5 Transparency
Personally, I think absolutely
philosophically and generally there should be openness about what
people get paid in those situations: it is public money fundamentally.[117]
89. Information about pay levels in
the public sector is currently haphazard. This chapter looks at
arguments for greater openness and consistency in reporting of
top public sector salaries.
CURRENT SITUATION: CENTRAL GOVERNMENT
90. Much of central government is subject
to the requirements of the Government Financial Reporting Manual
(FReM). This manual does not, however, apply to local government,
those public corporations that are not trading funds, and NHS
trusts and NHS foundation trusts (although the equivalent manuals
for NHS trusts and foundation trusts are broadly compliant with
FReM).
91. FReM requires the annual production
of a remuneration report as set out in Chapter 6 of the Companies
Act 2006 and the regulations applying to large and medium-sized
companies and groups,[118]
with some adjustments to reflect the public sector context.[119]
Essentially this requires the publication of detailed remuneration
information about board members. There are three substantial differences
from the requirements on listed companies: salaries of officials
are disclosed in bands of £5,000 (rather than disclosure
of precise sums received); many NDPBs do not provide separate
breakdowns of salary and bonus payments; and there is no explanation
as to why bonuses are paid. Public corporations which are not
trading funds generally follow private sector practice in disclosing
remuneration, providing exact rather than banded sums.
92. The rationale for disclosing in
bands is that the disclosure of exact salaries would amount to
an unwarranted intrusion into individuals' privacy and personal
affairs. This has been upheld by the Information Commissioner
as striking a proportionate balance between the public's right
to information and the individual's right to see their personal
data protected.[120]
It should be noted, however, that there is a degree of circularity
at play here. The Information Commissioner considered that it
would be intrusive to release exact salary information because
the individuals concerned would not expect these details to be
disclosed. This expectation arises because the Government routinely
publishes salary details within £5,000 bands. If Government
practice were to change, individual expectations would also change.
93. There have been cases where NHS
trust directors have refused to disclose information about their
salaries, using the Data Protection Act 1998. In 2003 the then
Chief Executive of the NHS, Sir Nigel Crisp, wrote to NHS trusts
urging them to disclose this information and stating that:
I regard it as a matter of principle
that those who are paid from the public purse should expect to
be completely open about how much they are paid.[121]
94. Remuneration reports need not and
do not disclose the remuneration received by staff other than
those at board level, although some of those other staff may well
be earning more than some board members. Information on remuneration
of staff below board level may be made available following specific
freedom of information requests, but is not regularly published.
95. We do not
see how the publication of more exact remuneration figures for
senior public sector executives, including separate breakdowns
of salary and bonuses, could constitute a genuine breach of their
privacy, as long as they were given adequate notice of the intention
to do so. This information is after all already required of directors
of listed companies in the private sector. We recommend that disclosure
of top public sector salaries should be brought more into line
with the requirements for listed companies, with the amount received
in both salary and bonuses published along with explanations as
to why bonuses were paid.
CURRENT SITUATION: LOCAL GOVERNMENT
96. Reporting requirements for local
government[122]
are contained in a separate set of regulations.[123]
Currently the only requirement for remuneration reporting is to
provide a note of the number of employees receiving remuneration
above £50,000, in brackets of £10,000.
97. In March 2009 the Government published
a consultation paper to seek views on amending the Accounts and
Audit Regulations 2003 to improve transparency of reporting of
remuneration of senior officers in some (local government related)
public bodies. The Government produced its response to this consultation
in October 2009, including proposals to require these bodies to
publish detailed information about the remuneration of their senior
officers from 2010-11 onwards. The information would be similar
in nature to that already published for Civil Service Departments.
98. The evidence that we received was
highly critical of the current lack of transparency in local government.
All of those we spoke to, including the representatives of the
people concerned, agreed that there was an unarguable case for
publishing the earnings of senior officers in local government.[124]
We welcome the Government's intention to
bring the publication requirements for senior remuneration levels
in local government bodies in line with those for central government.
This should, as we recommend earlier, mean that full details of
top local government salaries and bonuses should be published.
PROPOSALS FOR GREATER TRANSPARENCY
99. The question is whether these reforms
go far enough. Both the Government and Official Opposition have
proposed publishing a wider range of top salaries than at present.
In the Pre-Budget Report the Chancellor of the Exchequer announced
that all individuals paid more than £150,000 would have their
names and salaries published within £5,000 bands and the
number of individuals paid more than £50,000 would be published
in increments of £50,000.[125]
100. In April 2009, the Leader of the
Opposition suggested that if in Government he would "publish
online all public sector salaries over £150,000".[126]
In October 2009, the Shadow Minister for the Cabinet Office announced
that if in Government, his party would "publish online the
salaries of the 35,000 most senior civil servants".[127]
This would appear to include middle management posts, earning
from around £40,000 per year.
