Business

Hutton wants brighter spotlight on bosses pay

BBC business editor Robert Peston on proposals for the public sector

Will Hutton was asked by the prime minister and chancellor last May to make recommendations that would promote greater fairness in public sector pay, by "tackling disparities between the lowest and highest paid in public sector organisations".

The executive vice-chair of the Work Foundation was recruited to look at whether limiting the pay of top public servants to a maximum multiple of typical or median public service pay would be a good idea, and if so whether a multiple of 20 would be appropriate.

Strikingly, Mr Hutton - a campaigner over many years for a more egalitarian distribution of income - has come down against the imposition of any cap on pay in public services.

Has he had some kind of Damascene conversion to the idea that an increase in public-sector productivity requires the entrenchment of a new plutocratic class of bureaucrats?

Actually it doesn't look as though he is panting to push up the remuneration of permanent secretaries, local authority chief executives, and senior health service managers.

In fact the reverse is probably true.

What his research uncovered was that public servants don't earn as much as 20 times median pay (which is just over £25,000 for the economy as a whole). A typical NHS hospital chief executive, for example, earns 12 times the "bottom of the workforce pay spine".

So there is quite a risk that if a 20 times limit were put on their earnings, the pay of the boss class in the public sector would almost certainly ratchet up to new highs, rather than falling.

To put it another way, 20 times the median would be the new inflated going-rate. And that might not please most of you at a time when something of a squeeze (ahem) is being imposed on the public sector by the government.

But can four-star generals and the men from the ministry breathe a sigh of relief that they can carry on regardless in respect of the way their pay is set?

Probably not.

Hutton wants the publication of a fair amount of salacious detail on individual public servants' pay, or what he calls "the full remuneration of all executives, alongside an explanation of each role and of how executives' pay reflects performance".

This should be made available through a standard online template so that the rest of us can "analyse this data and thus have the information to hold public service organisations to account".

To put it another way, it should become much easier to see how and why those who generally earn somewhere between £130,000 and more than £200,000 for running hospitals, local authorities, Whitehall departments and so on are paid what they're paid.

What's more, even though there wouldn't be ceilings on pay, each public service organisation would publish top-to-median multiples every year - which would then form the basis for fair pay reports by the Senior Salaries Review Bodies.

Hutton also wants the pay of those who run the public sector to rise and fall annually depending on their performance. He proposes that a proportion of senior public servants' basic pay would only be handed over if they met objectives that had been set for them.

Hutton describes this arrangement as the imposition of "basic pay at risk", rather than a further institutionalisation of a bonus system - although the concept does rather waddle and squawk a bit like a bonus.

Whether or not it is a bonus by another name, smelling more or less sweetly, critics will allege that the idea of public service - of going the extra mile for citizens and taxpayers simply because it is the right thing to do - would be further undermined.

Meanwhile there will be others who will attack Hutton for a different reason. They'll say that the brightest and the best will be deterred from working in the state sector, because a media obsessed with the pay of public-sector executives will hold them to account in a way which doesn't happen in the private sector.

Which in a way is a great paradox.

Because those who run huge companies listed on the stock market are arguably subject to less oversight of remuneration by their respective owners than those who run local authorities (for example) are by the press.

The most explosive growth in pay over the past decade has occurred in the private sector - and that growth in pay since 2000 or so has been almost completely uncorrelated with share price performance, or rewards for the owners.

Today the remuneration of the typical FTSE100 chief executive is over £3m - and much higher for bank chief executives - equivalent to more than 120 times median pay, compared with an estimated multiple of 48 times in 1998.

Which brings us to the proposal by Hutton that will induce a fair degree of queasiness in boardrooms. He recommends that PLCs should track and publish their respective top-to-median pay multiples - and he suggests that the government should commission annual fair pay reports on big private businesses.

The harrumphing that it's no business of the interfering nanny state what the boss of Tesco or Vodafone earns may be audible from the moon.

Will Mr Cameron and Mr Osborne switch on that bright new spotlight on the pay of private-sector chief executives? Their LibDem colleagues are bound to want them to do so. But Tory backbenchers will argue that it's for shareholders, not ministers, to decide whether such information should be disclosed.

Some will certainly be watching the reaction of Mr Cameron and Mr Osborne as a test of what they mean when they say that "we're all in this together".

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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