House of Commons - Local government Chief Officers' remuneration - Communities and Local Government Committee

Local government Chief Officers' remuneration - Communities and Local Government Committee Contents

3 Is Chief Officer remuneration delivering good value for money?

Determining a Chief Officer's worth

12. Before considering how councils in practice make remuneration decisions, it is important to note that these decisions are not made in a local silo but in the context of general media and public perceptions as to the 'worth' of a Chief Officer's job to a local community and the level of remuneration that reasonably reflects the risks and challenges they face. Not unsurprisingly organisations representing senior officers, such as the Association of Local Authority Chief Executives and Senior Managers (Alace), as well as the Local Government Association (LGA) considered that senior council staff were paid fairly for their responsibilities in the context of public sector circumstances.[36] Many commentators draw attention to the fact that some senior council staff's remuneration is in the top 1% of national pay and several hundred earn more than the Prime Minister.[37] However, as discussed in the previous chapter, local authority senior figures on the whole earn less than leaders of similar size organisations in other sectors or some other parts of the public sector.[38]

13. It has been argued that the lower personal risk of public sector posts justifies lower salaries. Although few witnesses made this point directly, some noted that as council managers had a guaranteed council tax income stream they did not face the private sector challenges of generating revenue and dealing with the bottom line.[39] On the other hand, many witnesses, including Unison and Alace, argued that senior council jobs pose significant challenges and risk due to the high public profile of running vital services in a political environment.[40] Others, such as the LGA and Solace, highlighted the billion pound budgets under some Chief Officers' control and the need to run commercial as well as regulatory services.[41] Even the TaxPayers' Alliance, which argued strongly for pay restraint, recognised the challenges of many senior council roles and the necessity of paying remuneration accordingly, including sometimes at private sector levels.[42] But, as some witnesses highlighted the non-remuneration benefits of public sector packages, such as higher job security,[43] and enhanced pension benefits make straight salary comparisons with the private sector difficult.[44] On the other hand, some witnesses noted that benefits such as pensions had been eroded in recent years.[45]

14. There is no evidence of significant movement of senior staff from the public to the private sector. The skills developed working in a senior public sector role may not be the right ones for many private sector roles. Although Chief Officer witnesses with private as well as public sector experience argued that at least some of their skills were transferable,[46] others such as Peter Smith from Hay Group noted that, despite those managing commercial parts of councils having some transferable skills,[47] some private sector roles were "off limits".[48] This lack of transferability reduces the marketability of senior local government managers and ensures that councils can recruit and retain them at relatively low pay rates. As we noted above, the evidence we received indicates that, with the exception of some areas such as Children's Services, councils are not having difficulties in recruiting and retaining good senior staff, at the remuneration levels currently being offered.[49]

15. There are also barriers to the movement of senior staff from the private to the public sector, including wide gaps in pay in some instances. Witnesses cautioned that low salaries could be a barrier to high quality candidates from higher paying sectors and that remuneration needed to be sufficient to attract and keep the best staff who could deliver the best value for communities.[50] Nonetheless witnesses noted that many high quality individuals sufficiently value factors other than remuneration (such as the public service ethos and career security),[51] such that suitable staff could be recruited from the private sector and retained even at the lower local authority salaries. However, as the Chartered Institute of Personnel and Development (CIPD) alluded to, recruitment of private sector candidates might be hampered for some roles which require specific skills developed in the public sector.[52]

Setting locally appropriate remuneration

16. In a perfect situation, remuneration for senior council staff would be set at the exact level to attract and keep the best candidate, paying neither too little to deter a good candidate from applying nor more than necessary to secure their services, thus ensuring the best value for the local taxpayer. To establish the market rate requires firstly that the relative challenge of a Chief Officer's job is established and next that the salary payable locally for such a job is ascertained. Typically councils use job evaluation schemes, such as the Hay scheme, to quantify a job's relative size (challenge) and provide a benchmark allowing councils to compare what other authorities are paying for a job of similar challenge across the public sector.[53] There will be a range of pay rates for jobs of similar size allowing some discretion in setting pay rates. The exercise of this discretion does not always lead to the most appropriate pay rates. For example, Rochdale council used the Hay job evaluation scheme and Hay experts' advice on median local salary levels for equivalent jobs to propose a £40,000 salary increase for the Chief Executive post. But, following public concern and councillors blocking this rise, the post is being filled at the original rate and the previous incumbent has been re-employed elsewhere in an arguably at least as challenging a job for only a modest salary increase.[54] Some witnesses noted that the use of recruitment consultants could lead to inappropriate remuneration since, as the Department for Communities and Local Government (DCLG) Parliamentary Under-Secretary of State, Brandon Lewis MP, told us, they tended to drive salaries upwards. He was "cautious" about using them to find suitable candidates, preferring to use in-house staff in the main.[55]

17. We are concerned that in some cases job evaluation schemes have produced remuneration decisions which are not sensitive enough to local circumstances and need. We therefore conclude that, whilst consistent use of such schemes by a sufficiently large number of councils is valuable in providing an objective measurement of job size which enables councils to benchmark against each other, councils must ensure that they use this information with greater regard to local circumstances, needs and priorities. Councils must ensure that they critically assess advice from job evaluation schemes and recruitment consultants within the context of such local considerations, including an analysis of whether local market conditions might secure as good an officer at a lower rate.

