How should trust boards set CEO salaries?

5 March 2018

It’s been over a month now since all academies reported their results to the ESFA via the Annual Accounts Returns and so we are well into the season of scrutinising academy trusts’ accounts and, as ever, the hot topics are related-party transactions and executive pay.

We are all well aware that the ESFA have written to single academy trusts about senior executive pay and are now ready to write to all multi-academy trusts that pay employees more than £150,000 to ask them to justify these super salaries. I wonder what the answers will be for those trusts who are paying CEOs £240,000 or as much as a staggering £440,000.

It’s no surprise that the larger the MAT, the higher the salary of the CEO – which stands to reason given the greater responsibility taken on. This leads us to the question though of ‘what is the appropriate salary for a MAT CEO, what should be taken into account, and when is it too high?’

We must remember that academy trusts are charitable companies, and as they’re publicly funded, value for money must be clearly demonstrable.

Setting the CEO’s pay is entirely the responsibility of the board, but there isn’t a pay handbook which tells you how to do this. There are no rules, apart from a sentence in the academies financial handbook:

‘The board of trustees must ensure that their decisions about levels of executive pay follow a robust evidence-based process and are reflective of the individual’s role and responsibilities.’

So not really very helpful to trustees who are charged with making this decision.

Can trustees use teaching pay scales as a starting point? For example, is a headteacher’s pay representative of a CEO’s salary in a MAT? It might be a starting point for smaller MATs, but at what point does this role change from a traditional headteacher role to a CEO role? Larger MATs probably don’t lend themselves to this kind of model: if it was acceptable to pay a particular headteacher £100,000, what happens if their role has evolved and they’re now a CEO of a ten school MAT? Should this jump up to £200,000? Probably not – but it is a very different job to the one that they use to do.

Do you play it safe and pay £150,000 to stay off the ESFA’s radar? It’s one idea, but probably an approach that restricts you in retaining or attracting the right level of experience to help grow and control the MAT as it increases in size.

What about benchmarking data? Could MATs use this data to help set their CEOs’ pay? I’m sure that when our 2018 benchmarking report is issued we’ll all be looking to see what that suggests salary levels should be set at.

But could that be a bit misleading? Every MAT is different and is faced by different issues – this might not come across in benchmarking data. That said, it is a sensible place to sense check trustees’ conclusions on CEO salaries.

Ultimately it will come down to a mixture of applying common sense and simple finance logic. Is the trust performing well, both academically and financially, and can it afford the CEO salary that has been set?

Our academy experts can help give guidance to trustees on this and point you in the right direction, so please feel free to contact us or your local UHY academy specialist for more information.