EXAMINATION
OF WITNESSES
(QUESTIONS 80-101)
MS POLLY
TOYNBEE, MR
TONY TRAVERS,
MR DAVID
CLARK AND
MR BEN
FARRUGIA
30 APRIL 2009
Q80 CHAIRMAN:
If we can now talk in shorthand because we have been going for
a long time and I have got to bring it to a conclusion. Surely
we accept the idea that someone who genuinely makes an organisation
better should probably be paid more than someone who does not,
and certainly more than someone who lets the organisation get
worse?
MR
CLARK: Yes.
Q81 CHAIRMAN:
Is not one of the problems at the moment that that does not seem
to happen? We can point to organisations which are not good where
people get paid a lot of money, even go downhill and get paid
a lot of money. There is no clear link between actually what people
are doing in organisations and the amount of remuneration they
are getting. Is that not a real issue for us?
MR
TRAVERS: You
are right, of course, but you can see the world you open up by
adopting the idea that people who are really good get more and
those who are not so good get less creates the very world in which
the top will indeed escalate. I am not disagreeing with you, you
can see there is a choice between a sort of flat rate for all,
a banding system or something, which would be fair at some level
and would allow public service ethos people to deliver good services
because they want to do it and they are not doing it all for the
money, but if you get into a world of rewarding the good and penalising
the bad you will create a range which will have a top and we are
back to where we started.
Q82 CHAIRMAN:
If you say to someone, "You're coming here, we're a no-star
organisation, you make this a four star organisation and we'll
give you more money", that is reasonable, is it not?
MS
TOYNBEE: The
academic evidence on performance-related pay is that it really
is a chimera, it becomes very quickly box-ticking and hitting
certain targets and does not produce better overall results. There
is no academic evidence that it does, and yet it has been adopted
almost wholesale by the Government, by management consultants,
people who have just assumed that performance-related pay must
produce performance. There is not any academic evidence to back
that up.
Q83 MR PRENTICE:
In your Spirit Level example, the people running complex
organisations in, let us say, Finland or Sweden would be trying
as hard as people in this country to make sure the organisations
they were running were successful presumably.
MS
TOYNBEE: I think
the point is when people want to run the top of an organisation,
whether it is a big hospital, a big local authority or a big company,
they are people who are terrifically driven anyway to be the top
and to be the best and that driving force of staying top dog in
your organisation, public or private, is really what motivates
people much more than the money; the money is often a question
of the Silverback saying who has got the most beans. The money
itself is not as important as the relative status of what you
do, it is only one indicator of status, and one should not imagine
that money is the only indicator of status.
Q84 MR WALKER:
Just on that point on performance-related pay. I am not an expert
on performance-related pay but somebody who came in on a zero
star council and turned it into a four star council would increase
their market value, so if that council wanted to retain that person
they would have to match what his or her market value was on the
open market. You do not necessarily have to have performance-related
pay for someone to advance their earning potential. That is more
of a statement than a question.
MS
TOYNBEE: Would
you want them then to be poached by somebody else, another council
that would push their pay up more, and when they had been there
for a while another council would poach them?
Q85 MR WALKER:
You would have to take that decision.
MS
TOYNBEE: That
would be an escalator.
Q86 MR WALKER:
You would have to make the commercial decision as the council,
"Do we want to keep this person because it's work in progress
or have they now achieved the improvement we're looking for so
we can have more of a managerial type person at the top and this
person can go on?"
MS
TOYNBEE: You
will not know that person as being the one who has been most responsible
for it, there will be a whole range of people and reasons why
certain public organisations rise and fall. It is not always either
the praise or blame of the guy at the top.
MR WALKER:
You and I both know, and I think we agreed, that in certain secondary
schools the quality of the headteacher makes all the difference,
and that is something we have woken up to rather late in the day.
Q87 JULIE
MORGAN: I was surprised, David,
when you said that chief executives' pay had not actually gone
up that much. Could you expand on that? I have got the example
of Cardiff, where I am one of four MPs there.
