Category Archives: Remuneration

Public Sector Pay – Time to redress the balance.

For too long we have been operating in the UK a publicly funded job creation scheme, which in itself would not be such a bad thing were it not for the fact that those taking from and taking out of the public sector would appear to be entirely motivated by money.  That, in public service, is fundamentally wrong.

The median average hourly rate of pay in the public sector is 30% higher than the private sector.

We had last weekend the well publicised story of the former leader of South Somerset District Council leaving his post and accepting a pay off in salary, redundancy payments and pension contributions of £569,000 after 6 years service.

Yes, that’s right, you read it correctly, FIVE – HUNDRED & SIXTY NINE THOUSAND POUNDS!

My issue is that none or certainly nowhere near enough of the money that is spent on wages in the public sector goes to those that deserve it most.  Nurses, Teachers, Police Officers, Fire Fighters.  There are countless others I can add to that list.  These are the people that should be reaping the benefit of the increase in standards that we have seen in the last 10 years in public sector pay and conditions.  So why aren’t they?

The problem is that those that enter public service in these posts do so generally out of a sense of vocation, purpose and to serve others.  They don’t do it first and foremost for the money, they do it for a whole host of other reasons.  Therefore they tend to be at the back of the queue when it comes to being rewarded for the great work that they do.  They deserve a great wage for doing great work.  They don’t get it.  That sucks.

I don’t buy the argument that Public Sector bodies need to pay great salaries to attract great talent at the top.  If you are motivated by money ( and there is nothing wrong in that ) then by all means stay in the private sector, take your risks, take your chances and fill your boots.

If you are motivated by a desire to serve the greater good and public service ticks that box for you then by all means go run a hospital, a local council, but why on earth should you even think you should be paid more than the Prime Minister for doing so?  Who is running the remuneration committees in these organisation?

Certainly don’t walk away with in excess of 1/2 million quid for voluntary redundancy when the vast majority of those in your employ are earning less than 25 times that number!  That disgusts me.   It smacks of greed, lining of one’s own pocket from the public purse.  I know it happens, it is just not right and something needs to be done to stop it.

I would be delighted were I to be evidencing the average median hourly rate in the public sector was 30% higher than the private sector because nurses were paid so much more.  That figure is so high because those at the top have their noses in the trough, and its our trough.

If the CEO of a FTSE 100 company is being paid millions that is an issue for his or hers shareholders.  It is their money, not mine ( unless of course they are a bank! )  Time to redress the balance.  Give the money to those that deserve it most.  That is the basis of great public service.



Filed under Careers, Remuneration

Do you take the counter – offer?

Google again.

Today Google is reported as having made one of the most astounding counter offers on record.  Facebook had allegedly been courting heavily the services of a key staff engineer at Google. Google responded by offering  $3.5 million in restricted stock.  That is stock worth $3.5 million based on its value today.  How could you possibly turn that down?  It depends what is on offer on the other side of the fence.  On this occasion Facebook lost and this Staff Engineer decided to stay put.

The counter offer makes for an interesting debate.  Every situation is different, every employee has a different set of motivations and reasons for turning up to work each day.  I would always counsel caution with respect to accepting a counter offer.  What is it that you are doing today in your job that is so much more valuable today from that which you were doing yesterday?   Why are you suddenly worth so much more?

It is not because your employer thinks you are great that they are offering more money to stay.   It is entirely in the employers interests to keep you, for now.  It is cheaper for the employer to offer you an incentive to stay than it is to go out in to the market and hire someone else.   They are buying your loyalty in the short-term.

If you resign from your job to move to another company and you are counter offered by your employer (hugely flattering though this is) be prepared to ask them what has changed.   Why are you today suddenly worth more than you were worth yesterday?

The reason that you were prepared to resign from your employer is, rarely, solely down to money.  Nice for sure, but it is just papering over the cracks.  The reasons that you were considering a move in the first place, unless addressed, will re – surface, eventually.

What about the relationship with your employer.  Will they ever really trust you again in the same way?  What about the relationship with your colleagues?  Why is this Staff Engineer suddenly worth so much more than the person sitting next to him?  How does that impact staff morale?

Somebody somewhere in Palo Alto is a much wealthier person today.   Good for them.  However at what price? (well clearly $3.5m!) How an earth can he consider leaving again?  If he resigns in future, how will Google respond?  Offer him more?

Word is out at Google, resign and make yourself rich.  Not a smart move from a company that until now would appear to have been full of them.

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Filed under Employee Engagement, Remuneration

Tough choices ahead when it comes to pay

I dont envy George Osborne.  The gap between private and public sector pay is widening and the private sector shows no sign of taking up the slack as the necessary public sector cuts peer over the horizon.

A feature of the recession has been the private sectors willingness to take the pain.  I remember being at a business dinner in 2009 where the speaker thanked KPMG for turning up on their day off.  It was a Friday, rather than announce wholesale redundancies KPMG had announced plans for four day week to be offered to employees.  I believe the plan was a 20% cut in attendance for a 10% cut in pay, the number crunchers having worked this out to be more cost effective than redundancies.  Part of this was driven by long memories.  Of equal importance (all credit KPMG and many like them) was the sense that come the upturn it was critical to hold on to the talent required to take full advantage of the opportunities presented.  Having cut to the bone in the recession of the early nineties, it took so many of accounting firms years to refill the talent pool necessary to deliver customer need.  KPMG remembered this and were not prepared to let lightning strike twice.  Hold on to the good ones, engage with them, make them feel part of the family, but by any means hold on to them.  There are countless similar private sector examples.  The same cannot be said of the public sector.

