A review of fair pay in the public sector has suggested top executives should not be paid more than 20 times the wages of other staff.
An interim report by the Fair Pay Review said there was a case for a “maximum pay multiple” aimed at keeping the earnings of senior staff bounded to what their employers received.
Will Hutton, executive vice-chairman of the Work Foundation, who was appointed by the Government to head the review, said executive pay had been rising faster than medium and low earners, creating greater pay “dispersion” over the past decade.
“When the economy grew there were fewer concerns about fairness in general and fair pay in particular. Now the economy is under pressure, how fairly society distributes its benefits and burdens has suddenly become more pressing.
“The basic concept of tracking pay dispersion within boundaries is where concern with fair pay must lead. There is a strong case for public sector organisations having to comply with, or explain why they do not comply with, a maximum pay multiple, such as 20:1.
“This would demonstrate fairness by reassuring public opinion, address a problem of collective action across remuneration committees, and benefit organisations’ productivity,” said Mr Hutton.
The review found there were around 20,000 public sector employees earning over £117,000, while average salaries for executives were £200,000 for heads of universities, £150,000 for NHS hospital trust chief executives, £117,000 for local authority chiefs, £170,000 for four star generals in the armed forces and £160,000 for permanent secretaries in Government departments.
Mr Hutton continued: “There are signs that in parts of the public sector that have more autonomy – such as universities, foundation trusts and arms length bodies in general – there are significant upward pressures on senior pay and, before the pay freeze, some increasingly eye-catching settlements.
“Some of the arms race character of top private sector pay determination is also showing signs of reproducing itself in the public sector. On the occasions when the public sector does recruit from the private sector it has to pay significantly more for staff, creating knock-on inflationary pressures.
“Moreover the range of top pay deals across the public sector has little coherence or relationship to the public’s priorities in generating genuine public value. Without clear principles there is every prospect of the rise and potentially irrational range in senior pay settlements continuing – which will accentuate already growing concerns about pay fairness.”