The Department for Education’s move to toughen up rules over academy trust executive pay and good governance is welcome, but it misses two crucial points, argues Gillian Allcroft.

 

The academies financial handbook is updated annually and describes the principles of good financial management and governance that all academies should abide by.

This latest version takes the opportunity to focus on the Nolan principles of public life, something Lord Nash reinforces in his foreword, where he insists they should “continue guiding everyone in your trust so that money is spent wisely and honestly”.

The Nolan principles are non-negotiable – a position that is rightly being amplified, and this renewed focus chimes with much of that of the National Governance Association over the last year in reminding boards that ethos and culture start at the top.

Accountability and transparency are two cornerstones of good governance and they are vital in relation to expenditure of public money.

But, there are two ways the department could have done more to show its intent on spreading good governance.

 

Bring in benchmarking for executive pay

 

Stories of excessively lavish executive pay in MATs have hit the headlines repeatedly over the last 12 to 18 months.

While this isn’t a MAT-only problem and these upper-end salaries remain mostly in the minority, extravagant MAT pay does draw significant coverage.

Academy trusts have a duty both to immediate stakeholders and the wider public to demonstrate that their allocated funds represent value for money.

The AFH now stipulates decisions regarding executive pay must follow “a robust evidence-based process” (2.3.5).

Governing boards have a direct responsibility for determining senior executive leader pay and need to show due care and attention when making their decisions.

Trust boards need to ask if the level of executive pay in their organisation is justified, considering what parents and of course other staff (who almost certainly won’t be receiving significant rises) think.

It’s very difficult to know the ‘going rate’ for the job when no clear guidelines are available

We know that the vast majority of trustees take this responsibility very seriously and want to appropriately remunerate their senior leaders without gilding the lily.

However, the handbook essentially includes just one sentence to encourage restraint; it would be nice if the DfE could also provide useful benchmarking data to ensure trustees aren’t making decisions in the dark.

The NGA has previously asked the DfE to produce benchmarking data for leadership pay to help governors/trustees in both the academy and maintained sectors. Although at one point this was going to appear, the idea was shelved.

We know the majority of trustees want to do a good job and provide sensible levels of pay in keeping with the fact that this is public service, but it is very difficult to know what the ‘going rate’ for the job should be when there is no clear guidelines or benchmarking data available.

When you look at levels of pay for CEOs of MATs in particular, there is a significant range for those in charge of similar size organisations, consequently it is difficult for trustees trying to set pay to know what the appropriate level should be.

 

Launch a wholesale review of who should be members

 

This is one small step for mankind and a giant leap for the DfE. In the 2016 edition, it acknowledged for the first time that some separation between members and trustees was useful and “encouraged” trusts to have at least five members, rather than the legal limit of three because more people were useful for transacting business.

This year it has gone so far as to say that it recommends five members “wherever possible” because a “more diverse range of perspectives enables robust decision-making”.

The most robust governance structures “will have a significant degree of separation” between members and trustees and it recommends that “a majority of members be independent of the board of trustees”.

This might seem like semantics, but the strengthening of this wording is in NGA’s view, another important step in the right direction.

The role of members has been poorly understood

Objectivity is one of the seven principles of public life and it is harder to be objective if you are assessing your own contribution.

But, the NGA believes the DfE could have gone further and that a wholesale review of who should be members would be useful.

The role of members has been poorly understood and it was only after a few high-profile mishaps that the DfE recognised the need for separation between trustees and members.

Given that members are primarily responsible for oversight of the good governance and stewardship of the organisation, the NGA has suggested that we could widen this group out, potentially so that parents have the option to become members.

It is also not clear what proactive checking the DfE undertakes of existing trusts to see where there is still cross-over between members and trustees and whether it then makes recommendations about separation.

But at least the latest change is progress, and by next year who knows, maybe it might be a “strong” recommendation.