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CRITERIA FOR ASSESSING REMITS 2007-08

Key Metrics

10. The following are the key metrics that will be used to judge the affordability of remits:

• The size of the Increase for Staff in Post - as a measure of the average cost of the remit from the perspective of the employee;
• The size of the Basic Awardi.e. the consolidated amount for revalorisation of pay ranges or cost of living increase amounts - as a measure of any general inflationary uplift on pay;
• Changes in the total paybill i.e. the Headline Cost or new money - as an overall measure of whether the remit is affordable within existing resources; and
• Changes in the Paybill per Head - as a measure of the average cost of the remit from the perspective of the employer. It takes account of the settlement as well as other factors such as the change in the skill mix, the composition of staff across pay bands or increases to the levels of tax and NIC contribution etc.

Coherence and Pay Bands

11. Pay delegation has been successful in allowing public bodies to design and implement pay systems that fit the needs of their individual businesses. However, where pay and conditions have diverged within the same relevant labour market, lower paying bodies may put forward proposals to reduce these differentials.

12. Although a variety of pay metrics will be examined when assessing the remit for 2007-08 the expectation will be that pay remits will fall into one of two pay bands depending on the amount being sought. The bands will be defined and determined in terms of the Increase for Staff in Post:

13. There will be an expectation that in the first instance public bodies look to the minimum in the relevant pay band and that a business case is required for a remit above this level. Similarly where a case is made for a higher remit public bodies should not exceed the maximum of the relevant pay band (3.5% or 4.0% as appropriate).

14. Pay remit proposals which deliver existing progression arrangements, the basic award and payment of bonuses only in any given year are expected to fall below 3.5% increase for staff in post.

15. In the case of multi-year remits it is possible to front-load (higher increase for staff in post in year 1 offset by lower increases in later year(s)) or rear-load remits (lower increase in the first year with higher increases in later year(s)) but the maximum increase for staff in post for any year of a remit will not exceed 4.0%.

16. Public bodies should not assume that a case made for a higher settlement in year 1 will automatically justify a higher settlement in subsequent years.

17. Any case for reducing or maintaining differentials between bodies needs to be supported by information on the benefits from doing so (such as helping to achieve efficiency plans; promoting the delivery of public services; improving recruitment, retention and motivation) and, if applicable, the time-frame over which it is anticipated any differences will be removed or reduced.

Market

18. Public Bodies should take into account the Total Reward package offered, when making market comparisons and consider whether they wish to make amendments to terms and conditions of employment such as annual leave entitlement (bearing in mind that any such changes will have to be costed in the remit proforma and form part of the increase for staff in post calculation).

19. In assessing relative market positioning, comparison of levels of basic pay offered will focus on the minima and maxima of pay ranges. The expectation in the first instance will be that workforce groups whose pay ranges are above the median pay ranges of those offered by other public bodies in Scotland subject to public sector pay policy will be "high paying", and those whose pay ranges are below the median pay ranges of those offered "low paying". The focus will be on both minima and maxima as both have important roles to play in recruitment, retention and motivation of staff.

20. The opportunity to provide market data to support a higher remit was introduced in 2006-07. In doing so, the public body was also expected to be able to demonstrate that the relatively low total rewards offered directly impacted on their ability to recruit, retain and motivate staff. However it is recognised that this placed significant burden on public bodies to collect market information (both in time and money).

21. To reduce this burden in 2007-08 the Finance Pay Policy team have created a database for all public bodies subject to public sector pay policy with the minima and maxima for each pay range (reflected as Civil Service equivalent grades (using the Scottish Executive's pay range labels)). This data will be used in the first instance to assess whether a public body is lower or higher paying. The range and medians of the minima and maxima offered across the public sector in Scotland by grade is set out in Annex A. To ensure that comparisons are on an equitable basis ( i.e. the same equivalent hourly rate) the data for each organisation has been standardised to a 37 and 35 hour working week. Each public body should consider the relevant data when making a business case.

