NATIONAL HEALTH SERVICE SCOTLAND REMUNERATION COMMITTEE SELF ASSESSMENT PACK

Transcription

1 NATIONAL HEALTH SERVICE SCOTLAND REMUNERATION COMMITTEE SELF ASSESSMENT PACK

2 NATIONAL HEALTH SERVICE SCOTLAND REMUNERATION COMMITTEE SELF ASSESSMENT PACK Contents Page Introduction 2 Scope 2 Format 2 Background 2 Part 1: A summary of good practice/requirements for an effective Remuneration Committee 5 Part 2: A framework of key questions 7 Part 3: Case Studies 9 Case Study 1: Explicit agreement on what Remuneration Committee Members require in order to assure themselves on executive pay. 9 Case Study 2: Acting Up Allowances or Other Payments 11 Case Study 3: Leased Cars 13 Case Study 4: Relocation Expenses Package 16 Case Study 5: Managing Conflict 18 Case Study 6: Award of performance related pay for Executive Directors 23 1.

3 NATIONAL HEALTH SERVICE SCOTLAND REMUNERATION COMMITTEE SELF ASSESSMENT PACK Introduction 1. Members of Remuneration Committees have requested assistance to help them ensure the adequacy of their arrangements and responses to specific remuneration issues on this key aspect of corporate governance. The aim of this document is to assist members by providing a framework for self assessment, which addresses the principles and values that underlie the regulations which apply to NHSScotland. Since remuneration committee functions have been incorporated within the remits of Staff Governance Committees for NHS Boards this assessment process may be applied within that context. Scope 2. The materials are relevant to all NHSScotland employers. Format 3. The pack is presented in 3 parts A summary of good practice/requirements for an effective Remuneration Committee A framework of key questions to help members to satisfy themselves and others that rewards are determined through a fair and justifiable process Case study examples that aim to help identify routine information requirements and demonstrate an approach to determining appropriate responses to typical remuneration issues. 4. The pack has been prepared jointly by Audit Scotland and NHSScotland, involving Trust, Health Board and Scottish Executive Health Department representatives. Local arrangements should be made for making additional copies available. Background 5. The purpose of good governance is not only the direction and management of the affairs of an organisation, but also the alignment of corporate behaviour with the expectations of society, and accountability to stakeholders in the public interest. The process of corporate governance involves the clear identification of responsibilities and accountabilities, and for ensuring there are checks and balances for proper behaviour through a system of supervision, control and communication. The public must have confidence that the NHS is managing its affairs and finances to the highest standards. Therefore there is a need to manage risks and safeguard the reputation of NHS bodies. 2.

4 6. A key element of this relates to the remuneration of executive directors and other senior managers. Salaries and other financial rewards to these managers must be seen to be determined through a fair and justifiable process. Assessment of their performance also clearly relates to the performance of the organisation as a whole. Consideration of financial reward, which relates to the performance of individuals at this level should reflect their impact on the organisation s performance. This can be achieved through an effective remuneration committee. This should achieve fair and appropriate remuneration to reward their efforts; by contrast, failure to operate effectively might result in inappropriate payments and poor publicity for the organisation. 7. The importance attached to corporate governance and the work of the Remuneration Committee is underlined by the fact that Chairs have been given specific responsibility to ensure that members understand their role and responsibilities. These have been set out in a raft of extant guidance such as: Greenbury the code of best practice for determining and accounting for Directors remuneration. ( Codes of Conduct e.g. Conduct & Accountability: covering principles and values to which health authorities should work and providing the basis on which NHS employers should fulfil their duties Openness: covering public access to information on the NHSScotland MELs/HDLs e.g. MEL (1996)49, Termination Settlements MEL (2000)25, Pay & Conditions of Service Executive Pay and Professional/Management Transitional Arrangements. ( HDL (2001)42 Pay and Conditions of Service. ( HDL (2002)64, Appraisal of Performance. ( HDL(2002)25 Audit Committee Membership. ( PAF and Staff Governance Standard. ( These will be available through your Finance and Human Resources Departments. 3.

