News / News analysis: A delicate matter

Executive pay crashed back into the headlines in April with a report on boardroom remuneration by research body Incomes Data Services (IDS). The report found that NHS chief executive pay rose by three times the Department of Health target and more than double the increase received by nurses. This set the agenda for the election campaign, at least for a short while, until the leaders debate alerted the population to the existence of a third political party.

The story was perfect for politicians on the stump. There had already been an outbreak of manager bashing (see comment, page 11) and here was hard fact – often in short supply in the election campaign – at which parties could channel their outrage.

The timing of the report was, in some senses, unfortunate. Senior public sector workers have already had their pay frozen for 2010/11. But there are growing calls for the same approach to be taken for all NHS staff on national terms and conditions – or at least extreme restraint in pay awards (see news page 3). A suggestion of boardroom largesse, even in former years, could make this a hard argument to sell.

The headlines of the IDS report were clear. NHS trust chief executives in England received an average pay rise of 6.9% in 2008/09, based on published accounts for the year. This was on top of a 6.4% rise in 2007/08. Compare this with Department of Health guidance that the overall pay bill for senior managers should rise by no more than 2.2%.

The median earnings of foundation trust chief executives stood at £157,500, compared with £147,500 for those in non-foundation trusts fuelled by a higher average increase for FT chief executives (7.8% compared with 6.1%). The highest paid chief executive received £270,000.

Outside England, median salaries for trust chief executives were £120,000 (Northern Ireland) and £157,500 (Wales), while health board rates were £81,000 (Wales) and £142,500 (Scotland).

Less well reported was that chief executive pay in England was as low as £62,500 across English trusts and foundation trusts. The median remuneration in English primary care trusts was £137,500.

The headlines didn’t drill beyond these figures. However, the IDS report provided similar details on all the specific executive positions, including finance directors. They make for interesting reading.

Reality check

But first, a health warning is needed – you need to understand what you are looking at. For instance,

IDS said that one finance director’s salary for a London acute trust appeared to have risen by 36%, while at the same organisation the director of workforce and education had received a 30% rise. However, the trust clarified that the actual increase in this case was ‘only 14%’.

Several issues could distort the figures. The IDS analysis is based on annual accounts, which disclose salaries in £5,000 bands. The survey then uses the midpoint of each salary range – so a director previously at the top of one range, who receives an extra £1,000 to take them into another range, would notch up as a £5,000 increase (midpoint to midpoint).

Equally, pay rises taking managers from the bottom of one band to the top of another would be suppressed. In the specific example, there were further complications – a review of executive pay, the removal of board posts and reallocation of responsibilities, the consolidation of car allowances into basic pay and a recent history of ‘minimal’ rises.

But the report said that until disclosure standards improve, NHS figures will ‘always be open to misinterpretation’ – a lesson already learned by listed companies.

And although the report isn’t comprehensive, it is not far off. While the hospital trust finance director sample is 183 directors (compared with 192 chief executives), there are only 99 PCT finance directors.

Responding to the report in the Guardian, the Hay Group’s director of public sector consulting, Peter Smith, also cautioned against straightforward comparisons with headline pay rises for staff in general. ‘[The 6.9%] includes both salary increases given to people in post and the effect on salaries of making new appointments of chief executives and directors, some of them on higher pay than their predecessors,’ he said.

‘The comparisons between NHS executives and nurses can also be misleading. In 2009, NHS staff received a standard uplift to their pay scales of 2.4%, and those not already at the top of their pay scales received an increment too, giving them a total salary increase of between 5.4% and 7%.’

Putting these caveats to one side, what does the survey say about finance director pay? Using median pay levels, finance director pay in England ranges from £102,500 in PCTs to £117,175 in foundation trusts. The full range stretches from £72,500 (curiously in an FT) to £182,500 (again, although not surprisingly, in an FT). For finance directors there are no figures for increases on previous years.

While the median data for chief executives shows that FT chief executives earn about 7% more than their non-FT colleagues, the difference is not so great for finance directors, where the gap is just 4%. However, the top-earning trust director earns a full £20,000 less than their FT peer (despite both trusts being based in London and the NHS trust being larger in terms of number of employees).

There are no surprises in the ‘revelation’ that PCTs, where director salaries are controlled by the very senior managers’ framework, pay finance directors less. The median remuneration at £102,500 is nearly £15,000 less than in FTs. The maximum (at £137,500) also falls substantially short of the top trust and FT earners. As with chief executives, the findings for finance directors suggest PCTs are paying above the prescribed spot rates (£79,000 to £112,000 from April 2009) using recruitment and retention premiums and additional responsibility payments.

Pay disparity

IDS said that for all but the very smallest populations, PCT finance director median salaries were between 7% and 23% higher than guideline levels.

The issue has been raised by NHS Employers, whose evidence to the Very Senior Managers’ Pay Review Body said: ‘Employers remain concerned about the growing disparity between the national pay framework and those developed by foundation trusts.’ It drew attention to disparity between director rates in PCTs and other parts of the NHS and to anomalies in the overlap between VSM and Agenda for Change.

This is not a new concern. An independent evaluation of the framework in 2008 called for the spot rates to be assessed to ensure base salaries stay competitive. There is even an argument that base rates could be increased without incurring any or much additional cost. Higher base rates would remove the need for recruitment and retention premiums in many cases, but place a more transparent value on the roles in question. This could improve the attractiveness of some roles and boost mobility between NHS organisations.

The median finance director remuneration for Scottish health boards looks healthy, being higher than the median in English trusts and only just short of FTs’ (though the roles show a much tighter range). But the survey does not look at those undertaking ‘finance director equivalent’ roles – for instance, as the financial lead in the acute provider ‘arm’ of a health board, where anecdotal evidence suggests salaries are much lower than English equivalents.

Welsh trusts before the October 2009 rejig also appeared to compete with their English counterparts, although local health board rates suffered compared with the bigger (size and function) English PCTs. Northern Ireland exhibited a broad range of salaries for a small number of posts, making analysis difficult.

Boardroom turnover was also an issue, with high rates across all organisations (17% non-FTs, 14% FTs, 15% PCTs) and high levels of jobs marked as interim, temporary or acting. Managers in Partnership chief executive Jon Restell said this ‘incredible high turnover’ was fuelling the rate of salary growth.

‘The fact is NHS employers are hiring and firing excessively. The real shock in this report is that one in five NHS executives leave their job every year,’ he said. ‘We should be asking why. Is it pay? Is it the hours? Is it unrealistic demands?’

The government’s decision to freeze pay for senior NHS managers this year – rejecting even the review body’s recommendation for small increases for the lowest paid – is meant to set an example for the rest of the workforce. It is a sentiment many managers would understand – particularly if followed up by similar restraint on general pay. But issues with recruitment and retention and the credibility of the pay frameworks must be addressed – not all of which would incur cost. How long managers will have to wait after the election for these issues to be addressed is anyone’s guess. But holding one’s breath is not advisable.

For details on the IDS report, see www.incomesdata.co.uk