House of Commons - Outsiders and Insiders: External Appointments to the Senior Civil Service

Outsiders and Insiders: External Appointments to the Senior Civil Service - Public Administration Committee Contents

3 Effects of external recruitment

20. Various claims and counterclaims have been made about the effects of external recruitment on the senior civil service. In this part of the report, we consider the case for and against outside appointments in the light of available evidence.

21. As we have seen, appointing from outside the civil service is often a matter of necessity in order to fulfil demand for skills that cannot be met from within. Beyond this, proponents of external recruitment frequently make a case for it on the grounds that the civil service benefits from the fresh insights and new approaches that outside recruits can bring to the business of government. Sir Gus O'Donnell, the Cabinet Secretary, has indicated to us in the past that he is persuaded by such arguments:

I have made a point of bringing in more talent from outside. In one of your own reports you said that ventilation was very important in terms of skills, so getting in new skills is really important. I have been responsible for getting people from a wide range of backgrounds, the private sector and wider public sector, into the Civil Service and I think that is really good for us. We should not sit back and say that we should have only talent that we grow internally.[19]

22. Others, such as the civil service unions, are more doubtful, claiming that any benefits are outweighed by the detrimental effects of external recruitment. Those against greater external recruitment, such as Paul Noon of Prospect, contend that employing external recruits results in "extra costs, poor value for money, weaker management".[20]

23. Bearing these opposing views in mind, we now look at the available evidence on the effects of outside appointments in several of the main areas of concern: pay, performance and retention, and issues of "organisational fit" (including working in a political context and adopting civil service values).

Pay

24. Perhaps the most commonly heard criticism of external recruits is that they are expensive and represent poor value for money. Typically, those appointed from outside are paid significantly more than existing civil servants at the same level of seniority. According to the Cabinet Office, the overall median salary for external recruits is £89,800, while for internal recruits it is £74,500.[21] This means that, on average, those recruited externally are paid 20 per cent more than those promoted internally. Table 4 sets out the differences in median salaries for external and internal SCS recruits by pay band level. These salary differentials tend to persist over time, as annual pay uplifts are applied without taking account of initial pay differences on appointment.[22]

Table 4: Median salaries of internal and external SCS recruits

Internal External

Deputy Director £71,000 £80,000

Deputy Director (1A) £84,000 £90,000

Director £96,000 £117,000

Director General £129,000 £165,000

Source: Normington report, p 13

25. Not surprisingly, the issue of pay differentials between external and internal recruits has been the most divisive aspect of outside recruitment. In some cases, there are valid reasons for paying external recruits higher salaries in order to attract them into the civil service. The Civil Service Commissioners, the Senior Salaries Review Body (SSRB) and Sir David Normington all concede that pay premiums will sometimes be justified, given that comparable salaries in the private sector are often much greater for professionals in finance or IT, for example.[23] We encountered this issue in our parallel inquiry into top pay in the public sector, which concluded that escalating private sector pay had put upward pressure on the salaries of public sector executives.[24] In addition, there are similar pay pressures from the wider public sector job market. Bernard Galton, Director General with responsibility for HR matters for the Welsh Assembly Government, told us that senior recruitment from the wider public sector was subject to market considerations also, since local authorities and the NHS can often pay higher salaries than the civil service (for example, a Chief Medical Officer position was advertised at £120,000, although a clinical director in an NHS trust would earn £150,000).[25]

26. The civil service unions Prospect and the FDA have claimed that the widespread practice of paying more to outside appointees has had highly damaging effects on morale among career civil servants. The unions have strongly opposed the practice of paying external recruits more than internal candidates, which they argue leads to a "dual market" within the civil service, a point also recognised by the SSRB. The unions further claim that this has led to "deep resentment and demoralisation".[26] One union member commented that:

The two tier system where those coming in to the civil service are given far higher salaries than those who have come up through the civil service is insulting and invidious and gives the message that anyone outside of the SCS must be more skilled and valuable than anyone in the civil service.[27]

27. David Bell and Sir David Normington, the two serving permanent secretaries who gave evidence to us, acknowledged this problem and suggested that greater transparency and clarity of purpose would help in justifying cases where paying greater salaries is acceptable:

If you are going to recruit from outside the Civil Service at a big premium, you have to be completely clear why you are doing it and you need to make sure that you are paying a market premium for something that is of value to you. I am not sure we always have done that.[28] [Sir David Normington]

What annoyed traditional civil servants most was the kind of randomness about decisions that were being made or what appeared to them to be a randomness about decisions that were made. What David [Normington] has laid out is at least a structure where, if you are going to pay over the odds, you are very clear what you are paying for. I think that will go a long way towards dealing with what was some dissatisfaction.[29] [David Bell]

