UHY Hacker Young | Chartered Accountants

ESFA write to academies about high executive salaries again

13 May 2019

On 9 May the ESFA wrote to the Chair of Trustees of 94 academy trusts about levels of executive pay. The latest communication follows a series of letters in recent years; indeed 31 of the 94 trusts who have been written to this time have previously received a similar letter.  Trusts have received a letter where they have paid an executive salary above £150,000 or multiple salaries between £100,000 and £150,000.

Executive pay clearly remains high on the ESFA’s agenda. Last year a higher 213 trusts were written to; this suggesting that the ESFA’s approach is working and encouraging trusts to think very careful about remuneration levels. Around 25% of the trusts the ESFA have engaged with since December 2017 have reported salary reductions.

There are conspicuous absences from the recent list, however, that are not explained and do make the figures a little misleading. In February 2018 a total of 88 MATs paying salaries of £150k and above during 2016/17 were written to, including many of the largest MATs in country. These trusts are not on the newly published list – despite most still paying salaries above £150k – suggesting the focus is on single academy trusts and small MATs.

The new letter received by the 31 trusts who have previously been contacted is worded much more strongly, but all trusts that have been written to need to explain to the ESFA how they propose to address the issue of high pay.

Taking into account TPS rate rises

Interestingly the ESFA letters both refer to the large rise in the Teachers’ Pension Scheme employer contribution rates from September 2019. The letters make it clear that the 42% rise means that employees participating in the scheme will benefit from the “enormous increase” and this “should be considered in the remuneration structure of senior non-teaching staff if they are currently benefiting from this scheme.”

The letters go on to say that the employer rate rise alone is equivalent to a 7% pay rise which in itself is double that awarded last year to teachers on the main scale pay structure.  The tone of the wording suggests that any trust choosing to award pay rises in addition to the additional pension contributions will be asked to justify their reasoning. We therefore suggest that trustees think very carefully before awarding pay rises for 2019-20, and document their reasoning thoroughly.

Finally, trustees are reminded that the Teachers’ Pension scheme was designed for teaching staff and that “senior non-teaching staff have no automatic right to participate”. This, again, appears to be a less than gentle nudge that trustees should consider other options for their non-teaching executive staff.

What can all academy trusts learn from the letters?

Trustees need to consider a number of principles when setting pay:

  • the educational performance of your organisation;
  • ensuring effective financial performance of your trust and a healthy, balanced budget; and
  • the number of pupils being educated in your trust and the degree of challenge in the roles of the highest paid.

Trustees should also remember that:

  • the procedure for determining executive pay should be agreed by the board in advance and documented
  • decisions about executive pay need to reflect independent and objective scrutiny by the board to avoid conflicts of interest
  • factors determining pay need to be clear, including whether performance considerations, and the degree of challenge in the role, have been taken into account
  • pay must be defensible relative to the public sector market
  • the rationale behind the decision-making process, including how the level of pay reflects value for money, should be recorded and retained
  • non-teaching pay should not increase at a faster rate than that of teachers, in individual years and over the longer term

Remember that benchmarking your trust’s executive pay can be a useful to help ensure that you are paying at a level comparable to similar trusts. Our national benchmarking report contains some useful information about executive pay for Accounting Officers and enables you to see how your trust compares against the national averages. The DfE’s own benchmarking site which was recently updated for 2017-18 data is another useful tool.