5 8. All members share corporate responsibility for the decisions of their NHS Board and its committees. They are accountable to the Scottish Executive Health Department for six key functions, including corporate governance and the appointment, appraisal and remuneration of senior executives. Non executives are not expected to be technical experts and will rely on their executives, (especially in the case of remuneration, from the Director of Human Resources) to provide complete, clear and timely advice. However, non executives are expected to have a clear grasp of the principles and values underlying governance issues and to be able to justify their decisions accordingly. Therefore, they need to ensure that adequate local arrangements for the proper use of public money are put in place and that they are operating effectively. These local arrangements will be subject to external scrutiny by Audit Scotland and should comply with audit principles covering: accountability to ensure that everything done by those in NHSScotland is able to bear scrutiny e.g. from Parliament, the public, professional bodies probity to ensure that an absolute standard of honesty is the hallmark of all personal conduct in the course of NHSScotland duties openness to ensure that there is sufficient transparency about NHSScotland activities to promote confidence between all the stakeholders. 4.

6 Part 1: A summary of good practice/requirements for an effective Remuneration Committee Working Arrangements 1. The Staff Governance/Remuneration Committee must be appointed by the full Board and operate under formal terms of reference that include advice on the conduct of its business, the regularity of meetings, reporting arrangements and delegated powers. The composition of the committee should comply with what has been prescribed in the Staff Governance Standard. Functions 2. The functions of the Remuneration Committee are outlined in MEL(1994)80 as modified by MEL(2000)25 and include: agreeing all the terms and conditions of employment of executive directors of the Board, including - job description - job evaluation - terms of employment - basic pay - performance pay and bonuses (individual and team) - benefits (including pension, removal arrangements and cars) - agreeing objectives for executives before the start of the year in which performance is assessed - ensuring that effective arrangements are in place for carrying out the above two functions in respect of all other senior officers - conducting a regular review of the Board s policy for the remuneration and performance assessment of executive directors and other senior managers in the light of guidance issued by the Scottish Executive Health Department. 3. Executive directors and other senior managers may receive a number of additional benefits to their basic salary, both financial and non-financial, including performance related pay progression, allowances towards removal expenses and leased cars. Decisions to award such benefits must be seen to have been calculated in accordance with appropriate guidance. Claims from executives must be for legitimate business use and within the guidelines set down by the organisation. 4. To fulfil their role effectively, Remuneration Committees need to have full and timely information upon which to base their decisions. The basis of their decisions must be clear and be publicly defensible. This means that they must show they have followed the appropriate guidance in coming to their decisions, and that this is clearly documented. Remuneration Committees will also require to be aware of the sensitivity, and perception of the public, with regard to executive pay and benefits. 5.

7 Contribution of Executive Officers 5. It is part of the role of the executive officers to interpret circulars and implement policy in line with regulations and their delegated authority. In doing so, they will need to make judgements about which issues to refer to the Remuneration Committee. Where an issue is not referred to the Remuneration Committee, the officer must ensure that they are acting within their delegated powers and that the decisions are clear and publicly defensible. 6. For the Remuneration Committee to be effective, members need an explicit understanding, (especially with the Director of Human Resources/Head of Human Resources), about what issues should be referred to them and what issues are to be delegated and to whom. For those issues which are referred to the Remuneration Committee, executive officers will be required to attend in order to provide relevant information, for example, on the options available or on technical matters. However, executive officers are not members of the Committee and can do no more than advise and facilitate members. It is for the members to ensure that they have satisfied themselves that they have asked the pertinent questions and obtained appropriate advice before reaching their decisions. Often that advice will come from within the organisation (usually via the Director of Human Resources/Head of Human Resources) however, it may be appropriate for the members to obtain advice from external sources on occasion. Potential sources include: other NHS Boards or Trusts internal or external audit the Scottish Executive Health Department. 7. If your usual source of advice does not feel able, or cannot, provide sufficient and impartial information to allow you to answer the questions set out in the framework in Part 2 to your satisfaction external advice should be sought. It would not normally be expected for advice to be sourced from outwith the Health Service. 8. The Remuneration Committee should also have explicit agreement with their executive officers about the nature, format and frequency of any reports that they deem that they require to fulfil their responsibilities. Case study 1 in Part 3 outlines examples of issues and reporting requirements that Remuneration Committees might typically address. Audit Trail 9. It is important to keep a clear record of decisions taken. It is also the responsibility of both Remuneration Committees and executive officers to ensure that minutes of meetings and associated papers, and documentation relating to the implementation of decisions, provide a clear audit trail. This will enable them, inter alia, to provide appropriate feedback and assurance to committee members regarding the overall process of remuneration. 6.