MR
CLARK: I know
you are, and a former councillor.
Q88 JULIE
MORGAN: Obviously the Cardiff
Council Chief Executive's pay has gone up quite a lot, I think
about 30,000 over two years. Cardiff is the sort of city that
is very diverse and it needs somebody good at the top, so I am
not criticising him in any way, but what comments have you got
on that?
MR
CLARK: By and
large district councils have not felt this pull, although there
are some that have. Unitary cities such as your own have seen
a greater increase but, in fact, the average wages of chief executives
in Wales still lag behind the English ones quite considerably.
I suspect what is happening in a number of places, particularly
a capital city such as that, is that somebody has taken a view
that they do want to retain, in this instance it is Byron Davies,
is it not? If you look at the pay settlement, which is what I
am indicating, of 2% and 2.5% last year, the amounts going up
have not been as great for chief executives. What has happened
though is in a number of fairly high profile places councils have
decided to do what Charles Walker described and have said, "We
think we're in a hole. We want somebody and we're going to try
and buy the best" and that has forced up a percentage. We
reckon somewhere in the order of 20% of posts have had quite large
increases in the last two or three years and in others not so
much. It is slightly complicated, of course, because if you went
to Cornwall, Cornwall has high wage inflation for its county but
it is now a unitary county and its six other chief executives
are no longer in post because those districts have been abolished.
When you start unpacking all those sorts of things, overall it
has not gone up that much.
Q89 MR BURROWES:
Where is the trigger for this public scrutiny and determination
of pay levels? Is it taxpayers' money? Should there be a threshold
of how much public money is going into an organisation? Do you
then involve universities and other charities, indeed banks now
and PFI-led companies? How far do you spread the net?
MR
FARRUGIA: Network
Rail is a good example of what Tony mentioned of these very grey
area bodies where we underwrite all the debt for it but, for instance,
there is almost no Government oversight of Network Rail.
Q90 MR BURROWES:
You criticise it but what would you specifically recommend? You
can publish a report about the pay, but in terms of solutions
where would you say this should trigger off a particular mechanism
or we really should know how to scrutinise it?
MR
FARRUGIA: I
certainly feel that in terms of Network Rail's failures, and everyone
says consistently every year they have some quite public failures
in terms of engineering and so on, people would feel the chief
executive and the executives should maybe carry the can for some
of that, although admittedly it is probably not their personal
responsibility.
MR BURROWES:
There may be some successful ones as well.
Q91 KELVIN
HOPKINS: It now costs five times
more to lay a mile of railway track under Network Rail than it
did under BR, four times more to do maintenance, the quality of
work is less and the senior staff are paid much more. Should you
not be much more worried about that than you are about chasing
chief executives who have got the responsibility of children's
services, education or whatever?
MR
FARRUGIA: Can
we not chase them all? Can we not focus on them all?
Q92 KELVIN
HOPKINS: I am in favour of chasing
them, but let us look at where public cost is: the banks, Network
Rail.
MR
FARRUGIA: Absolutely.
Q93 MR BURROWES:
What is the trigger? We have looked at failure but let us look
at success.
MS
TOYNBEE: What
we suggest quite modestly in our book is that the Low Pay Commission
should become the Pay Commission and it should suggest guidelines
and benchmarks. Nothing to be enforced, because you can start
that way by saying, "We think for this sector or that sector
a reasonable disparity between the top and bottom should be in
this range". Then it gives people, whether they are people
investigating the public sector or whether they are shareholders
in the private sector, something to get hold of and say, "Look,
you've exceeded the recommendation by this much, you must give
us a reason why there is something very special in your case".
I think you could begin with something advisory like that that
allows those who have to hold people to account, whether shareholders
or councillors or whoever it might be, to say, "This is what
comparability should be, not what the head-hunters say".
Q94 CHAIRMAN:
This would cover both the private and public sectors?
MS
TOYNBEE: Yes,
I think so.
Q95 CHAIRMAN:
Tony, would that be acceptable or would it lead you into the problems
that you were describing earlier on?
