Proposals for pay progression arrangements in the Metropolitan Police Authority (MPA)

Report: 10
Date: 28 July 2005
By: the Chief Executive & Clerk

Summary

The Co-ordination and Policing Committee (CoP) considered a report on this subject 10 June 2005 and decided Authority staff should move to an incremental system. It was also agreed that a further paper should be brought to the full Authority on the details, and address certain points raised at COP. This paper seeks to deal with the points raised at CoP, and specifically the option that an incremental system should cover all staff. (The Human Resources Committee (HRC) had previously agreed that in future the Remuneration Sub-Committee should consider the salary increases for the Chief Executive, the Treasurer, the Deputy Chief Executive, the Deputy Treasurer, the Director of Internal Audit and the Director of Communications, the top six posts in the Authority).

A. Recommendation

1. Members agree that Authority staff should move to an incremental pay system for all staff except the top six posts with effect from 1 July 2005; and
2. Members identify a preferred option from the two outlined at paragraphs 14-17

B. Supporting information

1. As part of the Authority’s commitment in the corporate strategy to “Deliver a more efficient and effective MPA, which continues to be fit for purpose (priority 5)” and specifically to “Develop an informed and engaged staff through improved internal communication, consistent Human Resources policies and effective management of performance,” the Senior Management Team (SMT) gave a commitment to review the pay progression arrangements within the service. Their view was that what was driving performance is the nature of the work and personal commitment of the staff rather than the financial benefit derived from a performance related pay (PRP) system. This was reflected in last year’s Audit Commission report. SMT considered that, at present, the standard of performance management was not satisfactory across the organisation, and the present linkage between performance and pay exacerbated the problems this caused.

2. In order to progress the request for a costed pay alternative, the original work Hay carried out was re-visited. Hay established a set of working principles in relation to grading, which can be summarised as follows:

• The MPA is a small organisation.
• Its senior posts, in particular, will be required to work in flexible ways, because priorities will change.
• Boxing staff into tight job descriptions will not help achieve the MPA’s objectives.
• You will wish to give staff maximum opportunity to ‘contribute’ at any level and grow into bigger roles where they can.
• The maintenance of an over elaborate grading structure would be time consuming and costly.
• On the other hand, there is some need to establish a loose sense of where jobs belong in the structure, for the benefit in particular of Members, staff of the Metropolitan Police Service, and indeed the individuals themselves.

3. Taking account of these considerations, Hay recommended that the Authority establish a pay policy through which to pay at or around Upper Quartile for the public sector in London. These principles and recommendation were accepted, although the pay progression arrangements were agreed separately.

4. One critical change since the original work has been the doubling in the size of the Secretariat in that time from the number that was anticipated and this has provided numerous career development and promotion opportunities for existing staff. The actual numbers of staff in the Internal Audit Directorate have also increased. But with that growth, has come a complexity in the pay structure of the organisation, and concerns about a lack of transparency around recruitment, salary and grading issues. This was also reflected in the Audit Commission report.

5. The existing context in which the pay progression arrangements operate, namely the culture and environment of the organisation, and the relevance and effectiveness of the existing reward practices was then reviewed in consultation with SMT, staff and the recognised trade union representatives. There were also discussions with Philip Cohen and Jasjit Bhandal who had carried out the original work for Hay.

6. It was on this basis that the pay progression proposals were tailored to the needs of this organisation. The grading scheme proposed for the organisation is shown in Appendix 1. A financial analysis as reported to COP, is shown at the end of this report.

7. There was comment at CoP that local authorities are moving away from incremental schemes to schemes based on performance. There was no evidence of this during the research that was carried out in preparing the initial paper. The Local Government Pay Commission, whilst favouring a move away from long, service based, incremental pay scales on equality grounds because they discriminated against women who were more likely to take unpaid maternity leave or career breaks, found little support from either employers or trade unions for individual performance based progression. The Commission recognised that service based progression has some positive features for both employers and employees, namely it was transparent, simple to understand, predictable in terms of cost, easy to administer and a ‘proxy’ for experience in the job. The Commission also felt it was less prone to wage drift than systems based on employee contribution (see financial implications of this report).

8. A subsequent report “Reviewing and modernising pay frameworks” by the Employers Organisation for Local Government found that “(whilst) Performance based progression appears sound in principle, it can be difficult to operate in practice. Individual performance levels can be hard to define in parts of a non-profit, service based and highly inter-dependent organisation…. One option may be a simple appraisal based system which checks that employee performance is broadly satisfactory before progressing to the next increment.” This is the precisely the basis for the scheme proposed now for MPA staff, including the ‘overlapping’ between the top of one spine and the bottom of the next that is one of three options outlined in the same paper.