22. This database will be accessible to all public bodies who have opted to share their data with other bodies.

23. It is however recognised that public bodies may have specialist staff who are recruited from a particular labour market. Where this is the case, bodies should define these workforce groups with reference to the relevant labour market in which they operate, and may provide additional market data in support of their business case. Public bodies should demonstrate how they intend to use their remit to address any particular problems or issues, whilst reflecting the relative position of these different staff.

24. Any bodies intending to reduce differentials with the Scottish Executive needs to demonstrate a common labour market for the relevant groups of staff.

Basic Award

25. Public bodies determine what account, if any, to take of inflation when submitting their pay remits. The maximum inflationary increase or basic award within the increase for staff in post in each year of a remit approved in 2007-08 will be no more than 2.0%.

New features of the 2007-08 Policy

Baseline savings

26. Baseline savings are general savings within the paybill ( e.g. from reduction or removal of allowances). To date where it was proposed that such savings be used elsewhere within the paybill the amount had to be included within the increase for staff in post calculation. From 2007-08 a business case can be made to recycle any such new savings to be made within the paybill to fund variable pay (non consolidated payments) without counting against the increase for staff in post. Any such proposals must not increase the paybill, in other words they must be cost neutral. An example of how such recycling would work is set out in the accompanying Technical Guide.

Non-consolidated bonus pot

27. Up to now it has been possible for organisations to create a non-consolidated bonus pot, used to pay non-consolidated bonuses to all staff within the organisation who out perform. When starting such a pot the costs are included within the increase for staff in post percentage but from then on the pot is carried forward year on year in the paybill and is used to fund such bonus payments without impacting on the increase for staff in post. Increases to the pot have to count in the increase for staff in post. Any other non-consolidated payments, such as those to staff on the maxima only, do not form part of the pot and were always included within the increase for staff in post every year.

28. From 2007-08 any non-consolidated payments to staff on the maxima will still count against the increase for staff in post in 2007-08 but may be added to the pot within the 2008-09 baseline paybill and so not score in the increase for staff in post again in future years. This will bring future benefit to those organisations with mature pay systems and consequently a large proportion of staff at the maxima receiving limited pay increases. All future increases to this pot will score in the increase for staff in post for that year before being added to the baseline paybill for future redistribution. Further detail on the treatment of bonuses in the proformas is set out in the accompanying Technical Guide.

29. Public bodies are encouraged to consider non-consolidated pay, for individuals and teams, as an integral part of their pay strategy to enable them to target performance and use their paybill more flexibly.

30. The following criteria will also be used to assess pay remits:

Recruitment, retention and motivation

31. Public bodies who wish to make a case for a pay remit to address problems associated with labour turnover will need to supply information on turnover in their business case and also demonstrate why their turnover is problematic. The degree of labour turnover deemed to be problematic will vary by public body and by grade and group of staff. In addition, bodies will need to demonstrate the degree to which any turnover problems are associated with pay rather than other wider organisational factors.

32. Where public bodies are experiencing staff motivation problems they will similarly need to demonstrate the degree to which these problems are associated with pay - such as evidence from surveys of staff.

Equal Pay/Age Discrimination

33. The Scottish Executive is committed to ensuring that pay systems in the public sector are fair and non-discriminatory, reflecting the contribution of the individual. Public bodies in Scotland should ensure that they have due regard to their duties under the public sector equality duties on race, disability and gender when considering their pay systems, including the legal requirement on listed public bodies to assess the impact of their policies and practices on people from different ethnic groups, disabled people and women and men. In terms of pay proposals public bodies are expected to have carried out equal pay reviews and set out in their business case the results of such reviews and the steps they propose to take to address any inequalities that have been identified.

34. It is important that organisations review their pay systems on an annual basis following implementation of pay awards and carry out a full equality impact assessment of their reward policies and practices every three years. Further information about equality impact assessment is available of the Executive's website at lhttp://www.scotland.gov.uk/Topics/People/Equality/18507/EQIAtoo . Public Bodies are encouraged to work jointly with their trade union side in undertaking their equal pay reviews.

