Principles for setting MAT CEO pay

The revelation by TES news at the end of October that 121 academy trusts in 2015/16 paid at least one employee more than £150,000 reignited a fierce debate about the governance of the MAT sector. It’s not just the headline figures that have exercised critics – they have also highlighted four underlying concerns:

  • the number of those in receipt of a salary higher than £150,000 is rising fast: up from 71 to 121 in one year. That may reflect the growth in the academy sector but is still worrying in terms of what it implies for the executive wage bill of a fully mature MAT sector ;
  • the rate of annual increase for a significant proportion of these highest paid employees is way above inflation: a quarter received an increase of 10 per cent or more in 2015/16;
  • some CEOs on the list were responsible for just three of four schools and some were from trusts that ran just a single school; and
  • several trusts paying the largest salaries had a poor record on either educational or financial management (and, in some cases, both) and had been subject to financial notices to improve from the Education and Skills Funding Agency or a warning letter from the Department of Education.

Those on the other side of the debate accept that some CEO salaries might be excessive but argue that we need to “get real” about the size and the demands of the job and the benefit and impact of a successful trust. When it is done well, the job is more than a match for the salary, they contend.

Official guidance on CEO salaries is minimalist. Paragraph 2.3.5 of the Academies Financial Handbook states:

“The board of trustees must ensure that their decisions about levels of executive pay follow a robust evidence – based process and are reflective of the individual’s role and responsibilities.”

Given the level of controversy and the reputational damage to the academies’ sector this advice surely needs to be amplified. Along with others I believe that MATs themselves need to take the lead in developing good governance on executive pay. The corporate and charity sectors have produced and adopted principles and standards to guide boards of directors and so here is a stab at some principles that MAT trustees might apply.

Independence – larger MATs should establish a separate remuneration committee that includes an independent member(s). All MATs should take independent advice before setting pay levels for the CEO and other members of the senior executive team (particularly if they are likely to exceed the salary of the Prime Minister).

Total remuneration – the value of pension and other benefits (such as private health care cover or the provision of a company car) should be taken into account in calculating, setting and reporting the overall value of the salary package.

Context – it is legitimate for MAT boards to take account of the need to recruit and retain high calibre leaders and the cost of doing so relative to other academy trusts, but they should not rely on this principle to the exclusion of other factors. They should also implement a talent management strategy that fosters the growth of potential of senior leaders from within the trust.

Performance – salary increases and the performance element of any remuneration package should take account of and reward a CEO’s performance in not only delivering but sustaining the priorities of the trust. In addition performance on short-term targets should be balanced by also having regard to progress with developing and implementing a board’s longer-term strategic objectives.

Integrity and risk – boards should include in their performance framework for senior executives the need to demonstrate that they have executed fully their compliance responsibilities and have taken effective steps to manage risks.

Proportionality – MATs should not set CEO pay in isolation from their approach to remunerating other employees, both in relative terms (i.e. the annual increase that on average is being applied to their staff) and in absolute terms (i.e. the ratio between CEO pay and that of the lowest full-time equivalent member of staff). In 2013 the Association of Chief Executives of Voluntary Organisations (ACEVO) reported that from the highest to lowest, CEO pay in the charity sector tended to be a 3:1 or 5:1 ratio. In local government it was 15:1, and for university vice-chancellors 18:1. I don’t agree with setting an arbitrary cap on CEO pay, as Lord Adonis has argued, but MATs will need to think hard and be very clear about their rationale and evidence if they do decide to apply pay ratios that move into double figures – given that the minimum full-time equivalent salary is around £15,000*. If  MATs were to apply the starting salary of NQTs as the base for calculating the ratio, as Sir Tim Brighouse has suggested, then the ratio would be even lower.

Public value – Education is of course about building the knowledge and skills of individual young people. But it is also concerned with developing the collective educational value of communities and wider society. Education is a public good, funded by public money. The value that schools and MATs create is not just measured in terms of exam results and qualifications but in how they add and contribute to community cohesion, wellbeing and development. In many areas – urban and rural – schools are an essential expression of place and community. These are difficult concepts to pin down and measure, but a board can assess the extent to which a CEO is fostering an open culture that encourages schools to engage with communities, involve them in the life of its schools and report to them on their performance. A MAT can also ensure it knows and listens to local perceptions of the trust and how it operates – including how it rewards its staff.

Transparency – boards should publicly report not just the salary levels of its senior executives but the arrangements for determining pay, along with the principles and the performance framework for determining them.

Adopting a set of principles such as these would move the debate on. It would bring greater discipline to the process of setting CEO pay levels. And it would start to provide a basis for staff, parents and the public to judge decisions on executive pay made by the MATs in their area.

*Figure based on the National Living Wage of £7.50 an hour for over 25 year olds working outside London, grossed up to an annual salary based on a 39 hour week.

 

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4 thoughts on “Principles for setting MAT CEO pay

  1. As an experienced pay expert earlier in the public sector I ,like you find much that resonates. Ok it has been tricky because of the imposed pay freeze. But CEOc must be rewarded properly with due attention to outcomes of their schools and fair rewards to teaching staff using flexibilities available to MATS.

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