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Public sector pay and reward, particularly at the top, have been the focus of acute media and public concern for some time now. Headlines in national newspapers focusing on "bloated" "fat cats" running public services and the need to "crack down" on their pay have become commonplace. In this report we examine the facts behind these headlines.
Growth in public sector executive salaries over the last ten years has been considerable, driven in part by the much larger increases seen in the private sector over the same period. Even so, those at the top of the public sector continue to earn much less than those at the top of the private sector. The gap between executives in both sectors and those on average earnings has, however, widened massively.
Our witnesses were divided between those who believed that top level public sector salaries have become grossly inflated, and those who believe that they represent good value, or are even too low relative to the private sector and that this hinders effective recruitment. Whether top public servants are overpaid or not therefore depends to a large extent on perspective. As a consequence we conclude that introducing an absolute cap on senior salaries, for example at the level of the Prime Minister's salary, would be arbitrary and unlikely to deliver better value for money to the taxpayer.
We believe, however, there is much more that could be done to ensure appropriate rigour and coherence in the processes for setting senior salaries in the public sector and the level of transparency and scrutiny that surrounds them. We have argued for:
- Better performance management across the public sector, to ensure that failure is not rewarded;
- Greater transparency, so that taxpayers know who is being paid how much for doing what, in line with the requirements for listed companies;
- More rigorous processes for setting public sector pay, including the appointment of stronger remuneration committees and access to an independent source of information; and
- More coherence in the way in which public sector pay is set, underpinned by a set of sector-wide principles.
To achieve these goals, we recommend the establishment of a Top Pay Commission that brings together and expands the remit of existing pay advice bodies. In addition to existing functions, the Commission would:
- Act as an independent source of data and information to pay setters across the public sector, including by publishing reports and findings where appropriate;
- Produce pay principles, guidelines for private sector comparisons and workable benchmarks for pay setters in the public sector;
- Investigate cases where these principles appear not to have been followed or where benchmarks have been substantially exceeded;
- 'Name and shame' organisations that are unable to justify their executive pay policies adequately; and
- Ensure necessary levels of transparency and accountability in public sector pay setting are being maintained.
We believe that our proposals will save public money in the medium to long term and restrain executive pay across the public sector. More importantly, they will ensure that where large salaries are paid they are seen to be achieving value for money. Ultimately, however, such measures will only be effective in the longer term if senior salary restraint in the public sector is matched in the private sector.
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