Top Pay in the Public Sector - Public Administration Committee Contents


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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