The current debate about ‘top pay’ in the public sector – most recently prompted by Lord Patten’s Andrew Marr interview and his RTS lecture on ‘toxic’ pay dispersion in the BBC – raises some tricky questions about the role that Non-Executive Directors (NEDs) have traditionally played in influencing senior executive remuneration. In fact, it puts me in mind of an old joke:
Lord Patten, BBC Pay & Supermarket Trolleys
Authors: Stephen Bevan
07 July 2011
Q. What’s the difference between a Non-Executive Director and a supermarket trolley?
A. Both have equal capacity for food and drink but the supermarket trolley has a mind of its own
Too often, some NEDs have been overly passive in their scrutiny of executive pay decisions and have occasionally allowed top pay and bonuses to outstrip those of the ‘great unwashed’ at the bottom of their organisations. To his credit, Lord Patten – in his new role as Chairman of the BBC Trust – has given a clear signal that he intends to take steps to tackle some of the pay issues faced by the BBC which he feels have caused the Corporation reputational damage. Indeed, he has said that he wants the BBC to be the first public body to implement some of the recommendations of Will Hutton’s Fair Pay Review. In tackling these issues, Lord Patten will need to balance three conflicting pressures.
First, is the need to pay enough to attract talent in what remains a pretty competitive labour market. Setting aside the rather quirky labour market for celebrities, the BBC is in a constant fight with commercial broadcasters around the world and it has to pay well to attract them while, simultaneously, paying heed to its responsibilities to licence-fee payers in a time of austerity.
Second, a further obligation to the license-fee payer is to be transparent and accountable. The BBC has chosen not to publish the pay of some of its more highly paid employees and, when it has (most notably Mark Thompson’s) it has been vilified. If Lord Patten is serious about embracing some of Will’s ‘fair pay’ principles, this reticence over transparency will need to be tackled.
Third, there will need to be a pay structure within the BBC which has broad consent and legitimacy within the BBC itself so that to staff the gap between senior executive pay and median pay is ‘felt-fair’ and proportionate. This was an issue which was also highlighted by the Work Foundation’s own Good Work Commission report published earlier this week. It argues that most employees respond positively to fairness and transparency in organisations and that, with only 4 in 10 British workers feeling that their bosses act with integrity much more needs to be done to rebuild trust in the leadership of many of our larger businesses and public institutions.
Some of the coverage of Lord Patten’s Marr interview and his RTS lecture, while welcoming his intent, has made the mistake of perpetuating the myth that the Prime Minister’s salary (usually quoted as £142,500) should be used as a ‘benchmark’ against which all executive pay in the public sector should be compared. There are two main reasons why this position should be challenged. First, the Prime Minister’s base salary is actually £198,660 (Mr Cameron chose to take the lower figure) and the total PM ‘package’ – including living arrangements and allowances - is £581,651. Second, and more importantly, the PM’s salary has no relation to any real labour market. There is not a shortage of applicants and no job specification. PM pay is not objectively linked to the value of the job, nor to the need to recruit and retain individuals. It is not rational to use this figure as a guide and those who continue to quote it are either misguided or mischievous.
Interestingly, the BBC was explicitly excluded from the scope of the Fair Pay Review as it is not publicly funded in the same way as a local authority or government department. Nonetheless, it is firmly in the ‘public realm’ and it is right that its remuneration policy and practice should be subject to public scrutiny. The issues of fairness and transparency were given considerable emphasis in Will’s Review and he was especially keen to send a message to Remuneration Committees and Non-Executive Directors about the role they play in keeping executive pay proportionate.
Ultimately the BBC, other public bodies and – arguably – plcs are facing more fundamental questions of governance. Boards of Directors are being challenged to open up to scrutiny decision-making processes which have been shrouded in unnecessary secrecy for too long. Lord Patten’s bold move should be the first of many.
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