9. By way of illustration around the use of PRP, it may be helpful to set out, in the context of last year’s pay award, the financial implications for different assessed levels of performance. For someone on a salary of £25k who received the highest performance marking (Box 1) this would have equated to a 6.5% pay increase (including a 2.5% cost of living increase) and an additional £91 per month after deductions. For the second highest performance marking (Box 2) this would have equated to a 5.0% pay increase (including a 2.5% cost of living increase) and an additional £70 per month after deductions. For a satisfactory performance marking (Box 3) this would have equated to a 3.5% pay increase (including a 2.5% cost of living increase) and an additional £49 per month after deductions. The financial incentive between the two highest levels of performance was therefore £5 per week; the financial incentive between the highest level of performance and a ‘satisfactory’ level of performance was approximately £10 per week. There were no unsatisfactory performers (Box 4).

10. For a salary of £35k the difference between Box 1 and Box 2 is £22 (£115 and £93 respectively – approximately £5 per week) and the difference between Box 1 and Box 3 is £45 (£115 and £70 respectively – approximately £11 per week). For a salary of £45k the difference between Box 1 and Box 2 is £27 (£119 and £92 respectively – approximately £7 per week) and the difference between Box 1 and Box 3 is £55 (£119 and £64 respectively – approximately £14 per week). In other words, not an significant incentive for staff, or for a line manager to differentiate between different levels of satisfactory performance by different members of his or her staff.

11. Many reward specialists suggest increases of 10% or more for the highest levels of performance, 7-9% for above average performance and 4-6% for the satisfactory performer. Increases of 3-4%, whilst noticeable, are not considered sufficient to improve performance. In some London local authorities, performance payments for senior managers are up to 20%. These levels of reward would represent a dramatic change in MPA pay structure, even if they were considered sustainable in a climate of budgetary restraint.

12. There was a comment at CoP that incremental pay systems are dependent upon turnover (turnover in the Authority last year was 12%). This is true for all reward systems on the basis that staff may leave after a few years at a higher salary than new staff who are expected to be recruited on lower salaries. The pay modelling that took place (see financial implications) was based upon actual salaries and no turnover. It indicated that the proposed incremental scheme was significantly more affordable than PRP, i.e. £106k less than PRP over three years.

13. At the CoP meeting it was also suggested that the possibility of extending the incremental pay system to all staff, i.e. including the top six posts, should be explored. The SMT of MPA have discussed this issue and feel that it would not be appropriate to make a recommendation on this as it affects their pay, and that members should be given options for them to decide.

Top 6 posts - PRP option

14. In terms of experience in local authorities, there were no examples identified where an incremental pay scheme operated at these levels; all such pay arrangements operated some performance driven regime designed to reward achievement and provide additional incentives to improve the quality and/or delivery of service. This approach was reflected in the earlier paper to CoP which emphasised, “The overall direction and performance achieved depend on the effectiveness of a small number of people who are leading the organisation. A PRP system may be appropriate and equitable in rewarding senior managers according to their contribution to organisational performance and results.” In these circumstances PRP is a tangible means of recognising achievement, of differentiating rewards according to results and competence, of changing organisational culture to one which is performance and results orientated and of ensuring that everyone understands the strategic imperatives of the organisation.

15. In a PRP scheme, the Remuneration Sub Committee could agree an appropriate level of increase on the basis of performance or broadly reflect those agreed for equivalent senior police staff in the Metropolitan Police Service (MPS).

Top 6 Posts - Incremental option

16. In order to ‘band’ these jobs in line with the Authority’s pay policy, i.e. at or around Upper Quartile for the public sector in London, it would be necessary to have three separate pay bands (see Appendix 2) which can be summarised as follows:

• Deputy Treasurer and Director of Communications - £70547 to £86764
• Director of Internal Audit and Deputy Chief Executive and Deputy Clerk - £84237 to £103601
• Treasurer and Chief Executive and Clerk - £106709 to £147710

17. The use of an incremental scheme for the most senior posts in the organisation would demonstrate equity of treatment and simplify the pay settlement process. (The other advantages of an incremental scheme are outlined at paragraph 7.) This may be of particular relevance given the concerns expressed at the last Remuneration Sub Committee about the divisiveness of the performance related bonus scheme for Association of Chief Police Officer (ACPO) ranks. Remco would make the decision about point of assimilation into the new grade structure (although the financial implications assume assimilation to nearest pay point above the current level of pay in 2005/6), and in future incremental progression would be a matter for decision by Remco based on assessed performance. It would be open to Remco to progress an officer by one or more incremental points, or not to give progression.

