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How to reward senior leaders in Academy Trusts

Darren Rigden, Partner, Audit 
27/03/2019
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Recently, there have been calls in the press for Academy Trusts to disclose and justify the salaries of their senior leaders and senior management teams.
At the start of the month, Schools Week published several articles on the issue of pay among senior leaders, along with a list of the highest paid academy CEOs, and details of 23 who are earning in excess of £200,000 a year.
 
The spotlight on higher pay in the education sector is not new. In December 2017, Eileen Milner, Chief Executive of the Education and Skills Funding Agency (ESFA), wrote several letters to the Chair of Trustees of those Academy Trusts paying their senior leaders more than £150,000 a year. She requested information relating to the rationale behind their pay scales and highlighted the need for a clear and transparent process behind reward structures for all non-teaching and learning staff costs.
 
Perhaps the most revealing aspect behind ESFA’s communications, was a reminder that, “Trusts have a responsibility to ensure value for money and that salary and other remuneration payments are transparent, proportionate, reasonable and justifiable.”
 
The Academies Financial Handbook supports this premise, where it states “the board of Trustees [of Academy Trusts] must ensure its decisions about levels of executive pay follow a robust evidence-based process and are reflective of the individual’s role and responsibilities. No individual can be involved in deciding his or her remuneration”. The aim here is clearly to ensure that due consideration is given when setting and reviewing salaries. In summary the process should guarantee:
  1. that the procedure for determining executive pay is agreed by the board in advance and documented
  2. decisions about executive pay reflect independent and objective scrutiny by the board and that conflicts of interest are avoided
  3. factors in determining pay are clear, including whether performance considerations, and the degree of challenge in the role, have been taken into account
  4. pay is defensible relative to the public sector market
  5. the rationale behind the decision-making process, including whether the level of pay reflects value for money, is recorded and retained.
Given the on-going funding issues affecting the education sector, there is a basic presumption that non-teaching pay should not increase at a faster rate than that of teachers, in individual years and over the longer term.
 
In addition, Lord Agnew, who was appointed Parliamentary Under Secretary of State for the School System in 2017, is taking a closer look at smaller Trusts and asking whether some individuals’ pay genuinely represents value for money, while Paul Whiteman, the General Secretary of the National Association of Head Teachers (NAHT), has called for the government to set pay scales for chief executives and other senior leaders.
 
Some have also highlighted that, while Chief Executives attract attention, remuneration of senior management teams is also growing.
 
There can be little disagreement that the question of value for money should remain at the forefront of key decision makers within Academy Trusts, but, as ever, agreeing on what constitutes ‘value for money’ is open to interpretation. A counterpoint to the common narrative is that a while a typical academy is not a ‘business’ in the traditional sense, it does have obligations (procurement, contracts, salaries etc.) and costs which require prudent – business-like – management. If you are to consider an Academy Trust as a business, run for the benefit of the pupils (where pupils take on the role of stakeholders), then the CEO and management team are working to improve the returns (better education, facilities and general schooling in this case).
 
The issue of remuneration in the sector is not always a black and white issue. It should be considered that CEOs of Multi-Academy Trusts are often responsible for the education of thousands of children, along with the careers and livelihoods of teachers and other staff. This also takes into account the operational responsibilities with which they are tasked, relating to good corporate governance. 
 
It should also be considered that in some cases, many of the higher paid CEOs choose to use their skills and experience to help the most challenging and struggling schools where pupils often require unique educational support. In such cases, these schools require substantial amounts of expertise, time, hard work and patience. They are often the focus of the local and national press which also brings a level of personal scrutiny and reputational risk with being involved with the schools. As a result, these roles will naturally command higher salaries to attract the most qualified and experienced candidates. 
 
A fairer way perhaps of looking at remuneration is to look at the results (be they improved Ofsted rankings, or exam results) and the cost per pupil. Assessing purely on pupil numbers could be unfair on Trusts with specialist schools as they have smaller numbers of pupils, but educate pupils with profoundly complex needs. What is important is looking at the amount paid in comparison to the results achieved, with the result being measured in line with a Trust’s individual objectives.
 
A non-teaching CEOs salary may be higher than that of a head teacher’s, but with many schools operating within in MATs, they could be responsible for a much more complex structure and many more times the number of pupils and staff. This brings with it its own considerable pressures, not to mention the amount of time that has to be invested.
 
Comparisons to the NHS and private sector are often cited, however this is not necessarily an helpful comparison as these are different structures set up for different purposes. An assessment for each Trust should be based upon its own targets and merits. 
 
Additional disclosures setting out how the Trusts have assessed executive pay and, where applicable, decided on pay in excess of £100,000, could help people understand why some Trusts appear to be paying higher levels compared to others. The key is to demonstrate that higher pay represents good value for money, and directly benefits pupils in that Trust.
 
The reality is that some CEOs and senior management teams do receive high salaries, and, where this pay is over-inflated, investigations should take place and reductions made. However, others in these positons will represent genuine good value for money whereby the expertise, hard work and risk taken on by the CEO and management team has significantly improved the Trust and, above all, benefited the pupils. 
 
Scrutiny by the Education and Skills Funding Agency should ultimately be welcomed as this will give the public the confidence that pay is fair and proportional.

For further information on any of the above, please contact Darren Rigden or your usual contact partner.

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Darren Rigden
Darren Rigden
Partner, Audit
Kent