8 Part 2: A framework of key questions Members must be able to satisfy themselves and others that rewards are determined through a fair and justifiable process. The framework below seeks to help members think through the relevant issues. Case studies 2 to 6 in Part 3 provide examples of how it might be applied in practice. Key Question Do you have the proper authority to take a decision in this matter? Is the decision being taken on an informed basis? Is the decision understood, owned and recorded appropriately? Notes Remember the simple rule that characterises the difference between the private and public sectors In the private sector anything is allowed unless it is specifically prohibited In the public sector if it is not authorised, it is not permissible if you are in doubt, seek authorisation from the Health Department and obtain responses in writing Are you satisfied that You are aware of the range of options available to you The advice you have been given is clear You have been given enough time to consider the information before reaching a decision Are you satisfied that Members of the Committee understand the decision and its implications (NB: there may be circumstances where the subject matter is sufficiently important that all non-executives are signed up to the decision whether or not they are normally members of the Committee and so they should be co-opted for that purpose. This may be appropriate, for example, when the Committee is considering organisational performance and how this will impact on executive/senior manager pay.) The decision and its rationale are recorded in the Minutes of the meeting and supporting papers The reporting arrangements to the Board are sufficient to enable them to be assured that the Remuneration Committee is operating within its delegated powers 7.

9 Was the decision implemented and is it clear what reporting back to the Committee (if any) will be required? Does the decision bear scrutiny in terms of public accountability and probity? Are you satisfied that arrangements are in place to implement regulations and Committee decisions and that appropriate records are maintained? This is the bottom line. Ultimately, members need to be sure that the basis of decisions are clear and publicly defensible This should take into account requirements for openness and public accountability 8.

10 Part 3: Case studies Case Study : 1 Issue: Explicit agreement on what Remuneration Committee Membe rs require in order to assure themselves on executive pay. Scenario 1. A new Chair has just been appointed to the Remuneration Committee. They have asked the Director of Human Resources (DHR)/Head of Human Resources (HHR) to produce a paper outlining proposals so that members may receive assurance and be able to take fully informed decisions about remuneration matters. 2. The DHR/HHR paper identifies 2 distinct roles for the Remuneration Committee Regulation i.e. that executives are paid in accordance with regulations that all those jobs in the executive cohort have been evaluated by the Central Evaluation Committee/Local Evaluation Committee and that the results have been implemented Performance Management i.e. that objectives are set at the start of the year that pay awards appropriately reflects performance throughout the previous year 3. In addition, the DHR/HHR has identified a need to ensure that members are kept aware of changing regulations. In discussion with members the DHR/HHR has had feedback that a system of simply copying complex documentation (such as Scottish Executive Health Department circulars) written for technical purposes is neither adequate nor appropriate. 4. Consequently, the DHR/HHR has recommended that 4 areas are to be reported annually as follows Levels of executive pay 5. The report will list all those in the executive pay cohort, identifying actual salaries provide an assurance from the DHR/HHR that these are in accordance with regulations contain appropriate external assurance if appropriate (i.e. auditors report on remuneration if this has formed part of the audit review of management arrangements) to confirm the DHR s assurance 9.

