- Public Administration Committee Contents


EXAMINATION OF WITNESSES (QUESTIONS 260-279)

MR BILL COCKBURN, MR MIKE LANGLEY AND MR KEITH MASSON

18 JUNE 2009

  Q260  MR PRENTICE: But you would like to see a situation where you, or the Kelly Committee, would just look at MPs' remuneration in the round and that MPs should just accept it?

  MR COCKBURN: Of course, you have the sovereign power to do anything, so you could always take it back if you were not satisfied, but I think what we have said is that when it comes to remuneration matters, say in determining pay, the pensions (in consultation with the pension trustees), the rate (whatever is the new expenses regime), insofar as maybe from time to time they need to be priced and up-rated, our body would be well placed to do something like that. I think that we are standing ready with some past experience to help constructively with the reforms that we know you are most anxious to have introduced.

  Q261  CHAIRMAN: Some people are arguing that the allowance issue somehow has to be compressed into the pay issue. Surely the pay issue and the allowance issue are just separate issues?

  MR COCKBURN: I think they are separate issues. Yes, they are; absolutely. We have said in the past on MPs' pay (and it is almost politically very difficult to increase it, as we have found over the years), in our view, MPs' pay is 10 to 15% lower than it should be.

  Q262  MR PRENTICE: Could you repeat that please!

  MR COCKBURN: It has been 10 to 15% lower, in our view, and we have said that in our reports. Indeed, in our past two reports we recommended increases of £650 a year on top of the other increases, which the MPs rejected. There is a degree of underpayment, in our view, but it is always going to be difficult to address this under the present arrangement.

  CHAIRMAN: We want to be nice to you, of course, but let us resist the temptation to go further down that route.

  Q263  JULIE MORGAN: I was interested in your body. It is made up of 10 people, is it?

  MR COCKBURN: There are 10 of us who are members.

  Q264  JULIE MORGAN: What sort of range of experience and diversity do those 10 have?

  MR COCKBURN: Mike has long experience of senior remuneration management and advice in the private sector. We have professors who are labour economists; we have businessmen, people who have been HR directors in companies. I have been the chief executive in a number of companies. It is a good mix of skills and expertise coming together.

  Q265  JULIE MORGAN: Are there any women?

  MR COCKBURN: Actually, we do not have any women currently. We had two, and they came to the end of their term. We have a very open process of recruitment, supervised by a representative of the Office of the Commissioner for Public Appointments, who for the last exercise was a woman. It happened in this case that they were all men who were successful. It was not our choice; that was the way it came out. This is a meritocracy.

  Q266  JULIE MORGAN: In terms of the way you make decisions, do you often have disagreements within the decision-making process where you would strongly disagree about what you are going to recommend?

  MR LANGLEY: We have had robust discussions.

  MR COCKBURN: Yes, vigorously. We have not ever had to take it to a vote. We have not had a minority report. We have managed to try to get a consensus, and we work hard to get that. We listen very carefully to all the points that are made and they are different but, in the end, I think there is a general acceptance that what is important is to produce a report at the end of the day which is published, it is a Command Paper laid before Parliament, and really we have a duty to come up with a set of proposals that are soundly based, evidence-based and well argued, and that is what we have tried to do over the years.

  Q267  PAUL FLYNN: There are 194 public workers who receive higher salaries than the Prime Minister. In Wales there are, I believe, six people working in the Welsh Assembly who receive higher salaries than the First Minister there. I had an extraordinary answer from someone sitting here a short while ago about why this should be and was this a reasonable situation to be in. Presumably the Prime Minister would have the highest salary of all. The answer I had back was that being Prime Minister was a springboard for getting a far better retirement salary, which is a very interesting concept. Do you not think this is proof that things have got out of kilter when this pressure is on to raise salaries and the people involved, like the head hunters, are contributing to this and there is a whole process going on which is inevitably leading to the gap between average salaries and top salaries becoming greater, and the example of the Prime Minister's salary is a striking one?

  MR COCKBURN: Yes, that is something that, in fact, we have commented on in the past. I think it is fair to say that the political world seems to be subject to its own salary discount by virtue of what you do. For example, we looked at how the Prime Minister's salary and MPs' salaries compare with other countries and we produced this. In fact, you do very well by international comparisons, and when we looked at this, the Prime Minister's pay was second only to the President of the United States. He was paid more than all the other heads of government. The position may have changed since then because of the value of the pound. So that seems to be a feature. Certainly it is the case that if you look at, say, what permanent secretaries get paid, permanent secretaries get paid more than the Prime Minister and other people in the public sector, and in response to the argument, "Should we not use the Prime Minister's salary as the cap, so nobody should get paid more than that?", we think that that would not be a good idea. Besides which, there is the risk that because Prime Ministers are always very parsimonious about their own increases, that could have an adverse effect on others if there was a linkage, as the Prime Minister's pay is not objectively linked to the value of his job in relation to comparators because there is this political overlay, at the end of the day, in the decision.

