The Four Most Common Questions asked about Executive Pay Setting…
Not a day goes by when there isn’t something in the press about executive pay. Whether it’s a piece urging ethical governance or a piece challenging value for money, the emphasis placed on getting the process and decision making right is what trustees are now focused on and rightly so.
A national salary structure for executive posts does not exist and salary information is not available from national sources as it is for other posts in schools. That coupled with the freedoms given to academies to set their own pay has led to a varied picture for executive pay across the country.
It is no surprise that trustees often find themselves wandering in the dark when faced with executive pay setting. More and more clients are asking us for help and support with the executive pay setting process so here are the questions that I am asked most frequently:
1. What are we expected to do as a board when setting executive pay?
The Handbook requires trust boards to ensure decisions about levels of executive pay follow a robust evidence-based process and are reflective of the individual’s role and responsibilities.
There are some key principles:
- No individual can be involved in deciding his or her own remuneration.
- The trust board must discharge its responsibilities effectively, ensuring its approach to pay is transparent, proportionate and justifiable.
- The procedure for determining executive pay is agreed by the board in advance and documented.
- Decisions about executive pay reflect independent and objective scrutiny by the board and that conflicts of interest are avoided.
- Factors in determining pay are clear, including whether performance considerations, and the degree of challenge in the role, have been taken into account.
- That pay is defensible relative to the public sector market.
- The rationale behind the decision-making process, including whether the level of pay reflects value for money, is recorded and retained.
- A basic presumption that non-teaching pay should not increase at a faster rate than that of teachers, in individual years and over the longer term.
- Understanding that inappropriate pay can be challenged by ESFA, particularly in any instance of poor financial management of the trust.
2. What does a robust evidence-based process mean?
Trustees should appraise the responsibilities and accountabilities of the executive post. The context of the trust should be taken into account along with the level of challenge that exists. For example, has there been a period of significant growth within the trust since the last pay decision? How large is the executive team and how well supported is the CEO?
Every trust is different. That is why trustees’ decision making and rationale for pay should be reflective of the circumstances specific to each organisation. This will help build your thinking and your justification if challenged.
3. How do we know if we are paying our executives competitively?
The question here is about market value. Many employers wonder whether its executive’s pay is in line with that being offered by other organisations of a similar size. The information to make this assessment is not routinely available and getting hold of it can be challenging.
It is no surprise that trustees often find themselves wandering in the dark when faced with executive pay setting.
Published annual reports and accounts are a good indicator of the pay bracket for the most senior paid executives in trusts; however, it is time consuming pulling this information together from a cross-section of trusts plus the information is based on last year’s pay decision.
There are salary data surveys that trusts can access at a cost. Trustees can purchase reports that show salaries earned by comparable roles in comparable organisations (e.g. £ turnover/number of employees) and in similar locations (e.g. London only or excluding London). The data is broken down into quartile ranges. There are a multitude of sector data surveys including the education sector. This data will help trustees assess if pay is competitive and if it’s not, it will assist the Board in its decision making process.
4. What other measures should we explore when assessing value for money?
There is certainly a move towards measuring the cost of the executive post by the number of pupils. Other measures have included the cost per Good or Outstanding academy and with Government’s Corporate Governance Reform; the difference between how much the highest paid executive is receiving compared with the average pay of their workforce.
Browne Jacobson have been working in close partnership with CST on a piece of guidance that is intended to support trust boards with an evidence-based process to set executive pay which can be accessed here.