Peter Brown
PAYdata Blog, January 17th 2011

Last month saw the publication of Will Hutton’s interim report into Fair Pay in the public sector.  The key idea that grabbed the headlines was the proposed use of a so-called pay multiple or maximum pay ratio. 

The suggestion, to be validated when Hutton produces his final report early this year, is that the most senior role in an organisation should have their pay limited in relation to the lowest paid employee.  In the simplest proposal, their pay would be no more than so many times the pay of the least well-paid person. 

The most commonly mentioned multiple is 20.  A rough calculation, based on someone being on the National Minimum of £5.93 per hour, would suggest that the CEO would be limited to £228,186, based on a 37 hour week. 

At this stage Hutton has left his options open.  There are a number of ways of defining the elements of reward to be considered.  Similarly, there are alternatives for how the multiple is applied.

What would be the impact of adopting this approach?  At first reading the number of potential victims of a 20 times multiple is relatively small.  Hutton stated that some of highest paid, the Heads of Russell Group universities are currently on a multiple of around 19.  In contrast, NHS Foundation Trust Chief Executives are typically around a multiple of 14 within their respective organisations. 

A few public sector executives are much more highly paid.  For example, the Head of the Olympic Delivery Authority, The Transport for London Commissioner and the Nuclear Decommissioning Authority are all paid over £300,000.  They are more likely to fall foul if a multiple was set at 20.  Maybe the simple, but costly, alternative would be to increase the pay of the lowest paid instead.

Meanwhile a similar approach in the private sector would inevitably throw up some interesting challenges.  Hutton concluded, “A pay multiple has much to recommend it”.  His final recommendations are awaited with interest.

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