This week alone we have in excess of 170 public servants earning salaries in excess of the prime minister.  A nonsense but that would be those fat cats on final salary pensions running many of the UK’s most eminent institutions?  Maybe, but across the public sector there is a culture of excess that is only this week evidenced by the Reed Job Index.  In the private sector in May 2010 starting salaries for workers taking new jobs fell by 3 per cent, despite the rising cost of living.  In the first quarter of 2010, public sector pay, excluding bonuses, rose by 4 per cent.  This despite the words of Liam Byrne, the outgoing Chief Secretary to the Treasury who left a note to his successor “There is no money, good luck”.

Public sector workers earn 7% more on average than their peers in the private sector — a pay gulf that has more than doubled since the recession began.  I appreciate that it is easy to beat up on public sector workers, an easy target in such tough times.  However I know at first hand the incredible job front line public sector workers do and selfishly have little self interest to be gained by such public sector bashing ( I am married to a paediatric nurse and my mother in law is a former district nurse).  However there has to be a willingness to share the pain with the private sector.  Certainly not to the detriment of front line services, where every penny is earned (said not only to ensure Sunday Lunch is a safer affair for yours truly) but certainly amongst the swathe of managers and administrators and certainly amongst those who shamefully we allow to earn more than the person running the country.  I want the very best running public services, but if money is the motivator get back in to the private sector.  George you have some tough choices ahead.  Its going to take real leaderhip to push them through to ensure long term economic prosperity for the UK.

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Filed under Remuneration

When it comes to pay, size does matter.

The issue of Executive Pay is big news. The size of the packet generates many column inches and the media loves to highlight the growing gap between rich and poor. The “b” word is still guaranteed to inflame a myriad of opinions.

This weekend the results of the Pay Report were published, commissioned by the Sunday Telegraph, the Daily Telegraph and Executive Pay is at an all time high, driven by the rebound in share prices over the last 12 months. The best paid CEO in the FTSE 100 in 2009 was Bart Recht of Reckitt Benckiser who took home £92.6m, the bulk of which came after he crystallised share options accumulated over the previous 10 years. The remainder of the top five was made up as follows;

Tony Pidgeley Berkely Group £36.4m

Mike Davis Xstrata £25.5m

Frank Chapman BG Group £23m

Bob Diamond BarCap £18m

Big numbers. What this report doesn’t tell us is the amount these 5 or indeed their peers returned to shareholders. This would I suspect help to put things in to perspective. If, as a direct result of actions taken someone was to generate say £50m of profit for their company, they deserve in my view a healthy slice of that £50m by way of a reward. What analysis of the pay report tells us is the impact of the Banking Crisis has seen remuneration committees focus attention on pay for performance. Basic salaries for FTSE 100 CEO’s fell an average of 1% in 2009, with cash bonuses and benefits 28% lower. Share based incentives rose 31pc, leaving total compensation 6% higher at an average of £3.76m.

The good news is that it wasn’t just the CEO’s who earned a bigger slice of the cake. Despite staffing numbers in the FTSE 100 remaining static, wage bills amongst the UK’s largest companies rose 11% in 2009 to £232.67bn. Accepting that not all the 7.35 million people employed by Britain’s top 100 companies are employed in the UK, that is a huge amount of wealth creation, not only in terms of wages for those employed but also in those countries in which they work in terms of tax contributions to the public purse. This is the bit that gets forgotten. With all the headlines generated around large pay packets, nobody stops to ask just how many schools or hospitals tax contribution influenced by Bart Recht paid for. Accepting the against argument will be tax avoidance, non dom status, off shoring or any other smart schemes, he still makes an enormous contribution to the UK public purse and not only in terms of his personal tax bill. More arguably than most of us will make in a lifetime.

So called “self-made” millionaires rarely attract the same vitriol as our corporate “fat cats”. Of course they create wealth and employment through their own efforts, often from nothing. What is the difference between the entrepreneur and the corporate leader? Aren’t both self made? Was Bart Recht given the CEO job at Reckitt Benckiser? Was he born with that opportunity given to him as some kind of silver spoon? Absolutely not. He has, as have virtually all his peers, achieved that position through sheer hard work, determination, bloody mindedness, taking risks, sticking his neck out and putting himself on the corporate line throughout his career. He is now reaping substantial rewards for his actions.

An Entrepreneur sells a company and makes £100 million and good for you is the cry. A Corporate Leader makes the same having delivered returned huge value to his shareholders, (of which pension funds will make up a considerable amount, as a consequence benefiting a huge number of people), created a huge amount of wealth, employment and opportunity whilst at the same time generating huge sums of money for the public purse that contribute enormously to the huge range of public services we enjoy in the UK, not forgetting the huge contributions many such corporations make to charities.

We are quick to criticise our big businesses and their leaders, but there is a tendency to forget that Employers currently pay 12.2% of the its employees gross salaries in National Insurance contributions to the Government just simply for employing people. We need to have the very best individuals leading our very best businesses and being rewarded the very best remuneration in order that we continue to create an environment for jobs and wealth creation across the globe.

How does their worth compare to say a Nurse or a Soldier who earn barely a fraction? Well that is an entirely different debate and one that should be the subject of another blog. However without the likes of Recht Benckiser we would have far fewer nurses and far less soldiers to count on. The bigger the numbers, the better for us all.

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Filed under Remuneration