Public sector pay policy 2024-2025 - Chief Executive framework: technical guide update

Chief Executive remuneration packages

Proposals

1.19 All proposals for the remuneration of chief executives must be presented to the sponsor team who will engage with Pay Policy team for their advice. This includes providing a business case where a post is being created or reviewed, or completing a proforma where an annual uplift is being considered.

1.20 Each proposal will be assessed on the following criteria;

• affordability and sustainability of the pay proposals,
• application of the increases within policy limits and the Scottish Chief Executive Pay Framework,
• comparability with the increases for other staff in the public body.

Costs included in the pay proposal

1.21 The pay proposal must include the cost of all proposed increases in pay (basic award and progression, where eligible) and benefits as well as the consequential increases to allowances, overtime rates, employer’s pension and National Insurance contributions that directly relate to the pay proposals.

Business case contents

1.22 When developing or reviewing a remuneration package for a Chief Executive, the following elements must be considered and covered in the business case, along with supporting evidence. This is summarised in the following table.

Development of a new remuneration package for a Chief Executive

1.23 The following paragraphs are relevant where a new Chief Executive post is being created or where a review is being undertaken for an existing Chief Executive post (whether a change of incumbent or not). It also covers the appointment of a temporary or interim Chief Executive.

1.24 A review of an existing Chief Executive’s remuneration package can include, for example, the introduction of, or changes to, non-pay rewards, or revisions to pension arrangements, see paragraph 1.51.

Elements considered when developing a remuneration package for a Chief Executive

1.25 There are a number of elements to consider as part of a remuneration package for a Chief Executive, the first steps are as follows.

• Determining the Pay Band in the Scottish Chief Executive Pay Framework.
• Identification of the relevant labour market (to determine the range maximum and setting of the pay range).

Determination of a Scottish Chief Executive Pay Band

1.26 To determine the appropriate Pay Band in the Scottish Chief Executive Pay Framework the weight of the post first needs to be established. A formal job evaluation of the role and responsibilities of the post should be undertaken. The outcome of the job evaluation should provide an evaluation score which will inform which Pay Band within the Framework the post might sit. The job evaluation scheme used should ideally have a direct read-across to commonly used schemes, for example JESP or Korn Ferry Hay Group, the pay policy team can provide further advice.

1.27 Normally, the job evaluation will be carried out by the public body, though where this is not possible the Scottish Government may be able to assist. In such circumstances, advice should be sought from the Sponsor team. If you are considering engaging external contractors to carry out this work, then the expectation is that you will notify your Sponsor team and the Public Sector Pay team of your intention beforehand.

1.28 The public body must engage with their Sponsor team, who will in turn consult with the Public Sector Pay team in determining the appropriate Pay Band. Note: it is not the proposed salary, proposed pay range or current Tier of the body (in relation to the Chair and Members Daily Fee Framework) that determines the Chief Executive’s Pay Band in the Framework, but the job weight evaluation score of the role and responsibility of the Chief Executive post.

Pay Policy position on pay ranges and spot rates

1.29 The Pay Policy expectation is that a Chief Executive should be remunerated by way of a pay range (allowing individuals to progress, through the delivery of agreed objectives and by gaining experience towards the maximum of the pay range which should reflect the market rate for the job).

1.30 Only in exceptional circumstances would the appointment of a new Chief Executive on a spot rate be considered for approval. The Pay Policy expectation is that the spot rate should be broadly in line with the median of base pay of similarly weighted posts in the relevant labour market (see paragraphs 1.31 and 1.32).

Relevant labour markets for determining the pay range

1.31 The business case must include clear and convincing market evidence to support the proposed pay range. Normally this would be the Scottish public sector labour market which includes Chief Executives in public bodies within the same Pay Band. The Public Sector Pay team can provide Sponsor teams a list of pay ranges for comparable Chief Executives within Scottish public bodies.

1.32 Public bodies may provide additional evidence where the labour market from which the Chief Executive might be recruited is wider in scope than the Scottish public sector labour market. In such circumstances, a public body must explain the appropriateness and relevance of that market data. Market comparisons should be made on the basis of similarly weighted posts. Before gathering such information, public bodies should discuss the scope of the proposed labour market with the Sponsor team and Public Sector Pay team. Normally, market data would normally be public sector not for profit and would exclude London-based posts.

Remuneration of other senior roles within the public body

1.33 When developing pay range proposals, the public body must consider the relationship and pay differentials between the remuneration of the Chief Executive and members of the senior management team (or the most senior level of Director below the Chief Executive).

Pay Ratio within the public body

1.34 The pay ratio between the Chief Executive salary and the median staff salary should not be a determining factor in setting salaries, however the ratio should be acknowledged when developing or reviewing the Chief Executive salary.

