Public Sector Pay Policy for Staff Pay Remits 2009-10

5. ADDRESSING THE KEY PAY POLICY PRIORITIES

What issues can you address in your pay remit?

5.1 In addition to addressing the Standard Remit Elements, if you intend to target part of your pay remit at addressing the Key Pay Policy Priorities (paragraph 3.1), then you should take into account increases in both pay and non-pay benefits when you develop your proposals. Pay systems should be designed to motivate and reward performance, recognising pay as one element of a broader reward package you offer to staff.

5.2 We expect you to outline your strategy towards Total Reward in your business case, including any changes to terms and conditions of employment, and any proposals to make employees more aware of the total value of their remuneration package.

What is the limit on the increase to the paybill for addressing the Key Pay Policy Priorities?

5.3 If you seek to address the Key Pay Policy Priorities you will need to cost all proposals as set out in paragraphs 4.1 to 4.5 and arrive at a Total Increase for Staff in Post. This is the average total value of the increase in pay and benefits for staff in your organisation in each year of the remit.

5.4 Given the current economic climate and the financial context set by the Spending Review there is a limit on the amount that you can add to your paybill in each year. The net cost of the full package of proposals (Standard Remit Elements and Key Pay Policy Priorities) must not exceed 3.00% of your baseline paybill. This is an absolute limit for each year of a remit approved under this policy. If you are planning a multi-year pay deal, the Net Paybill Increase must be no more than 3.00% in each year.

5.5 You can make a case to use paybill savings to part fund your proposals for addressing the Key Pay Policy Priorities. You can use recyclable savings and other savings in the paybill in this way. Such savings include those arising from reductions in staffing, the removal of allowances or reductions in overtime. Savings that you redirect to pay will be on top of savings you will already have delivered or need to deliver within the Efficiency Delivery Plans 2008-11.

5.6 You should clearly set out how you will fund your proposals in your business case and confirm that you will deliver the savings in the year in which they are being re-used.

5.7 You should make sure that any savings projections are realistic. When you submit your outturn your Chief Executive will be required to explain any increase to the paybill resulting from the implemented pay increase that is beyond the approved remit. If you are part-way through a multi-year pay settlement, your Chief Executive must provide a brief statement of assurance that the outturn for the year ending during 2009-10 is within the approved remit and that the assumptions made in regard of savings to fund your pay award are still valid and achievable.

How can you address the Key Pay Policy Priorities?

5.8 The measures you propose to address the Key Pay Policy Priorities (paragraph 3.1) will fall into one or more of the following 3 categories:

• Increases with ongoing cost implications;
• One-off increases; and
• Increases in benefits or non-pay rewards.

What are increases with ongoing cost implications?

5.9 This category covers increases which have ongoing cost implications and therefore have the potential to significantly increase your paybill. They usually involve changes to pay and reward structures or increases to minima and maxima of pay ranges above the level of the basic award. They fall under the following sub-categories:

Inequalities

5.10 The Scottish Government is committed to ensuring that pay systems in the public sector are fair and non-discriminatory. You should make sure that you have due regard to your obligations under the public sector equality duties on race, disability, gender and age when considering your pay systems. This must include the legal requirement on public bodies to assess the impact of their policies and practices on people from different ethnic groups, disabled people and women and men. In terms of pay proposals, you are expected to have carried out equal pay reviews and set out in your business case the results of such reviews and the steps you propose to take to address any inequalities that you have identified. These can include measures to reduce the width of pay bands or to reduce progression journey times.

5.11 It is important that you review your pay systems on an annual basis after you have implemented pay awards, and carry out a full equality impact assessment of your reward policies and practices every three years. Further information about equality impact assessment is available on the Scottish Government's website at http://www.scotland.gov.uk/Topics/People/Equality/18507/EQIAtool. We encourage you to work jointly with your Trade Union(s) in undertaking your equal pay reviews.

5.12 You should carry out a proper assessment of the pay arrangements for different groups or roles including considering the impact of reward policies on equality groups. This should also consider the appropriate length and progression journey time for all jobs, in line with equalities legislation.

5.13 Where you have identified a potential pay inequality that you wish to address, you will need to provide evidence of the extent of this inequality. You will also need to propose ways of tackling this in a cost-effective way, subject to affordability constraints and within policy limits. You may need to prioritise within the constraints of your remit and strike an appropriate balance between general pay increases for staff and addressing issues arising from equal pay or age discrimination legislation.

5.14 A full risk assessment, including the likelihood of claims and the extent of potential liability as well as the costs of dealing with the issue, should form part of the business case which supports your proposals to address inequalities. You should also specify what proportion of your pay remit, if any, you plan to devote to addressing issues associated with equality issues.

