Hutton wants performance-based pay for public sector managers

Good performers earn more and poor performers get less, with added transparency. Will Hutton's public sector pay recommendations make sense - but it won't be easy.

by James Taylor
Last Updated: 19 Aug 2013

Will Hutton, the Government's 'fair pay czar', has published the findings of his nine-month review of manager pay in the public sector, and it's all very balanced and sensible stuff; he's rejected calls for hard caps on pay (relative or absolute), but called for a much bigger performance element (for good or bad). He also wants more transparency across the board. Sounds good - but can the public sector deliver it?

Hutton says this is partly a perception issue: senior civil servants have been caught up in the row about executive pay, despite the fact they account for just £1 in every £100 earned by the highest-paid 1% across the UK. Then again, he also suggests that the number of public sector managers - along with their pay - has been rising steadily in the last decade, with no justification as to why. 20,000 civil servants now earn over £117,000 a year. Do they really deserve it?

When Hutton was appointed by David Cameron and George Osborne, he was asked to consider whether the pay of top earners should be limited to 20 times that of the lowest earners. However, he's decided that's actually quite unfair, because it might mean an artificial cap for those running very large departments with very junior staff. He also wants to move away from this tiresome obsession with using the Prime Minister's salary as a benchmark (an argument we'd definitely echo); as he points out, there are no shortage of candidates to be PM.

Instead, he's put the notion of 'fairness as due desert' at the centre of his report; that 'workers at every level in any organisation should be rewarded in proportion to the real value of their contributions'.

This would have two main consequences in practice. First, rather than capping salaries artificially, he thinks good performers should be entitled to a bonus. But more significantly, it should be possible to claw back 'at least 10%' and maybe as much as 20% of their basic salary if they don't hit performance targets (as set by the organisation, with employee representation). This would ensure there were never any rewards for failure. Second, he wants far greater transparency: he thinks all public sector bodies should have to publish, in a standard form, details of their top earners' pay including performance elements. So it will be much easier to hold them to account.

Rewarding good performers and penalising bad ones, while using transparency as a tool to ensure better practice? All sounds fairly uncontroversial to us. (Hutton’s brief didn’t cover the private sector, incidentally, but he sees no reason why it shouldn’t follow suit.)

But if the Government goes for his plan, the hard bit will be the implementation. The public sector isn’t used to dealing with (this degree of) performance-based pay. And will greater transparency – including the publication of the salaries and performance of the highest-paid – just lead to more public vilification (like the Daily Mail’s ‘state sector fat cats’ headline today), and thus put people off the idea of public service altogether?

As Hutton says, the public sector desperately needs good managers in the next few years to deliver the proposed reforms. Would more transparency actually make it harder to recruit and keep them?

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