4. Chief Executives
Key pay policy priorities and key metrics for Chief Executives in 2020-21
What are the key metrics that will be used to assess Chief Executive pay proposals?
4.1 The key features of the 2020-21 pay policy are set out in paragraph 1.3. Each proposal will be assessed on the following:
- affordability and sustainability - the financial impact of the pay remit proposals will be considered by the sponsor team, public body, or policy team
- application of the increases within the pay thresholds and the Scottish Chief Executive Pay Framework
- comparability with the increases for other staff in the public body
What costs must be included in the pay proposal?
4.2 The pay proposal must include the cost of all proposed increases in pay (basic award and progression) and benefits as well as with the consequential increases to allowances, overtime rates, employer's pension and National Insurance contributions that directly relate to the pay remit proposals.
What is the increase for Chief Executives earning below the Upper Pay Threshold (£80,000)?
4.3 For those Chief Executives currently earning less than £80,000, a 3 per cent basic award may be made. The policy position is that this payment should be in addition to any progression increase (where eligible).
What is the increase for Chief Executives earning above the Upper Pay Threshold (£80,000)?
4.4 For those Chief Executives currently earning £80,000 or more, the basic award is limited to a maximum of £2,000. The policy position is that this payment should be in addition to any progression increase (where eligible).
What is the position on progression for Chief Executives?
4.5 Where a Chief Executive is eligible for pay progression this is limited to a maximum of 1.5 per cent and the increase should not result in the Chief Executive's pay exceeding their pay range maxima.
4.6 In calculating any award, the expectation is that progression, where eligible, will be considered first prior to applying the basic award.
Scottish Chief Executives Framework
What is the Scottish Chief Executives Framework?
4.7 In order to ensure consistency and fairness between the remuneration of Chief Executives, in public bodies covered by the Pay Policy, and senior staff employed in Scottish Government Agencies and Associated Departments, who are civil servants (and members of the Senior Civil Service), the salary and pay range of a Chief Executive must fall within the pay bands in the Scottish Chief Executive Framework.
4.8 While there is an element of read‑across between the Scottish Chief Executive Pay Framework and the Senior Civil Service Pay Framework, Chief Executives of NDPBs and Public Corporations are not civil servants and are neither subject to the Senior Civil Service Pay Framework nor its operation.
4.9 The Scottish Chief Executive pay bands are uplifted annually in line with the pay policy and the Framework for 2020‑21 is as follows:
4.10 The salary and pay range of a Chief Executive is expected to lie within the minimum and maximum of the relevant Scottish Chief Executive Pay Band.
4.11 In exceptional circumstances the Chief Executive's pay range may extend beyond the maximum in the relevant Pay Band but this is only where there is robust market evidence in support of this.
4.12 In all cases, the proposed pay range maximum must be within the ceiling of the relevant Pay Band within the Scottish Chief Executive Pay Framework and is expected to remain so.
4.13 The minimum, maximum or ceiling of the Pay Band should not be taken as the Chief Executive's pay range.
How does the Scottish Chief Executive Framework operate?
4.14 The Scottish Chief Executive Framework operates on the basis of base pay with salary and pay ranges excluding any non‑consolidated performance payment (bonus), pension and the cash value of any non‑salary rewards. Some job evaluation systems also refer to total cash reward which might include a non‑consolidated performance payment or bonus, pension and the cash value of any other non-salary rewards, but this should not be used in determining the market median for this purpose. However, the business case may set out differences in pension contributions, etc. if this is considered relevant.
Chief Executive remuneration packages
How is a Chief Executive to be paid?
4.15 Chief Executives are expected to be paid through payroll with tax deducted at source in the same way as other employees. Payments must comply with the Tax Planning and Tax Avoidance section of the Scottish Public Finance Manual: www.gov.scot/Topics/Government/Finance/spfm/taxavoidance
What if a Chief Executive is considering a public appointment or Non‑Executive Directorship?
4.16 If a Chief Executive (or other senior employee) of a body covered by the Scottish Government Public Sector Pay Policy is considering accepting a public appointment or Non‑Executive Directorship in addition to their existing role, then factors to be taken into account by the Chair / Board and Sponsor Team of the employing body include: conflict of interest; time commitment; and remuneration. Such matters, including (where relevant) the need to liaise with the Sponsor Team of the public body to which the individual might be appointed, are outlined in more detail in the Public Bodies Information Update 109 which is available on the Scottish Government website at: www.gov.scot/publications/public-bodies-information-update-109-public-sector-pay-policy/
What needs to be taken into account when developing a new remuneration package for a Chief Executive?