35. When considering the impact of reward policies on equality groups, public bodies should be wary of arguments that five years must be the appropriate length for any pay range - for some jobs this may be too short, for others it may be too long. There is no substitute for a proper assessment of the pay arrangements for different groups/roles within each responsibility level.

36. Where public bodies have identified a potential pay inequality that they wish to address, they will need to provide evidence of the extent of this inequality and propose ways of tackling this in a cost-effective manner, subject to affordability constraints. Remits must remain affordable within policy parameters and public bodies may need to prioritise within the constraints of their remit and strike an appropriate balance between general pay increases for staff and addressing issues arising from equal pay/age discrimination legislation.

37. A full risk assessment, including an assessment of the likelihood of claims and the extent of potential liability as well as the costs of dealing with the issue, should accompany any business case based at least partly on addressing equal pay risks. Public Bodies should also specify what proportion of their pay remit, if any, they plan to devote to addressing issues associated with equality issues.

Local Pay

38. There are different labour markets for different staff, depending on factors such as location, grade and occupation. Remits will be judged on the extent to which levels of pay for particular groups of staff reflect, and are responsive to, the relevant labour markets in which they operate. (In this context, pay levels need to be compared after allowing for the fact that pay is one individual element of an overall remuneration and Total Reward package.) Where a public body has multiple locations or sites, they should use the data and information that is available and group together staff as appropriate.

39. All public bodies operating across different locations who are submitting pay remits in 2007-08 will be expected to demonstrate that they have considered local pay differentiation as part of their pay strategy.

40. The Scottish Executive expects public bodies to demonstrate how they intend to target pay awards to where they are most needed to address particular problems or issues, and restraining pay where staff are relatively well placed in their relevant labour market, within the overall affordability envelope that is agreed.

Total Reward

41. Pay systems should be designed to motivate and reward performance recognising pay as one element of a broader reward package offered to staff. A package which takes account of the interrelationship between tangible (pay, pension provision, leave) and intangible (work environment and learning and development). "Total Reward" schemes offer a range of benefits designed to demonstrate that staff are valued and improve staff recruitment and retention.

42. Pensions make up a substantial proportion of the total remuneration package across the public sector. The recent agreement on public sector pensions means that staff in post will be unaffected by any increases in Scheme Pension Age, whilst new workers will continue to benefit from a pension which will be of more value than many offered in the private sector.

43. Public Bodies will be expected to outline their strategy with regard to Total Reward in their business case, including any proposed changes to key conditions of service, and any proposals to make employees better informed about the total value of their remuneration package.

44. The Scottish Executive, associated Departments and Executive Agencies should take into account the Civil Service Reward Principles launched by the Cabinet Office in October 2006 ( http://www.civilservice.gov.uk/management/performance/reward_principles/index.asp ). The Principles set out the key principles within which relevant, effective and affordable reward systems for the civil service can be developed.

Multi-Year Proposals

45. Multi-year deals can provide public bodies, and individual employees, with greater certainty over their pay levels for the period of the deal and a way to ensure that increases are paid on time. Public bodies may submit multi-year proposals of up to three years. If a public body wishes to submit proposals for more than three years they should speak to Finance Pay Policy in the first instance.

46. The 2007 Spending Review will set the affordability envelope that public bodies will need to operate within for the years 2008-9 to 2010-11. As this affordability envelope is currently unknown, public bodies seeking multi-year deals will be expected to confirm that proposals are affordable within existing resources or clearly set out the additional resources that would be required over the duration of the remit. The views of portfolio finance teams will be sought on all remit proposals.

Scope of the remit process

47. All increases to basic pay including the affects of increases to pay range minima, maxima, reference points and milestones should be costed as part of a remit. In addition, the following elements should similarly all be costed:

48. Definitions and guidelines on completing the relevant proformas can be found in the accompanying Technical Guide.

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