UNISON Active Analysis: Hutton Review of Senior Pay - a soft boiled Curate's Egg

Last Tuesday, for the second week in succession, a Con Dem appointed Hutton Commission reported on the findings of a review - this one chaired by Will Hutton:  http://www.hm-treasury.gov.uk/indreview_willhutton_fairpay.htm

The economics commentator had been appointed by the Coalition Giovernment, within weeks of the General Election, to make recommendtions 'on promoting pay fairness in the public sector by tackling disparities between the lowest and the highest paid in public sector organisations'.

The UNISON submission to the review emphasised the following key points:

· we suspect that, if applied solely to the public sector, a maximum ratio of 20:1 would make very little difference – at present it would appear that the number of public employees earning more than 20 times the pay of their lowest paid colleagues is relatively small, in the region of 0.0001% of the public sector workforce

· we would strongly argue that, were any such ratio to be implied, it would be essential to extend its reach to the employees of private and third sector companies providing public services – both as a matter of principle, since a divide between the public sector workforce and others delivering taxpayer funded public services would be artificial in this context; and also to remove what would otherwise be a perverse incentive for senior decision-makers to outsource lower paid staff, or an entire service under their own management, precisely to exempt themselves from the ratio rule.

· we would reiterate our general points that it would be unhelpful to focus on the top-to-bottom pay ratio in isolation from a more thorough consideration of how fairness should be secured for all members of the workforce at all levels of the pay scale, especially the issue of the gender pay gap, and the important role this has to play in improving efficiency and service quality.

· we would further reiterate our belief that fair pay and a greater degree of income inequality is an issue for our economy and society as a whole; that any dispersal in public service pay rates has been largely driven by trends and forces that reach far wider than the public sector alone; and that the issue of fairness in public service pay should not be treated in isolation from this wider problem.

http://www.unison.org.uk/file/UNISON%20submission%20to%20Hutton%20Review%20of%20Fair%20Pay%20in%20the%20Public%20Sector%20and%20supplementary%20evidence.doc

Hutton's recommendations, published on 15 March 2011, are a mixed bag but do contain several good points:

* A welcome affirmation of the positive role and ethos of the public sector, in implicit contrast to Coalition rhetoric:

"Government and the public sector are too easily regarded as an obstacle to growth and the good society. Properly organised, led and managed they are instead their handmaiden. Indeed most public servants are animated by precisely this aim."

* Hutton implicitly endorses our argument that high pay in the public sector is something of a red herring, being both a reflection of, and problematic distraction from, the much bigger issue of pay inequality in the private sector:

"public sector managers have been caught up in the backlash to the remarkable growth of the earnings of the top 1 per cent over the last thirty or forty years and in particular the last ten [but] only one pound of every hundred pounds earned by the top one per cent of earners is earned by public sector employees"

* Hutton also takes up our call for any rules on public sector pay to be carried over into private sector organisations contracted to deliver public services:

“it is important that the Fair Pay Code and as far as possible the other recommendations of this Review are extended into the public services industry. The framework of tracking multiples, of transparency and explanation, of earn-back, of escalating intervention, and of widening the talent pool, should be applied in the private sector”

* Hutton’s interim report also took on board UNISON’s warning that, in the absence of such an extension, any regulation on public sector pay differentials would create a perverse incentive for more outsourcing:

“Tying top pay to bottom via a maximum pay multiple could create perverse incentives in favour of contracting out low-paid roles, in order artificially to increase the bottom wage used in a given organisation to define the maximum pay ratio.”

For this reason, among others, Hutton rejects the proposal for a 20:1 cap as impractical and possibly unworkable, instead advocating greater transparency and mechanism for relating executive pay to performance.

However, there are a number of weaknesses in Hutton's approach.

The big oversight of the report is that, though it claims to be about "fair pay in the public sector", it is really only about the pay of public sector executives and senior managers, and conspicuously fails to apply its principle that "workers at every level in any organisation should be rewarded in proportion to the real value of their contributions" or concern for recruiting, retaining and motivating high calibre staff to the rest of the workforce.

Although this reflects the intended scope and remit of the review, which was really only about top pay and not “fair pay” overall, it remains a glaring omission at a time when ordinary public sector workers face years of insecurity and falling living standards, which studies show will have a serious knock-on impact on morale, staff turnover and service delivery, and when delivering equal pay and eradicating poverty pay remain major items of unfinished business where the modest progress of recent years is likely to be reversed in the current climate. UNISON’s submission highlighted the continuing problems of gender discrimination and endemic low pay in our public services which needs to be more widely recognised as an issue for government.

Other problems with the report include the advocacy of a version of performance-related pay, albeit for senior managers only, for which the evidence of benefit is questionable.