4.17 The following paragraphs are relevant where a new Chief Executive post is being created or where a review is being undertaken for an existing Chief Executive post (whether a change of incumbent or not). It also covers the appointments of a temporary or interim Chief Executive.
4.18 A review of an existing Chief Executive's remuneration package can include, for example, the introduction of or changes to non-pay rewards, such as a car, etc. or revisions to pension arrangements (for example: increases in employer's contributions) where these are not mandatory.
When should a review of a Chief Executive's remuneration package be considered?
4.19 While it is normally good practice to review remuneration arrangements on a regular basis, the Scottish Government would not expect a review of the Chief Executive's remuneration package to be undertaken unless there has been a significant change in the role and responsibility of the post.
4.20 The fact that a Chief Executive may have reached the maximum of the existing pay range or has fallen behind the market is not sufficient justification to review the pay range. Nor should the existing remuneration be used solely as the basis for establishing the new minimum of a proposed pay range.
What should the business case contain?
4.21 When developing a remuneration package for a Chief Executive, the following elements must be considered and covered in the business case, along with supporting evidence. This is summarised in the following table.
|Element||Points to cover in business case||Paragraphs|
|Job evaluation score||Job evaluation system used, date and results; date of increase in role / responsibility (where relevant) While the evaluation report need not be part of the Business Case, the Finance Pay Policy team will still require sight of it||4.23 and 4.24|
|Determination of Pay Band in Chief Executive Pay Framework||Advice from the Finance Pay Policy team if new appointment or changes to the public body itself||4.23 to 4.25|
|Comparator labour market||Relevancy and justification of labour market selected; comparator organisations used; median of salaries in that labour market, date of sample||4.28 and 4.29|
|Internal referencing with the senior management team||Set out the pay differential over senior management team; if differences are proposed set out justification / rationale||4.30|
|Proposed pay range||Minima and maxima; further justification required if this exceeds the maximum in the Framework; must be less than the ceiling in the Framework||4.31 to 4.35|
|Proposed starting salary||Must be within lowest quartile, or clear justification for higher starting point||4.36 and 4.37|
|Progression methodology||Set out proposals, taking into account equalities obligations; anticipated journey time, etc. Journey times cannot be guaranteed and spine points should not be explicit in any pay range||4.38 to 4.40|
|(For new appointments to existing posts) consideration of the required 10 per cent reduction in remuneration package over outgoing||Confirmation this has been achieved or justification as to why not||4.41 to 4.44|
|Bonus arrangement||Presumption against||4.45|
|Pension||Details and confirmation in line with other staff||4.46 to 4.48|
|Car (or related allowance)||Presumption against. If proposing, provide details and justification.||4.50 to 4.52|
|Life insurance or other health benefits||Presumption against. If proposing, provide details, justification or confirmation in line with other staff||4.53 and 4.54|
|Relocation expenses||Details and confirmation in line with other staff||4.55|
|Value for money||Comment required||4.56|
|Affordability and sustainability||Confirmation required||4.57|
What elements need to be considered when developing a remuneration package for a Chief Executive?
4.22 There are a number of elements to consider as part of a remuneration package for a Chief Executive, but the first steps entail:
- Determining the Pay Band in the Scottish Chief Executive Pay Framework
- Identification of the relevant labour market (to determine the range maximum and setting of the pay range)
What is required to determine the Scottish Chief Executive's Pay Band?
4.23 In order to determine the appropriate Pay Band in the Scottish Chief Executive Pay Framework you first need to establish the weight of the post. A formal job evaluation of the role and responsibilities of the Chief Executive post should be undertaken. The outcome of the job evaluation should provide an evaluation score which will inform which Pay Band in the Scottish Chief Executive Pay Framework the post might sit.
4.24 Normally, the job evaluation will be carried out by the public body, though where this is not possible the Scottish Government may be able to assist. In such circumstances, advice should be sought from the Finance Pay Policy team. If you are considering engaging external contractors to carry out this work, then the expectation is that you will notify your Sponsor Team and the Finance Pay Policy team of your intention beforehand.