18. It is important that proposed remuneration is not out of kilter with local market conditions. Once a job level is decided, establishing the local market rate for such a job requires accurate data on local pay rates. Such information is available to councils through the epaycheck system which provides up-to-date data on market rates.[56] Sharing of information at supra-local level, such as through regional employers' bodies, also helps to establish accurate market data to enable councils to compare levels with other local councils. This data should provide information on whether councils are finding it difficult to recruit and retain senior staff at the remuneration levels on offer locally. At national level, the LGA also provides a forum for exchange of such information although it does not conduct regular audits.

19. However, even with perfect information, decisions on the most appropriate level of remuneration will vary, depending on local priorities and political views. For example, we heard from two London Boroughs with broadly similar demographic characteristics and challenges and recruiting in the same broad geographical area, but with very different approaches to setting remuneration. The Chief Executive of Camden earns some £155,000,[57] whilst nearby Wandsworth's earns £230,000, despite the slightly lower spending power and deprivation levels in the latter's Borough.[58] Wandsworth's Chief Executive told us that his salary represented the "demands that the council makes on its senior officials" and that the council's view was that stability of good managerial leadership was the "secret to running good services at low cost".[59] In contrast, Camden told us that it responded to changed economic conditions after 2009 by reducing pay, despite increasing challenges for senior staff. The current Chief Executive, Mike Cooke, earns some £40,000 less than his predecessor.[60] Mr Cooke told us that he was proud of the signal this sent to the local community as it was related to "moral authority",[61] but he was reluctant to make comparisons with Wandsworth since its different "policy and strategy, both politically and managerially" meant it would be like "comparing chalk and cheese".[62]

20. If councils are to make locally appropriate decisions they need accurate data about what they need to pay in their local area so that they neither over-pay their senior officers nor fail to attract the best candidates by offering lower rewards that are out of kilter with the market. We recommend that the Local Government Association works with regional employer organisations to provide a regular analysis of regional pay trends and help to inform the national and local debate on appropriate remuneration levels and changes. The LGA should seek feedback from its council members as to whether there is a gap in the data about councils' ability to recruit and retain suitable candidates and, if necessary, commission regular surveys. However, we recognise that there is no 'one size fits all' formula to determine the right remuneration levels for every circumstance, since different councils have different local contexts and priorities.

Fair pay ratios

21. Given a constrained pay budget in local government, senior manager remuneration levels have implications for the pay of other workers in a council, particularly for lower paid staff, raising the broader issue of 'fairness'. Will Hutton's review commissioned by the Government, Fair pay in the public sector, considered in depth the issue of the ratio between the salaries at the top of an organisation and those at the bottom, so we have not examined this in detail in this inquiry.[63] We note however, as figure 4 below shows, that overall there is a relatively low ratio in the local government sector between the highest paid and the lowest paid - and that this is an order of magnitude lower than in the private sector.

Figure 4. Chief Executive to median pay ratios

Source: IDS, Thomson Reuters[64]

The data indicates a narrower spread of salary in the smaller (district) councils compared to the larger (county) councils. The figure above shows average ratios—some councils having higher ratios than for the averagely performing council. For example, Surrey County Council has a ratio of 10:1.[65] Its Chief Executive told us that it was focussing on raising salaries of the lowest paid staff, whilst freezing or slightly reducing pay of the most senior staff. No directly employed staff were paid below the living wage,[66] although paying this level to contracted staff was not within the council's gift.[67] Other councils also pay a living wage.[68] In our Local government procurement report, published in March, we acknowledged that councils must be free to develop locally appropriate employment approaches but commended those councils which adopt fair working conditions including pay.[69]

22. We welcome the fact that most councils have a relatively low ratio between the pay of the highest paid officers and staff on lower pay grades since this indicates a broad fairness within council pay approaches, in contrast to the significant gap between those in high paid and low paid jobs in parts of the private sector. However more can be done to raise the floor for pay and we commend those councils which have introduced a living wage policy for all their staff.

36 Q114 Back

37 "The 636 council officials who now earn more than the Prime Minister", Mail Online,10 May 2013 Back

38 Q34. AON Hewitt witness, Duncan Brown, noted that for roughly similar sized jobs base pay levels for medium-sized councils were broadly equivalent to private sector organisations but for larger authorities pay was around a third higher for their equivalent private sector counterparts. The gap doubled when bonus payments were taken into account. Back

39 Q23 Back

40 Unison (COR 04), Alace (COR 11) Back

41 LGA (COR 06) para 14, Society of Local Authority Chief Executives and Senior Managers (COR 05); see also Q94. Back

42 TaxPayers' Alliance (COR 17) para 1 Back

43 Q88; the average tenure of a FTSE 100 Chief Executive is 3 years and 7 months, compared to eight years for a local authority. Back

44 Pensions benefits have included final salary, index-linked pensions based on employee contributions lower than the payments required to generate equivalent benefits in a money-purchase scheme. Back

45 Unison (COR 04), Alace (COR 11) para 6 Back

46 For example Maggie Rae, Q170, and Graham Farrant, Q167 Back

47 Q259 Back