Tackling Income Inequality: Local Government Pay Policies by Benjamin Irvine
Recent Background to Fair Pay in the Public Sector: The Hutton Review of Fair Pay and Pay Policy Statements: The Government commissioned The Hutton Review of Fair Pay amid growing concerns about income inequality and runaway high pay. The review found that median top salaries in local government grew at a considerably faster rate than entry salaries in the period 2001-2008 (an average annual growth of roughly 5% compared to 3%).
[Will Hutton, ‘Hutton Review of Fair Pay in the Public Sector: Final Report’. 2011. p.9. Retrieved from: http://webarchive.nationalarchives.gov.uk/20130129110402/http:/www.hm-treasury.gov.uk/d/hutton_fairpay_review.pdf]
The ratio between the incomes of chief executive and the lowest paid in local authorities therefore increased over this period. Hutton recommended that all public sector bodies publish an annual pay policy statement which detailed and justified their pay policies for executives, non-executive staff and the lowest paid employees including the relationship between executive pay and that of the rest of the workforce in the form of a top:median pay multiple; which expresses top pay as a multiple of the median average salary, (the salary at the 50th percentile of the pay range). These recommendations were intended to tackle the disparities in pay in the public sector and increase fairness, transparency and accountability in pay setting.
Subsequently sections 38 to 43 of the Localism Act 2011 require Local Authorities to publish their pay policies including pay multiples each year. In accordance with Hutton’s emphasis on the value of setting chief officer pay in the context of non-chief officer pay it explicitly requires authorities to ‘explain what they think the relationship should be between the remuneration of chief officers and its employees who are not chief officers.’
[The Department for Communities and Local Government, ‘Openness and accountability in local pay: Guidance under section 40 of the Localism Act’. 2012, p.7, par:20; Retrieved from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/5956/2091042.pdf]
The Act stopped short of enforcing a maximum pay multiple in favour of retaining the autonomy of local authorities to set pay in a way that is, ‘appropriate to local circumstances and ensures value for money for local taxpayers.’ The relationship between top pay and bottom pay or median pay can be expressed as a multiple e.g. a top to median multiple of 1:10 would express that the top salary in an organisation is 10 times the median salary.
[The Department for Communities and Local Government, ‘Openness and accountability in local pay: Guidance under section 40 of the Localism Act’. 2012, p.4; Retrieved from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/5956/2091042.pdf]
It does however allow for local policies to be formulated relating to setting and maintaining specific pay multiples. ‘while they are not required to develop local policies on reaching or maintaining a specific pay multiple by the Act they may wish to include any existing policy.’
[The Department for Communities and Local Government, ‘Openness and accountability in local pay: Guidance under section 40 of the Localism Act’. 2012, p.7, Section: 21; Retrieved from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/5956/2091042.pdf]
The Localism Act also indicates room for local authorities to develop local policies towards the pay of staff working for external contractors and for this to form part of public pay transparency. ‘an authority which has or develops a local policy towards the pay of staff working for external contractors with whom the authority has contracted to perform services, may wish to articulate that policy in their pay policy statement.’
[The Department for Communities and Local Government, ‘Openness and accountability in local pay: Guidance under section 40 of the Localism Act’. 2012, p.9; Retrieved from: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/5956/2091042.pdf]
We undertook this study to determine current levels of pay dispersion within Local Authorities in Greater Manchester and their suppliers and to determine the extent to which substantive policies are in place to assess, reduce or control internal (public sector) and external (private sector) levels of pay inequality.
1) We collected the most recent Pay Policy Statements that were available for all Local Authorities in Greater Manchester in order to assess:
- The respective levels of pay dispersion within these authorities; the top:bottom and top:median pay multiples.
- The existence of policies towards setting and maintaining specific pay multiples, or substantive policies for justifying them.
- The existence of policies towards the pay of the lowest paid employees: i.e. Living Wage Policies.
- The existence of policies towards the pay of staff working for external contractors with whom the council has contracted to perform services.
2) We also separately requested any information collected by Greater Manchester Local Authorities relating to the pay dispersion of their contractors. We also requested whether they had any policy or guidelines in place in relation to the pay policies of organisations they contract to perform services, such as a consideration of contractors’ pay multiples or requirement that suppliers pay the Living Wage.
Findings: The State of Pay Fairness in Greater Manchester
The results of our study are summarised in tables 1 and 2. Table 1 provides a summary of salary levels and pay multiples as published in the most recent pay policy statements available for Local Authorities in Greater Manchester.
Levels of Pay and Pay Dispersion in GM Local Authorities
Pay multiples of Greater Manchester Local Authorities listed by size of top/median pay multiple. The UK Local Authority Average is given for comparison. Data is from each authority’s most recent Pay Policy Statement available at the time.
Source: All data is from respective local authorities pay policy statements for the year shown, apart from the UK Average, which is from a report by One Society
[One Society, ‘Leading the way on fair pay: an assessment of principal local authorities in England and Wales’, 2012, London: One Society; Retrieved from: http://www.paycompare.org.uk/wp-content/uploads/2013/11/One-Society-Fair-Pay-Report-2012.pdf]
Table 1 Analysis
- Despite instances of voluntary pay reduction and general top pay restraint 8 out of 10 Chief
Executives in Greater Manchester were in the top 1% of earners in the UK at the time of research, earning at least £150,000pa.
- 8 out of 10 GM Local Authorities have top salaries higher than the UK LA average, average top pay is therefore higher in Greater Manchester Local Authorities than for UK Local Authorities as a whole.