4.25 The Finance Pay Policy team must be consulted in determining the identification of the appropriate Pay Band and approval will include the Pay Band as well as the remuneration. Note: it is not the proposed salary, proposed pay range or current Tier of the body (in relation to the Chair and Members Daily Fee Framework) that determines the Chief Executive's Pay Band in the Scottish Chief Executive Pay Framework, but the job weight evaluation score of the role and responsibility of the Chief Executive post.
What is the pay policy position on pay ranges and spot rates?
4.26 The pay policy expectation is that a Chief Executive should be remunerated by way of a pay range (allowing individuals to progress, through the delivery of agreed objectives and by gaining experience, towards the maximum of the pay range which should reflect the market rate for the job). This is principally for two reasons. First, it provides that annual pay rises are, in part, based on performance; and secondly, provides a further incentive for a Chief Executive to perform well as they increase their knowledge and experience of the role.
4.27 Only in exceptional circumstances would the appointment of a new Chief Executive on a spot rate be considered for approval. In such cases the spot rate should reflect the market rate for the job which is expected to be the median of base pay of similarly weighted posts in the relevant labour market (see paragraphs 4.28 and 4.29).
What is the relevant labour market for determining the pay range?
4.28 The business case must include clear and convincing market evidence to support the proposed pay range. Normally this would be the Scottish public sector labour market which includes Scottish public body Chief Executives in the same Pay Band. The Finance Pay Policy team can provide a list of comparable Chief Executives of Scottish public bodies and remuneration information.
4.29 Public bodies may provide additional evidence where the labour market, from which the Chief Executive might be recruited, is wider in scope than the Scottish public sector labour market. In such circumstances, a public body must explain the appropriateness and relevance of that market data. Market comparisons should be made on the basis of similarly weighted posts. Before gathering such information, public bodies should discuss the scope of the proposed labour market with the Finance Pay Policy team. Normally, market data would exclude London-based posts.
What is expected in regard to the remuneration of other senior roles within the public body?
4.30 When developing pay range proposals, the public body must consider the relationship and pay differentials between the remuneration of the Chief Executive and members of the senior management team (or the most senior level of Director below the Chief Executive).
How should the proposed pay range for a Chief Executive be determined?
4.31 The proposed pay range should be within the relevant Pay Band, taking into account the operation of Scottish Chief Executive Pay Framework.
4.32 The pay policy expectation is that the proposed pay range should lie within the minimum and maximum of the relevant Pay Band in the Scottish Chief Executive Pay Framework, taking in to account other factors such as the relevant labour market and the job weight and salary of other senior staff within the public body. It is not expected for the minimum and maximum (or ceiling) of the proposed pay range pay range to be simply the minimum and maximum of that Pay Band in that Framework.
4.33 Where the proposed pay range maximum is above the maximum of the relevant Pay Band in the Scottish Chief Executive Pay Framework, the business case will need to set out a robust case for offering remuneration at such a level and this must be supported by market evidence, including a note of any recruitment and retention aspects. In all cases, the proposed pay range should not exceed the ceiling of the relevant Pay Band in the Framework.
4.34 Under no circumstances should the minimum, maximum or ceiling of the Pay Band be taken as the Chief Executive's pay range.
4.35 The pay policy expectation is that the maximum of the proposed pay range should be no greater than the median of base pay of similarly weighted posts in the relevant labour market.
What factors must be considered when setting the salary?
4.36 A public body must indicate the anticipated starting salary. The starting salary may be at any level between the minimum and the lowest quartile (25th percentile) of the approved pay range. If the proposed starting salary is beyond the lowest quartile then the public body should set out in its business case the proposed salary and why such a salary is considered necessary.
4.37 Where a review is being proposed for an incumbent Chief Executive reflecting a significant change in the role and responsibility of that post (perhaps following a merger of bodies or additional responsibilities as a result of legislation, etc.), then the assimilation point on the proposed pay range should take into account the Chief Executive's experience in that higher‑weighted role (from the point when the significant change in the role and responsibility of that post commenced).
What is the position on progression when setting a proposed pay range?