Determination of a proposed pay range for a Chief Executive

1.35 The proposed pay range should be within the relevant Pay Band, taking into account the operation of the Scottish Chief Executive Pay Framework.

1.36 The Pay Policy expectation is that the proposed pay range should lie within the minimum and maximum of the relevant Pay Band in the Framework, taking into account other factors such as the relevant labour market and the job weight and salary of other senior staff within the public body. It is not appropriate for the minimum and maximum of the proposed pay range to be simply the minimum and maximum (or ceiling) of that Pay Band in the Framework.

1.37 Where the proposed pay range maximum is above the maximum of the relevant Pay Band in the Framework, there will need to be robust justification set out in the business case. This must include market evidence as well as any recruitment and retention issues. In all cases, the proposed pay range must not exceed the ceiling of the relevant Pay Band in the Framework.

1.38 Under no circumstances should the minimum, maximum or ceiling of the Pay Band be taken as the Chief Executive’s pay range.

1.39 The Pay Policy expectation is that the proposed pay range should be broadly in line with the median of base pay of similarly weighted posts in the relevant labour market.

Factors considered when setting a salary

1.40 A public body must indicate the anticipated starting salary. The expectation is that like other staff in the organisation, the starting salary will be at the minimum of the proposed pay range. If the proposed starting salary is beyond the minimum, then the public body should set out in its business case the proposed starting salary and why it is considered necessary. This may require additional approval.

1.41 Where a review is being proposed for an incumbent Chief Executive reflecting a significant change in the role and responsibility of that post, then the assimilation point on the proposed pay range should take into account the Chief Executive’s experience in that higher weighted role (from the point when the significant change in the role and responsibility of that post commenced).

Progression when setting a proposed pay range

1.42 Under the Pay Policy, future basic awards and progression cannot be guaranteed. When developing remuneration proposals, it should be noted that no commitment to levels of future annual increases (basic award or progression) should be given. Future annual increases will remain subject to the Pay Policy in place at that time and will require Scottish Government approval. Currently progression increases for Chief Executives are limited to a capped maximum as set out in the pay parameters and limits section.

1.43 No contractual obligation or expectation to annual increases should be created or implied; spine points should not be a feature of any Chief Executive’s pay range as progression to such points cannot be guaranteed. Public bodies must ensure any contractual documentation is clear in this regard and through their Sponsor team the Public Sector Pay team must be consulted on the remuneration clauses in draft contracts or letters of appointment (see paragraph 1.81).

1.44 A public body must outline the approach to progression and the journey time anticipated in determining the proposed pay range and demonstrate how this is affordable and sustainable in future.

Reviewing a Chief Executive remuneration package

1.45 It is normally good practice to review remuneration arrangements on a regular basis.

1.46 While this usually happens during recruitment of a new Chief Executive, the Scottish Government expects a full review of a Chief Executive’s remuneration package and new job evaluation to be undertaken at least once every five to seven years.

1.47 Reviews can be undertaken sooner if there has been a significant change in the role and responsibility of the post.

1.48 Regular reviews of job evaluation scores, labour market medians, and Chief Executive remuneration will ensure that the Scottish public sector can attract strong candidates to lead organisations and deliver on Scottish Government priorities.

Payment methods

1.49 Chief Executives are expected to be paid through payroll with tax deducted at source in the same way as other employees. Payments must comply with the Tax Planning and Tax Avoidance section of the Scottish Public Finance Manual.

Non‑consolidated performance payments (bonuses)

1.50 There is a presumption against provision for non‑consolidated performance payments in all new Chief Executive contracts or following a review.

Pension arrangements for Chief Executives

1.51 The Pay Policy expectation is that the pension arrangements for the Chief Executive should be in line with those for other staff of the public body.

1.52 Any proposal to offer employer pension contributions beyond those required under the pension scheme, in order to increase the benefit for the postholder, would require consideration by the Remuneration Group.

1.53 Salary sacrifice on pensions (sometimes called salary exchange) proposals are not considered acceptable. This applies to all types of pension schemes (defined contribution/money purchase and defined benefit, whether public service pension schemes or other arrangements) and all employees, including the Chief Executive. Under salary sacrifice on pensions arrangements, the employee gives up a portion of their salary in return for the employer making an additional employer pension contribution (of the identical value) to the employee’s pension pot. Both the employee and the employer pay less NICs. Public sector organisations should, as a general rule, avoid tax management arrangements that have the primary objective of reducing tax liabilities, or could be perceived, reasonably, as seeking to minimise tax liability.

1.54 There is a presumption against making payments (including as a pay enhancement or lump sum) to individuals in lieu of employer pension contributions where they have withdrawn from or opted not to join the company pension scheme, whether as a result of Annual limits or for other reasons. All payments to individuals must comply with the Tax Planning and Tax Avoidance section of the Scottish Public Finance Manual. This paragraph applies to all employees, including the Chief Executive.