- 7 out of 10 GM Local Authorities have top:median pay multiples greater than the UK Local Authority average. Average pay multiples in Greater Manchester are consequently marginally greater than for the UK as a whole.
These findings tentatively suggest that despite pay moderation in the face of budget cuts and many councils introducing Living Wages for their employees, Local Authorities in Greater Manchester still have higher top salaries and pay gaps than the average for UK Local Authorities. This would affirm the need for stronger commitments to reducing pay inequality from Greater Manchester Local Authorities.
- Manchester has the largest top:median and top:bottom pay multiples and this is largely the result of having the greatest top salary. Given the size of the authority and the city it serves, a higher level of remuneration for the chief executive is inevitable, if salary levels are set in the context of the external labour market, with a view to attracting and retaining the skills required for the role. There is arguably a debate to be had about the absolute size of skills based pay increases at higher salary levels in Local Government and whether these should progressively decrease as total remuneration approaches absolute upper limits, as defined by social and environmental concerns.
- There is significant variation in the top:bottom pay multiples with a maximum of 15.95 in Manchester and a low of 9.86 in Rochdale. The low top to bottom figure for Rochdale reflects a combination of the most moderate top salary in the region (at the time) and a living wage for the lowest paid employees.
- Comparisons of the bottom salaries across different authorities are imperfect as the Localism Act does not impose a specific definition of ‘the lowest paid employees’ but allows individual Local Authorities to define it however they see fit; some Local Authorities define lowest paid employees as apprentices whilst others ignore apprentice rates and new starter/induction rates and define the lowest paid as those who have been through competency assessments. This has similar implications for cross comparisons of top to bottom pay multiples.
- There is strong evidence to suggest that top:median pay multiples should not be considered as
conclusive evidence of an Local Authorities pay fairness. Stockport has the lowest top:median pay multiple but the third largest top:bottom pay multiple as the result of an unusually high median wage and relatively low bottom pay. This could be the result of the unique structure of the organisation but very possibly suggests that a large portion of the low wage workforce has been outsourced to external contractors. The observed median wage is significantly higher than that observed in every other Local Authority in GM which strongly suggests that the authority is employing less low wage workers than others in the study. A focus on reducing an authorities headline pay multiple in isolation could therefore produce a perverse incentive to outsource low paid work where terms and conditions are likely to be less favourable, foiling attempts to reduce pay inequality. This confirms the necessity for Local Authorities pay policies to extend to and influence the pay setting of external contractors if they are to be effective at reducing pay inequalities.
Limitations of the Data
It should be noted that the data do not show the pattern of actual earnings, take home pay, nor net disposable income. The picture of low pay suggested here is therefore limited. This is partly because, despite requesting data on part-time employment from all GM Local Authorities and their suppliers, none was received. This is significant as it makes the possibility of involuntary part-time employment invisible. Data on actual earnings coupled with an index of living costs across the conurbation for boroughs would have given a more detailed picture of the low pay landscape, and would likely have revealed larger variation as well as flagged up the worst cases of in-work poverty. Unfortunately, with the data and resources available to us, this was beyond the scope of this study. As such, it functions as a rough map of Local Authority pay multiples across the region. It does, however, reveal a fair degree of variability in these and in the approaches to pay fairness detailed in the following section. In both cases the findings still indicate specific areas where improvement can and should be made.
Policies Which Demonstrate a Commitment to Pay Fairness
Table 2 summarises policies included in GM Local Authorities Pay Policy Statements which demonstrate an approach to pay fairness. Three principle categories are considered; living wage policies, pay policies towards commissioning contracts and policies for assessing, justifying and achieving an appropriate pay multiple. In the absence of any policies to reach and maintain a specific pay multiple, the substantive explanation for the relationship between executive and non-executive pay has been considered. It also includes and summarises the results of our request for evidence of pay policies relating to contracts (policies towards the pay of staff working for external contractors), the full responses to which are provided in Appendix 1. (Where additional information has been obtained from other sources this is indicated by a footnote.)
Table 2 Analysis
Living Wage Policies
- 8 out of 10 Local Authorities in Greater Manchester have implemented a ‘living wage policy’ of some sort for their own employees. As employers of residents who are also council service users these councils recognise that it does not make sense to pay wages that aren’t enough to provide for an acceptable standard of living.
- There has been significant variation, however, in the “living wage” rates, with some Councils such as Salford paying the Living Wage Foundation rate of £7.45ph and others such as Oldham, Trafford and Manchester City Council determining their own rates, the ‘Manchester Minimum Wage’ (MMW) was £7.15ph in the Councils 2013/14 statement. Fragmentation of the living wage initiative, through the establishment of locally determined rates, is sub-optimal and reduces the traction of the concept. The Living Wage Foundation rate is now £7.65ph as of November 2013 and Living Wage Employers have 6 months to implement it. There are positive signs that these lower regional rates are being consolidated to the level calculated by the Living Wage Foundation; with Manchester including provisions to raise the ‘MMW’ to this level in their most recent budget. Local Authorities should, further to this, seek to become Living Wage Foundation accredited ‘Living Wage Employers’. Salford is the only council in our study to be accredited, there are currently a total of 27 accredited Local Authorities in the UK. Accreditation requires employers to actively promote Living Wage uptake in their suppliers. [See: http://www.livingwage.org.uk/how-become-living-wage-employer]. This provides a safeguard, to some extent, against the creation of perverse incentives to outsource (or not in-source) low paid work.
- Salford’s Living Wage policy covers apprentices fully, others at a lower rate and some not at all. Some councils did not include their pay policy towards apprentices at all in their pay policy statements.
- Bury and Bolton had no living wage policy at the time of our study.