Former chief executive Rose Gibb’s failure to secure the large severance sum she believed she was assured of marks a sea change in how the NHS handles pay-offs, reports Alison Moore

The inevitable consequence of the Rose Gibb case is that NHS chief executives and senior managers will increasingly be held accountable for their actions and are unlikely to get substantial pay-offs if they lose their jobs.

Ms Gibb left Maidstone and Tunbridge Wells trust, days before a critical Healthcare Commission report, on the promise of a £250,000 pay-off. Last week the High Court said that pay-out cannot be enforced.

Even before the judgement, the repercussions of the case were being felt around the country, with chief executives in unfortunate circumstances now being suspended - and in one case dismissed - or leaving with no pay-off.

At Mid Staffordshire foundation trust, chief executive Martin Yeates is suspended on full pay until the results of an inquiry are known. And in the south west, John Watkinson was sacked as chief executive of the Royal Cornwall trust after seven months’ suspension.

In other cases chief executives are resigning with just their pay in lieu of notice, as happened with Tara Donnelly, who quit over waiting time breaches at West Middlesex Hospital trust. They are increasingly likely to be on notice periods of no more than six months.

Would an agreed pay-off and a quiet departure have been an option in the past if managers agreed to it? The most recent departures certainly contrast with the cases of Ms Gibb, who left a week before a Healthcare Commission report into C difficile outbreaks believing she had negotiated a £250,000 pay-off, and Ruth Harrison, who left Buckinghamshire Hospitals trust with around £140,000 in similar circumstances.

Institute of Healthcare Management chief executive Susan Hodgetts says: “It is a change of culture in terms of people being more accountable. There is a real shift - the Rose Gibb case is the very overt shift but I think there has been a shift prior to that.”

Deborah O’Dea, past president of the Healthcare People Management Association, refers to the Gibb judgement as a “wake up call”.

“There’s a belief in the health service that you just call people in and do a deal,” she says. “But it has always been more complex than this.” Trusts are likely to be “bloody cautious” in the future before committing public money.

Charlotte Cooper, a partner with lawyers Everatt and Co, which deals with a number of public sector organisations, says there is a “sea change” in the way cases are being handled.

“The whole case demonstrates… that poor performance cannot be rewarded and it is absolutely unacceptable that people can just go away quietly,” she says.

Trusts will have to ensure they have proper procedures in place for handling poor performance, even at the very top of their organisations.

The Gibb judgement drew a line in the sand in terms of how far trusts can go: the judge found the trust had exceeded its powers and been “irrationally generous” in agreeing a payment of £175,000 above her pay due in lieu of notice. But he said a payment of around £70,000 plus pay in lieu of notice - which would have been the maximum she could have expected from an unfair dismissal claim - would have been reasonable.

Mr Justice Treacy also found that the trust had “paid no more than lip service to the need not to be seen to reward failure” and had taken into account irrelevant considerations when setting the compensation level. This chimes with health secretary Alan Johnson’s view that pay-offs have to be at a level that protects public confidence in the NHS - and his determination to stop the Gibb pay-off appears to have been vindicated.

Severance marker

This judgement may well provide a marker for employment lawyers and HR professionals to use in similar cases. It may be used by strategic health authorities, the Department of Health and the Treasury when they look at whether severance deals are justified. What is less certain is how it will impact on cases where a manager is not seen as being at fault.

But trusts and chief executives will also be keen to make sure that any agreement that goes beyond this has been properly authorised: “signed in blood”, as one expert put it. If this means more payments are referred upwards then the process of getting rid of a senior manager could lengthen.

Faced with a forthcoming critical report, boards may prefer to have a suspended chief executive undergoing disciplinary proceedings rather than a chief executive still in post but secretly waiting to hear whether the Treasury has approved a package.

Increasingly, this could mean the end of managers’ careers. Although suspension is often referred to as a neutral act, it forces these cases into the public eye and makes it harder for managers to return or find work elsewhere.

The DH already has a working group on standards examining how managers who leave one NHS organisation under a cloud can be prevented from working elsewhere.

But what evidence is needed before such drastic action? The power to stop someone working as an NHS manager would be almost equivalent to that of the General Medical Council or the Nursing and Midwifery Council striking a professional off.

Managers in Partnership chief executive Jon Restell questions whether a Care Quality Commission report - which may be produced under a very different remit - is sufficient to judge a manager’s competence.

And what happens with cases that are not about competence or conduct - where managers are removed because their faces don’t fit, or there are personal issues between them and the chair, or even the strategic health authority? It would be inappropriate for them to be “banned” but the service will need to work how to tackle the issue of compensation and how it will distinguish between these cases and ones where managers are judged to be at fault.

Guidance

What should trusts do about paying off outgoing managers? There has been guidance on how far NHS organisations can go in paying someone off for many years but that has not stopped some very large payments.

Cases where chief executives had received up to £400,000 were cited in the Rose Gibb hearing and payments have gone up to £700,000 - although this involved a chief executive whose competence was not in question and was mainly in extra pension contributions.

After the Gibb case, the Department of Health “clarified” the procedure that should be used where payments beyond contractual requirements were made - in some cases requiring authorisation as far as the Treasury. Mr Johnson also called for a six month limit on notice periods for new contracts.

Foundation trusts work under a similar system with severance payments in excess of contracted amounts needing to be submitted to Monitor and approved by the Treasury.

The extent to which this guidance is followed is uncertain. Deborah O’Dea believes that HR professionals do adhere to it and that Maidstone and Tunbridge Wells may be a “rogue case”.

It is possible that SHAs, the DH and even the Treasury have approved payments in the past at levels that today would be seen as unpalatable. Practice may also have differed between SHAs, with some more willing than others to see payment as the way out of a difficult situation. NHS London, for example, is thought to be very rigorous on pay-offs.

In the Gibb case, the trust sought advice from a respected employment lawyer who said a settlement of 12 months’ salary and pension contributions would be “about the norm for this type of case”. But he also commented that the requirement for Treasury approval was “not often followed in practice by NHS bodies and that SHA support is often relied on”.

In Ms Gibb’s case whether SHA support was given is still disputed.

But attitudes may be changing in the current financial climate and SHAs, the DH and the Treasury may be less willing to authorise large payments in future.

There has already been much media coverage claiming the public sector is surviving the economic downturn unscathed while the private sector suffers. This creates a climate where news of large pay-offs will play badly with the electorate.