28. Janet Paraskeva agreed with this analysis. She attributed some of the pay differentials to a lack of clarity about how SCS positions were advertised, particularly about the compensation "packages" attached to jobs.[30] The Civil Service Commissioners have therefore stressed the need for recruiting departments to be clear, transparent and consistent in the remuneration offers they make to candidates. According to the Commissioners, this approach appears to be bearing fruit; having monitored the situation for a number of years, their assessment of the current state of affairs was quite hopeful:

…there are far fewer instances of payments significantly over the advertised rate. It does seem that the Civil Service has addressed this issue and there is now much greater consistency: in the assessment of salary for jobs; and in negotiation with successful candidates on their starting salary.[31]

29. Nevertheless, there is more that could be done to ensure that inconsistencies in the pay of senior civil service recruits are dealt with effectively, as Sir David Normington and the Civil Service Commissioners have both recognised.[32] Where appointments to the senior civil service are subject to open competition, candidates should be treated equally during salary negotiations, regardless of whether they are currently inside or outside the civil service. This has not always been the case, resulting in pay differentials between external and internal candidates and significant disquiet amongst existing civil servants. We support the proposals made by Sir David Normington and the Civil Service Commissioners to minimise pay discrepancies between external and internal recruits to the SCS:

Departments should ensure that remuneration offers to candidates are clear and consistent with the pay rates advertised. There should be stricter controls over departments' ability to deviate from the rate advertised for a post when negotiating a salary offer with a successful candidate.
Departments should be more rigorous in their application of pay premiums. In cases where they want to pay more than the advertised rate, departments should be required to explain to the Cabinet Office the reasons why and provide evidence to support their case (such as data on skills shortages and market pay rates).
The civil service should seek to manage down pay differentials over time in those cases where external appointees have received large initial pay premiums.
The Cabinet Office should provide clear guidance to departments on setting and negotiating salaries for SCS candidates, as well as on reducing pay differentials between external and internal recruits over time.
The Cabinet Office and Civil Service Commissioners should continue to monitor the remuneration of new SCS recruits across government, in order to detect where concerns about significant pay discrepancies or trends in candidate remuneration may arise.

Performance and retention

30. Assessing the success of external recruitment to the senior civil service involves looking at how well outside appointees have performed and their ability to make a lasting difference by staying in the civil service (apart from those outside appointments that are explicitly term-limited). We consider each of these issues in turn.

PERFORMANCE

31. Part of the reason why the higher salaries paid to outside appointees have been so controversial is due to the perception that external SCS recruits do not perform better than internal ones, despite being paid more. Paul Noon, for example, was not impressed by his experience of outside appointments:

If you have got an outstanding individual who really delivers targets for an agency, people can see it, but that is not the generality of the appointments that are made.[33]

This led him to conclude that, given external recruits' higher salaries, "simply on value for money grounds, it does not seem a good deal for the taxpayer".[34]

32. Meanwhile, David Bell considered this point in the short informal review he led on the effects of external recruitment on the SCS. That review, which reported informally to the Cabinet Secretary in April 2008, concluded:

Perhaps counter-intuitively given the recent practice of the Civil Service, we came to a fairly firm conclusion that appointing "outsiders" to the very senior posts in the SCS is always a risk…There is evidence from the private sector that if no mitigating action is taken, circa 50% of external hires made at Director level are not successful (i.e. they either leave or become "blockers"). There is no reason why the public sector should be different.[35]

33. The consultancy firm Ernst and Young put forward the view that lower than expected performance could be as much a result of how the civil service treats new external recruits as individual capability:

There is a risk of setting up new recruits to fail. Expectations have not always been clear on arrival. Some new recruits have arrived without clarity over their priorities, how long they have to make an impact and without open feedback in the early months. This becomes an ongoing problem where external recruits lose confidence and can either become blockers or leave disenchanted with the organisation.[36]

34. External appointments are more likely to be successful in cases where clear reasons exist for recruiting into particular roles, for example where there are obvious skill needs, and where the external recruit's role is clearly defined. Ernst and Young observe that this occurred with external recruits into finance roles, where the head of the government finance profession worked with departments to bring in appropriately qualified finance directors, either from elsewhere in the public sector or from the private sector. Ernst and Young concluded that: "overall it seems clear that the external hires have made a strategic difference to finance professionalism and service in government".[37]

35. Some of the concern about performance may arise out of the heightened expectations that tend to exist about the anticipated impact of external recruits. Nevertheless, the Government acknowledges a genuine concern about outside appointees' performance, particularly when internal recruits perform equally as well as their better remunerated external counterparts:

Generally there could be an argument that there should be more appointments from the private sector for the diversity they bring, but this group often has the additional difficulty to prove they are able to "hit the ground running", especially at this level.[38] [Welsh Assembly Government]

Many Departments reported that external recruits on relatively high starting salaries were given more stretching objectives and their performance generally justified the higher pay. However, some Departments reported cases where career civil servants that earn significantly less perform as well as external recruits.[39] [Government evidence to the Senior Salaries Review Body]

36. Part of the difficulty in assessing the situation is that there is little concrete evidence available about the performance of external recruits. The results of the performance evaluations that do exist provide some slight support for the belief that external appointees on the whole perform less well than internal recruits. Government evidence to the Senior Salaries Review Body in 2008 indicates that on assessments of external and internal recruits' overall performance, a slightly smaller proportion of external appointees were judged to be in the top performing group, while a slightly larger proportion of external recruits were in the lowest performing group. The following table sets out the exact percentages:

Table 5: Results of performance assessments for external and internal SCS recruits

Performance Group One (highest performing) Performance Group Two Performance Group Three Performance Group Four (lowest performing)

External recruits 23% 45% 25% 7%

Internal recruits 27% 45% 25% 4%

Total 26% 45% 25% 4%

Source: Cabinet Office, Government Evidence to the Senior Salaries Review Body on the Pay of the Senior Civil Service, December 2008, p 8

37. The absence of solid performance data and evidence for monitoring the effects of making external appointments was noted by several of our witnesses. Gill Rider told us that the lack of such information had prompted the Cabinet Office to start collecting it, with the caveat that useful trend data would require data collection over a number of years.[40] The Civil Service Commissioners welcomed moves to start tracking the performance of appointees to the SCS, but warned that "we have yet to see any evidence that feedback systems are sufficiently robust to inform the development of improved recruitment processes or of the success of the overall policy".[41]

RETENTION

38. Another concern that has arisen over external recruitment is the high rate of outside appointees that leave the senior civil service after a relatively short time. Turnover rates for external SCS recruits have been consistently higher than those for internal recruits over the past four years, as the following table shows:

Table 6: Turnover rates for external and internal SCS recruits

2005 2006 2007 2008

External recruits 14.7% 14.3% 13.7% 11.6%

Internal recruits 8.8% 10.4% 8.9% 7.6%

Source: Cabinet Office, Ev 25

39. Correspondingly, the retention rate for external joiners is lower than that for internal recruits. Of external recruits to the SCS in the year to April 2004, just under half (49 per cent) were still in post at April 2008. This compares to the 68 per cent of all internal joiners (in the year to April 2004) who had remained in the SCS over the same time period.[42] Among external recruits leaving the civil service in the year to April 2008, the most commonly cited reason for their departure was resignation. In contrast, retirement was the most common reason for leaving mentioned by career civil servants.[43]

40. To some extent the figures on retention are not surprising, since external recruits might be expected to be more mobile in their careers than internal recruits, who may well have spent their entire working lives in the civil service. Nonetheless, Sir David Normington's review concluded that the trend for external recruits to resign had led to the SCS losing talent. It further concluded that there was insufficient evidence about the reasons for the high number of exits.[44] The Cabinet Office informed us that departments do conduct exit interviews with people leaving the civil service, but that central collation of the results has only taken place from 2009 and so has not been available to inform policy on recruitment to the SCS.[45] More importantly for our purposes, data from exit interviews does not distinguish whether the person leaving is an internal or external recruit.[46] Clearly, this hinders the ability to identify any common factors underlying the experience of external appointees while they are in the SCS.

41. One factor explaining the difficulty of retaining external recruits may be the lack of future career prospects they see in the civil service; Sir David Normington acknowledged in his report that "promotions and career development may be more ad hoc than we would like".[47] Another consideration is the quality of induction, mentoring and ongoing support that external recruits receive, in order to help them adjust to working in the civil service (we discuss further issues of organisational fit in the next section). Sir David suggested there should be a comprehensive investigation of the reasons behind the high exit rate for outside appointees, so that appropriate steps can be taken to improve retention:

Research should be undertaken into the reasons for individuals leaving the SCS, particularly previous external hires. This will allow us to take appropriate action to address our sourcing, induction, development and retention, as part of the future workforce strategy.[48]

42. Our analysis of the performance and retention of external recruits leads us to the following conclusion. Higher pay has helped fuel the implicit belief that external recruits should perform at a higher level than internal recruits. Yet the evidence suggests that, on the whole, outside appointees do not perform better than career civil servants and many leave civil service employment relatively quickly. This is clearly a very unsatisfactory situation which, if not addressed, will lead many to cast doubt on the wisdom of appointing from outside the civil service—let alone paying them greater salaries.

