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E: ADDRESSING THE KEY PAY POLICY PRIORITIES

What issues can you address in your pay remit? 1. In addition to addressing the standard remit elements, if you intend to target part of your pay remit at addressing the key pay policy priorities ( Chapter C paragraph 1), then you should take into account increases in both pay and non-pay benefits when you develop your proposals. Pay systems should be designed to motivate and reward performance, recognising pay as one element of a broader reward package you offer to staff.

What is the limit on the increase to the paybill for addressing the key pay policy priorities?

3. If you seek to address the key pay policy priorities you will need to cost all proposals as set out in paragraphs 1-4 of Chapter D and arrive at a Total Increase for Staff in Post. This is the increase in pay and benefits for staff in your organisation in each year of the remit.

4. Given the financial context over the next three years there is a limit on the amount that you can add to your paybill in each year. This headline cost of the full package of proposals (standard and key pay policy priority elements) must not exceed 4.50% of your baseline paybill.

6. You should make sure that any savings projections are realistic. We will compare your outturn with your approved remit and you will need to explain any increase to the paybill resulting from the implemented pay increase that is beyond that approved by the Scottish Government.

How can you address the key pay policy priorities?

7. The measures you propose to address the key pay policy priorities will fall into one or more of the following 3 categories:

i. An increase in benefits or non-pay rewards

8. Examples of proposals that will fall under this category are those which seek to increase annual leave for staff or to reduce the hours in a working week. Such proposals are considered as additional benefits for staff and you must include the notional cost in the remit proforma. However, the additional benefit for staff will not add actual costs to the paybill and will therefore not impact on the headline cost limit to all proposals of 4.50%.

9. You should provide support for any proposals in your business case, including any actual costs that you might incur, such as additional overtime or other staffing costs. These ancillary actual costs are not remit costs and will not count against the 4.50% headline cost limit but should be made clear when submitting your proposals. You will need to ensure you can meet these costs within agreed budgets for the period.

ii. One-off increases

10. Proposals which have actual costs but the costs are limited to a single year will fall under this category and will be included in the calculations. These could include one-off increases to buy out terms and conditions which are historical but are now outdated. Proposals to introduce non-pay rewards such as childcare vouchers or other salary sacrifice schemes may also fall under this category. You should include the administrative costs of running such schemes where this is not fully offset by savings in employers National Insurance costs. Again, you should provide evidence to support any proposals in your business case.

iii. Increases with ongoing cost implications

11. This category covers increases which have ongoing cost implications and therefore have the potential to significantly increase your paybill. They usually involve changes to pay and reward structures or increases to minima and maxima of pay ranges above the level of the basic award. They fall under the following sub-categories:

a) Inequalities

12. The Scottish Government is committed to ensuring that pay systems in the public sector are fair and non-discriminatory. You should make sure that you have due regard to your duties under the public sector equality duties on race, disability, gender and age when considering your pay systems. This must include the legal requirement on public bodies to assess the impact of their policies and practices on people from different ethnic groups, disabled people and women and men. In terms of pay proposals you are expected to have carried out equal pay reviews and set out in your business case the results of such reviews and the steps you propose to take to address any inequalities that you have identified. These can include measures to reduce the width of pay bands or to reduce progression journey times.

13. It is important that you review your pay systems on an annual basis after you have implemented pay awards, and carry out a full equality impact assessment of your reward policies and practices every three years. Further information about equality impact assessment is available on the Scottish Government's website at http://www.scotland.gov.uk/Topics/People/Equality/18507/EQIAtool . We encourage you to work jointly with your trade unions in undertaking your equal pay reviews.

14. You should carry out a proper assessment of the pay arrangements for different groups or roles including considering the impact of reward policies on equality groups. This should also consider the appropriate length and progression journey time for all jobs, in line with equalities legislation.

15. Where you have identified a potential pay inequality that you wish to address, you will need to provide evidence of the extent of this inequality. You will also need to propose ways of tackling this in a cost-effective way, subject to affordability constraints and within policy limits. You may need to prioritise within the constraints of your remit and strike an appropriate balance between general pay increases for staff and addressing issues arising from equal pay or age discrimination legislation.

16. A full risk assessment, including the likelihood of claims and the extent of potential liability as well as the costs of dealing with the issue, should form part of the business case which supports your proposals to address inequalities. You should also specify what proportion of your pay remit, if any, you plan to devote to addressing issues associated with equality issues.

b) Recruitment, Retention and Motivation Issues

17. If you wish to make a case for a pay remit to address problems associated with difficulties recruiting or retaining staff you will need to supply information on staff turnover in your business case. The degree of staff turnover deemed to be problematic may vary by public body and by grade and group of staff. You will need to provide evidence of difficulties recruiting, retaining or motivating such staff. There will always be some turnover in staff but we will be more likely to approve proposals to address staff turnover if such turnover is greater than the benchmark levels set out in paragraphs 20-22.

18. We know that levels of recruitment, retention and motivation vary within and across public bodies and that what is not an issue for one body may be an issue for another. If you have levels of staff turnover or recruitment less than those benchmark levels in paragraphs 20-22 and wish to make a case to address them then you should provide information on why this particular level of turnover is problematic.

19. You will need to demonstrate that turnover problems are related to pay rather than wider organisational factors and demonstrate in your business case that turnover is having a negative impact on your ability to deliver outcomes.