4.38 Under the pay policy, future basic awards and progression cannot be guaranteed. When developing remuneration proposals it should be noted that no commitment to levels of future annual increases (basic award or progression) should be given. Future annual increases will remain subject to the Pay Policy in place at that time and will require Scottish Government approval. Currently progression increases are limited to a maximum of 1.5 per cent for Chief Executives.
4.39 No contractual obligation or expectation to annual increases should be created nor implied: spine points should not be a feature of any Chief Executive's pay range as progression to such points cannot be guaranteed. Public bodies must ensure any contractual documentation is clear in this regard and the Finance Pay Policy team must be consulted on the remuneration clauses in draft contracts or letters of appointment (see section 3.64).
4.40 A public body must outline the approach to progression and journey time anticipated in determining the proposed pay range and demonstrate how this is affordable and sustainable in future.
Are you still required to achieve a 10 per cent reduction in the remuneration package?
4.41 Since 2010, the Pay Policy has included the expectation that the remuneration of a new Chief Executive appointment will be at least 10 per cent lower than that of the outgoing Chief Executive. This expectation is predicated on the ability to fill the post with a suitable candidate having regard to external market levels, value for money and recruitment and retention issues.
4.42 The whole remuneration package (salary, pay range, non‑consolidated performance payment and any other non‑salary rewards) should be considered as part of this expectation. This may be achieved by removing any existing bonus arrangement. Some of this reduction may be achieved simply by appointing a new Chief Executive on a salary less than that of the outgoing.
4.43 There may be a case to apply a lesser reduction where there is evidence the role of the Chief Executive post has increased significantly; where the post was reviewed recently; or where the outgoing Chief Executive had only been in post for a short period of time. Such issues should be discussed with the Finance Pay Policy team in the first instance.
4.44 The business case and submission for approval must clearly set out how this reduction is to be achieved or why a lesser reduction is being sought.
What is the policy position on non‑consolidated performance payments (bonuses)?
4.45 All non‑consolidated performance payments continue to be suspended in 2020‑21. In addition, there is a presumption against provision for non‑consolidated performance payments in all new Chief Executive contracts or following a review.
What is the policy position on pension arrangements for Chief Executives?
4.46 The pay policy expectation is that the pension arrangements for the Chief Executive should be in line with those for other staff of the public body.
4.47 Any proposal to offer employer's pension beyond those required under the pension scheme, in order to increase the benefit for the postholder would require consideration by the Remuneration Group.
4.48 There is a presumption against making payments to individuals in lieu of employer pension contributions, where they have withdrawn from or opted not to join the company pension scheme, whether as a result of annual or lifetime limits or for other reasons. All payments to individuals must comply with the Tax Planning and Tax Avoidance section of the Scottish Public Finance Manual: www.gov.scot/Topics/Government/Finance/spfm/taxavoidance
What is the policy position on non-salary rewards?
4.49 There may be a number of additional elements to the remuneration package offered to a Chief Executive over and above base pay. These are referred to as non‑salary rewards. Where other staff employed by the public body benefit from such rewards, the arrangements which are to apply to the Chief Executive should be in line with these. Details of any such rewards must be included with any remuneration proposals when seeking Scottish Government approval.
What is the policy position on cars?
4.50 There is a presumption against the provision of a car (or related allowance).
4.51 However, where a Chief Executive is required to travel extensively as part of their duties, it may be cost effective to make arrangements regarding a dedicated car (for example; lease car, car allowance, etc.). In all cases, the provision or introduction of a car (or related allowance) will require Scottish Government approval. Approval will be given only where a clear financial benefit and a business need can be demonstrated.
4.52 Where a public body already has an agreed scheme for the provision of cars (or related allowance) for staff, any proposed arrangement should be in line with that scheme. Otherwise, a public body must set out in the business case comparison of costings and implications of personal tax and insurance costs, that supports the proposed arrangement. This should also include other options considered, for example; a pool car and the arrangements in place for other staff.
What is the policy position on life insurance and other health benefits?
4.53 There is a presumption against the provision of life cover or private medical plans, etc.
4.54 However, in the rare circumstances where a public body offers its staff life cover or a private medical plan or similar, the Chief Executive should be eligible to become a member of the scheme. In such circumstances, public bodies must still provide details of the scheme when seeking Scottish Government approval of the remuneration proposals. In the absence of any existing scheme, approval will not normally be given for such arrangements. Please discuss any other life cover / health related proposals with the Finance Pay Policy team.