MR
TRAVERS: To
answer the question directly, and this is not to imply it was
not a good answer, if we are looking for a post-modern way of
trying to work out what is in the public sector and what is in
the private sector, to answer the question does this organisation
have its roots in an Act of Parliament might give you a clue as
to where one ended and the other began, for want of any better
way of doing it. I think the idea of flexibility is a good one
in how any such agency of the kind that Polly has outlined or
any other approached what was in the public sector and the private
sector because it will not change, but there are private companies
these days that have their roots in an Act of Parliament, whereas
Tesco clearly does not.
Q96 CHAIRMAN:
I think the banks probably do.
MR
TRAVERS: They
would have changed status latterly, would they not, Chairman?
Q97 MR PRENTICE:
Polly, I have been very diligent in reading your book, I have
to say, because you tell us on page 52, "A High Pay Commission
might curb excesses if it were to set benchmarks for top pay".
If I were Sir Philip Green or one of these private equity people
I would say, "Polly Toynbee, dream on". Philip Green
paid himself £1.3 billion, handed the money over to his wife
who lives in Monaco so he could not pay taxes, and he was knighted!
MS
TOYNBEE: You
in Parliament can do something about that.
Q98 MR PRENTICE:
It just sounds a bit hinky, the High Pay Commission, because this
is advisory and I keep telling people we live in a big, nasty
capitalist world where the people who make the real big money
are just going to laugh.
MS
TOYNBEE: I hope
you are going to be doing something about Monaco anyway and HMRC
is now going to be more vigorous about pursuing people.
CHAIRMAN: And
we are taking honours away, so we are on the case for you.
MR WALKER:
I do not agree with that, except in Fred the Shred's case.
Q99 CHAIRMAN:
It is pretty clear, is it not, that those people who are directly,
as it were, comparable with the private sector have to be treated
in a rather different way from people who are not. If you are
a finance director or an IT director, of even if you are the Director-General
of the BBC and you are existing in an environment where you instantly
are comparable and can change your skills readily with a major
private sector player, is not the market there different from
markets in other bits of the public sector?
MS
TOYNBEE: I think
the BBC have got it wrong, they misperceive things. There are
a lot of excellent people who would like to be Director-General
of the BBC and, therefore, to have to compare themselves with
a now collapsed market in television has been a big blunder in
terms of the respect that the BBC is held in and it is regrettable.
Q100 CHAIRMAN:
Presumably things like IT directors, finance directors, are interchangeable
between public and private sectors, are they not, and you have
to pay the rate for the job?
MR
FARRUGIA: Are
they? Are they genuinely interchangeable? A lot of them will be.
MR
CLARK: You are
certainly getting finance directors in IT. If you were a London
borough at the moment you would be rather pleased with the recession
because you get an awful lot of people who used to work in financial
services applying for those sorts of jobs. When Canary Wharf does
very well a lot of people leave local government. Yes, you do
see that.
MR
FARRUGIA: Is
the job directly comparable? Your funding is going to be the same,
the risks to your own position are smaller. Surely all these things
must play into consideration as well.
Q101 CHAIRMAN:
I think it is probably a more complex equation than you suggest.
Is there anything you would like to say to us in terms of what
we might do? You have said many things to us already but is there
anything else you might want to say to us that you have not had
a chance to say before we end?
MR
TRAVERS: Very
briefly, and Polly referred to this, the issue of public sector
pay is tangled with other things that you will not want to enquire
into this time, such as the honours system, such as public sector
pensions, so it cannot be viewed entirely freestanding of these
separate issues. Indeed, in a recession the comparison between
what is going on in the private sector and the public sector and
perceptions of that, that is obvious. The honours system and pensions
are both linked in with the question of basic pay.
CHAIRMAN: A
good reminder. We wanted a session that would get the juices of
the Committee going and it has absolutely done that, it could
not have been better. We are extremely grateful to you for all
of that and we shall feed off what you have been telling us as
we do further inquiries into this area. We now have to go and
talk about our own expenses! Thank you very much indeed.
| 