11 Central Evaluation Committee (CEC) Gradings (the job evaluation, and therefore grading, of all Chief Officer level posts are required to be agreed by the CEC) 6. The report will list all those in the executive pay cohort, identifying CEC/LEC scores indicate the pay range to which the CEC/LEC score calibrates highlight and explain the level of actual payments and any that fall outside the indicative pay range Performance review and related pay levels 7. The report will provide an overview of the procedures for setting performance objectives the management and monitoring of individual performance for the year. Regulations Update 8. The report will summarise the key points from all relevant documentation for members so that they have an up to date set of materials specifically designed to support their decision making processes. In addition, in line with good corporate governance, the DHR/HHR has recommended the following methods of working Members should get reasonable notice of meetings routinely this would be 10 working days papers should be issued in advance of the meeting - routinely this would be 5 working days papers should be written so that members are clear about issues, options, implications and proposals where papers have to be tabled, members should be given sufficient time to properly consider them no decision should be reached until members are satisfied that they are clear about issues, options, implications and proposals all meetings should be minuted so that decisions are clearly and accurately recorded. This should be sufficient that, with any accompanying papers, decisions can be retrospectively understood and their implementation monitored, i.e. an audit trail. the DHR/HHR should be tasked to ensure that decisions are implemented and that, where appropriate, the Committee receives feedback on the implementation papers should clearly indicate the author and date Members should be informed of decisions taken by the DHR/HHR where authority has been delegated for a particular issue. The Remuneration Committee decided to accept the DHR/HHR proposals in full and to operate accordingly with immediate effect. 10.

12 Case Study 2 Issue: Acting Up Allowances or Other Payments Scenario 1. The Trust Chief Executive has resigned at short notice and the Board has decided to appoint one of the Executive Director's in an interim and acting capacity undertaking the full duties of the post and pending a substantive appointment. The Remuneration Committee has asked the Director of HR to come forward with proposals to set a level for the acting up allowance for the Executive Director and have suggested that the Director of HR provides details of the additional amount payable if an increase of 5% 10% or 15% of the Minimum of the Chief Executive pay range were paid. The paper submitted to the Remuneration Committee identified the current salary of the Executive Director as the maximum of level 3 ( 90,406) and the salary range for the post of Chief Executive as level 1 (Minimum 90,406 to Maximum 120,540). It shows that in recognition of the acting up, the Executive Director could be paid over a full year the following additional payment dependent on the percentage increase: % tage amount 5% 4,520 10% 9,041 15% 13, The Remuneration Committee is asked to consider the paper put forward by the Director of HR and to agree the percentage level of the acting up allowance. The Remuneration Committee agreed to pay the allowance at the Minimum of level 1 plus 10%. 3. The potential use of the decision making framework is provided next. 11.

13 Acting up allowances & other payments: potential use of the decision making framework Key Question Do you have the proper authority to take the decision? Is the decision being taken on an informed basis? Is the decision understood/owned/ properly recorded? Was the decision implemented and is it clear what reporting back to the Committee (if any) will be required? Does the decision bear scrutiny? Notes There are no specific rules about making acting up payments. MEL(2000)25 gives authority to Remuneration Committees to determine a suitable entry point. Therefore we are satisfied that we have the authority to appoint to a level to reflect the going rate for the experience required. We have taken the view that the acting up allowance should reflect that potential level. Yes we know the Executive Director s previous earnings the range through the pay scales which now apply the decision options available. The issue prompted full & frank discussion Members are clear that the decision depends on their value judgements about what is an acceptable acting up allowance the majority decision is accepted by all members the Minutes have recorded clearly that the payment is based on the C.E. scale minimum plus 10% rather than a specific amount the payment is a reasonable rate for the job, given the experience required the payment is at an appropriate level to provide an adequate differential to reward the Director for the additional responsibilities. Yes the individual has been notified and payments will be made in accordance with the Committee s decision. All documentation will be retained to enable review, or audit, as appropriate. Members are aware of the sensitivity of this decision given that the payment represents a 10% increase on the substantive salary the decision is a value judgement the Committee agreed that the decision is legitimate and that the rationale outlined above is publicly defensible. 12.

