Review of pay progression arrangements in the Metropolitan Police Authority

Report: 15
Date: 22 July 2004
By: Clerk

Summary

The Human Resources Committee (HRC) last considered the pay progression arrangements for MPA staff in September 2001 and resolved that a Performance Related Pay (PRP) pay progression system should be adopted. More recently, the MPA’s Senior Management Team (SMT) consisting of the Clerk, Treasurer, Deputy Clerk and Director of Internal Audit have stated that PRP was not an effective tool for developing or motivating staff in the context of an organisation the size of the Secretariat and Internal Audit. This report provides an opportunity for members to review the current arrangements and consider an alternative.

A. Recommendation

That

1. members consider the contents of this report;
2. agree the proposal in paragraph 4 that the Remuneration Sub-Committee should consider the salary increases for the Clerk, the Treasurer, the Deputy Clerk, the Deputy Treasurer, the Director of Internal Audit and the Director of Communications; and
3. agree the move towards an incremental pay system for other Metropolitan Police Authority (MPA) staff.

B. Supporting information

1. The pay progression arrangements for the MPA were agreed by the HRC in September 2001 and were based upon a report by Hay Management Consultants. This established that high quality staff would be critical if the Authority was to establish itself and play the role foreseen for it in legislation. This would be in the interests of all stakeholders, particularly members and the Metropolitan Police Service (MPS). Taking account of this and related considerations, Hay recommended that the MPA establish a pay policy through which to pay high quality staff by reference to the upper quartile for the public sector in London.

2. HRC adopted the approach Hay recommended and subsequently decided that:

• a performance related pay (PRP) system should be used by the MPA (PRP is a scheme that relates the award of a pay increase to the results achieved by the individual);
• any pay increases must be paid from existing budgetary provision;
• the Clerk and Treasurer should have discretion over the payment of a cost of living increase; and
• the pay of the Clerk and the Treasurer should be a matter for the Remuneration Sub-Committee (RSC).

3. However, it became apparent to the MPA’s SMT members that the current system was not encouraging the skills, behaviours and attributes that the Authority requires. There was a significant level of dissatisfaction with PRP in terms of its effectiveness as a motivator, in terms of measuring individual performance objectively, and concern that it encouraged people to focus narrowly on the quantitative tasks that will earn short-term recognition rather than qualitative tasks that will have longer-term outcomes. This view was shared by the recognised trade union for MPA staff, the Public and Commercial Services (PCS) union and a commitment was therefore given to review the 'added value' of PRP.

4. Herein lies a significant dilemma for the Authority. The overall direction and performance achieved depend crucially on the effectiveness of a small number of people who are leading the organisation. In such circumstances it makes sense to reward these leaders on the basis of their performance and the results they individually and collectively achieve. An initial consideration is therefore if the top six posts in the organisation, i.e. the Clerk, the Treasurer, the Deputy Clerk, the Deputy Treasurer, the Director of Internal Audit and the Director of Communications, should be part of a different reward culture or subject to decisions by RSC. This would be similar to the arrangements for Association of Chief Police Officer (ACPO) ranks and ACPO equivalent senior police staff in the MPS. A PRP system may be right and equitable in rewarding senior managers according to their contribution. In such 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.

5. However, the MPA is also dependent upon the efficient performance of staff at all levels. Individuals expect to be paid appropriately for what they do in comparison with others. If they feel that they are being paid less than others who are doing the same or even less demanding work or contributing less effectively, the effects of rewarding a small number of ‘high performers’ will be counter-productive in motivating the majority of staff.

6. If the MPA were to move away from a PRP system, whilst still retaining a robust performance appraisal process for all staff, the simplest option would be incremental pay progression arrangements. In such a system, jobs that require similar levels of skills, knowledge and experience to achieve their outputs would go into the same pay band. These are normally bands created by placing boundaries between different levels of skills, knowledge and experience leading to a more clearly defined and robust structure. Within each band would be a number of pay steps. As, each year, members of staff increase their knowledge and experience, this is reflected in progression through the pay steps within each band. A performance element could be retained by incremental progression being predicated on the basis of satisfactory performance. One of the biggest advantages of incremental pay progression is cost control and forecasting.

7. Last year Hay Management Consultants carried out some work to identify an alternative to PRP and identified an incremental system as the most appropriate. This move away from PRP has the unanimous support of the MPA SMT, and of the MPA’s recognised trade union, the PCS union. On this basis, it is proposed that the option of moving to an incremental pay system for all staff, other than those identified at paragraph 4, will form part of this year’s pay negotiations.

C. Race and equality impact

1. As reported at the last HRC, the Authority currently operates a 4-category performance rating system as follows:

Category 1

Highly effective - achieving objectives and consistently demonstrating competences above expectations

Category 2

Effective - achieving objectives and consistently demonstrating competences satisfactorily

Category 3

Satisfactory - some objectives not met and some competences not demonstrated

Category 4

Unsatisfactory - significant shortcomings, with performance in many objectives or competences below the minimum standard expected.

2. In 2002/03 the data was analysed as follows:

3. Females are over-represented in Category 1 (69% of the total) and under represented at Categories 2 and 3 (31% and 0% respectively), i.e. compared with 42% female staff in the MPA. The White Group is over-represented at Category 1 (80% of the total). The Asian and Black Groups are under-represented at Categories 1 and 2 (7% and 13%, and 13% and 20% respectively) and the Black Group over-represented at Box 3 (50% of the total), i.e. compared with 14% Asian Group staff and 20% Black Group staff in the MPA. There were no assessments at Category 4. The MPA’s SMT have expressed some cause for concern at the apparent level of disproportionality identified in this analysis. They have reminded reporting officers that, when making the overall assessment and awarding the overall performance category, they should objectively evidence their assessments both in terms of the demonstration of competences in the role and in the completion of work-related and developmental objectives. They have reminded countersigning officers of the important role they play in ensuring that reporting officers' judgments on performance, compared to others, are consistent, fair and supported by evidence.

D. Financial implications

1. Hay Management Consultants carried out some work to identify an alternative to PRP, i.e. an incremental system. In calculating the cost implications of both options, it was assumed that individuals will move up one pay point on the incremental scale each year and that the market increase in salary will be 3% p.a.

2. The pay modelling also included the cost implications of continuing with the current system in the MPA with the assumption that all employees receive a 6% pay rise each year (3% performance related, and 3% cost of living). The level of turnover at the Metropolitan Police Authority will affect the cost implications of each grading option. Turnover can provide a cost saving to an organisation, based on two assumptions.

1. The individuals most likely to leave an organisation are those at the top of their pay band.
2. The replacements can be appointed on salaries at the bottom of the respective pay bands.

Cost implications with 0% turnover

The table below provides cost implications for the incremental option and current practice. However, these costs are based on the assumptions that there is 0% turnover.

The table below illustrates the costs to the organisation for current practice and incremental option with an assumption that there is a 5% turnover.

Cost Implications with 5% turnover (all leavers from highest grades)

E. Background papers

None

F. Contact details

Report author: Alan Johnson

For more information contact:

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

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