By Emma Haslett Wednesday, 01 December 2010

Cap public salaries to prevent 'arms race'

Public sector executives should earn no more than 20 times that of the lowest-paid workers in their departments, a report by Will Hutton has suggested.

Should top public sector workers’ salaries have any bearing on the pay of entry-level positions in their organisation? Will Hutton, the man charged with finding a way to cap public sector pay, thinks they should. The former chief executive of the Work Foundation has published the interim results of his review into the subject today. He says private sector enthusiasm to attract the best talent over the past few years has sent pay in the public sector rocketing just to keep up. Now, he’s proposing a cap on pay for the top jobs in public sector organisations, limiting them to  20 times that of entry-level positions. But isn’t that going to drive the best people away from the public sector?

Hutton may have a point: according to the review, the number of public sector workers earning more than £117,000 has risen to about 20,000. The average salaries for various sectors look surprisingly meaty: heads of universities apparently earn about £200,000, while NHS Hospital Trust chief execs pull in £150,000, local authority chiefs earn £117,000, four-star generals earn £170,000 and permanent secretaries in government departments are paid £160,000. Not bad.

But Hutton says the problem isn’t necessarily that public sector chiefs are becoming greedy - it’s a general upward trend in salaries. Indeed, in the FTSE 100, pay has risen from 47 times the average wage to 88 times over the past 10 years, while it’s gone from 124 times the minimum wage to 202 times over the same period, and in order to attract the best talent, the public sector is trying to keep up. In fact, such is the level of pay inflation that it’s triggered an ‘arms race’ between companies, which is ‘reproducing itself in the public sector’, according to Hutton.

But can linking executive pay to the lowest earners solve the problem? At the moment, it wouldn’t change much - the highest pay ratio is in universities, where it stands at 19:1; while NHS trusts have an average ratio of 14:1 and it’s 10:1 in Whitehall departments - so executive salaries are safe for now. But Hutton points out that many departments are on track to breach that 20:1 ratio ‘within a decade’ - so it would at least put a stop to pay inflation in the sector. Then again, it could have the opposite effect of forcing up the salaries of the lowest-paid along with the highest-paid as the sector struggles to compete with the private sector. Which would be good for workers - but isn’t ideal when the Government’s trying to cut public spending.

And there’s the point that any cap on salaries could also put the public sector at a serious disadvantage when it comes to talent. While 20,000 public sector workers earning more than £117,000 might seem a lot, it’s a fraction of the national total of 290,000. As Hutton already indicates, most Government departments are already choosing from a ‘narrow pool’ of candidates - which would, presumably, be narrowed further if salaries were suddenly limited.

Pay cap or no, the public sector is going to have to start using more than just salary to compete with private sector rivals, though. The reality is that it’s not going to be able to afford to compete with multinational businesses on money terms for the next few years at least. Time to start bigging-up the less tangible benefits of job satisfaction, helping those less fortunate than yourself and the whole public service ethos. Remember that?

You never know, they might even attract a few mega-wealthy financial types looking for a more socially useful occupation. No sniggering at the back please, we’re sure there must be some City boys and girls who want to put something back.

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