Recruitment, Retention and Motivation Issues

5.15 We know that levels of recruitment, retention and motivation vary within and across public bodies and we recognise that what is an issue for one body may not be an issue for another. If you wish to make a case to address problems associated with difficulties recruiting or retaining staff you will need to provide evidence of these difficulties. You will be more likely to have proposals to address Key Pay Policy Priorities rated Green (see paragraph 6.8) if your turnover or recruitment is greater than the benchmark levels set out in paragraphs 5.17 and 5.18. If you have levels of staff turnover or recruitment less than those benchmark levels and wish to make a case to address them then you should provide information on why this particular level of turnover or recruitment is problematic. The turnover and recruitment benchmark levels only apply if you are seeking to make a case for an increase above the Increase for Staff in Post limit of 3.00% to address the Key Pay Policy Priorities.

5.16 You will need to demonstrate that recruitment, retention and motivation problems are related to pay rather than wider organisational factors and demonstrate in your business case that they are having a negative impact on your ability to deliver outcomes.

5.17 Proposals which seek to address difficulties recruiting staff should provide evidence of the extent of the difficulties and whether they relate to particular grades, specialisms or locations. In particular, you should detail any posts that have been vacant for more than 6 months despite an active recruitment campaign over the period. You should also provide information on the levels of pay required to recruit staff.

5.18 Proposals which seek to address difficulties retaining staff should provide evidence of the extent of the difficulties (the number of individuals leaving the organisation for reasons other than retirement, early severance, or redundancy). Analysis of turnover in public bodies in 2007-08 showed that average turnover at organisational level and in grade is 10%. As a result, in general, we will consider turnover above 10% to be an issue.

5.19 Proposals which seek to address difficulties motivating staff should provide quantitative evidence from survey data. You should also demonstrate in your business case that pay rather than organisational or other factors is the likely underlying cause of issues motivating staff.

5.20 As you will need to demonstrate that recruitment and retention issues are related to pay, you will need to compare your salaries against those in the relevant labour market. We expect the relevant labour market for most staff to be from within the public sector labour market in Scotland and to assist you in making these comparisons we will provide you with a base data set of all public bodies who are subject to the public sector pay policy and have implemented pay settlements.

5.21 In exceptional cases, some bodies, however, will employ staff in more specific or specialist labour markets and in this case you may wish to compare against a particular labour market. This may also be the case with more junior staff, who may be more usually recruited from the local labour market. In these cases, you should discuss the position with the Finance Pay Policy Team in advance of the collection of relevant data that reflects those organisations that you have lost staff to or recruited staff from in recent years.

5.22 There are different labour markets for different staff, depending on factors such as location, grade and occupation. Remits should reflect the relevant labour market for particular groups of staff.

5.23 You should explain in your business case why your comparative market data represents the more relevant labour market. It should also be clear that comparable posts are being compared, based on job weightings or the relative roles and responsibilities and comparisons should be made on a like-for-like basis. Data should reflect the same pay round and be adjusted so that both reflect the same number of hours in a working week. Any further adjustments to your data, such as taking into account employees pension contributions or annual leave provision should also be reflected in your market comparative data.

5.24 Market comparisons should take into account both pay and non-pay benefits and you should consider amendments to terms and conditions of employment as well as increases to base pay.

5.25 How far your pay range maxima are below the median of the maxima in the relevant labour market will set the parameters of any additional increase to each pay range maximum. If you propose to seek an increase to a pay range maxima over and above the Basic Award of 1.50% you must be able to demonstrate that your pay remit proposals will not result in the pay range maxima being more than 5% above the medians of the maxima in the relevant labour market. If you base your case solely on the level of basic award applied in public bodies with multi-year pay remits approved in 2008-09 your proposals are unlikely to be approved.

5.26 Proposals to make additional increases to the minima of your pay ranges should take into account the "Solidarity" target in the Scottish Government's Economic Strategy 3 which is "to increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017" by specifically considering your lowest paid groups of staff.

5.27 At the minima you also need to take into account the extent of any difficulties recruiting staff across all grades, as well as the width of pay ranges and the effects of proposals on the costs of progression. The Finance Pay Policy Team will continue to monitor the coherence of pay in Scottish public bodies.

5.28 You should support any case for reducing or maintaining differences in pay by providing information on the benefits of doing so (such as helping to achieve efficiency plans; promoting the delivery of public services; improving recruitment, retention and motivation) and, if relevant, the time-frame over which you anticipate any differences being removed or reduced.

