Are managers being paid over the odds when their contracts are terminated? And why do NHS employers refuse to reveal severance payments in defiance of official guidance? Seamus Ward reports

Life as a chief executive or senior manager in the NHS is not easy. A target for every brickbat, every newspaper campaign and every politician's opportunism, the carping does not stop even when a manager loses their job - when the vilification usually focuses on the size of their severance payment.

Former West Sussex health authority chief executive Peter Catchpole, for example, was hounded by the local media when it emerged recently that he received£355,000 on resigning his post in March 1999.Mr Catchpole is now working at the Health Quality Service, a registered charity with links to the King's Fund, as development director for London. He declined to discuss severance payments with HSJ. There is no suggestion that Mr Catchpole did anything wrong in accepting the sum, but behind the attacks there is genuine concern over such payments.

When chief executives leave a trust because of lack of financial control or failure to cut waiting lists, are they being rewarded for failing to do their jobs? And are they being given more than they are due so as to encourage them to go quietly? These fears have been heightened by some NHS bodies' refusal to give details of pay-offs, contrary to NHS Executive guidance.

The guidance says that settlements should be open to public scrutiny and that there is no place for confidentiality clauses in NHS employment contracts.

In September, the Northern Ireland Audit Office published a scathing report after finding that eight senior managers in three health service bodies received payments totalling more than£1m following a series of reorganisations.

3Although the managers in question were not at fault, the NIAO pointed out 'serious weaknesses' in their contracts. Three executives, including one chief executive, did not have a formal written contract, while others with fixed-term contracts had no clauses relating to termination payments or clawback in the event of getting another job. One chief executive took up a post at an English trust a week after pocketing£88,757.

Other auditors' reports have added to the unease over severance payments. The Scottish Office has uncovered five irregular overpayments by health boards totalling£146,000 between 1992 and 1998.

4In response, the Scottish NHS Management Executive took powers to control severance payments more closely in the run-up to the reduction in the number of trusts on 1 April 1999.

Even so, some 17 senior managers retired early at a cost of£2.8m, though only one overpayment of£15,000 in a lump sum and£500 a month in a pension was uncovered.

In Wales, the NAO reported illegal payments of more than£30,000 in 1997-98 to five staff members who were re-employed by the NHS within a month.

In 1992-93, the English health service made payments of more than£2.6m that may not have been within its powers.

Illegal payments are becoming rarer, partly due to greater public scrutiny and partly because the departments have implemented tighter regulation.

But large settlements are common. Many reach six figures, mainly because until recently most senior managers were on fixed-term rolling contracts, where they negotiated more favourable redundancy conditions in return for giving up the relative security of a permanent contract.

NHS Executive guidance has urged health service employers to move managers on to permanent contracts, which would bring severance payments under Whitley Council rules.

It is now illegal for English HAs to make termination payments, except under the secretary of state's direction. NHS Executive guidance is that HAs should not make a commitment on the level of payment, or promise compensation as an inducement to voluntary resignation, unless it has been rubber-stamped by the Executive.

While trusts in England have more freedom to agree terms and conditions with senior managers, the Executive has laid down the method HAs and trusts should use to calculate severance payments.

When calculating the compensation, HAs and trusts are required to take into account the likelihood of the employee getting another job and the salary they could command in that position.

This includes self-employment, and it should be assumed that the salary will be similar to that which they currently receive. Where possible, they should take account of job offers or alternative employment already accepted by the employee.

Recruitment consultants can be used to help judge future earnings.

Payments into managers' pension schemes, giving them full pension benefits, can double or treble the amount they receive as compensation for lost earnings. 'A great deal of money is being wasted because people are got rid of for sometimes substantial sums, often at least£250,000, ' says Andrew Wall, who lost his job as chief executive of Bath HA in 1992 (see box, page 18).

'If people go early they often leave on terms as if they were 60 when they are 52. I went at 56 and asked for the rest of my contract to be paid off, which they did, but I didn't get any additional years on my pension, ' he says.

Termination for an employee who is close to retirement is a tricky area. Obviously, they may be able to earn little or nothing in another job, but a full settlement taken together with their pension rights could make them markedly better off than a younger person in similar circumstances. Pension income should be taken into account when calculating the severance package.

Senior managers who are over 50 with at least five years in the superannuation scheme can take early retirement, but benefits do not have to be reduced according to retirement age.

An employer could agree to pick up the costs of full benefits or could even enhance benefits if it can be demonstrated that the retirement would increase efficiency.

The Executive stresses that the latter case should only be used as a last resort and only where the individual's performance has declined and remedial action, such as training, flexible working hours, supervision or a move to other duties, has not worked. But it admits that the costs of this option are high, not least in the eyes of the public, who view such arrangements as rewarding failure.

