WILL HUTTON REVIEW OF PUBLIC SECTOR PAY FORMALLY LAUNCHED

On 21st June, the government finally confirmed the launch of a much-trailed independent review of fair pay in the public sector, to be headed by leading economist Will Hutton. The review will start work immediately and publish an interim report in the Autumn of 2010, and a final report in the Spring of 2011.

Will Hutton has been selected to lead the review because he has a wealth of experience of pay and workforce fairness issues from eight years of leading and now working for The Work Foundation, as well as great expertise in the fields of organisation and management theory. He will also bring an outside perspective to the review, independent of Government.

Will Hutton said: "Ensuring fairness in public sector pay in current economic circumstances is a national priority, and I am delighted to be invited to lead this review. My approach will be to make recommendations rooted in tried and tested principles of fairness supported by as much evidence as can be gathered. There are multiple causes of growing pay disparity and the terms of reference permit the review to fully investigate them - and, of course, the consequences. Broader social norms have been changing over pay. One aim of this review apart from its recommendations on public sector pay, as the Prime Minister notes, will be to contribute to shaping those wider norms in future."

Despite the claim that the review will help to shape broader social norms, its immediate terms of reference are very narrow, and, to some extent, the outcome of the review is pre-determined. The independent review is asked to assemble robust, evidence based analysis of the scale of the problem of pay disparity between the highest and lowest paid jobs in public sector organisations, and to come up with recommendations on how to introduce a public sector pay multiple that would mean that no public sector manager can earn over 20 times more than the lowest paid person in their organisation.

The government has indicated that the review will need to consider:
• Over what timescale a cap could be applied;
• How a cap would operate in areas outside direct Ministerial control.

And it has been asked to have regard to:
• The Government’s wider fiscal and public sector pay policies, in particular the need for senior staff to show leadership in pay restraint, and to deliver value for money from the public sector pay-bill;
• The level of remuneration necessary to attract, retain and motivate staff of the quality required – and the opportunity cost of working in the public sector for some staff;
• The fact that organisations may need flexibility to exceed multiples to match the market rate in exceptional cases where there is a clear justification to do so;
• The Government’s stringent requirements for transparency and Ministerial approval in senior pay decisions.
• The benchmarking work currently being taken forward by the civil service Senior Salaries Pay Review Body;
• The degree to which distortions and market failures in private sector pay create pressure for unfair pay multiples in the public sector.
• The importance of rewarding productive entrepreneurship by frontline public sector staff.

The review has been asked to take into account all aspects of the public sector pay package, including base pay, variable pay, bonus and other elements, to the extent to which these affect fairness across the pay range. The review is expected take into account any recommendations or findings from John Hutton’s review of public sector pensions, which was launched at the same tine as the pay review, but will not make independent recommendations on areas covered by the scope of that review.

The scope of the review will cover staff whose pay is set by the by the Senior Salaries Review Body (senior civil servants, very senior managers in NHS commissioning bodies, senior military), senior staff in non-departmental public bodies, managers in local government and the NHS, regulators which receive public funding, and senior staff in further and higher education. Other parts of the public sector, such as the BBC, are excluded.

The immediate impact of the review on local authorities is likely to be very limited, as there are only a handful of Councils where the Chief Executive’s salary is more than 20 times that of the lowest paid employee, although the inclusion of other elements of remuneration in the review’s terms of reference may mean that, in terms of total remuneration, a higher number of senior posts may be seen as breaching the 20:1 limit.

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