Annex A: Chief Executive Remuneration Packages
What needs to be taken into account when developing a remuneration package for a Chief Executive?
1.1 The following sections 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).
What should the business case contain?
1.2 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:
|Element||Points to cover in business case|
|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|
|Comparator labour market||Relevancy and justification of labour market selected; comparator organisations used; median of salaries in that labour market, date of sample|
|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|
|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|
|Internal referencing with the senior management team||Set out the pay differential over senior management team; if differences are proposed set out justification / rationale|
|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|
|Proposed starting salary||Must be within lower quartile, or clear justification for higher starting point|
|(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|
|Pension||Details and confirmation in line with other staff|
|Bonus arrangement?||Presumption against|
|Car (or related allowance)?||Presumption against. Details and justification|
|Life insurance or other health benefits?||Presumption against. Details, justification or confirmation in line with other staff|
|Relocation expenses?||Details and confirmation in line with other staff|
|Value for money||Comment required|
|Affordability and sustainability||Confirmation required|
What elements need to be considered when developing a remuneration package for a Chief Executive?
1.3 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)
Job evaluation and determining the Pay Band
1.4 In order to determine the appropriate Pay Band in the Scottish Chief Executive Pay Framework you first need to establish the weight of the Chief Executive 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.
1.5 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.
1.6 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 Banding 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.
Identification of the relevant labour market (to determine the range maximum and setting of the pay range)
1.7 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.
1.8 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.
1.9 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.
1.10 The public body should then develop proposals for a pay range for the Chief Executive within the relevant Pay Band, taking into account the operation of Scottish Chief Executive Pay Framework. The pay policy expectation is that the proposed pay range for the Chief Executive 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.
1.11 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 the 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. The proposed pay range should not exceed the ceiling of the relevant Pay Band in the Framework.
The method of progression
1.12 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.
1.13 No contractual obligation or expectation to annual increases should be created nor implied: spine points should not be a feature of any 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 3.52).
1.14 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.
1.15 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.
Internal referencing with the public body's senior management team
1.16 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).
Non‑consolidated performance payments (bonuses)
1.17 All non‑consolidated performance payments continue to be suspended in 2018‑19. In addition, there is a presumption against provision for non‑consolidated performance payments in any new Chief Executive contracts or following a review.
1.18 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.
1.19 Any proposal to offer employer's pension contributions in relation to a Chief Executive post, beyond those required under the pension scheme, in order to increase the benefit for the postholder would require approval by the Remuneration Group.
1.20 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:
Non-salary rewards (car, insurance, relocation expenses, etc.)
1.21 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.
1.22 There is a presumption against the provision of a car (or related allowance).
1.23 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.
1.24 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.
Life insurance and other health benefits
1.25 There is a presumption against the provision of life cover or private medical plans, etc.
1.26 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.
1.27 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.
Value for money
1.28 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.
Affordability and sustainability
1.29 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 factors must you consider when setting the salary?
1.30 A public body must indicate the anticipated starting salary. The starting salary may be at any level between the minimum and 25 per cent (the lowest quartile) 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.
1.31 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).
Are you still required to achieve a 10 per cent reduction in the remuneration package?
1.32 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.
1.33 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.
1.34 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.
1.35 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 about temporary Chief Executives?
1.36 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.
1.37 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.
1.38 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.
1.39 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?
1.40 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?
1.41 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.
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