There is no link between pay increases awarded to foundation trust chief executives and how much performance improves at their organisations, an analysis of public data claims to reveal.

The analysis has prompted calls for trusts to link executives’ pay more explicitly to performance despite an ongoing backlash against boardroom bonus cultures.

In trusts you’d expect the salary increases of chief executives and directors only to get towards the upper end of that bracket if there’s a good performance reason

The analysis is based on a comparison of annual health check scores with pay rises from 2007-08 to 2008-09 at 23 financially stable foundation trusts where there has been no change of chief executive.

It reveals 10 trusts received a worse annual health check score than in the previous year, six recorded no change and seven improved.

Meanwhile chief executive salaries rose by an average of 7.2 per cent.

One chief executive’s base salary increased by 20 per cent, from £173,000 to £208,000, while trust scores for financial performance and service quality declined.

Hay Group director of public sector consulting Peter Smith said the data in its entirety showed there was no statistical correlation between the rates of pay increases and organisational improvement.

It was likely remuneration committees had been trying to bring salaries in line with senior jobs elsewhere in the NHS and in the private sector, where executive salaries have risen between 5 and 8 per cent, he said. But he told HSJ: “In trusts you’d expect the salary increases of chief executives and directors only to get towards the upper end of that bracket if there’s a good performance reason.”

He said taking into account a 5.2 per cent annual pay drift, on top of the headline pay awards for NHS staff on Agenda for Change, chief executives’ pay rises were not “as distant from the general workforce as people might think”.

Both political parties have threatened to freeze the pay of senior NHS managers and equalities minister Harriet Harman this week suggested public sector pay should not rise above the prime minister’s £197,689 salary.

But trusts may find it difficult to retain senior NHS managers - particularly those working in human resources, corporate services, estates and finance - if pay is restricted, Mr Smith said.

The data also revealed fewer than a fifth of the trusts in the sample used performance related pay such as bonuses.

Mr Smith said the NHS used bonuses less often than other public or private sector organisations even though they cost less as they do not count towards pensions. Experiments with bonuses in the NHS had often been seen as arbitrary but trusts that shied away from them were “denying themselves the flexibility” they could bring to pay policies, he said.

FT chief executive pay

Median trust income 2008-09£203m
Median trust income 2007-08£189m
Average increase in income 2007-08 to 2008-098.2%
Average base salary (midpoint) 2008-09£175,000
Average base salary (midpoint) 2007-08£164,000
Average increase pay 2007-08 to 2008-097.2%
Source: Published reports at 23 foundation trusts


Don’t apologise for executive pay – but you must explain it