The first signs of spring
The freeze in chief executives’ pay last year is slowly beginning to thaw, according to Inside Housing’s exclusive annual salary survey. Lydia Stockdale and Gene Robertson report on the sector’s blooming pay packages
This time last year a frost had settled on the salaries of social landlord chief executives. This year, Inside Housing’s annual survey of the heads of the UK’s largest 100 associations, as well as the largest council and arm’s-length management landlords, shows a thaw has begun to take place.
Between the financial years 2009/10 and 2010/11, approaching half of the chief executives of the biggest housing associations in terms of the number of homes owned and managed, experienced a freeze in their pay packets.
But now we can reveal that in 2011/12 the sun’s rays are once again shining on the sector’s high earners, with the salaries of nearly two thirds of those who shared details of their remuneration with us beginning to blossom.
Things had got a bit nippy for housing bosses when we reported the results of the survey last year - with a housing minister who repeatedly asked them to justify their pay, a general economic chill sweeping through the lives of their employees and tenants, and welfare reform on the horizon, 2010/11 was a year of restraint.
Yet while the financial climate may not have warmed up, chief executives’ basic salaries have slowly begun to rise again. The average basic salary received by chief executives in 2011/12 was £150,032 - nearly £14,000 more than the £136,514 average basic taken home during 2010/11, a 10 per cent increase.
Total remuneration packages, which include basic salaries, bonuses and car allowance, however, have not sprung up by as much. Although 64 chief executives experienced a total pay rise in 2011/12 - few received the kind of hike that causes average figures to bloom. This is why the average total remuneration package across all 100 chief executives has remained steady, standing at £160,869 in 2011/12, which is up 3 per cent on the 2010/11 average of £156,141.
There are some stand-out pay increases though, most notably that of David Cowans, chief executive of 61,978-home Places for People, who was paid a record-breaking total package of £363,498 in 2011/12, up from £287,193 in 2010/11.
Mr Cowans, who has surpassed Jane Ashcroft, chief executive of Anchor, as the highest paid boss in the sector, received a jaw-dropping £76,878 bonus. In 2010/11 he did not receive any performance-related pay, which is why his pay has jumped up by more than a quarter.
A third of chief executives received a bonus in 2011/12. The average bonus across all 100 chief executives was £4,330. When taking into account only those who received performance-related pay, the average amount awarded was £13,126.
Overall, David Orr, chief executive of the National Housing Federation, is heartened by the results of this year’s survey. ‘Pay rises, the majority of which were between 1 and 3 per cent - levels that are usually decided by independent boards with tenant representatives - were in line with staff increases across the organisation.’
Mr Orr believes the level of growth in salaries in 2011/12 was healthy, and will ultimately ensure that the sector flourishes.
‘Housing associations house more than one in nine households in England, and last year had a turnover of over £12 billion; spent more than £4 billion managing and maintaining homes to a high standard; and invested nearly £500 million on improving people’s lives,’ he says.
‘They employ more than 155,000 people directly and many thousands more indirectly through contracting and investing in local services,’ he continues. ‘Therefore it is vital that they attract and keep talented leaders in order to provide high-quality homes and services through these tough economic times.’
Not everyone is so convinced. Michael Gelling, chair of the Tenants’ and Residents’ Organisations of England, says he’s ‘disappointed’ to see that average basic salaries have risen. ‘With welfare reforms, the bedroom tax, and rents going up, average people are feeling the pinch,’ he says.
‘People I speak to can’t think about tomorrow financially, they are just trying to get through today. Chief executives are so far removed from the reality of how their tenants are living, it’s immoral really.’
Chief executives’ pension pots (which are excluded from our total pay figures) are perhaps a case-in-point. In July, the Office for National Statistics released figures showing that the number of private sector workers in pension schemes has fallen from 6.2 million in 1995 to 3 million in 2010.
Meanwhile, Anchor’s contribution to its chief executive Ms Ashcroft’s pension in 2011/12 was £55,000. Gentoo Group’s contribution to its chief executive Peter Walls’ pension was £46,576 and L&Q paid £45,600 into its chief executive David Montague’s pot.
Deborah Hargreaves, director of High Pay Centre, an independent, apolitical think tank established to monitor pay at the top of income distribution, says that across all sectors, where organisations’ boards are being careful about boosting chief executive salaries, they tend to maintain pension contributions.
‘It’s still a deferred payment - it’s not like they’re not going to receive it,’ she states.
The collapse in more traditional final salary schemes, which offer much higher retirement incomes than the newer defined contribution schemes, will impact on many tenants’ future plans, as fewer than one in 10 people working in the private sector has a final salary pension.
For housing association bosses though, this isn’t such a problem. In 2011/12 more than three quarters of housing association chief executives were in final salary schemes, and all of those listed in the tables showing the top 10 pension contributions by percentage of basic salary and value - apart from Anchor’s Ms Ashcroft, who has a defined contribution pension - are in one of the more fruitful defined benefit schemes.
