The big freeze
Kicking off our chief executive salaries special, Inside Housing’s annual survey reveals the economic downturn has put most pay on ice. Lydia Stockdale reports
A chill wind has blown through the salaries of the UK housing sector’s head honchos. Inside Housing’s exclusive annual survey of chief executive salaries reveals that more than half the bosses of the largest 100 housing associations saw their total pay frozen solid, or shift by just 1 per cent.
The total remuneration of 44 chief executives - including basic salary, bonus and car allowance but not including employer pension contributions - was completely icebound, not budging at all between 2009/10 and 2010/11. A further 12 have experienced pay increases or decreases of a single percentage point. In total, 15 housing association heads have seen their remuneration fall.
As for basic salaries, for many they’ve been put on ice - 55 of those surveyed saw no change. Meanwhile, 17 housing heads received a bonus in 2010/11, two fewer than last year and a significant drop from the number who took away performance-related pay in 2008/09, when 53 of those surveyed were awarded a bonus.
Eighty-one chief executives did not receive any performance-related pay despite the overall success of their organisations. Turnovers increased by an average of 5.6 per cent.
Inside Housing has conducted its annual chief executive salary survey of the 100 biggest housing associations in terms of the number of homes owned and managed since 2002. Just one, the Wrekin Housing Trust, refused to provide data this year.
Since the National Housing Federation conference in 2009, when then shadow housing minister Grant Shapps criticised sky-rocketing salaries and told delegates it was ‘time we as a nation get things back in proportion’, housing association chief executives’ pay has been the subject of increased public scrutiny.
After the general election in May 2010, new housing minister Mr Shapps called for chief executives to be ‘subject to the same scrutiny as other public figures whose salaries come out of the public purse’.
Then, at last year’s NHF conference he stated that the public wanted to know ‘how many people think that their job is tougher than being prime minister’.
‘And I want to know how it can be justified to pay enormous salaries which are ultimately being paid for either through the hard work and toil of taxpayers… or worse, from the rents of tenants who may be the people in society least able to afford your salary,’ he added.
This year’s chief executive salary survey shows that while 58 association bosses earned more than prime minister David Cameron’s £142,500 salary in 2010/11, housing heads are showing an unprecedented degree of restraint.
The icy blast that has frozen many salaries this year is not a response to pressure from Mr Shapps, though, believes Jonathan Magee, head of housing sector consulting at Hay Group. Housing association boards and chief executives themselves are conscious of being ‘seen to get pay rises when their employees are going through a difficult time’, he reckons.
‘Certainly, there’s nervousness about increasing any chief executive’s salary. That’s across all sectors, but definitely in housing,’ Mr Magee says.
Sign of the times
David Orr, chief executive of the National Housing Federation, says the survey results show ‘a sensible degree of restraint’.
‘People out there are understanding the financial environment and there is real cost control going on. Salaries are something that people are looking at closely, not just for chief executives. It seems pretty sensible and rational to me,’ he adds.
Rachel Crafts, a partner at 26 Consulting, believes the big freeze is self-imposed by organisations. ‘Before, organisations were anxious that their chief executive was being left behind [in terms of the amount they earned]. Now we’re feeling the mood of the time,’ she says. ‘What seems to be happening is chief executives’ pay rises are coming back into line with staff generally.’
For Tom Murtha, chief executive of Midland Heart, this is certainly the case. ‘This is the fourth year running that I have not received a pay rise,’ he says. ‘Three years ago the whole of our staff had a two-year pay freeze, partly because of the economy and partly to reduce costs,’ he explains. While the ice has melted for the rest of the housing association’s employees - they are now entitled to pay rises once again - its executive team members’ pay remains at a standstill. ‘We benchmark ourselves regularly and our pay is still competitive. I think [continuing to freeze executives’ salaries] is the responsible and mature thing to do,’ Mr Murtha states.
But, while this is the major trend, not every chief executive of the top 100 housing associations has seen a frost settle on their pay packet. Thirty-eight association heads were given a pay rise. In fact, the average total chief executive salary has risen slightly by 1.8 per cent from £153,353 in 2009/10 to £156,141 in 2010/11.
For the second year running, Jane Ashcroft, chief executive of 34,982-home Anchor, is the highest earner. She received total payments of £331,250 - up 14 per cent on last year - made up of a basic salary of £275,000, a £15,000 car allowance and a £41,250 bonus.
Lesley James, chair of Anchor’s executive remuneration committee states that Ms Ashcroft’s £275,000 basic pay, and that of all of the housing and care provider’s senior managers and non-executives, has been frozen for the current financial year.
Meanwhile, ‘other colleagues across the organisation received a salary uplift this year’.
The leap in Ms Ashcroft’s remuneration comes from her receiving a bonus in 2010/11, but not in 2009/10. The chief executive, who was managing director and company secretary of Anchor before becoming the boss in March 2010, ‘has not received an increase in her basic salary for three years and did not receive a bonus as chief executive in 2009/10’, explains Ms James.
‘The chief executive’s bonus in 2010/11 was awarded following the achievement of extremely challenging targets and in a year in which we generated a surplus of £10.6 million - £6.2 million better than budget - which we can reinvest in providing services to older people across England,’ she adds.
Ms Ashcroft is the only chief executive to have broken the £300,000 mark, but David Cowans, chief executive of 62,034-home Places for People on £287,193; David Bennett, chief executive of 79,011-home Sanctuary Group, on £283,376; and Keith Exford, chief executive of 56,658-home Affinity Sutton, who earned £269,000 including a £33,000 bonus, are not far off.
