Public sector pay: Chief Executive framework review

Executive Summary

1. Pay restraint for the highest earners has been a central tenet of successive pay policies for many years. To restrain pay for the highest paid, and improve pay inequality, various levers, such as capped annual uplifts, capped pay progression and removal of bonuses, have been added to the policy. These levers are detailed in the Chief Executive (CE) Framework of the Public Sector Pay Policy (PSPP). With the exception of annual uplifts in line with the pay policy, the CE Framework has remained largely unchanged for many years.

2. At the 2023-24 Scottish Budget, it was announced that a review of the CE Framework would be undertaken in 2023-24. The Public Sector Pay team have completed this review and will communicate any changes to through a revised published Chief Executive Framework. The review has identified that, although the overall aim of pay restraint for higher paid has been achieved, a number of recommendations and improvements can be made to modernise the Framework.

3. While levers of pay restraint have added to the CE Framework, this review considers the levers collectively for the first time and provides an opportunity to assess their effectiveness and whether they are still required. Whilst pay restraint for higher paid employees aligns with Ministers progressive approach to pay and has been a policy aim for many years, the degree to which it is currently implemented is being increasingly challenged by stakeholders including CEs, chairs of public bodies and remuneration committees.

4. The review confirms that the overall aim of pay restraint for higher paid, and specifically pay restraint for CEs has been achieved. Over successive years CE bonuses have been suspended and now removed from contracts, notice periods have been reduced, salary ranges have been dropped and progression steps capped at 1.5% per annum. Annual uplifts have also been restrained for higher earners and in some years restrained even further for CEs. This has provided savings to the public purse.

5. Most of these levers were implemented without review periods or methods of futureproofing. Evidence demonstrates that we are approaching, or in some cases have reached, a tipping point. Successive policy decisions have had the unintended consequence of eroding pay differentials, increasing risks to succession planning, and reducing Scotland’s ability to recruit and retain the best people to lead public bodies to deliver the Governments priorities.

6. The recent divergence between senior staff, senior civil service (SCS) and CE pay awards, and an increase in Remuneration Group and Ministerial submissions relating to CE remuneration, has further highlighted a broader need to review the pay restraint of CE whose pay arrangements are set through Scottish Ministers Public Sector Pay Policy and the CE Framework.

7. The overall recommendation is to continue with, but loosen, pay restraint of CE salaries. The review covered many aspects of pay restraint included in the CE Framework and makes a number of recommendations, including administrative recommendations and summarises elements where no change is required.

8. Recommendations include;

• that annual uplifts should be set giving closer consideration to senior staff and SCS pay uplifts,
• that pay restraint is widened to cover all higher paid employees rather than a role delineation, for example through a threshold based on salary,
• that the requirement for a ten percent reduction of CEs remuneration package on recruitment is brought more in line with staff pay, with an expectation that new appointments start at the bottom of the salary range,
• that all CE roles are reviewed and go through a job evaluation at least once every five to seven years,
• that the CE framework pay bands be updated to better reflect the current landscape of CEs,
• that the Remuneration Group be designated additional delegated authority to consider and approve individual submissions seeking to address evidenced unintended pay differential issues, and
• retain a cap on pay progression for CEs but increase from the current maximum of 1.5% to a new maximum of 2.5%. This would allow for some meaningful movement through pay ranges.

9. An administrative change to the Public Sector Pay Policy technical guide is recommended to provide more detail and greater clarity on the punitive measures following non-observance of the framework

10. The scope of the review included a number of elements where no change is proposed including:

• that there is no introduction of a set pay ratio between CE pay and average salary of an organisation,
• that the current method of pay band determination is continued,
• that Health colleagues are best placed to decide when or if to review the inclusion of NHS ESM in the CE Framework.