Restructuring of pay and reward systems

5.29 Proposals to restructure pay and reward systems could fall under the Key Pay Policy Priorities; the costs arising from the introduction of a new pay and reward structure usually relate to the assimilation of staff onto the new structure in the first year; rather than the more usual progression and basic award elements. As a result such proposals will be assessed against the Net Paybill Increase limit of 3.00% and you will be required to provide projected costs for the Standard Remit Elements for the 3 years following the implementation of the restructuring (see paragraphs 5.38 to 5.40). If proposals also include the costs of progression and/or a Basic Award then the limits set out in Chapter 4 will apply to these elements.

When do the benchmark levels apply?

5.30 The benchmark levels are used by the Finance Pay Policy Team to rate your proposals (see paragraphs 6.8 and 5.15). The turnover and recruitment benchmark levels only apply if you are seeking to make a case for an increase above the Increase for Staff in Post limit of 3.00% to address the Key Pay Policy Priorities.

What are one-off increases?

5.31 Proposals which have actual costs but the costs are limited to a single year will fall under this category and will be included in the calculations. These could include one-off increases to buy out terms and conditions that are now outdated.

5.32 Proposals to introduce non-pay rewards such as salary sacrifice schemes may also fall under this category. You should include the administrative costs of setting up any such schemes. You should provide evidence to support any proposals in your business case. Salary sacrifice proposals that aim to reduce employee pension contributions to a public service pension scheme with off-set increases to the employer contribution will generally not be considered acceptable.

5.33 Public bodies are encouraged to offer childcare vouchers as a practical, cost-effective way of helping working parents. To assist with the uptake of childcare vouchers, the Scottish Government has a contract with ACCOR (up to 31 March 2011) which administers a salary sacrifice scheme on its behalf. All Agencies and NDPBs can be part of the contract at the same competitive administration fee charged to the Scottish Government. For further information, you should contact the Central Government Centre of Procurement Expertise ( CGCoPE) at www.cgcopescotland.gov.uk/.

5.34 Proposals to introduce non-pay rewards such as childcare vouchers or assistance with green transport initiatives are not required to be included within the pay remit costings. However you should include the administrative costs of setting up any such schemes under the section for costs outwith the pay remit in the remit proforma and you should provide evidence to support any proposals in your business case. If you have any queries on the introduction of a salary sacrifice scheme and whether the costs should be excluded from the pay remit costings you should contact the Finance Pay Policy Team to discuss.

What are increases in benefits or non-pay rewards?

5.35 Examples of proposals that will fall under this category are those which seek to increase annual leave for staff or to reduce the hours in a working week. Such proposals are considered as additional benefits for staff and you must include the notional cost in the remit proforma. The additional benefit for staff will not add an actual cost to the paybill and will therefore not impact on the Net Paybill Increase limit of 3.00%.

5.36 However, if the proposals result in ancillary costs such as additional overtime or other staffing costs these costs will require to count against the 3.00% Net Paybill Increase limit and you will need to ensure you can meet these costs within your agreed budget for the period. You should provide support for any proposals in your business case.

Are there any other limits to what you can propose in your pay remit?

5.37 The policy places limits on annual increases in pay and benefits because of the tight financial context in Scotland. These limits take the form of percentage limits for the three key pay metrics. However, pay remit proposals seldom impact on a single year and more commonly affect the costs of pay and rewards for years to come. It is therefore important to ensure that pay remit proposals remain sustainable.

5.38 If you are proposing to make increases to address the Key Pay Policy Priorities with ongoing cost implications (paragraphs 5.9 to 5.29) then you must provide a projection which demonstrates that for the 3 years after implementing changes which address the Key Pay Policy Priorities, you will be able to deliver a standard remit within the current ISP limit of 3.00% (based on the current Basic Award assumption of 1.50%).

5.39 Your projection will be based on known levels of staffing and usual levels of turnover for your organisation. You should note any assumptions you made when you provide your projection. The Finance Pay Policy Team will use this projection to assess the sustainability of your current proposals. If the projection does not demonstrate that your proposed structural changes will enable you to deliver a standard remit within policy then your proposals are very unlikely to be approved.

5.40 A projection within 3.00% ISP will not guarantee approval of future proposals. The purpose of the projection is only to provide an indication of impact of your current proposals based on your current staff profile. Your projection will not be used in the assessment of future proposals except to gauge the accuracy of further projections. Increases in your next remit will be subject to the Public Sector Pay Policy limits in place at the time that you need to enter into a new pay settlement.

What happens if you are legally committed to elements of the pay award?

5.41 There may be rare occasions when a public body is contractually obliged to pay progression or where the pay award is legally linked to that of another group of staff (such as local government employees), for example after the transfer of staff or the creation of a new public body. Where this is the case, you should set out in your business case: what the contractual obligation is; the background; how you intend to resolve the situation; and the time frame for its resolution.

5.42 You should however note the basis of approval of pay remits in paragraphs 7.2 and 7.3 and ensure that you do not create new contractual obligations.