MEMORANDUM FROM
THE SENIOR
SALARIES REVIEW
BOARD (SSRB)
INTRODUCTION
1. The Review Body on Senior Salaries (SSRB)
is an independent body established in 1971 (as the Top Salaries
Review Body) to advise the Government on the pay of various groups
("remit groups") of senior public sector workers. Currently
the SSRB reports annually to the Prime Minister and the relevant
Secretaries of State on the pay of:
— salaried holders of judicial office throughout
the United Kingdom; — senior military officers[22]
throughout the United Kingdom;
— senior civil servants in England, Scotland
and Wales; and
— senior managers (other than those on
medical contracts) in English Primary Care Trusts, Ambulance Trusts,
Strategic Health Authorities and Special Health Authorities.
In addition the SSRB reports when requested on the pay, pensions
and allowances of Members of both Houses of Parliament, Members
of the Devolved Parliament and Assemblies and of the Mayor of
London and Members of the London Assembly. The SSRB has also carried
out ad hoc reviews, for example of the remuneration of tribunals'
judiciary and senior NHS managers in Northern Ireland. The SSRB's
full terms of reference are at Appendix A.
2. The SSRB's reports are normally published
as command documents and since 2001 have been made available on
the website of the Office of Manpower Economics (OME), together
with reports of research commissioned by the SSRB.
3. The SSRB has 10 members, appointed following
advertisement and a selection procedure supervised by the Office
of the Commissioner for Public Appointments. The current membership
is listed at Appendix B. Members have a wide range of skills and
backgrounds, including business and HR, and two are specialist
labour market economists. The secretariat is provided by the Office
of Manpower Economics which is staffed by civil servants.
RESPONSES TO
QUESTIONS POSED
BY THE
PASC
1. Are the right arrangements in place for
setting and monitoring pay and other benefits for top posts in
the public sector?
(a) Are they fair?
(b) Are they transparent?
(c) Do they produce the right results?
(d) Do they provide value for money?
(e) Do they inspire public and political
confidence?
4. Pay review bodies exist to provide independent
advice on the pay of groups of public sector workers for whom
the state is the sole or major employer (eg the armed forces,
judiciary, school teachers, doctors and dentists, prison officers)
and especially for those such as the armed forces who are prohibited
from joining trade unions and taking industrial action.
5. The SSRB can comment only on the pay arrangements
for its own remit groups. Broadly the SSRB is satisfied that it
is able to obtain sufficient evidence from the Government and
other parties, including members of the remit groups themselves,
to make well-founded, balanced recommendations on the pay of those
groups, taking account of the matters set out in our terms of
reference. In most years the Government accepts and implements
those recommendations although this year it reduced the SSRB's
proposed pay awards for the judiciary, senior civil service and
senior NHS managers to below the levels the Government had proposed
in its own evidence to the SSRB.
6. However, there is a particular problem with
the pay for political posts where successive governments have
declined to follow the SSRB's recommendations on many occasions.
The result has been that pay of Ministers and Members of Parliament
is now lower than is justified, in the SSRB's view, by the responsibilities
of those posts. Thus the Prime Minister is currently paid £194,250,[23]
Cabinet Ministers in the Commons receive £141,866 while Members
of Parliament are now paid £64,766. These rates, especially
for the Prime Minister and Ministers, are not commensurate with
their levels of responsibility. This has led to a number of public
sector workers being paid more than the politicians whom they
serve. This might indicate that the intangible benefits of political
office are significant and higher than elsewhere in the public
sector. Moreover, pay for political posts in the UK is not out
of line with that in most other European countries. In our report
of our Review of parliamentary pay, pensions and allowances[24]
we provided comparisons of the pay of Members of Parliament and
Prime Ministers in selected countries, using Purchasing Power
Parities to convert currencies. At that time British MPs were
paid more than most of the other countries we looked at, with
the exception of Canada, Italy, the Netherlands and the USA. Looking
at Heads of Government using the same methodology, only the US
President (who is also Head of State) was paid more than the British
Prime Minister. It appears, therefore, that a substantial "political
discount" operates in most countries.
7. At higher responsibility levels, public
sector pay in the UK is significantly lower than that in the private
sector, as is shown by the following chart.
Source: Office for National
Statistics (Annual Survey of Hours and Earnings)
Note: Basic pay for all
public and private sector employees at April 2008.
