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Top executives' pay is not going to go away

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Public sector pay is a subject of growing controversy. As the recession bites, attention is being drawn to the earnings, security and conditions enjoyed by the employees of local government, the NHS and the civil service.

Top pay is also an issue. Last week, the House of Commons public administration select committee started an inquiry into public sector executive pay.

Both the government and opposition parties believe something needs to be done about inflation in such earnings.

Local government minister John Healey has stated he will require councils to publish the details of the overall pay, bonuses, allowances, redundancy settlements and pension packages of the 2,500 highest earners.

It will be hard for councils to claim this is unreasonable, even if other staff do not have to have their earnings publicised.

However small a proportion of the overall pay bill the earnings of senior executives might be, they set the tone for the whole council.

Moreover, the jump in the earnings of newly appointed chief executives during the past few years is hard to justify against the average rises in pay rates for most council staff.

Then there is the issue of ‘relativities’. If it is possible to justify the chief executive of a major metropolitan district or county earning say, £180,000 a year, paying the equivalent officer in a small district around £125,000 looks a bit odd.

The prime minister’s annual £194,000 seems to have become the benchmark maximum for public sector pay. Some 20 local authority officers are paid more than this. Local government will need to pay far greater attention to what it offers senior officers.

The further these amounts exceed the current average for chief executives in the class of authorities concerned, and/or the PM’s pay, the greater the demand for a public justification.

When details of MPs’ claims under their existing system of allowances are published in July, we can expect another orgy of ‘snouts in trough’ headlines.

It won’t be pretty.

By contrast, a few council executives are seen as being slightly overpaid and, frankly, uncomfortable with publicity. But local government’s senior offi cials are in a much less dismal place than MPs when it comes to perceptions of a problem.

And it is all about perceptions.

In the light of the banking crisis last autumn, high earnings are under greater scrutiny than for decades. Local authorities’ chief executives are typically paid four or five times the average within local government.

Compared with much of the private sector, this difference is modest.

The reputational risks of service failure are very great, as recent social services cases have shown.

But the issue will not go away. The recession will point a spotlight at public sector pay, bonuses, conditions and annual rises. Local government needs to tread carefully.

The public is in an anxious and challenging mood.

  • Tony Travers isdirector, Greater London Group, London School of Economics.
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