Tougher guidelines, but trustees need better data on executive pay

Government must step in to support MAT trustees to validate executive pay or face trying to fix a distorted market later, writes Samantha Hulson

The ability of schools to unshackle themselves from local authority control and become academies can feel invigorating but intoxicating. Alongside new freedoms to set their own curricula, academies and MATs have powers they’ve longed for – to attract leadership talent by setting their own pay and benefits.

While this might have worked for heads of single schools, or for a CEO managing a handful of schools, the inexorable march of the MAT is thrusting determining fair and appropriate executive pay into unchartered territory. The Nolan Principles for public life (including selflessness and accountability), performance management and national pay scales are no longer sufficient. Suddenly MATs have to compare themselves with others where parallels are hard to find. It’s asking for skills and knowledge from trust boards that they simply do not always have.

The problem is that to comply with ESFA requirements, MATs must have a formal policy for explaining how they determine leadership pay, or they could be in breach of those requirements.

Rules on executive pay have been significantly strengthened by the ESFA

Yet questions around how to even set executive pay only get harder. Are pay premiums acceptable to encourage or justify retention and to create stability? What should performance bonuses even look like? What should they be paid for, and are they comparable to others? There are considerations around pay multipliers and questions about affordability, performance and how budgets and talent pipelines are impacted. And this doesn’t even include concerns about whether any executive pay decisions perpetuate gender or ethnicity biases, and how pay structures could see unions pile on pressure about excessive executive pay at a time when MATs might be making redundancies.

To be able to answer all the above questions, all new and existing MATs have to revisit their leadership pay policy to ensure it is fit for purpose. HR and trust board processes must be set up to judge proportionality of pay and benefits and to determine if they represent good value for money, are justified and proportionate. Pay decisions must also be defensible relative to other sectors and consider the framework for ethnical leadership in education.

It is the factors that determine how decisions are made (rather than necessarily the decisions themselves) that need to be able to stand up to scrutiny. For instance, trustees should ideally work on the basic presumption that executive pay and benefits are defensible relative to the public market. Crucially, though, all these decisions must be discharged by the board effectively as rules on executive pay have been significantly strengthened by the ESFA in recent years and need to be in line with Academies Financial Handbook guidance and withstand scrutiny.

All of this must be done through the use of evidence, such as data, ethics frameworks, affordability, pupil outcomes, MAT context, performance management, benchmarking, pay ratios, individual expertise, public scrutiny, equalities, succession planning and the “Goldilocks formula”.

However, lack of robust, comparable data combined with some governor/trustee inexperience risks creating a distorted market of MAT CEO pay open to challenge. The problem most schools have is that their own access to pay market data is limited. Deciding whether pay is too high, too low or competitive enough (while having the vision to consider reputational and other risks) requires the insight that access to up-to-date and impartial national and regional pay and benefits data can offer. Only a regulatory body such as the ESFA and/or the DfE can, and should, make this available to boards.

No one claimed setting executive pay was easy, and with the onus on trust boards to take a holistic and organisation-specific view of remuneration (including whether they unwittingly create gender or other disproportionate pay gaps), the crucial message is clear: not having an understanding of the market or the evidence to justify decisions is no longer acceptable. But until the DfE and the ESFA sharpen their policy teeth and make the necessary information freely available, pay issues and inequalities will continue to loom over the sector, and ultimately it will be the trustees who are accountable when justifying exec pay.