  Q268  PAUL FLYNN: This is an argument that goes back to the time of Plato about the guardians. These people who are taking these decisions should have the public interests at heart, but the position now is we have created a situation where people taking jobs as top civil servants, generals, admirals, prime ministers, ministers, are in such a position that their retirement job—their job when they leave the service—is likely to be more attractive to them than the job they are actually doing in what should be the top jobs. There is a grave danger that they can distort their decision-making in order to feather their nest for a future retirement job, and they could be taking the wrong decisions while they are taking those jobs. Does it not distort the whole idea of having people in these top salaries who should be disinterested from their personal salaries and certainly free from any temptation to take decisions that are going to give them rewards for the future?

  MR LANGLEY: The answer to that hypothesis is you should pay them a lot more so they do not need to take those amounts of money when they retire, like Tim Melville-Ross, who said he does not need to be paid as Chairman of his education trust because he has earned lots of money in the private sector.

  Q269  PAUL FLYNN: I know what the position was before, but I think it is unique. There are nearly 200 people who are earning more than the Prime Minister. The Prime Minister's should surely be the top salary.

  MR LANGLEY: Yes, but I think this comes to the heart of one of the issues. It is about pay markets, and what we are looking at is evidence of how you attract and retain people. There is a market for MPs, people in Parliament, which is hierarchical, in terms of salary, starting with an MP and moving up through a committee chairman, minister and then to the Prime Minister, and the issue about MPs' pay is how can you attract the right people to come and do the job? Well, give them the right sort of salary for that. If you look at judges, for example, the pay market for judges: they are senior lawyers, barristers and solicitors, many of whom earn a million pounds a year; so there are different pay markets. The military has its own pay market. As we discussed earlier, the NHS has a disparate pay market.

  Q270  PAUL FLYNN: In the military, the less risk you have the greater your salary. The further you go up the pay scale in the military, the less likely you are to be killed on the battlefield. There does seem to be a distinction there.

  MR COCKBURN: Try and tell that to the two and three stars who come before us.

  Q271  PAUL FLYNN: I would be delighted to.

  MR COCKBURN: Can I make a general point about our approach to pay? I have explained how we get various sources of evidence and so on but, I think, when it comes to the point, our approach to pay is to pay at the lower end of what would be justified and, in fact, our view is to pay the minimum necessary to get people of the right quality in a sustainable position. Having regard to recruitment and retention, these are the key indicators that we look at in forming a view at the end of the day; so we do not consciously set out to pay a premium. In some cases there are premium payments made where, notwithstanding the pay ranges that we recommend, the Civil Service might go and recruit somebody with particular skills and pay them a much higher salary. For example, in the Olympics, the team that are managing the top Olympics programme are paid well ahead of the going rates, but there is a special case for this because you are looking for people of outstanding ability and expertise to do this. Outside our normal recruitment there is scope for going into the market and paying a premium.

  Q272  PAUL FLYNN: Is there evidence that these stratospheric salaries produce better outcomes in the decisions that they make? We had a striking example in the financial services sector from Charles Walker, and there are many other examples, but is there real proof there that the more you pay the better decisions you will have?

  MR COCKBURN: Of course those who employ them have to take that view. If you take the Civil Service (and I will come on to the incentive schemes), there are for these people sometimes very specific objectives and targets that they have to achieve to justify their recruitment for the kind of jobs they are in. We have been quite vocal, in general, about looking carefully at the number of times the Civil Service find the need to go outside the pay systems and recruit more highly paid people. This is a big issue currently, the dual market, if you like, and certainly a lot of civil servants internally, who have come up through the system, are unhappy with the fact that there are other people coming from outside into senior positions who get paid a lot more, and we have challenged this and we have pushed hard to say that this has got to be objectively based, it has got to be evidence-based, it has got to be transparent. In fact we track it and we push the Cabinet Secretary when he comes to see us, and we are very glad to see in the Normington review of the Senior Civil Service there is an acceptance that there has got to be greater rigor and transparency there and there has got to be greater fairness in treating the internal applicant for a job more equally than the external applicant for the same job. In the past it was rather biased. We have been pushing. We are not saying everybody should be paid at the high level, because there has always got to be scope for going to the outside market and paying the premium rates, but in doing so it has got to be fair, transparent and objectively based.

  MR LANGLEY: To answer your question precisely, nobody makes bad decisions because they are badly paid. They leave if they are badly paid.

  CHAIRMAN: Good point.

  Q273  KELVIN HOPKINS: My apologies for being late. There is one particular question I am concerned about, and that is on performance-related pay. I hope it has not been covered already. In your paper submitted to us before the meeting Executive Pay in the Public Sector, written evidence by SSRB, you question "is the balance right between executive pay and benefits such as bonuses?" Pensions sit on one side but, as regards bonuses and PRP, do you think that balance is right, because, I may say, I am deeply sceptical about PRP?