We believe that pay levels for our remit groups,
other than MPs and Ministers, are set broadly at the minimum necessary
to recruit, retain and motivate suitable people.
8. Our arrangements are transparent. We
are recruited by open competition. We consider evidence from all
the parties and indeed from anyone who wishes to submit evidence
to us. That evidence is normally published by the parties and
we publish on the OME website any research we commission to assist
us in making recommendations. We submit our reports to Government
and they are normally published as command papers.
9. It is not for SSRB to judge whether its
efforts produce the right results. For the most part the Government
accepts our recommendations but occasionally it stages them (as
in 2007) or abates them (as this year), at least in part. In the
introduction to our Thirtieth Report[25]
we argued against treating this small group of leaders and senior
managers (our main remit groups total fewer than 8,000 people)
in the same way, for pay purposes, as all other public sector
workers. We suggested that the Government did so out of "fear
that higher awards for our remit groups will lead to irresistible
pressure from other, larger groups of public sector workers. In
this view of the world `signalling' becomes the dominant consideration."
10. As to whether the SSRB represents value
for money, again that is not for us to judge. Currently the Chairman
of the SSRB is paid £350 per day or part of a day when on
SSRB business, plus travel expenses. Other members are paid £300
a day plus travel expenses. Our secretariat currently comprises
some four full-time equivalent civil servants (including one person
working exclusively on the review of MPs' pensions). The approximate
total cost of operating the SSRB for the last financial year was
£440,000. We cannot say whether our work inspires public
confidence—it is doubtful whether much of the public is
aware of what we do—but the arrangements have now been in
place for nearly 40 years. The SSRB continues to attract high
quality members and new groups have been added to our remit: most
recently the senior NHS managers. We try to meet as many members
of our remit groups as possible through annual visit programmes
during which we both listen to the views and concerns of members
of our remit groups and explain to them how we work. We believe
the arrangements of which we are a part have served the country
well, helping to avoid disputes and to balance the interests of
our remit groups and taxpayers.
2. Does there need to be consistency regarding
these arrangements between different parts of the public sector?
11. Pay varies across the public sector
in part because of specific conditions or circumstances. The public
sector is not a single market. Different public sector workers
have different earnings potential. The demand for their skills
and knowledge varies. For example, it is clear that most senior
barristers or solicitors who might become High Court judges are
able to earn much more in the private sector than on the bench.
On balance we believe it is better to allow flexibility across
the public sector to respond to differing labour market needs.
Moreover, it may be necessary on occasions to recruit individuals
with specialist skills, sometimes for a fixed term, for example
to manage large construction contracts in connection with the
2012 Olympics, and to pay significantly above the normal rates
for such posts in order to secure the services of people with
skills and experience not otherwise available in the public sector.
Too rigid a pay system could make it impossible to recruit specialists
of the necessary calibre and would run counter to the policies
of successive recent governments to encourage recruitment from
the private sector into the public sector at senior levels. The
current broad pay band system for the Senior Civil Service provides
the necessary flexibility to fill exceptional posts.
12. On the other hand, there are undoubtedly
tensions caused by the fact that pay levels differ between different
parts of the public sector and we have, for example, heard complaints
from senior civil servants who tell us that they deal with and
do much the same work as people in other public sector bodies,
eg regulatory bodies, local authorities, while being paid appreciably
less than those people.
3. Does there need to be comparability of
pay between top posts in the public sector and equivalent posts
in the private sector?
(a) If so, how should equivalent posts
in the private sector be identified?
13. In SSRB's view it is neither necessary
nor justified as a general principle for the public sector to
seek to match the pay of top posts in the private sector. Experience
suggests that there is no difficulty in obtaining high quality
people to work in the public sector. It seems clear that there
are many factors which together can compensate for lower pay in
the public sector: job interest, job security, pension, less competitive
pressure, better work/life balance etc.
4. Is there evidence of executive wage inflation
caused by public sector organisations competing with one another
for candidates?
14. SSRB has heard anecdotal evidence that this
may be the case, for example where poorly performing local authorities,
schools or NHS Trusts compete to recruit chief executives, heads
or other senior managers with successful records of improving
organisational performance. However, we are not aware that this
is a problem with the SSRB's own remit groups which have clearly
defined pay systems. Nevertheless, as noted in paragraph 12, members
of our remit groups increasingly point to other parts of the public
sector where pay appears to be higher for no obvious reason.
