Magazine article Public Finance

Payment by Committee

Magazine article Public Finance

Payment by Committee

Article excerpt

IN TOUGH ECONOMIC times, it's not a surprise that many people are critical of those perceived to be doing well. A great deal of attention is currently being paid to public sector spending, and particularly to senior level pay and pensions. The Taxpayers' Alliance claims that more than 1,000 people in local government are paid over £100,000 and 12 more than £200,000. Communities and Local Government Secretary John Denham has criticised this apparent pay free-for-all.

In light of this, all the main political parties have pledged to limit public sector pay growth. It's not just bankers facing scrutiny. In March's Budget, Chancellor Alistair Darling reiterated his December Pre-Budget Report commitment of a twoyear 1% pay rise limit across the public sector and a cap on pension payments. In the same month, the prime minister announced pay freezes for senior staff across the public sector. And, apparently in reaction to press and public hostility, the pay levels for executive vacancies in some organisations - including Kent County Council and the Audit Commission - have been set below those of the previous job-holders.

Largely arising from the financial crisis, a number of governance reviews started last year, which included consideration of executive remuneration.

In the private sector, there has been no or little move to limit executive pay, nor halt the trend for performance-related bonuses. Instead, there are longer-term incentives and wider public disclosure of pay. This comes with strengthened governance and an enhanced role for remuneration committees, whose ambit in the banks will extend beyond board-level executives.

In December last year, the Commons public administration select committee called for independent remuneration committees to be set up across the public sector, in line with those required for quoted companies since the 1995 Greenbury Report. It wants similar requirements too on remuneration disclosure.

The committee also proposed extending the remit of the current Senior Salaries Review Body so that it would, in effect, become a commission for top pay in the public sector.

Some publicly owned companies are leading the way. For instance, Royal Mail Group, Network Rail and parts of the civil service have already introduced remuneration committees in various guises to set the pay of senior executives. And there are pay bands for senior civil servants and NHS senior managers.

But are remuneration committees generally the answer? There are three main advantages in setting one up. First, simply establishing one goes some way towards improving perceptions of the pay-setting process. And this is important; senior executive remuneration needs not only to be set at levels that are appropriate and fair, but also be perceived as appropriate and fair.

As the handbook for chief executives in local government puts it: 1It is essential for good governance that decisions on pay have been made in an open and accountable way... more than lip service must be paid to providing a verified process for recommending top salaries.' Such committees are perceived globally as vital for improving corporate governance and a demonstrable way of bringing independence into the senior remuneration-setting process.

Secondly, remuneration committees can bring professionalism and expertise in setting pay, giving employers access to a range of skills and knowledge that they do not typically have in-house. Committee members can be drawn from other parts of government, the private and third sectors, and from those who specialise in executive remuneration work. …

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