Top-to-bottom pay link proposed

Top pay in the public sector should not normally be more than 20 times that of the lowest paid worker in any public body, the government has been advised.

The idea has been put forward by Will Hutton of the Work Foundation.

In May the government asked him to devise a way of ensuring that the pay of the highest paid executives in the public sector was fair.

Mr Hutton’s final recommendations will be published in March 2011.

“There is a strong case for public sector organisations having to comply with, or explain why they do not comply with, a maximum pay multiple, such as 20:1,” Mr Hutton said.

“This would demonstrate fairness by reassuring public opinion, address a problem of collective action across remuneration committees, and benefit organisations’ productivity.

“The range of top pay deals across the public sector has little coherence or relationship to the public’s priorities in generating genuine public value.”

The government asked Mr Hutton to investigate the issue because of concern that the rise in top executive pay in the public sector was unfair.

He found that in the past decade their pay had risen faster than that of their average and low earning staff – just as it has in the private sector.

There, the pay and remuneration of the most senior executives in the biggest companies has boomed spectacularly in recent years, particularly with the aid of bonuses and lucrative share options.

As a result the average pay of a chief executive of a FTSE company is now 88 times that of their lowest paid staff.

Mr Hutton pointed out that this trend inevitably had the effect of driving up top pay of public bodies sought to recruit executives from the private sector.

He warned that the public sector was in danger of being caught up in a top pay “arms race”.

And he pointed out that some of these pay deals might be “irrational” and have no bearing on the ability of the organisations to serve the public.

“In parts of the public sector that have more autonomy – such as universities, foundation trusts and arms length bodies in general – there are significant upward pressures on senior pay and, before the pay freeze, some increasingly eye-catching settlements,” Mr Hutton said.

“When the public sector does recruit from the private sector it has to pay significantly more for staff, creating knock-on inflationary pressures.”

Dave Prentis, General Secretary of Unison, the UK’s largest public sector union, said that the review missed the point.

“By concentrating on the 20:1 pay ratio, that affects a miniscule 0.0001% of the public sector workforce, the report misses the elephant in the room, namely the scandal of low pay across the sector.

“The government likes to talk about fairness, but actions speak louder than words,” he said.

“Public spending cuts, plus the drive to privatise local services, is depressing wages, fragmenting the workforce and undermining moves towards fairness.”

Mr Hutton’s initial report found that in 2009, the pay of top private sector executives far outstripped that of top public servants.

Only 20,000 public servants were among the UK’s 290,000 highest earners who were paid more than £117,523 a year, which put them in the top 1% of all earners.

Of these 20,000, 4,000 were managers and most of the rest were doctors and dentists in the NHS.

The average pay ratio of public sector staff just below the level of a lead executive was less than 12:1.

Mr Hutton’s initial report on public sector fair pay says organisations should be able to pay more than the suggested 20:1 limit, but should have to justify it for those “exceptional” cases.

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