5. What role should consultancies play in
the determination of pay for top public sector posts?
15. It is normal for government departments seeking
to fill specific senior posts to use recruitment consultants who
will advise, among other things, on the appropriate salaries for
posts. There is a danger that it is in the consultants' interest
to set such salaries higher than strictly necessary in order to
make posts easier to fill, and even because in some cases the
consultants' remuneration may be linked to the salary on appointment.
The SSRB has expressed concerns in the past, as have the Civil
Service Commissioners, about departments' practices when recruiting
externally. For example, in our Thirtieth Report we recommended
that the Government urgently review the practices of allowing
successful external candidates in recruitment competitions to
negotiate salaries substantially above those advertised and of
forcing existing civil servants successful in open competitions
to accept salaries substantially below those available to similarly
qualified external candidates. We are pleased to note that our
concerns were echoed in the Normington report on Senior Civil
Service Workforce and Reward Strategy, and that the Government
appears to be acting on them, for example by providing better
guidance to departments on recruitment practice.
16. The SSRB uses consultants to carry out job
evaluation of posts from time to time to ensure that pay levels
are broadly correct within organisations (internal relativity)
and to check levels against the wider market. However, in SSRB's
view job evaluation is not a precise science and should not be
the only tool used to set pay levels. As noted in paragraph 13
above, there are often benefits other than pay from working in
the public sector.
6. Is the balance right between executive
pay and other benefits, eg bonus, pension?
17. The SSRB believes that a significant
element of pay should be performance-related. Those who perform
better should be paid more. We have therefore encouraged and supported
the introduction and development of performance-related pay for
the SCS and senior military. The judiciary argue strongly that
performance-related pay is not appropriate for them. We recognise
that there are some difficulties in designing and applying performance
pay systems in parts of the public sector, notably for policy
work, where outputs are difficult to measure. We believe there
is scope to improve and extend the existing performance management
and pay systems for our remit groups but we remain attached to
the principle.
18. We are fully aware of the value of public
sector pensions. We have commissioned work by specialist consultants
to quantify the benefit of our remit groups' pensions and we take
full account of total reward when making our pay recommendations.
7. Do the pay levels for top posts in the
public sector have a direct impact on the performance or qualities
of the people filling those posts?
(a) What impact do the performance
or qualities of the people filling top posts in the public sector
have on the performance of the organisations for which they work?
19. In our Thirtieth Report on Senior Salaries
(2008) we wrote:
"The groups of people whose remuneration
is our concern are the leaders of several pillars on which British
society is built: the law; the armed forces; the Civil Service,
and (now added) the NHS. They command billions of pounds of national
resource (of which their own pay is a tiny fraction) and the work
of millions of people. Their quality, efficiency and motivation
can improve our public services and save the taxpayer millions
of pounds. The nation rightly expects these people to perform
at the very highest level of their capability and that incompetent
performance should not be tolerated or rewarded. These hugely
dedicated people do not expect to receive the financial rewards
of comparable leaders and senior managers in the private sector
in return for this vital work, but they do expect recognition
of the value of what they do, respect for their commitment to
public service and fair pay."
8. Is there an appropriate benchmark or ceiling
for top public sector salaries—eg the salary of the Prime
Minister, or a factor of average pay?
20. We do not think there is an appropriate
benchmark or ceiling because the public sector is not a single
labour market. It needs to recruit and retain people with many
different skills and abilities. There are different markets for
eg finance directors, IT managers and HR specialists. Moreover,
those markets can change over time. There are also sectoral variations,
as noted in paragraph 11, above and regional differences. This
makes it impossible in our view to set rigid pay rates for many
public sector jobs. Moreover, as noted in paragraph 6, politicians
have held down their own pay for political reasons. If the Prime
Minister's salary were to constitute the ceiling for public sector
pay, then either that salary would have to be increased substantially
or there would be very serious difficulties in recruiting and
retaining good quality senior staff in the public sector.
9. Can England and the United Kingdom learn
from the experience of other countries or the devolved governments
in this area?
21. As noted in paragraph 1 above, some of SSRB's
remit groups are UK- wide while others are limited to parts of
the UK. SSRB and its secretariat has frequent contact with pay-setting
bodies in other countries. We are always willing to learn from
other countries but on the whole we find that pay systems and
levels (linked as they are to tax, social security, pensions and
the cost of living) are highly specific to local circumstances.