14 Case Study 3: Issue: Leased Cars (Read in conjunction with GWC Section 24) Scenario 1. A member of staff wishes to lease a car that has a lower lease cost than the base car. Since the inception of the scheme, the organisation has dealt with this by using the cost of the cheaper car lease for calculation of the individual s proportionate share of the overall cost. There is a complexity about this process which requires to be understood in terms of the principles rather than the detail of the calculations. 2. The member of staff has challenged the way in which the leased car scheme has operated and wishes their contribution calculations to be based on the cost of the organisation s base car. This would enable the individual to maximise their benefit from the difference in leasing costs. 3. The individual has appealed to the Board and the matter has been referred to the Remuneration Committee. Summary of Information from Director of Human Resources 4. The underlying principle that the Committee must address is whether the leased car represents an allowance or whether the scheme operates to reimburse staff for expenditure necessarily incurred in discharging the organisation s business. 5. The leased car scheme is governed by GWC Section 24 and the organisation s own policy document and the Committee therefore has the option to Retain the status quo Accept the challenge on a one-off basis and determine how to manage similar claims in future Uphold the appeal (and therefore change the way the scheme is operated) 6. The organisation s leased car scheme states that The cost to you (the employee) = (total leased cost of the car leased cost of the base car for business purposes) + fixed costs (e.g. administration & road tax) 7. It is clear from the early notes about the operation of the scheme that the current approach is in line with the original intentions of the scheme. 8. Advice has been sought from other sources including GWC but is inconclusive the Committee is on its own and must reach a decision. 9. To facilitate debate on the implications of the challenge, brief information on examples of the application of the range of 3 options follows next. 13.

15 Leased Cars: range of options Cost Base car Smaller car - Current scheme Employer Cost Employee Cost 1026 Plus fixed admin and road tax costs Notes Based on 20,000 miles p.a. and a 50:50 split between work and private mileage i.e. the estimated mileage which the employee has agreed to involves 10,000 miles of private mileage and 10,000 business miles each year 610 Plus fixed admin and road tax costs Benefits are shared between the organisation and the individual Smaller car Appeal position Nil Plus fixed admin and road tax costs All benefits accrue to the individual Organisation is, in effect, making a 10,000 mile contribution to the employee s private mileage The Remuneration Committee decided to retain the existing approach to its leased car scheme but to amend its guidance to cover this issue explicitly in the revised edition. The potential use of the decision making framework follows next. 14.

16 Leased Cars: potential use of the decision making framework Key Question Do you have the proper authority to take the decision? Is the decision being taken on an informed basis? Is the decision understood/owned/ properly recorded? Was the decision implemented and is it clear what reporting back to the Committee (if any) will be required? Does the decision bear scrutiny? Notes Yes but our own guidance is unclear and hence we have been open to the challenge. Yes we know Yes how the scheme has operated to date the implications of the challenge the decision options available The HR Director provided the information in writing in advance in line with the Committee s agreed working arrangements and was present to answer all queries The decision was unanimous in light of the implication of paying for private mileage The basis for the decision is formally recorded in the Committee s Minutes and the rationale is outlined in the supporting papers from the Director of HR. Yes the individual has been notified; the Committee will review the new guidance at its next meeting. All documentation will be retained to enable review, or audit, as appropriate. Yes it is fair to the individual since they do benefit from the use of a smaller car BUT there is no question of the organisation paying for an individual s private mileage. 15.

