. Even more are struggling with heavy debt. Pressure on family budgets is increasing because of the double whammy of high inflation and the pay freeze across the public sector.”