May 2009
APPENDIX A
REVIEW BODY
ON SENIOR
SALARIES—TERMS
OF REFERENCE
The Review Body on Top Salaries (TSRB) was appointed
in May 1971 and renamed the Review Body on Senior Salaries (SSRB)
in July 1993, with revised terms of reference. The terms of reference
were revised again in 1998 as a consequence of the Government's
Comprehensive Spending Review, in 2001 to allow the devolved bodies
direct access to the Review Body's advice and in 2007 to add certain
NHS managers to the remit.
The terms of reference are: The Review Body on Senior
Salaries provides independent advice to the Prime Minister, the
Lord Chancellor, the Secretary of State for Defence and the Secretary
of State for Health on the remuneration of holders of judicial
office; senior civil servants; senior officers of the armed forces;
very senior managers in the NHS;[26]
and other such public appointments as may from time to time be
specified.
The Review Body also advises the Prime Minister from
time to time on the pay and pensions of Members of Parliament
and their allowances; on Peers' allowances; and on the pay, pensions
and allowances of Ministers and others whose pay is determined
by the Ministerial and Other Salaries Act 1975. If asked to do
so by the Presiding Officer and the First Minister of the Scottish
Parliament jointly; or by the Speaker of the Northern Ireland
Assembly; or by the Presiding Officer of the National Assembly
for Wales; or by the Mayor of London and the Chair of the Greater
London Assembly jointly; the Review Body also from time to time
advises those bodies on the pay, pensions and allowances of their
members and office holders.
In reaching its recommendations, the Review Body
is to have regard to the following considerations:
the need to recruit, retain and
motivate suitably able and qualified people to exercise their
different responsibilities;
regional/local variations in labour
markets and their effects on the recruitment and retention of
staff;
Government policies for improving
the public services including the requirement on departments to
meet the output targets for the delivery of departmental services;
the funds available to departments
as set out in the Government's departmental expenditure limits;
and
the Government's inflation target.
In making recommendations, the Review Body shall
consider any factors that the Government and other witnesses may
draw to its attention. In particular it shall have regard to:
differences in terms and conditions
of employment between the public and private sector and between
the remit groups, taking account of relative job security and
the value of benefits in kind;
changes in national pay systems,
including flexibility and the reward of success; and job weight
in differentiating the remuneration of particular posts;
the need to maintain broad linkage
between the remuneration of the three main remit groups, while
allowing sufficient flexibility to take account of the circumstances
of each group; and
the relevant legal obligations,
including anti-discrimination legislation regarding age, gender,
race, sexual orientation, religion and belief and disability.
The Review Body may make other recommendations
as it sees fit:
to ensure that, as appropriate,
the remuneration of the remit groups relates coherently to that
of their subordinates, encourages efficiency and effectiveness,
and takes account of the different management and organisational
structures that may be in place from time to time;
to relate reward to performance
where appropriate;
to maintain the confidence of
those covered by the Review Body's remit that its recommendations
have been properly and fairly determined; and
to ensure that the remuneration
of those covered by the remit is consistent with the Government's
equal opportunities policy.
The Review Body will take account of the evidence
it receives about wider economic considerations and the affordability
of its recommendations.
APPENDIX B
SENIOR SALARIES
REVIEW BODY
Bill Cockburn CBE TDProfessor David Greenaway
Michael Langley
Sir Peter North, CBE QC
Paul Williams
David Metcalf
Richard Disney
Martin Fish
Christopher Stephens
Bruce Warman
22 Senior military officers are those of the ranks
of Rear Admiral, Major-General and Air Vice-Marshal and above. Back
23
The Prime Minister and other Ministers who are Members of the
House of Commons receive an MP's salary plus a ministerial supplement.
The figures quoted here are the sum of the two. Back
24
Report No 64, Cm 7270. Back
25
Thirtieth Report on Senior Salaries 2008, Cm 7388. Back
26
NHS Very Senior Managers in England are chief executives, executive
directors (except medical directors), and other senior managers
with board level responsibility who report directly to the chief
executive, in: Strategic Health Authorities, Special Health Authorities,
Primary Care Trusts and Ambulance Trusts. Back
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