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PUBLIC SECTOR PAY IN 2004-05: GUIDANCE FOR SCOTTISH PUBLIC SECTOR PAY GROUPS
SUPPORTING INFORMATION
14. This year, the guidelines have been streamlined to highlight the key information that bodies should consider in preparing their pay remit and supporting business case. A fuller discussion on the following areas can be found in last year's guidance which is available on the Scottish Executive's website under "Publications".
Legal Commitments
15. All legally binding commitments should take into consideration affordability and financial constraints in current and future years. All organisations are advised to take legal advice on the drafting of pay commitments to ensure that these are affordable and consistent with the pay remit process.
Local Pay, Recruitment, Retention and Motivation
16. There is no evidence of an across the board problem with recruitment and retention in the public sector in Scotland. Generally, we pay relatively well compared to the private sector. Where problems do arise, these tend to be related to particular occupations rather than consistently relating to geography.
17. However it remains a consideration for all organisations in drawing up their remits to address the need to recruit, retain and motivate staff. This is central to effective service delivery. It is important that over time that organisations are able to recruit and keep the quality of staff required to deliver high quality public services.
18. We recognise that all organisations have turnover, but it is the point at which this has a negative impact on the business's ability to deliver its targets that is crucial. Organisations must demonstrate that they have a clear strategy for managing recruitment, retention and motivation difficulties, and that attention is given to targeting within that strategy (i.e. if pay is part of the solution, it is properly targeted on the groups for whom there are difficulties and that it is being used flexibly e.g. in some cases non-consolidated or targeted allowances may be more appropriate than consolidated pay increases, particularly, if the skills shortage is not necessarily a long-term problem).
19. Pay levels in the public sector should reflect the local market in which employers are recruiting, including the market for the specific skills in question, and appropriate regional variations. There is no one size fits all solution: pay and reward systems need to be carefully designed with regard to the particular needs and circumstances in each case. This may involve the development of a new local pay arrangement or further evolving a current arrangement. In addition, it is expected if applicable, that local pay arrangements are fully incorporated into the total pay plan, rather than being additions or 'top ups' to general settlement proposals. This ensures that resources are being targeted to where they are needed the most.
20. The Treasury pay guidance includes further detail on local pay arrangements and types of models of local pay flexibilities and this can either be obtained from their website or from Finance Pay Policy.
21. In some instances, matching pay to the relevant market may not always result in higher pay. Some staff in some areas or organisations may be relatively well paid compared to the market. In considering recruitment and retention, organisations should also consider therefore whether more modest settlements for some staff might be appropriate. This in turn may release funds for higher settlements where these are justified. If organisations adopt this approach then they should ensure that they assess the impact on their pay system to ensure that they are not introducing any inequalities that could result in future unequal pay claims.
22. Care should be taken when looking at external pay comparisons to take account of non-pay factors and elements of remuneration that may also have an important bearing on ability to recruit and retain staff. For example, Civil Service employers make relatively generous pension contributions and may offer greater job security, better training and development and career prospects than some other employers. Other public sector employers may also make relatively generous pension contributions, particularly once the elements that may be borne centrally by the Exchequer instead of directly by employers through current levels of pension contribution are taken into account.
Pay Band Progression
23. Progression is clearly an important issue for staff in setting pay. Organisations should aim to allow progression (i.e. movement through a pay range) to an appropriate target rate of pay for the job within a reasonable time frame for effective performers, taking into account sustainability and affordability. Progression may also be linked to the acquisition of specific competencies and outputs.
24. External factors may play a part in setting the appropriate target rate. However, acceptance that pay levels should be linked to the rate for the job, and so related to external market factors, mean it is important to move away from the expectation that all staff should necessarily progress to the pay band maximum, particularly within broader pay bands. Systems should in general allow for differential rates of progression, in particular acceleration for high performers and/or those at the bottom end of the pay range, whether newly promoted or recruited. Details should be provided in the business case to support the setting of the rate for the job.
Rewarding Performance
25. There is 'no one-size fits all' way of rewarding performance, though pay, team and individual incentives both potentially have an important part to play. The key is that organisations need to design innovative reward systems that reflect their culture and values, the sort of business they are, and the outputs and outcomes they are trying to achieve. Systems should drive a stronger performance management culture and not perpetuate poor performance. The need for stretching objectives, which are explicitly linked to the outcomes, required by business plans, and for effective measurement and regular review of progress against these.
26. To date, team rewards have been less widely used but they can effectively reinforce the importance of collective rather than individual achievement.
27. Ultimately, there are no rules on the balance between individual and team incentives organisations should adopt. Organisations need to judge for themselves what is most likely to prove most effective in delivering their business objectives given their circumstances. All remits will be scrutinised closely to ensure that proper incentives for performance are in place.
The role of non-consolidation
28. We encourage organisations to consider non-consolidated pay as part of their pay strategy to enable them to target performance and use their paybill more flexibly, with the scope to establish a pot to allow higher non-consolidated performance payments in future years.
Pay and non pay rewards "Total Rewards"
29. Increasing the motivation of public sector staff can raise productivity and deliver more and better services. Motivation can increased by developing a strong and effective link between pay and performance and by encouraging and promoting non-pay rewards. Pay systems should be designed to motivate and reward performance recognising pay as one element of a broader reward package offered to staff. "Total Reward" schemes offer a range of benefits designed to demonstrate that staff are valued and to improve staff recruitment and retention.
30. In order to effectively utilise and promote the various non-pay rewards available, it is important the costs and benefits of various terms and conditions are taken into account. As such, the costs of increasing non-pay rewards such as reductions to working hours, increases to annual leave, maternity/paternity leave should be included in the remit calculation pro forma. All organisations are expected to think about the best mix of non-pay benefits and to explain them in their pay remit proposals. Organisations will want to consult the relevant Inland Revenue rules on these benefits.
Fair Pay
31. Pay should be fair and not discriminatory; reflective of the contribution and performance of the individual and based on sound objective information. In accordance with Ministers' commitment, most organisations have now carried out equal pay reviews and have begun addressing pay inequalities where there is no genuine material factor unconnected to gender or other objective justification that explains the difference. Reforms to address unjustified pay inequalities must be affordable and consistent with other pay and workforce objectives.
32. Please would you provide Finance Pay Policy, by 1 June 2004, with a brief update on the position as at the 1 April 2004, detailing which objectives have been met in your Action plan and a breakdown of average salaries by gender (see Annex D.
Multi-Year Pay Deals
33. Ministers still support multi-year deals where there are clearly defined benefits of delivery and stability and only if they are pitched at the right level to set the tone for other public sector settlements. But they see there is no justification in paying over-the-odds to just secure a multi year settlement.
34. Where an organisation considers a longer-term pay deals best meets their business needs and planning they must ensure they are affordable within existing provision. However where proposals are beyond the period for which budgets have been set they must be discussed in advance with the appropriate Scottish Executive Finance team before they are submitted to the Pay Policy team.
35. Where organisations submit proposals for more than one year, the business case and remit proforma should include details and costings for each of the years covered by the remit.
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