Today the Audit Commission calls for more openness in pay-off deals for council chief executives in England. From January 2007 – when new rules came in – to September 2009 there were pay-off deals for 30 per cent of departing council chief executives.
'By mutual agreement' published today, 16 March 2010, looked at council chief executives’ job moves over 33 months, and found that:
* There were 37 agreed severance packages for council chief executives totalling £9.5 million, though 40 per cent of this was paid to pension funds rather than as cash sums;
* three in every ten outgoing council chief executives received a pay-off;
* only six took up other senior council jobs within a year;
* one in seven single tier or county councils had paid off a chief executive, and this rate seems to be growing;
* the average cost to councils of each severance package was almost double the annual basic salary, but in four cases was more than triple.
Severance deals – where a contract is ended in return for an agreed package – can be in the interests of the council and the taxpayer. But the Audit Commission’s research shows that not all such deals are justified, that competent chief executives have sometimes lost their jobs needlessly, and that less effective individuals have been paid-off rather than dismissed.
Chairman of the Audit Commission, Michael O’Higgins, says: ‘There have been a lot of assertions made on this subject, against the backdrop of concerns about public sector pay generally.
The report says that pay-offs result from a complex triangle of competing interests. Political leaders of a council have a democratic mandate and want a chief executive who will help implement their policies. But chief executives work for the whole council, not just the leadership, and expect fair treatment and protection from political interference. And taxpayers, of course, want their money to be spent well.
The trigger is usually the breakdown of a working relationship between the chief executive and elected members. But some pay-offs arise from little more than a personality clash, or the wish of new council leaders to replace a chief executive associated with the previous leadership.
Severance can be costly, forcing councils into extra expense on recruitment and disruptive interim arrangements. Controversial pay-offs can also damage a council’s reputation. The Commission wants all deals to be more transparent. They should be reviewed by scrutiny or remuneration committees, with details published shortly after they are agreed. And councils should consider whether to include so-called ‘pre-nuptial’ clauses in contracts, specifying the grounds and payment for severance.
A way should also be found of recouping some of a pay-off where an executive moves quickly into another top council job. But the report found that rapid re-employment in local government is unusual – only six out of the 37 took up another senior council post within a year, and over 80 per cent have not returned to local government.
The report criticises the way councils manage chief executives’ performance. It says officers and councillors should deal with difficulties at an early stage, perhaps using outside mediators, and avoid a ‘knee jerk’ inclination to severance. Poor performance does play a part in ending some contracts, and the government should require councils to have formal appraisal processes for chief executives. Chief executives enjoy enhanced statutory protection above usual employment rights, but the legal procedures around that protection can be costly and time-consuming. So councils often find quicker ways of paying off an executive. The Commission says this protection needs to be reviewed and reformed.
By mutual agreement carried out a public consultation in September 2009, and recorded all council chief executive job moves during the study period. The report and its recommendations will now be passed to the Secretary of State for Communities and Local Government.