101. It was suggested in evidence to
us that the salaries of all public servants should be made available
online for those "with remuneration of £50,000 or more"[128]
and that "all minutes, agreements and memos pertaining to
the setting of pay and conditions for board level and £100,000
plus earning members of public sector bodies should be available
online".[129]
102. Most of our witnesses thought
that transparency would be of "net benefit"[130]
not only to the public, but also to the process of setting pay:
because it opens up accountability
more clearly, … it will be something that restricts wage
inflation.[131]
It is very difficult, if you are
a local authority, to go out and set the highest local authority
chief executive salary in the country, because that will be immediately
picked up on and the remuneration committee will be asked to justify
that, so you would have to have a really clear reason for doing
that.[132]
the reality is that where there
is no transparency pay levels tend to be higher. If you look around
Europe, the country in Europe that has the highest pay arrangements
is Switzerland, and that is because Switzerland only started to
publish last year.[133]
103. Both campaigning groups and remuneration
consultants agreed that there should be "consistency"
or "baseline transparency" across the public sector.[134]
We strongly support the
idea that transparency should be broadly consistent across the
public sector: it would be inconsistent and potentially unfair
to require the earnings of one group of public servants to be
disclosed at a level not required of other public servants.
104. A representative of local government
chief executives suggested to us that earnings needed to be put
into context, and should be published alongside job descriptions.[135]
The CIPD has made a similar point:
For a reasoned judgement to be
made there must be disclosure not only of the full remuneration
package but also what the individual has done and is doing to
earn that sum.[136]
105. The
proposed changes to local government remuneration disclosure will
bring about a position in which there is a broadly comparable
level of transparency across the public sector. It is at least
a starting point for consistency which is an improvement on the
status quo.
106. However
we believe transparency can go further. We recommend the routine
disclosure of the remuneration of all public servants earning
above a certain amount, in the region of £100,000, not just
members of management boards. We heard arguments for disclosure
at lower salary levels; whilst we understand why people may be
interested in this data, it would be considerably more costly
to produce and would be disproportionate, especially where we
are talking about mid-level managers.
107. We also
see value in providing a brief description of how an individual
has earned the level of remuneration being disclosed. This could
help the public to come to a more informed view on the value for
money being provided by their most highly paid public servants.
Consideration of pay conditions
more widely
108. Polly Toynbee proposed the use
of ratios to measure the differentials between high and low pay
within organisations, and specifically that the Low Pay Commission
should be transformed into a Pay Commission and given an advisory
role in this area.[137]
Stephen Taylor has also written that he is "attracted to
the idea of a ratio, eg that we wouldn't expect the top salary
in a public sector organisation to be much more (or indeed much
less) than X times its average salary and would look for justification
if it was".[138]
109. Peter Boreham told us that in
his view "ratios are garbage" although remuneration
committees needed to "have regard to the way that they treat
their people relative to how they treat their bosses".[139]
He argued that ratios tended to incentivise organisational tinkering,
rather than pay restraint. He gave a notional example: "As
soon as my organisation outsources its cleaning and catering staff
to Chris's organisation, then my ratio gets better and his gets
worse".[140]
110. Quoted companies are required
to provide "a statement of how pay and employment conditions
of employees of the company and of other undertakings within the
same group as the company were taken into account when determining
directors' remuneration for the relevant financial year".[141]
Decisions on senior pay should take into
account the earnings, conditions of employment and job security
of other employees of the same organisation. We accept that simply
publishing a ratio in isolation could be misleading, but we recommend
that public sector bodies should be required to declare how the
earnings of their senior people relate to the earnings of their
other employees.
111. We consider
in the next chapter Polly Toynbee's suggestion for a dedicated
pay commission to provide advice on top public sector pay issues.
117 Q 126 [Hamish Davidson] Back
118
SI 2008 No. 410 Back
119
For example, the requirement to include a line graph of shareholdings
is irrelevant in the public sector context. Back
120
See for example Information Commissioner's Office reference FS50250552. Back
121
National Health Service, 2009, Manual for Accounts, Chapter
2, p 17 Back
122
Including National Parks authorities, police authorities and fire
authorities Back
123
Accounts and Audit Regulations 2003, SI 2003 No. 533 Back
124
Q 1 [David Clark]; Q 9 [Tony Travers]; Q 128 [Peter Boreham];
Q 294 [Bill Cockburn]; LGA written evidence; Hay written evidence Back
125
Pre-Budget Report para 6.50 Back
126
Rt Hon David Cameron MP, Speech, 26 April 2009 Back
127
Rt Hon Francis Maude MP, Speech, 5 October 2009 Back
128
IoD written evidence Back
129
TPA written evidence Back
130
Hay written evidence Back
131
Q 130 [Christopher Johnson] Back
132
Q 130 [Peter Boreham] Back
133
Q 131 [Peter Boreham] Back
134
TPA written evidence; Q 133 [Peter Boreham] Back
135
Q 1 [David Clark] Back
136
CIPD written evidence Back
137
Q 93 [Polly Toynbee] Back
138
Stephen Taylor written evidence Back
139
Q 136 [Peter Boreham] Back
140
Q 140 [Peter Boreham] Back
141
SI 2008, No 410, Schedule 8, paragraph 4 Back
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