17 Case Study 4 Issue: Relocation Expenses Package Scenario 1. On the appointment of a new Chief Executive, the Remuneration Committee was asked to identify an appropriate relocation package as part of the offer of employment. The Committee was provided with the section 26 of the GWC Handbook that identifies:- that employing authorities may determine relocation expenses arrangements within a framework of allowable areas of expenses that the relocation package should be agreed with the prospective employee. 2. As a result of this information and following discussion regarding the circumstances of the appointee the Remuneration Committee agreed that a relocation package of up to 10,000 should be available. This was expected to fully reimburse a number of specific areas and the package was acceptable to the appointee. However, having taken up post the Chief Executive had difficulty selling the family home and had to rent temporary accommodation. 3. The Chief Executive identifies that the relocation package is insufficient to reimburse the areas of expenditure that were agreed by the Remuneration Committee. On revisiting the proposal paper of the Committee and the minute of the meeting there appears to be contradiction between the overall amount identified for the relocation package and the areas of expenditure that the 10,000 was expected to cover. 4. The Human Resources Director decided immediately that it was outwith the authority delegated to the executive officers and referred the matter to the Remuneration Committee on the basis that it relates to a benefit of an executive director. Matters are made still more sensitive because there has been keen press interest in reimbursing expenses of this sort because of a recent scandal about inappropriate payments in a neighbouring trust. 5. The Director of Human Resources has set out the options open to the Remuneration Committee Stick to the original decision Keep the ceiling at 10k but extend the scope of allowable expenditure to include the renting of temporary accommodation Reset the ceiling to include a fixed amount to cover temporary accommodation for a fixed period Keep the 10k ceiling but introduce an open-ended commitment for the temporary accommodation The Remuneration Committee decided to raise the ceiling by 3k specifically to cover temporary accommodation for a fixed period. 6. The potential use of the decision making framework follows next. 16.

18 Relocation Expenses Package: potential use of the decision making framework Key Question Do you have the proper authority to take the decision? Is the decision being taken on an informed basis? Is the decision understood/owned/ properly recorded? Was the decision implemented and is it clear what reporting back to the Committee (if any) will be required? Does the decision bear scrutiny? Notes Yes this is a matter clearly within the remit of the Remuneration Committee Yes Yes The items that are covered by the original 10k are understood The original decision was based on the premise of a smooth transfer The options have been clearly set out by the Director of Human Resources The reason for the change in circumstances is understood and has been validated The decision was unanimous and is recorded in the minutes along with the rationale as follows It is vital to attract and retain the right candidate It recognises and is sympathetic to the candidate s situation but it puts a ceiling on the organisation s liability Yes the CE has been notified and has indicated that the decision is acceptable to him. All documentation will be retained to enable review, or audit, as appropriate. Yes the rationale is clear and the decision feels fair to all parties. 17.

19 Case study 5 Issue: Managing Conflict Scenario 1. The relationship between the Chief Executive and the Chair is strained and has already been brought to the attention of the Full Board. As a result the Chief Executive was spoken to some months ago by the Chair and advised to improve their behaviour. This conversation has been reflected in the end year appraisal of the Chief Executive and requirement to improve certain behavioural competencies. Since that action the relationship has become more strained and it has become evident to Executive members and Trustees of the Board that the differences between them are beginning to impact on the effectiveness of the Board. The Chair, as a result, calls a meeting of the Trustees and they conclude that for the good of the organisation the Chief Executive should be invited to discuss the problem. As part of this discussion they identify a number of specific circumstances and interactions where the conduct of the Chief Executive has failed to reflect the corporate view of the Board and could be interpreted as damaging to the effective development of services provided by the organisation. 2. It is agreed that the Chair will employ independent legal advice on employment law and prepare a case to terminate the employment of the Chief Executive on conduct grounds. It is agreed, however, that it would be in the interest of the organisation and the public image of the Trust to seek to come to a mutually acceptable agreement with the Chief Executive regarding severance and payments associated with this. A case is subsequently prepared with independent legal advice and the Chair and the legal adviser meet with the Chief Executive. Following an acrimonious meeting, the Chief Executive agrees to take a period of leave while the situation is addressed but states categorically that unless a financially acceptable settlement can be agreed, legal action will be taken against the organisation. 3. The Chair has phoned the Chief Executive of the NHSScotland to ask for help but has been reminded that such matters are local issues that should be dealt with through the Remuneration Committee. 4. Consequently, in an effort to recover the situation, the Remuneration Committee have decided to seek external advice from a neighbouring health organisation to support the Director HR and the Committee by helping them identify the range of options available to them assess the options and determine an appropriate way forward. 18.

