Public sector pay policy for senior appointments 2019-2020: technical guide

Annex B: Background Policy To The Policy For Chairs And Members And Calculation Of Daily Fees

2.1 Chairs and Members are public appointments, but not all are remunerated. Public appointees such as Chairs and Members benefit personally in a number of non‑financial ways, for example: in the enhancement or application of professional expertise; general networking and personal development; or the opportunity to contribute to policy-making in an area of personal interest. The main objective in offering remuneration for such posts is to increase diversity. Remuneration may be proposed where it is particularly important for bodies to have representation on their board from as wide and diverse a range of candidates as possible or where there is specific need for Members to be drawn from otherwise under-represented groups.

2.2 Where a post is remunerated, it should be noted that any remuneration payable is not intended to meet in full the market rate that could be commanded by the individuals concerned.

What is a daily fee and what is it for?

2.3 Where Ministers have agreed the Chair or Members should be remunerated, then this is by a daily fee. The remuneration of Chairs and Members must always be based on a daily fee rate as this is the most appropriate and flexible arrangement which allows for payments to reflect the time commitment. This may be expressed in terms of daily, half‑day or hourly rates for calculating payments, but changes to the number of days worked should not result in changes to the level of daily fee paid. The cost of any remuneration is met from the public body's existing administration costs.

2.4 If a daily fee is paid to Chairs and Members, then the payment should reflect the time commitment involved. The daily fee should take into account provision for reasonable time spent by individuals in undertaking their agreed duties effectively, though there must be clear prior agreement on which activities are to be remunerated. A daily fee (or proportion thereof) can therefore cover activities other than attendance at board meetings, functions or events and for example can include time spent preparing for meetings, time travelling to and from meetings, etc.

2.5 The daily fee and the related activities covered by it should be agreed between the public body and the Sponsor Team, recorded formally and embodied in the letters of appointment issued to the Chair and Members. The agreement must abide by the general requirements of the Pay Policy and may be reviewed from time to time or at the request of the public body or Sponsor Team. There must also be a formal and proportionate arrangement in place for the claiming of daily fees which should be subject to audit by the public body.

2.6 In relation to fees, letters of appointment may refer to a monthly or annual amount, as long as it is based on the approved daily fee multiplied by the 'contracted' number of days worked per month / year. The contracted number of days is the number of days stated in the letter of appointment expected to be worked (per month / year) as a result of the appointment.

2.7 It may be more convenient to remunerate Chairs and Members monthly (sometimes the fees are expressed as an annual amount), but problems may arise if the person works more or less than the contracted number of days.

2.8 If the remuneration is paid monthly, at a fixed amount based on a contracted number of days per month and the Chair or Member commits more days per month, then the Sponsor Team may recompense them for this.

2.9 Conversely, if the remuneration is paid monthly, at a fixed amount based, say, a contracted four days a month, but a Chair or Member spends, say, only two days a month in relation to their appointment, then clearly the Sponsor Team should review such an arrangement.

2.10 If a public body or Sponsor Team fixes the (monthly or annual) remuneration irrespective of the number of days actually worked and Chairs or Members feel they are not being remunerated sufficiently for their time commitment, then this is not necessarily an issue about the level of the daily fee but possibly more about being recompensed appropriately for their time commitment. This would therefore be a budgetary matter for the Sponsor Team rather than a daily fee issue for the Finance Pay Policy team – it is not in itself justification for increasing the daily fee but rather a matter of reviewing the time commitment. Changes to the number of days worked should not result in a change to the level of the daily fee paid or the effective daily fee received (if the remuneration is expressed monthly or annually) although it will change the overall monthly or annual remuneration received.

2.11 Chairs and Members are not employees of the public body nor of the Scottish Government (and likewise are not paid a salary). As such, they do not qualify for the rights and entitlements that are normally associated with the status of 'employees'. Public bodies and Sponsor Teams should therefore exercise care when drafting letters of appointment or advertisements to avoid references to salary or employment, or give an impression of such, as this may create expectations of other benefits (such as annual leave, sick pay, redundancy, etc.). Chairs and Members can still be an "employee for tax purposes" when daily fee payments are paid through payroll.

How to determine the daily fee of a Chair or Member of a public body?

2.12 The first consideration should be whether there is any need to pay a daily fee. In addition to the Scottish Government policy to reduce the number of public appointees, it is also the policy to consider reducing, where possible, the daily fees paid to Chairs and Members. It is therefore open to the Sponsor Team to decide whether a payment need be made (apart from expenses) or to set a level of remuneration below the minimum of the band.

2.13 If it is considered a daily fee is required, Sponsor Teams need to consider the appropriate level of fee, taking into account the pay policy expectations and the Daily Fee Framework. When determining the proposed daily fee, the daily fees paid to Chairs and Members of Scottish public bodies in the same band should be considered in the first instance (the Finance Pay Policy team can provide assistance and information on daily fees paid). Only if it is anticipated the Chair or Members will be recruited from further afield should the levels of remuneration offered elsewhere be considered.

2.14 When considering daily fee proposals for Scottish public bodies, it is reasonable to consider rates paid to Chairs and Members of comparable bodies in England and Wales undertaking similar duties. Historically, a MSP salary was 87.5 per cent of that of a MP but this linkage no longer applies. However, it is still the expectation that the daily fees for Scottish Chairs and Members undertaking similar duties should continue to reflect a similar proportionate reduction unless a strong justification for doing otherwise is presented.

What should a business case contain?

2.15 Proposals for setting or reviewing a daily fee must be supported by a business case which should include:

• the need for paying a daily fee and/or reasons for introducing or reviewing it, which should include diversity and recruitment / retention issues
• the proposed daily fee, taking into account the pay policy expectations around the Daily Fee Framework (minimum, maximum and ceiling of the relevant band)
• the remuneration of Chairs and Members of similar public bodies in Scotland and elsewhere (where relevant)
• (for Chairs) the remuneration of the last occupant of the post
• (for Members) the remuneration of other Members and the differential with the Chair's daily fee
• the ancillary activities expected to be covered by the daily fee (for example: preparation time and travel time, etc.)

2.16 Apart from annual uplifts, the level of daily fee for existing Chairs and Members is not expected to require adjustment during the period of appointment. However, where there are significant recruitment or retention difficulties; or a significant change in the role and responsibility; proposals to review the existing daily fee rates may be submitted to senior officials or the Remuneration Group, dependent on the extent to which the proposals remain in line with Pay Policy.

What about offering a pension?

2.17 Given the relatively short terms of appointment, the limited number of days on which appointees actually serve on bodies and the generally non‑executive nature of their duties, approval is not usually given to offering pension arrangements to Chairs or Members.

2.18 However, in exceptional circumstances, pension arrangements may be considered, but the approval of the Remuneration Group must be obtained before proposals are implemented. Any such proposals must be supported by a business case which clearly demonstrates why offering a pension is necessary, the detail of the proposed pension arrangements (as they are not employees, Chairs and Members may not be eligible to join the public body's pension scheme and a bespoke scheme may have to be set up) as well as confirmation of affordability.

2.19 Where it is approved that a pension may be offered, the level of daily fee must not be increased to cover the individual's resulting pension contributions. The daily fees in the Daily Fee Framework are gross in that they include any contribution made by the public body towards any pension. So in the rare circumstance where a pension is provided, the daily fee figure used when considering the Daily Fee Framework should be the 'net' daily fee receivable by the individual plus the amount of contribution made by the public body towards the pension.

2.20 Where pension arrangements are a result of previous practice, Sponsor Teams and public bodies must not assume this is justification for their continuation. Each case must be reconsidered on its merits prior to each appointment round.