21. Proposals which seek to address difficulties retaining staff should provide evidence of the extent of the difficulties (the number of individuals leaving the organisation for reasons other than retirement, early severance, or redundancy). Analysis of turnover in public bodies in 2007-08 reveals that average turnover at organisational level and in grade is 10%. As a result, in general, we will consider turnover above 10% to be an issue.

22. Proposals which seek to address difficulties motivating staff should provide quantitative evidence from survey data. You should also demonstrate in your business case that pay rather than organisational or other factors is the likely underlying cause of issues motivating staff.

23. As you will need to demonstrate that recruitment and retention issues are related to pay, you will need to compare your salaries against those in the relevant labour market. We expect the relevant labour market for most staff to be the public sector labour market in Scotland and therefore you are expected to do your market comparison using the data in Annex C. In exceptional cases, some bodies, however, will employ staff in more specific or specialist labour markets and in this case you may wish to compare against a particular labour market. This may also be the case with more junior staff, who may be more usually recruited from the local labour market. In these cases, you should discuss the position with the Finance Pay Policy team in advance of the collection of relevant data that reflects those organisations that you have lost staff to or recruited staff from in recent years.

24. There are different labour markets for different staff, depending on factors such as location, grade and occupation. Remits should reflect the relevant labour market for particular groups of staff.

25. You should explain in your business case why this is the more relevant labour market. It should also be clear that comparable posts are being compared, based on job weightings or the relative roles and responsibilities and comparisons should be made on a like for like basis. So, data should reflect the same pay round, be adjusted so that both reflect the same number of hours in a working week. Any further adjustments to your data, such as taking into account employees pension contributions or annual leave provision should also be reflected in the comparator data.

26. Market comparisons should take into account both pay and non-pay benefits and you should consider amendments to terms and conditions of employment as well as increases to base pay. 27. How far your pay range maxima are below the median of the maxima in the relevant labour market will set the parameters of any additional increase to each pay range maximum. Your pay remit proposals must not result in pay range maxima being more than, or extending further from, 5% above the medians of the maxima in the relevant labour market.

28. Proposals to make additional increases to the minima of your pay ranges should take into account the "Solidarity" target in the Scottish Government's Economic Strategy 2 which is "to increase overall income and the proportion of income earned by the three lowest income deciles as a group by 2017" by specifically considering your lowest paid groups of staff .

29. At the minima you also need to take into account the extent of any difficulties recruiting staff across all grades, as well as the width of pay ranges and the effects of proposals on the costs of progression. The Finance Pay Policy team will continue to monitor the coherence of pay in the public sector in Scotland.

30. You should support any case for reducing or maintaining differences in pay by providing information on the benefits of doing so (such as helping to achieve efficiency plans; promoting the delivery of public services; improving recruitment, retention and motivation) and, if relevant, the time-frame over which you anticipate any differences being removed or reduced.

c) Restructuring of pay and reward systems

31. Proposals to restructure pay and reward systems could fall under either of the key pay policy priorities for 2008-09, the costs arising from the introduction of a new pay and reward structure usually relate to the assimilation of staff onto the new structure in the first year, rather than the more usual progression and basic award elements. As a result such proposals will be assessed against the headline cost limit of 4.50% and the future projected costs for the standard remit elements (see paragraphs 32-36). If proposals also include the costs of progression and/or a basic award then the limits set out in Chapter D will apply to these elements.

Are there any other limits to what you can propose in your pay remit?

32. The policy places limits on annual increases in pay and benefits because of the tight financial context in Scotland over the next three years. These limits take the form of absolute percentage limits for the three key pay metrics. However, pay remit proposals seldom impact on a single year and more commonly affect the costs of pay and rewards for years to come. It is, therefore, important to ensure that pay remit proposals remain sustainable.

33. If you are proposing to make increases, to address the key pay policy priorities with ongoing cost implications (paragraphs 11-31) then you must also provide a projection that demonstrates that for 3 years after addressing the key pay policy priorities, the resulting standard remit will be deliverable within a 3.75% increase for staff in post (on a basic award of 2% assumption). 34. The Finance Pay Policy team will use this projection to assess the sustainability of your current proposals. If it does not demonstrate that the standard remit could be delivered within a 3.75% increase for staff in post for future years then we are very unlikely to approve your proposals.

35. Your projection will be based on known levels of staffing and usual levels of turnover for your organisation. You should note any assumptions you made when you provide your projection.

36. A projection within 3.75% ISP will not guarantee approval of proposals beyond the duration of the current remit, which may be a multi-year remit. Increases in your next remit will be subject to the Public Sector Pay Policy limits in place at the time that you need to enter into a new pay settlement. Also, the Finance Pay Policy team will not use your projection in the assessment of future proposals except to gauge the accuracy of further projections.

What happens if you are legally committed to elements of the pay award?

37. There may be rare occasions when a public body is contractually obliged to pay progression or where the pay award is legally linked to that of another group of staff (such as local government employees), such as after the transfer of staff or the creation of a new public body, for example. Where this is the case you should set out what the contractual obligation is and its background in the business case. You must also set out how you intend to resolve the situation and the time frame for its resolution. 38. You should however note the basis of approval of pay remits in Chapter G paragraphs 5 & 6 and ensure that you do not create new contractual obligations.

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