43. Much of the discussion about the effectiveness of external recruits is, however, limited by a lack of hard evidence. We recommend the Cabinet Office rectify this situation by building on its initial efforts to collect more systematic data to monitor the performance of external recruits and the reasons why they leave. This type of information should help government develop appropriate practices and approaches for getting the best out of external appointees.

Organisational fit

44. The performance of outside recruits to the SCS and how long they stay in the civil service depend crucially on how well they are able to adapt to the demands of working in government. In part, this relies on the past backgrounds and experience of individual appointees, but also on the support they receive from their department and from the civil service.

ADJUSTING TO A POLITICAL ENVIRONMENT

45. David Bell, himself a relatively recent external recruit to the SCS (from the wider public sector), told us that those appointed from outside need to attune to the "rhythms of political life" in order to succeed within Whitehall:

I know what I am looking for if I am targeting recruitment to outside. I really want to test very hard whether people are going to understand the rhythms of politics and government because actually you have to learn that fast…In the first letter I wrote to the Cabinet Secretary [about the merits of external recruitment] I did write that I observed when it came to the crunch that politicians really seemed to like and want close to them those who had some of the traditional skills of operating the machinery of government, providing wise counsel and advice, fixing things and making them happen, negotiating across Whitehall and so on…The trick for us is to combine the very best of those close-quarter skills with the proper openness to outside ideas and views.[49]

46. Jonathan Baume reiterated the importance of external recruits' ability to fit in to a political environment:

…I was talking to one Permanent Secretary who was telling me about a post that they had filled externally, but the person had struggled and could not get to grips with, if you like, the networks and political environment they were working in, so in fact the Permanent Secretary had put in another senior civil servant to work alongside them, so they ended up paying for two jobs for what was one.[50]

47. Several witnesses suggested that external recruits with a local government or other public sector background were perhaps better equipped to adapt to the "rhythms" of Whitehall, since they will have had experience of working in a political context. Recruitment from the wider public sector has been somewhat overlooked in the debate on external recruitment, given the emphasis on appointees from the private sector. Ernst and Young made the point that "too often search firms are told that someone is needed from the private sector without being clear why".[51] However, its survey of external appointees suggested that those recruited from the wider public sector have tended to be more successful:

Organisational fit matters. Of our interviewees, those working in agencies had found the transfer from private sector to public sector easier than those who had moved into Whitehall departments. This was due to agencies having clear performance goals, generally being more arms length from political decision-making and having more autonomy. It is also possible to succeed in Whitehall but seems to be more dependent on former experiences and skills. There are examples of former local authority senior leaders and those from professional service firms moving successfully into Whitehall roles and there is a clear sense of them having benefited from their experience of complex, bureaucratic and political organisations.[52]

48. David Bell and Sir Michael Bichard (former Permanent Secretary of the then Department for Education and Employment, and now Director of the Institute for Government) are often cited as two prominent external recruits who started their careers in local government. Janet Paraskeva agreed that appointments from the wider public sector can succeed, and added that exchanges of senior staff between the civil service and the wider public sector can also result in greater understanding of policy making and implementation on both sides:

...from the outside appointments that we make, over 20% of them come from the wider public sector and I think that movement in and out of local authority positions into central government and back again is probably healthy for both.[53]

49. Good organisational fit is vital for external appointees to operate successfully in the senior civil service. There is evidence to suggest that private sector recruits have sometimes struggled to adapt to working in the Whitehall political environment. We believe some of the difficulties of organisational fit resulting from external recruitment could be overcome by increasing the proportion of external appointments from local government and the wider public sector. This would increase the chances that outside recruits have the political experience and public service ethos needed to perform effectively at the higher reaches of the civil service, without losing the benefits of bringing a fresh perspective to Whitehall.