  MR COCKBURN: We are unashamedly in support of incentive performance bonuses. We support it through our own background of having seen it work and, also, the concept of having a higher proportion of variable pay which is performance-based, we think, is a good situation, as a general statement. Having said that, we think that there is considerable scope for improvement in the way things are organised. Bonuses for the senior civil servants, on average last year were 8.6%, and these are awarded according to the appraisals and assessments of the individuals, and they range from nothing to 15%, roughly, which would be a top award, but within the average of the 8.6. We have urged the Cabinet Secretary and his team to make sure that they can improve the quality and rigor of the system that gives rise to these payments, and, indeed, in our last report we did not recommend an increase in the bonus pot for the year ahead, 2009, so it remains at 8.6. Although, in principle, the Government's intention is that that should rise to 10% on average by 2011 but, actually, there was no increase last year. For the permanent secretaries, they have the same bonus scheme of 8.6%, and we make awards on an individual permanent secretary basis according to their performance, and that is backed up by evidence but, as I mentioned earlier, the permanent secretaries this year have waived their bonuses in respect of last year in recognition of the current position that we are in.

  Q274  KELVIN HOPKINS: There are many areas in the private sector and, indeed, the public sector where there are no bonuses, no PRP: people are paid a salary and expected to do the job, and they do it to the best of their ability, accepting that salary. There is even an argument in some areas, even in the private sector, that PRP is a demoralising factor, and actually in some areas of the private sector they found that productivity went down with PRP instead of up.

  MR COCKBURN: People have different points of view, in general. There is a lot of support for this, and certainly it was put to us in evidence and backed up by the Normington Review, that the principle of performance-related pay is a good one and one, in fact, that they want to introduce further. In fact, not only are there the bonus arrangements within the Civil Service, which by private sector standards are quite modest, to be honest the average bonus payments for the Civil Service was something like six and a half thousand, whereas the average in the private sector was 35,000. There is quite a big spread of payments there. That is the reality, but the intention is to make it more rigorous, to make it more meaningful, and not only is the bonus subject to performance but the basic pay itself is performance-based. Just to explain, in the Senior Civil Service there are four categories of performance, and people are allocated to these four categories: the bottom category, which has got five to 10% in it, do not get any pay increase and the higher ends would get more. So even the base pay is related to performance, all within the average pay budget, which we determine overall.

  Q275  KELVIN HOPKINS: I am afraid it looks to me, and I think to many other people as well, that there are people in the bonus culture environment who are just scratching each other's backs and rewarding each other with bonuses: "We live in the bonus culture, so we will make sure that other people get bonuses as well." Someone with average earnings of £23,000 a year looks at this and feels resentful, because they do not get such bonuses. If there was simply a salary for the job and they had to do the best job possible within their salary, average earners would understand that.

  MR LANGLEY: There are various jobs at that sort of level that get piece rates and get bonuses for productivity, and all sorts of other things like that which are very similar, but I think actually the issue about bonuses is how is the objective setting done? What is the bonus for? What are you trying to achieve with it? If you have a bonus structure, does it actually achieve those things which you are seeking? That comes down to a lot of work needs to be put into objective setting.

  Q276  KELVIN HOPKINS: One final question. Punching out widgets on a low wage and getting piece work pay for that is one thing. When you are the chief executive of a hospital trust and you are being judged on financial performance, which is, I think, what most of them are judged on these days, the fact that rather large numbers of people are dying in that hospital and getting terrible diseases is sometimes overlooked. There has been a recent glaring example of just this, in this bonus culture driven by financial concerns.

  MR LANGLEY: If the bonus is narrow enough just to look at financial objectives, you are absolutely right.

  Q277  CHAIRMAN: Have you thought about applying the principle of performance-related pay to Members of Parliament? If you are unashamed enthusiasts for it, why not apply to it MPs as well?

  MR COCKBURN: There may be some circumstances where it is not appropriate. For example, if you take the judiciary, there is a strong view and we are persuaded that that would not be an appropriate world to have performance-related pay, simply because, I think, there is a feeling that it might give rise to behaviours that would be inappropriate. Certainly there is a very strong feeling about it. That is not to say that there should not be targets for efficiency in back office activities, and so on, but the judges themselves, I think, feel very strongly that this is not appropriate. Although we have a general enthusiasm for it, there may be differences.

  Q278  CHAIRMAN: What about differential pay? A lot of MPs have other jobs as well. Why not have different pay bands: those who are full-time, those who are part-time?

  MR COCKBURN: I would agree with you that this is a reasonable thing to do. For example, if you are a Member of Parliament and you are a member of the Northern Ireland Assembly, for example, your Assembly pay is abated by two-thirds, so there is already a principle of abatement if you are in receipt of an MP's pay or Assembly Member's pay. It might be that that sort of concept might have a further potential.

  Q279  MR PRENTICE: Do the people at the very top of organisations necessarily have the most difficult jobs? I was interested in what you were saying earlier about job sizing. A few years ago, when Andrew Turnbull was Cabinet Secretary and head of the Home Civil Service, I asked him, "What do you run?", and he said, "I do not actually run anything." So presumably he got paid his Cabinet Secretary salary for horizon scanning, and all that kind of stuff, but not actually running things. I am interested in what you mean when you say job sizing: because the number two, or the number three, or the number six in an organisation actually may be doing a more demanding job than the figurehead at the top.

  MR COCKBURN: I do not think the Cabinet Secretary is exactly a figurehead, if you look at the range of his job.


 
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