MEMORANDUM FROM
NHS EMPLOYERS
SUMMARY
— The NHS employs in the region of 3000
posts at Chief Executive and Executive Director level across 400
organisations in England. — There are two approaches to
remuneration of senior appointees, according to organisational
type. — Around two thirds are enabled by statute to set
executive pay locally by remuneration committee.
— The remaining third is required to operate
the "pay framework for Very Senior Mangers" specified
by the Department of Health—this framework is currently
under revision.
BACKGROUND
1. There are in the region of 1.3 million
staff employed by the NHS in England in 400 organisations. Of
these around 3,000 are Chief Executives or Executive Directors.
The arrangements for executive pay vary according to the type
of organisation and are explained below. However, other aspects
of the reward package are common across the NHS.
2. NHS staff below director level are either
employed on specific national agreements for doctors and dentists,
or (over 1.2 million) on a national pay system based on a job
evaluation framework, entitled "Agenda for Change",
which was introduced in 2004. The Agenda for Change arrangements
include a NHS Staff Handbook[18]
which details terms and conditions of service such as leave and
redundancy arrangements. These terms (but not the accompanying
pay system) are generally extended to all in the executive group
and should be referenced in individual contracts.
3. There are pension schemes, Ill Health
Retirement and Injury Benefit Scheme for the NHS in England and
Wales and these also apply to the executive group. Since 1 April
2008, employees with higher earnings have paid an increased pension
contribution (7.5% of pensionable pay between £63,417 and
£99,999, rising to 8.5% of pensionable pay of £100,000
or above.
EXECUTIVE PAY
IN NHS TRUSTS
AND FOUNDATION
TRUSTS
4. Since 1991, when NHS trusts came into
being, they have been able to use local pay setting machinery
in the form of a remuneration committee. This will be chaired
by a non-executive director and report to the Trust Board. The
introduction of Foundation Trusts in 2004 provided a different
legal basis for NHS organisations and further cemented their right
to set remuneration independently. There is no mechanism for central
intervention in determining executive roles or payment.
5. This system appears to work well with little
complaint by organisations which operate it. They have the flexibility
to design director roles to suit the organisation and to set pay
appropriately. It is good practice for Remuneration Committees
to benchmark their pay against market and industry levels using
independent advice. As with most senior roles there is little
evidence of pay scales in use at this level with a spot rate being
determined on appointment. Some drift has been noted by independent
reviewers Capita and Incomes Data Services who have undertaken
longitudinal surveys of NHS boardroom pay. This is understood
to be caused by increased pay offered on appointment rather than
annual rises above the median in any one year.
6. Transparency is obtained by the requirement
of NHS organisations to publish the detail of board remuneration
in the trust accounts. Variable pay forms a very small part of
the package overall, and is not used by the majority of organisations.
There is no common form of contract documentation.
7. The Department of Health pay circular
advising on annual pay uplift described below for very senior
managers indicates that the uplift applies to NHS trusts also
(even though they are not part of the national pay framework).
This is the only extent to which the two systems can be said to
interact. However, the circular has no direct effect for Foundation
Trusts.
PAY FRAMEWORK
FOR VERY
SENIOR MANAGERS
8. The Department of Health has determined
that pay for executives in Primary Care Trusts (151), Ambulance
Trusts (11), Strategic Health Authorities (10) and Special Health
Authorities (10). The framework was introduced in 2006 and since
2008 has been under the auspices of the Senior Salaries Review
Body (SSRB). Salaries for Chief Executives are set in bands according
to organisational type and those for supporting directors are
set as a percentage of the Chief Executive salary. There are allowances
for certain additional responsibilities. There is also a model
form of contract to accompany the framework.
9. In 2009, the Department of Health rejected
a recommendation of a 2.4% uplift by the SSRB. The Department's
circular[19]
advised instead that in light of the economic climate and the
need to show leadership and pay restraint, the uplift would be
1.5% for 2009/10 and the bonus pot would remain at 5% of the VSM
pay bill.
10. The VSM Pay Framework was independently
reviewed in 2008. The "Wright review" and the Department
of Health response to it formed the Department of Health's evidence
to the SSRB in 2008.[20]
11. Employers subject to the VSM pay framework
have long argued for change and have, on two occasions, submitted
evidence to the SSRB seeking more flexibility and local control.
The ability to design board level roles, attract the best candidates,
enable movement between sectors and give local remuneration committees
freedom to act rather than to rubber stamp the use of a framework,
has been the main thrust of the submissions.[21]
As a programme of work is underway at the Department of Health
to revise the framework the arguments are not pursued further
here. However, your Inquiry sought an opinion on the interaction
of the systems and a view on whether there should be centrally
controlled or devolved arrangements across the public sector.
12. From our engagement with employers,
the general view is that it would be preferable if NHS organisations
were all able to manage their own senior pay arrangements. The
VSM framework does not have the confidence of the organisations
which are obliged to implement it. It is not "felt fair".
13. Fully devolved arrangements would facilitate
recruitment of the best candidate for a role in any organisation
and encourage movement between organisational types. It would
remove barriers to recruitment in "hard to fill posts"
and enable organisations to incentivise challenging assignments.
Currently, there is a strong disincentive for a successful manager
of an NHS Trust or Foundation trust to move to a post in an organisation
operating the Very Senior Mangers pay framework. This is potentially
restricting the candidate pools for the "world class commissioning"
of patient care.
14. There is no indication that executive
pay in the NHS is out of line with reward in other sectors where
the management challenge is of a similar order of complexity,
or that NHS pay requires any form of cap. The averages are well
below the benchmark of the Prime Minister's pay referred to in
your reference document. Examples for Chief Executives and Directors
of Finance from the most recently available aggregated statistics
are included in the table below.
15. Each organisation is required to publish
details of the remuneration package of its senior officers in
its annual report.
16. Finally, we are an organisation representing England
only so have not commented on practice in Devolved Administrations
or international public sector comparisons.
18 See: http://www.nhsemployers.org/SiteCollectionDocuments/afc_service_handbook_aw_010708.pdf Back
19
http://www.dh.gov.uk/en/Publicationsandstatistics/Lettersandcirculars/Dearcolleagueletters/DH_097394 Back
20
http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAndGuidance/DH_090068 Back
21
http://www.nhsemployers.org/PayAndContracts/AnnualPayReview/SSRB/Pages/SeniorSalariesReviewBodyEvidence.aspx Back
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