EFFECTS ON CIVIL SERVICE VALUES

50. Other concerns about external appointments are harder to measure, especially where the effects only become apparent over time. The civil service unions warned of potential losses to the collective institutional memory of government, with Prospect putting its view that:

We would be concerned about over-reliance on external appointments leading to denudation of civil service in-house capability and expertise—including loss of corporate memory.[54]

51. Meanwhile, the Civil Service Commissioners have in the past expressed concern that core civil service values and the public service ethos could possibly be diluted by large numbers of external recruits changing the nature of the SCS. Baroness Prashar, the then First Civil Service Commissioner, commented in 2003 that:

The Civil Service has, quite rightly, embarked on a programme of reform in response to changing demands. At a time of rapid change there is a need, more than ever, to ensure core values are not eroded. As departments recruit more people from outside to senior positions, it is essential not only to make sure the Civil Service benefits from their skills, experience and different ways of doing things, but also that they understand the core values which underpin the work of the service.[55]

52. Ernst and Young considered that fears about the effect of external appointments on civil service values might be somewhat overstated. However, it did concede that most of the senior external recruits interviewed for its research seem to have been more attracted to working in government by the specific role than the idea of working in the public sector generally.[56] Results from the SCS staff survey suggest, perhaps unsurprisingly, that external recruits have less of an affinity with their home department, or with the civil service overall, than career civil servants.[57]

53. Effective induction procedures can help reinforce the importance of core civil service values, as well as providing more practical advice and guidance to external recruits on their new roles. The Cabinet Office informed us that there are a number of induction programmes in place for new SCS entrants, both at departmental and civil service-wide level.[58] These include the two and a half day "Base Camp" course for all new members of the SCS, and corporate induction for new Top 200 members. However, there seem to be few formal induction arrangements in place to help ease external recruits into working in the civil service. The Cabinet Office told us that individual departments can tailor their own departmental inductions for new outside appointees, and it also recommends mentor schemes for external recruits.[59]

54. There is also a potential cultural tension between prevailing civil service norms and the challenge presented by the different perspectives and ways of operating brought in by outside appointees. For many external recruits, the question is how much they should (or are able to) maintain an "outsider" attitude and approach. Ofsted Chair Zenna Atkins pointed out to us during our Good Government inquiry that part of the point of bringing in people from outside was presumably to introduce to government new ways of seeing and doing things:

From my own experience in having watched other people [coming into the SCS from outside] it is very difficult not to do one of two things. One is to go native and just go along with what the public sector has done and to buy into, "That's the way it's done here", so your external experience suddenly becomes very devalued. Or the other thing is you are continually banging your head against the wall and are not able to navigate your way through the way things are done.[60]

55. Zenna Atkins's observation raises the wider point that it is not simply a matter of external appointees moulding themselves to the ways of Whitehall; senior civil service managers also need to work at getting the best out of recruits from other sectors. This point was supported by Sir Michael Bichard, who told us that external recruits need to be given adequate support from their line managers and beyond to help them get on effectively in their new roles:

Whenever I brought someone from outside into the Civil Service, and we brought a hell of a lot of people into the department, I always had them into my office if they were reasonably senior, and said, "I did not bring you here to be a silky mandarin. I brought you here because you have particular skills and a different perspective that I want to see influence the way in which this place works. If you experience insurmountable problems that door is always open and I want you to come and talk to me about them". A lot of them have said to me since that that was really quite important because it gave them power and clout and it gave them a sense that the very top management was behind them. I do not think that often happens…people are brought in, whether it is into the Civil Service or as a minister, and they are just left there.[61]

56. We see a need for induction arrangements tailored specifically to help external recruits adjust to the demands of working in government and to reinforce core civil service values. Induction procedures should not be too onerous, but should recognise the particular needs that those new to government have as they take up senior posts. Such induction should continue to be coordinated at a central level by the Cabinet Office, and should draw on the views of existing and former external recruits to the SCS. Equally, however, senior civil servants who manage external recruits need to be better at incorporating the different approaches and perspectives that external entrants bring. The Cabinet Office should also explore how it can support senior civil service managers in getting the best out of new recruits arriving from outside government.

19 Oral evidence taken before the Public Administration Select Committee on 11 December 2008, The Work of the Cabinet Office 2007-08, HC 45-i, Session 2008-09, Q 29 Back

20 Oral evidence taken before the Public Administration Select Committee on 12 March 2009, Civil and Public Service Issues, HC 352-i, Session 2008-09, Q 40 Back

21 Ev 24 Back

22 Normington report, p 13 Back

23 Ev 34; Review Body on Senior Salaries, Thirty-First Report on Senior Salaries 2009 (Report No. 68), Cm 7556, March 2009, p 10; Normington report, pp 12-13 Back

24 Public Administration Select Committee, Top Pay in the Public Sector, para 185 Back

25 Public Administration Select Committee visit to the Welsh Assembly Government, 11 May 2009 Back

26 FDA and Prospect, Joint Union Evidence to the Senior Salaries Review Body, November 2007, p 5 (available at http://www.fda.org.uk/home/FDA-Prospect-evidence-to-SSRB-November-2007.aspx) Back

27 Ibid, p 6 Back

28 Q 93 [Sir David Normington] Back

29 Q 93 [David Bell] Back

30 Q 24 Back