20 5. With the help of the facilitator, Remuneration Committee members identified 3 options that they wished to explore 5.1 Disciplinary action 5.2 Accede to the demands of the Chief Executive/agree a severance payment (this may include two options a & b ) 5.3 Pursue with the Health Department, the possibility of a transfer at an equivalent level within the service. After discussion, the Remuneration Committee decided that Option 2(b) is not acceptable but that the other 3 options are possible and their order of preference is Option 3 Option 2(a) Option 1 6. The potential use of the decision making framework is provided overleaf. 19.

21 Managing Conflict: potential use of the decision making framework Option 1: Disciplinary action Key Question Do you have the proper authority to take the decision? Is the decision being taken on an informed basis? Is the decision understood/owned/ properly recorded? Was the decision implemented and is it clear what reporting back to the Committee (if any) will be required? Does the decision bear scrutiny? Notes Yes it is for the Remuneration Committee to make recommendation to the Board who have the authority to hire & fire the executives. However, we must do so taking into account all the factors with a bearing on the case. Yes the decision not to go ahead with disciplinary action if it can be avoided has been made only after carefully thinking through the legal and PR consequences. Yes we agree that this route would not be the preferred option because We acknowledge that the actions we have taken to date may have jeopardised our position if the CE takes legal action against us Any legal dispute will divert scarce resources from addressing our priorities The Trust needs a leader who is going to drive forward our corporate agenda Whether or not we won the case, the public image of the trust will be damaged We will review the position if our preferred options fail. All documentation will be retained to enable review, or audit, as appropriate. Yes Decision on option: only use it as a last resort. Whilst we have a case, there are risks and costs associated with pursuing it 20.

22 Managing Conflict: potential use of the decision making framework Option 2 (a) : Accede to the CE s request where the request is such that it allows us to negotiate within the terms of statute & national guidelines Key Question Do you have the proper authority to take the decision? Is the decision being taken on an informed basis? Is the decision understood / owned / properly recorded? Was the decision implemented and is it clear what reporting back to the Committee (if any) will be required? Does the decision bear scrutiny? Notes Yes under the terms of MEL(1996) 49, reissued in Yes the members are clear about the regulations and which payments are allowable Yes the decision was unanimous and is recorded in the minutes. We will review if our preferred option fails. Yes although members are mindful that this will involve a payout of public money. Decision on option: pursue if preferred option fails. Option 2(b): Accede to the CE s demands where this does not allow us to negotiate within the terms of statute & national guidelines Key Question Do you have the proper authority to take the decision? Is the decision being taken on an informed basis? Is the decision understood/owned/ properly recorded? Was the decision implemented and is it clear what reporting back to the Committee (if any) will be required? Does the decision bear scrutiny? Notes No the Committee cannot agree to make payments that are ultra vires. Yes the members are clear about the regulations and which payments are allowable Yes the decision was unanimous and is recorded in the minutes. Not applicable. Yes although members are mindful that there is a serious risk that the CE will attempt to seek legal redress and, as a result, adverse publicity is likely to ensue. Consequently, they have tasked the DHR to draft a robust press release aimed at damage limitation. Decision on option: reject it. 21.

23 Managing Conflict: potential use of the decision making framework Option 3: pursue the possibility of a transfer Key Question Do you have the proper authority to take the decision? Is the decision being taken on an informed basis? Is the decision understood / owned / properly recorded? Was the decision implemented and is it clear what reporting back to the Committee (if any) will be required? Does the decision bear scrutiny? Notes Yes but the Committee does not have the authority to make it happen. The outcome will depend on the Health Department s decision and the willingness of all parties to cooperate to find an acceptable solution. Yes members are clear about the benefits of this approach Yes the decision was unanimous and minuted. Yes the Committee awaits the response of the Health Department but it is unlikely that the HD will be able to assist. All documentation will be retained to enable review, or audit, as appropriate. Yes but this course of action should not have been required if the situation had been addressed differently at the outset. Decision on option: pursue but if it fails revert to option 2(a) or option