Meanwhile, although he’s not one of the sector’s highest earners, Harj Singh, chief executive of 9,930-home Aldwyck Housing Group received the biggest total salary increase of 17 per cent. Again, the main reason for this jump was the £13,500 bonus - one of the biggest in the entire sector - he received in 2010/11. In 2009/10 he had only recently been appointed and was therefore not entitled to a bonus.
While some chief executives have seen their total pay boosted by bonuses, others are choosing not to take their full salary or bonus entitlement. For example, Peter McCormack, chief executive of 13,466-home Derwent Living points out that he was offered a bonus for 2010 but that his executive team agreed that he should defer taking it ‘given the financial climate’. He may still take the bonus after futher consideration later in the year.
Kevin Dodd, chief executive of 31,106-home Wakefield & District Housing did not take his full salary entitlement for 2010/11. Directors at the Yorkshire-based housing association are on the same terms and conditions as all other employees and therefore did not receive bonuses.
Mark Glinwood, chief executive of Insight Human Resources, believes there will be more housing heads who freeze their own salaries. ‘I think they’ll have made this decision because they think it’s the right thing to do when the wider economies impacting on their staff and customers,’ he says.
They may think it ‘would be counter-productive to take a salary increase because it would make it difficult for them to make changes within their organisations’, Mr Glinwood adds. Or they could be under pressure from board members not to take the salaries and bonuses they are contractually entitled to, he suggests.
Whatever their motivation, Michael Gelling, chair of the Tenants’ and Residents’ Association of England, ‘applauds’ the 55 chief executives who have either seen their salaries freeze or shift by just 1 per cent. ‘That’s laudable when tenants are struggling with rent increases,’ he says.
And Deborah Hargreaves, chair of the High Pay Commission, which is currently working on an independent inquiry into top pay in the private sector, believes the 15 chief executives who took a cut to their total remuneration - including Phil Richards, chief executive of Prospect Homes, Pushpa Raguvaran, chief executive of Housing 21, and Bill Payne, chief executive of Metropolitan Housing Partnership - ‘should get credit’. ‘There has been quite a lot of public condemnation of private companies’ [chief executive salaries] as well, and they haven’t received a pay cut,’ she points out.
But Hay Group’s Mr Magee is concerned that housing’s chief executives aren’t been rewarded highly enough. On average, in 2009/10 they earned 17 per cent less than their counterparts in the private sector, and now many of their salaries have come to a standstill during ‘one of the toughest years for chief executives’.
‘There is a definite shift in what is expected of a chief executive,’ he says. ‘They’re managing more risk; they are expected to be more commercial in their decisions, thinking about the bottom line. They need to be more entrepreneurial and innovative - to improve services without needing to tick the regulators’ boxes. All this plus they must maintain their social purpose,’ he states.
Indeed, chief executives of larger organisations, whose high salaries are under the most media and political scrutiny, are actually paid less per homes owned and managed and per pound of turnover. David Montague, chief executive of 67,100-home London & Quadrant, receives the lowest pay per million turnover at £612. Martin Armstrong, chief executive of 81,500-home Glasgow Housing Association, meanwhile is paid the least per home at £2.29 compared with Tom Manion, chief executive of 7,558-home Irwell Valley Housing Association, who receives £20.43.
Plus, as several housing associations that offer care and support as well as housing point out, measuring pay by the number of properties owned and by financial turnover does not always adequately reflect the work some organisations do.
Often, those that provide care are competing against private organisations, as Anchor’s Ms James points out. ‘In a social care and housing market in which a number of competitors [such as care home operator Southern Cross which is set to shut down] have experienced difficulties, [Anchor] is in a very strong position. The growth plans we have for the next few years will see us provide more services to more people.’
‘Public funding accounts for just under half of our income. Increasingly, our income is from individuals, who choose to purchase our value-for-money services rather than those of our competitors,’ she states.
Housing associations may be increasingly pitching themselves against private sector companies and their chief executives expected to take on more of a competitive mentality, but ‘politically this is a difficult message’, suggests Mr Magee.
The big freeze that has hit a majority of chief executives’ pay packets is ‘understandable from a board’s point of view,’ he says. ‘They’re bidding for a limited pot of funding and they don’t want to upset the Homes and Communities Agency or the housing minister.’
But salaries can’t stay frozen forever, states Mr Magee, who is concerned that before long the freeze could start to impact on motivation and retention.
He says that while basic pay can remain on ice, bonuses need to be considered more carefully.
‘I think the freeze will only be a temporary measure,’ he says. ‘At some point, boards will look at reducing the amounts of basic pay and using bonuses to reward excellence. So long as the board has said at the beginning of the year, “this is what you have to deliver”, and there is evidence published to show it, this will be possible.’
The High Pay Commission’s Ms Hargreaves does not share these worries, though. She says housing’s chief executives are still receiving ‘good, very large salaries’ and that pay is just one of the factors that motivates bosses.
‘Very seldom do you see a chief executive leave to go elsewhere for more money. The money needs to be right - it needs to be in line with their competitors - but it doesn’t get them out of bed in the morning. What gets them out of bed is company strategy, bringing good people on,’ she says.
Whether those chief executives whose total pay packets have been frozen will insist on seeing them thaw remains to be seen - but in today’s cold economic climate, their organisations are certainly playing it cool.
Additional research by Gene Robertson