Rules on academy executive pay tightened following concerns over high salaries

27th July 2017 at 15:01
The updated handbook has introduced a new section on executive pay.
Updated academies handbook from DfE also warns MATs about spending that could put pressure on others trusts to follow suit

Academy leaders’ pay packets are set to come under greater scrutiny after the government introduced a new rule about how they are decided.

The move follows growing criticisms about the high salaries paid to some academy trust chief executives, and concerns about the lack of transparency about how pay levels are justified.

The Academies Financial Handbook 2017 (AFH), published today by the Department for Edcuation, introduces a new section about executive pay.

Explaining the change, the document says: “We are emphasising that decisions about levels of executive pay must follow a robust evidence-based process.”

The new rule, which comes under the overall heading of internal control, says: “The board of trustees must ensure that their decisions about levels of executive pay follow a robust evidence-based process and are reflective of the individual’s role and responsibilities.”

Other changes to the handbook, which academy trusts have to comply with as a condition of their funding agreement, emphasise the need to have “significant separation” between the roles of members and trustees of trusts.

This follows a number of investigations by the Education Funding Agency which have raised concerns about conflicts of interests when there is an overlap between members, who have a similar role to company shareholders and who the handbook describes as “eyes on and hands off”, and trustees, who conduct the business of the trust.

The handbook also introduces a new category of transaction that must always be referred for approval to the Education and Skills Funding Agency (ESFA), which has succeeded the EFA.

These “repercussive transactions” are described as those which are “likely to cause pressure on other trusts to take a similar approach and hence have wider financial implications”.

The new guidance also suggests that the Treasury is taking a closer interest in academy spending, warning trusts that novel, contentious and repercussive transactions may have to be referred to the Treasury for approval and saying trusts “should allow sufficient time for proposals to be considered”.

The updated handbook also clarifies the rules about when academy trusts have the power to make severance payments of up to £50,000.

It says, for the first time, that the £50,000 is a gross figure, before income tax or other deductions.

Gillian Allcroft, deputy chief executive of the National Governance Association (NGA), said: "The NGA has been raising the issue of rising executive pay for some time, not just in relation to the academy sector, and we welcome the fact that this is being flagged up in the new AFH."

However, she expressed disappointment that the DfE had not provided benchmarking information on salaries so that trustees have reference points to base their decisions on.

She added: "The NGA is pleased that the DfE recognised in the 2016 AFH the need for separation between the layers of governance in academies and the strengthening of wording around this in the 2017 document is to be welcomed."

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