The Executive has also attempted to crack down on the perceived money-spinner of managers leaving one employer early with a handsome payoff, then being hired by another NHS employer shortly afterwards. It has introduced clawback arrangements for re-employment anywhere in the UK, though this does not apply to those who go to work for independent contractors.

If someone who has received a severance payment is employed elsewhere in the NHS before the original contract would have expired, they must inform their former employers and repay the net severance payment on a pro rata basis. This applies to all NHS bodies in the UK except independent contractors.

Darren Northcott, national officer with the First Division Association, believes these tighter regulations will not necessarily lead to smaller settlements. Whatever the contract, the level of severance payments should always be related to employment rights, he says.

'A good example is fixed-term contracts which usually exclude the contract-holder from redundancy payments made under the Whitley Council rules. In permanent contracts, redundancy payments tend to be written in as Whitley Council terms. So in the fixed-term contract you get compensated for this loss of rights.

If your contract is terminated tomorrow, there is a Continued from page 17 large liability for the trust.'

Despite the guidance, the terms of chief executives' contracts vary, particularly in trusts, Mr Northcott says. 'It depends on the trust because they have the freedom to determine their own terms and conditions for their senior managers. For example, in some places where it is harder to recruit, this will be reflected in the terms and conditions offered. Even in the permanent contracts there is a fair degree of variation. A larger trust may be in a position to pay a bigger salary but variations occur, not just in pay but in other terms, such as the car offered and notice periods.'

There is more consistency in HA contracts.

'Health authorities have a more constrained approach because they are closer to the centre, but in effect I do not think it makes much difference.

They must report back on severance pay, but it doesn't make a large amount of difference to the way people are treated.'

He dismisses claims that pay-offs reward senior managers for failure. 'The NHS takes a robust view on public probity. Health authorities and trusts are bound to make sure payments are in the public interest, and if a senior manager is negligent or commits gross professional misconduct they will not receive a severance payment, ' he insists.

And he believes blame is often incorrectly levelled at chief executives. 'It is a corporate issue that is bigger than one individual. You could get in another chief executive, but they could have similar problems.'

Jo Ouston, whose company runs the Institute of Healthcare Management's employment support helpline, says the decision to terminate a chief executive's contract can reveal deeper failings. 'Quite often the chair is not from a health background, and even if they are, they do not know any employment law. If this was happening to a lower-level manager, the human resources department would have a fighting chance of influencing how people are handled, but they do not get that much influence when there is an issue between the chair and chief executive officer, ' she says.

'There is a major issue in the NHS generally about the lack of understanding of employment law.

People get into a frightful muddle and end up paying people off. This is a serious issue that is really not being addressed at all.'

Ms Ouston and Mr Northcott agree that most job losses occur because of organisational changes such as mergers, but Mr Wall believes a new round of contract termination is unfolding in primary care.

'I am aware that there have been cases where the chief executive's contract has been terminated or they have been given other work. Those in positions of power have scant regard for what one might call common justice or proper procedures, ' he says.

Mr Wall fears that not only is money being wasted but the NHS is ridding itself of valuable experience.

'People still have potential, and this is being lost to the NHS at a time when we need more management.'

The NHS could do more to hold on to this experience. 'If you have a row with the board, which we have all had from time to time, or somebody has taken against someone else, that is not a good reason for going. It is pretty arbitrary. I do not think people should be exposed to that without a real attempt to say, 'There is a perceived problem. What can we do to mediate?'. It is silly to say, 'It is not working - go', without any attempt at mediation.

'Some boards are dysfunctional and this has nothing to do with the chief executive. If you have a wayward chair, and there are some about, their actions can lead to chief executives losing their job.'

He has counselled a few chief executives in this situation and says his advice to them is brutally honest. 'When things are bad and it looks as though It is not going to work out, I always advise people to forget the health service and think about themselves.

'You can't blame people for thinking about themselves. If you choose to be a health service manager it is at least partly for altruistic reasons, but you feel you'll have a job for life in return. The idea of loyalty to the NHS is for the birds.Why be loyal to the NHS when the health service has proved it has no sense of loyalty to you?'

REFERENCES

1 HSC 1999/138. Condition of service for general and senior managers. NHS Executive, 1999.

2 HSC 199/140. Conditions of service for general and senior managers employed by health authorities. NHS Executive, 1999.

3 Health and Personal Social Services: executive directors' contracts and termination settlements. Northern Ireland Audit Office, 2000.

4 NHS (Scotland) Summarised Accounts 1997/98. NAO, 1999.