What is the policy position on relocation expenses?
4.55 Eligibility for and the levels of relocation expenses should be in line with those for other staff of the public body. In the absence of such a scheme, relocation expenses should be in line with that for the Scottish Government. Exceptionally, relocation expenses beyond such arrangements may be paid but only where this is necessary to secure the best candidate. In such circumstances, public bodies must consult the Finance Pay Policy team before reaching agreement with the incoming Chief Executive.
What is the policy position of affordability and sustainability?
4.56 The remuneration (pay range, salary and any other financial and non‑salary rewards) must demonstrably provide value for money in the use of public resources and be no more than is necessary to attract, retain and motivate able staff, on a sustainable basis, to deliver public functions.
4.57 Long-term affordability of the proposals is important and the public body must confirm it considers the proposals are affordable and sustainable. Proposals are expected to be affordable within existing resources. However, where additional resources are required, these must be set out clearly. In all cases, the Sponsor Team must confirm the affordability and sustainability of proposals, seeking the views of the relevant Finance Business Partner where appropriate.
What is expected in regard of equalities legislation?
4.58 Public bodies must take into account their obligations under equalities legislation when determining a pay range for the Chief Executive and must include confirmation of this when submitting any proposals for approval.
What about temporary Chief Executives?
4.59 Any proposals to appoint a temporary, interim or acting Chief Executive (for example, a member of staff on temporary promotion) must first be discussed with the Finance Pay Policy team prior to implementing such an arrangement. The Finance Pay Policy team can advise on remuneration arrangements for such appointments and whether approval might be required.
4.60 If the proposed temporary Chief Executive is to be an internal candidate, then the proposed salary should be based on the public body's existing temporary responsibility allowance or temporary promotion scheme. If there is no temporary responsibility allowance / temporary promotion scheme in place, the arrangement should mirror that for Scottish Government staff. In such instances there is no requirement to deliver a 10 per cent reduction in the overall remuneration package for a temporary post.
4.61 Should a fixed‑term appointment be considered appropriate, then the approval process for new appointments, as outlined earlier in this section, should be followed and approval by the relevant senior officials or the Remuneration Group will be required. The business case will need to set out the term and period of notice on termination and whether any compensation on termination may be payable. The relevant Finance Business Partner will still be required to confirm the value for money aspects of the proposal.
4.62 Remuneration arrangements for temporary Chief Executive may differ to those for the outgoing Chief Executive and should not necessarily have a bearing on those of any future permanent Chief Executive.
What to do if you want to vary a new remuneration package after it has been approved
4.63 If, during negotiations with a prospective candidate, consideration is given to a remuneration package that differs from the one approved, a public body must seek the advice of the Finance Pay Policy team before any agreement is reached. The Finance Pay Policy team will advise whether approval by the relevant senior officials or the Remuneration Group will be required. No commitment should be given to the prospective candidate until appropriate Scottish Government approval has been obtained. Sufficient time should be built in to the recruitment process to accommodate such an eventuality.
Do you have to seek approval for the terms in a new contract?
4.64 It is a requirement of approval that a public body must consult the Finance Pay Policy team on the remuneration clauses in the draft contract before it is agreed. The public body must take particular care to ensure the letter of appointment does not give rise to any contractual expectation which goes beyond that in any contract or the remuneration package as agreed by the Remuneration Group.
Chief Executives approvals process
What must you do to seek approval of proposals?
4.65 The relevant Scottish Government approval must be obtained prior to implementing any pay proposals and prior to advertising, negotiating a remuneration package or appointing a Chief Executive. Please ensure sufficient time to obtain this is built into any timetable.
4.66 Where no change is proposed, the public body simply confirms details of the current remuneration package on the Chief Executive proforma and submits that jointly to the Finance Pay Policy team and the Sponsor Team.
4.67 If proposals are simply to apply the annual uplift in line with Pay Policy, then a completed Chief Executive proforma, signed‑off by the Chair of the public body should be sent jointly to the Finance Pay Policy team and the Sponsor Team. The approval approach being taken under the Pay Policy for Staff Pay Remits by the public body (fast-tracked, streamlined, full remit) bears no relation to how the pay proposals for the Chief Executive are approved and these should follow the steps outlined in this guide.