24 Case Study 6 Issue: Award of performance related pay for Executive Directors Scenario 1. In May the Chief Executive of the NHS Board presented a report to the Remuneration Sub Committee of the Staff Governance Committee (previously the Remuneration Committee) regarding the appraisal of the performance of the top team. It is explained that this has been undertaken in accordance with the provisions of NHS Circular HDL(2002) The Chief Executive has agreed that four, of the six Directors, have functioned at effective level and two, the Director of HR and the Director of Finance, as having performed at outstanding level for the previous year. As a consequence there is potential to award both officers non-consolidated bonus, as a result of outstanding performance, as they are currently below the maximum of the grade range for their posts. The Chief Executive is aware that there must be clear linkage between individual performance at a senior level and corporate performance and that this has to be confirmed by the Scottish Executive Health Department. 3. The Chair of the Committee, having received the Chief Executive s written report a week prior to the Committee meeting, is aware that the Board is unable to turn to the local Director of HR for technical advice in this situation due to a potential conflict of interest. The Chair has, therefore, arranged for a Director of HR from a neighbouring NHS Board area to be in attendance to advise the Committee. The Chair reminds the Committee that they have specific responsibilities in relation to the remuneration of directors, and for overseeing the performance management processes. The HR Director, invited to advise the Committee, identifies a range of relevant references in the two related circulars which are extant; NHS Circular MEL(2000)25 and NHS Circular HDL(2002) Following detailed discussion the Remuneration Committee come to the conclusion that although the two officers have performed to a very high level, the Remuneration Committee are unable at that time to support the recommendation that they be awarded a non consolidated bonus for the following reasons. 4.1 The organisation s Accountability Review with the Scottish Executive Health Department has not yet been undertaken for the year in question and it would, therefore, not be appropriate to make this judgement in advance of that process as overall corporate effectiveness had not been confirmed by the SEHD. 4.2 There is concern on the part of some Committee members that overall organisational performance may not be considered sufficiently effective to warrant these awards. 4.3 A related issue was also raised. With only the two Executive Directors from a cohort of forty staff on the Executive Pay Arrangements being judged to have outstanding performance, the performance appraisal arrangements should be reviewed to provide the Committee with the assurance that judgements regarding performance are applied consistently; and not inappropriately clustered around executive director level posts. 23.

25 5. As a result of the above the Chair defers further discussion and decision until after the Accountability Review with the Scottish Executive Health Department to agree organisational performance. The Chief Executive is asked to undertake a review of the performance appraisal arrangements to assure the Committee of the consistency of application of the local system for the whole executive pay cohort. 6. At a subsequent meeting of the Committee it is reported that the performance appraisal arrangements are working effectively and information is provided to support this; along with other routine reporting (see case study 1). The report on organisational performance following the Accountability Review with the Scottish Executive Health Department identifies satisfactory overall performance but not the high level of performance that would warrant two directors receiving non consolidated bonuses. It is, therefore, accepted that although on a personal level these directors have performed very effectively, they have not, in terms of their contribution to organisational performance, warranted an outstanding rating for performance pay purposes. 7. The framework of key questions may be applied as follows: Key Question Do you have the proper authority to take the decision? Is the decision being taken on an informed basis? Is the decision understood / owned / properly recorded? Was the decision implemented and is it clear what reporting back to the Committee (if any) will be required? Does the decision bear scrutiny? Notes Yes; the Committee has responsibility for the robustness of the Performance Management Arrangements and decisions regarding the remuneration of directors. Yes; the relevant NHS Circulars have been clearly explained to the Committee and their understanding confirmed. Independent professional advice has been received by the Committee to inform their decision. Papers were received prior to the Committee meeting. Yes; the issue was discussed at length, consensus was achieved in relation to the outcome and this was recorded in the note of the meeting. The decision, which was deferred until all the information required was available, has been implemented and will not require to be referred back to the Committee. Yes, the Committee is satisfied that it is in accordance with the requirements of the relevant Circulars and reflects the corporate governance responsibility to the Committee. The papers, note of the meeting and report from the Accountability Review with SEHD are available for auditors to review. 24.