Feature / Finance explained

NHS bodies have taken a range of approaches to meeting the new director pay disclosure requirements, making the figures less useful as a tool to compare remuneration in different organisations. NHS bodies are required this year to publish the ratio of their highest paid director and the median staff pay as part of their annual reports. This follows on from the Hutton review of fair pay, which has led to the same requirement being imposed across the public sector (see Healthcare Finance April 2012, page 28, for background).
The overarching aim was to provide some analysis of senior officer (and in particular, chief executive) pay in the public sector. But the issue is complicated in the NHS by the fact that the highest paid director in provider trusts is often the medical director.

Different interpretation
Finance managers had called for clarification on the inclusion/exclusion of medical directors in responding to the requirement. But no such clarification was provided and NHS bodies appear to have taken a range of approaches in meeting the new obligation.
Across a small sample of 12 provider organisations examined by Healthcare Finance, salary multiples ranged from 4.9 to 8.3, with an average of 6.7. Only two of the sample had multiples over 8.0 and in both these cases the medical director was reported as the highest paid director. In other organisations, the medical director had been excluded on the grounds that only a proportion of their programmed activities were spent on director duties, the rest on clinical care. In calculating their ‘director’ remuneration, only the proportion of salary relating to director duties had been included. However, one finance manager pointed out that the guidance calls for salaries to be annualised. So even if only part of a salary were being used effectively to reflect that director duties were only ‘part time’, this would need to be annualised – which would be likely to again make the medical director the highest paid director.

Cause for confusion
Some managers reported a change of approach (on inclusion/exclusion of medical director) as a result of discussions with other organisations or following discussions with auditors. But managers also said that auditors had themselves flagged up the lack of clarity in the guidance over what exactly was wanted.
The inclusion of consultants’ clinical excellence awards, which can add significantly to a medical director’s remuneration, was another area of confusion. Managers reported that it was not clear if this should be included as bonus payment or as part of an annualised salary. The multiples themselves need to be treated with caution with a low multiple potentially indicating either a high median or a low salary for the highest paid director (or both). Highest paid director salaries in the small sample stretched from £142,000 (chief executive) to three earning more than £210,000 (at least two were medical directors). Median salaries ranged from £18,015 to £30,764. High median salaries could well indicate the presence of a private finance initiative scheme, where significant numbers of ancillary staff are not directly employed by the trust, or other reliance on outsourced or shared services. Use of part-time or agency staff will also have an impact.