4.68 Any proposals that go beyond that, will need to provide further information in line with the approval route set out in the following chart.
Who is going to approve your remuneration proposals?
4.69 The Finance Pay Policy team will assess all remuneration proposals and confirm the relevant approval route. The approval route will depend on the circumstances of your proposals as set out below and in the following chart.
4.70 The extent to which a new appointment requires actual Ministerial approval is dependent on the legislative arrangements for that particular public body. However, in all cases, Scottish Government approval of the proposed remuneration package is required before the post is advertised; contracts agreed; or the appointment is made. Potential remuneration packages should not be discussed with prospective candidates until Scottish Government approval has been given.
4.71 Approval will also be required if any changes to a public body's staff handbook are being proposed which will have the effect of amending or revising any aspect of those elements of a Chief Executive's reward package covered by the Pay Policy.
What is the process for approval?
4.72 Where the proposed annual award is wholly in line with Pay Policy and the Sponsor Team has confirmed affordability, the proposals will be 'signed‑off' by the Finance Pay Policy team.
4.73 Where a progression increase is proposed, if the Sponsor Director (or Deputy Director, if they have a closer working knowledge of the Chief Executive) is content with performance and the progression is therefore justified, the proposals are then deemed to be approved and the Sponsor Team should notify the public body. This notification should be copied to the Finance Pay Policy team. Any increase should not be implemented until this notification has been received. The Finance Pay Policy team will also notify the Remuneration Group at the next meeting.
4.74 For those proposals which are to be considered for approval by senior officials, the Sponsor Team should send the proforma and a short note to senior officials (the Sponsor Director or Deputy Director and the Director of Budget and Public Spending) after they have confirmed affordability. For their part in the approval, the Sponsor Director is required to confirm to the Director of Budget and Public Spending that they are content with the proposals (including performance, if relevant). The Director of Budget and Public Spending will then confirm formal approval. Either Director has the option of referring the proposals to the Remuneration Group. Once approved, the Sponsor Team will notify the public body. This notification should be copied to the Finance Pay Policy team. Any increase should not be implemented until this notification has been received. The Finance Pay Policy team will also notify the Remuneration Group at the next meeting.
4.75 Any proposals for a new Chief Executive appointment to a new body or a review of an incumbent Chief Executive's remuneration package must be approved by the Remuneration Group.
4.76 The relevant senior official is responsible for putting forward the submission for any proposals which are required to be considered by the Remuneration Group. This submission must include details of the proposals, supporting business case and a confirmation of affordability. The Finance Pay Policy team should also be asked to contribute advice to this submission. The Remuneration Group will either approve the proposals or they may refer the approval to Ministers where they consider there is likely to be significant Ministerial interest.
4.77 If proposals are outwith the pay policy, they cannot be approved, even by the Remuneration Group. The public body must review any such proposals, following advice from the Finance Pay Policy team. If the proposals have already been implemented, then a submission must be provided by the Sponsor Director to the Remuneration Group together with an explanation for why this has occurred.
* Criteria for new appointments:
- The proposed starting salary is in the lowest quartile of the existing pay range
- The proposed remuneration package delivers a 10 per cent reduction in overall remuneration compared with the previous post-holder
- There are no changes to the existing terms and conditions
How long should any approval take?
4.78 Allow for up to five working days for consideration by the Finance Pay Policy team. If the issue is complex and is likely to take longer, then the Finance Pay Policy team will advise the sponsor body and Sponsor Team.
4.79 If the proposals are referred to the Remuneration Group, then these are normally considered at the next available Remuneration Group meeting. Dates of meetings are set out on the Scottish Government Public Sector Pay webpages: www.gov.scot/Topics/Government/public-sector-pay/RemunerationGroup
4.80 Under exceptional circumstances, some items may be taken in correspondence. The Remuneration Group may refer some items to Ministers. Where the latter occurs, the minute from the Chair of the Remuneration Group must be annexed to the submission to Ministers. Any submission to Ministers must go to the Cabinet Secretary for Finance, Economy and Fair Work as well as the Portfolio Minister. Referral to Ministers will require further time.
What might happen if the Pay Policy is not followed?
4.81 If any payments are made without approval being obtained, this could result in punitive action being taken by the Scottish Government, such as the recovery of any overpayments, the capping of future increases or a governance review of the public body.