Notice Periods

1.55 There is an expectation that Chief Executive notice periods for both employer and employee should be no longer than 3 months. Longer notice periods will require Scottish Government approval. Approval will be given only where a clear financial benefit and a business need can be demonstrated. Details of the notice period must be included with any remuneration proposals when seeking Scottish Government approval.

Non-salary rewards

1.56 There may be a number of additional elements to the remuneration package offered to a Chief Executive over and above base pay. These are referred to as non‑salary rewards. Where other staff employed by the public body benefit from such rewards, the arrangements which are to apply to the Chief Executive should be in line with these. Details of any such rewards must be included with any remuneration proposals when seeking Scottish Government approval.

Position on cars

1.57 There is a presumption against the provision of a car (or related allowance). Where if there is a scheme in place for the previous post-holder this should be reviewed and not automatically rolled forward to the new appointment or revised package.

1.58 However, where a Chief Executive is required to travel extensively as part of their duties, it may be cost effective to make arrangements regarding a dedicated car (for example, lease car, car allowance, etc.). In all cases, the provision or introduction of a car (or related allowance) will require Scottish Government approval. Approval will be given only where a clear financial benefit and a business need can be demonstrated.

1.59 Where a public body already has an agreed scheme for the provision of cars (or related allowance) for staff, any proposed arrangement should be in line with that scheme. Otherwise, a public body must set out in the business case a comparison of costings and implications of personal tax and insurance costs, which supports the proposed arrangement. This should also include other options considered, for example, a pool car and the arrangements in place for other staff.

Life insurance and other health benefits

1.60 There is a presumption against the provision of life cover or private medical plans, etc.

1.61 However, in the rare circumstances where a public body offers its staff life cover or a private medical plan or similar, the Chief Executive should be eligible to become a member of the scheme. In such circumstances, public bodies must still provide details of the scheme when seeking Scottish Government approval of the remuneration proposals. In the absence of any existing scheme, approval will not normally be given for such arrangements. Please discuss any other life cover / health related proposals with the Sponsor team and Public Sector Pay team.

Relocation expenses

1.62 Eligibility for, and the level of, relocation expenses, should be in line with those for other staff of the public body. In the absence of such a scheme, relocation expenses should be in line with that for the Scottish Government. Exceptionally, relocation expenses beyond such arrangements may be paid but only where this is necessary to secure the best candidate. In such circumstances, public bodies must consult the Sponsor Team and Public Sector Pay team before reaching agreement with the incoming Chief Executive.

Affordability and sustainability

1.63 The remuneration (pay range, salary and any other financial and non-salary rewards) must demonstrably provide value for money in the use of public resources and be no more than is necessary to attract, retain and motivate staff, on a sustainable basis, to deliver public functions.

1.64 Long-term affordability of the proposals is important, and the public body must confirm they are affordable and sustainable within existing resources. However, where additional resources are required, these must be set out clearly. In all cases, the Sponsor team must confirm the affordability and sustainability of proposals, seeking the views of the relevant Finance Business Partner where appropriate.

Equalities legislation

1.65 Public bodies must take into account their obligations under equalities legislation when determining a pay range for the Chief Executive and must include confirmation of this when submitting any proposals for approval.

Chief Executives also considering a Public Appointment or Non‑Executive Directorship

1.66 We aim to encourage senior officers and appointees to make appropriate contributions to the work of other bodies. This can provide the following benefits.

• They broaden their experience.
• Other bodies may benefit from their expertise.
• Their contribution to their own employer is enhanced.

1.67 If a Chief Executive (or other employee) of a body covered by the Public Sector Pay Policy is considering accepting a public appointment or Non-Executive Directorship in addition to their existing role, this requires to be considered by the Chair / Board and Sponsor team of the employing body.

1.68 It is important to ensure that the following factors have been taken into account.

• There is no conflict of interest.
• The time commitment is appropriate.
• Arrangements for remuneration are seen to be appropriate.

1.69 Such matters, including (where relevant) the need to liaise with the Sponsor team of the public body to which the individual might be appointed, are outlined in more detail in the Public Bodies Information Update 109 which is available on the Scottish Government website.

Temporary Chief Executives

1.70 Any proposals to appoint a temporary, interim or acting Chief Executive must first be discussed with the Sponsor team and Public Sector Pay team prior to implementing such an arrangement. The Public Sector Pay team can advise on remuneration arrangements for such appointments and whether approval might be required.

1.71 If the proposed temporary Chief Executive is to be an internal candidate, then the proposed salary should be based on the public body’s existing temporary responsibility allowance or temporary promotion scheme. If there is no such allowance or scheme in place, the arrangement should mirror that for Scottish Government staff.

1.72 Remuneration arrangements for a temporary Chief Executive may differ to those for the outgoing Chief Executive and should not have a bearing on those of any future permanent post.