C. Race and equality impact

An incremental pay system, with staff normally starting at the lowest point upon recruitment, will be a significant step towards treating all staff fairly and equitably. Any decision to start a candidate at a point above the minimum will require a clear explanation from the selection panel and the agreement of the appropriate SMT member. As a result, there will be less opportunity for subjective or disproportionate treatment as most new staff start at the same point and once they reach the top of the pay spine there will only be cost of living increases, i.e. there is no opportunity for pay ‘drift’ to a salary level higher than the value of the job. There will also be transparency around recruitment, salary and grading issues – the concerns identified in the Audit Commission report. The policy will also be the subject of an equality impact assessment.

D. Financial implications

MPA staff excluding top six posts

A significant level of pay modelling has taken place to identify the most affordable means of pay progression for Authority staff. Using last year’s average cost of Performance Related Pay (PRP) plus 2.5% cost of living increase as a benchmark, the following provides some comparable pay costs over the next three years (2005/6 to 2007/8).
This year that average cost of PRP would almost certainly be higher as the cost of living has increased from 2.5% in April last year to 3.2%.Nevertheless, the costs of the incremental pay progression arrangements are less than the cost of continuing with PRP and within the budget allocation.

1. Average PRP and cost of living increase (5.14%)

2. Cost of assimilation and 3% increase in pay points July 2005 - £3,060,384

3. Cost moving up one step and 3% increase in pay points July 2006 - £3,248,646

4. Cost of moving up one step and 3% increase in pay points July 2007 - £3,449,749

All these calculations exclude the top six posts whose salary increases fall to be considered by the Remuneration Sub Committee.

Top 6 posts

1. Average PRP and cost of living increase (5.14%)

2. Cost of assimilation and 3% increase in pay points July 2005 - £563,328

3. Cost moving up one step and 3% increase in pay points July 2006 - £606,932

4. Cost of moving up one step and 3% increase in pay points July 2007 - £643,894

Line 1 shows last year’s cost of an average PRP plus cost of living pay increase.

Line 2 shows the effect of assimilating staff to the nearest pay point above their current level of pay in 2005/6 and then increasing the value of that pay point by 3%. This will ensure all staff, and not just those who benefit from assimilation, will receive a pay increase this year.

Line 3 shows the effect of increasing the value of each spine point in 2006/7 by, as an example of a cost of living increase, 3%, and then individual members of staff moving up one spine point.

Line 4 shows the effect of a similar increase in 2007/8.

E. Background papers

None

F. Contact details

Report author:  Alan Johnson, Head of Human Resources, MPA.

For more information contact:

MPA general: 020 7202 0202
Media enquiries: 020 7202 0217/18

Appendix 1

Band 7

Some ‘administrative’ roles

16,000
17,259
18,518
19,777
21,036

Band 6

Some ‘administrative’ roles and trainee auditors

21,036
22,019
23,002
23,984
24,967

Band 5

For example, personal assistants, first line managers

24,967
25,716
26,487
27,282
28,100
28,943
29,811

Band 4

For example, Auditors, Community Engagement Facilitators, Partnership Support Officers, Policy Development Officers, Community Engagement Officers, Liaison Officers, Member Support Officers, Committee Administrators, Senior HR Adviser, Press Officer, On Line Communications Manager, Systems Administrator

29,811
30,854
31,934
33,052
34,209
35,406
36,645
37,928

Band 3

Senior Auditors, Senior HR Manager, Management Accountant, Senior Press Officer, Systems Manager, Partnership Development Officer

37,928
39,255
40,629
42,051
43,523
45,046
46,623
48,039

Band 2

Assistant Directors of Internal Audit, Head of Secretariat

48,039
49,480
50,964
52,493
54,068
55,690
57,361
59,082

Band 1

Policy Officers, Deputy Director of Internal Audit

59,082
60,854
62,680
64,560
66,497
68,492
70,547

Appendix 2

Deputy Treasurer and Director of Communications

70,547
72,663
74,843
77,089
79,401
81,783
84,237
86,764

Director of Internal Audit and Deputy Chief Executive and Deputy Clerk

84,237
86,764
89,367
92,048
94,809
97,654
100,583
103,601

Chief Executive and Clerk and Treasurer

106,709
109,910
113,207
116,603
120,102
123,705
127,416
131,238
135,175
139,231
143,408
147,710

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