Putting pensions aside though, Ms Hargreaves is quite impressed with the results of the survey. ‘It is good to see some pay restraint being introduced,’ she says. Pay for chief executives in the FTSE 100 companies rose by 10 per cent on average last year to £4.8 million, according to research company Manifest, she points out.
Ms Hargreaves does, however, single out Mr Cowans’ pay rise. ‘I would say that a pay increase of 27 per cent is pretty outrageous at a time of heightened economic austerity and when staff are getting very modest increases or seeing their pay frozen,’ she says.
But it is organisations’ boards, not their chief executives, who set executive pay, and Chris Phillips, chair of Places for People, is adamant that Mr Cowans’ salary is well deserved.
‘Places for People continues to deliver a solid performance with revenue up on last year,’ he says.
‘David’s leadership has ensured that the group has been able to manage its business well during the current economic environment while enabling it to innovate and grow into new business markets.
‘He has taken tough decisions to minimise the impact of the challenging economic landscape on the day-to-day running of the group, and has positioned it for future growth.’
Mr Phillips adds that Places for People raises the majority of its capital from private markets and that it is a ‘not-for-dividend’ organisation. This means its profits are ploughed back into the communities in which it works across the UK.
‘If the property sector is going to attract and retain chief executives of a high calibre then we need to ensure that their salaries are attractive, reflect previous experience, and reward performance,’ he says.
For some housing association chief executives the pay freeze continues, however, and some bosses have even taken a cut, including last year’s highest earner Anchor’s Ms Ashcroft, whose pay dropped 4 per cent in 2011/12.
Having been through a period in which salaries have often been frozen, some organisations’ board members say they have needed to breathe some life into executive pay in order to ensure they do not lose their most senior staff members to competitors offering higher salaries.
Recruitment and retention, at the end of a two-year pay freeze, were the reasons why Aspire Group’s remuneration committee awarded its chief executive Sinéad Butters a rise.
Ms Butters, who is responsible for 8,959-homes, says her basic salary rose from £106,605 in 2010/11 to £127,030 in 2011/12 following a benchmarking exercise which involved measuring her salary against that of other housing organisations including other social landlords in the Stoke-on-Trent area.
‘My starting salary was below the market rate, and the disparity meant there could be difficulties with recruitment and retention,’ says Ms Butters, whose organisation has grown from having a turnover of around £25 million to nearly £40 million over the past five years.
The rise in Mrs Butters’s basic salary combined with a one-off £5,000 bonus meant her total pay rose by 22 per cent - the second highest total remuneration increase.
Bringing his organisation’s chief executive’s salary in line with what is offered by competitors is also the reason Michael Pearson, chair of East Midlands Housing, gives for Chan Kataria’s 20 per cent rise.
‘The board felt it was important that the chief executive’s salary was reviewed to reflect the significant growth of the organisation and to ensure it was on a par with similar housing associations in the area,’ Mr Pearson says.
Those setting pay for arm’s-length management chief executives do not, however, appear to have such concerns.
Inside Housing contacted the 10 largest ALMOs in terms of the number of homes they manage and found that for their bosses the pay freeze continues.
The salary of Lesley Roberts, chief executive of 23,098-home Wolverhampton Homes, increased by a relatively modest 2 per cent, from £128,313 in 2010/11 to £130,839 in 2011/12.
Ashley Crumbley, chief executive of Wigan and Leigh Housing, which manages 22,654 homes on behalf of Wigan Council and owns a further 56 itself, hasn’t received a pay increase since 2008. His total salary for 2011/12 was £123,197.
At 29,013-home Sandwell Homes, interim chief executive Paul Field’s £109,873 salary hasn’t budged since our survey last year.
Neil Litherland, interim chief executive at 31,995-home Lambeth Living, received £125,000 in 2011/12, which is exactly what his predecessor Cathy Deplessis received before she left the organisation in February 2011.
At 31,500-home Hackney Homes, chief executive Charlotte Graves’ salary also remained the same, at £136,420 per year.
Some of the UK’s largest stock-owning local authorities are also merely maintaining their housing heads’ salaries. The salary of Derek Muir, head of housing and neighbourhood services at 30,739-home Fife Council, was £86,000 in 2011/12 - the same as it was in 2010/11.
In South Lanarkshire, which has 25,833 homes, Annette Finnan, head of area services’ salary remained at between £88,800 and £93,800. Meanwhile, Mary Castles, executive director of housing and social work services at neighbouring 37,269-home North Lanarkshire Council’s basic is stuck at £113,250, although she could receive up to £10,275 in performance-related pay, the same as in 2010/11.
The chief executives of ALMOs and housing heads of local authorities are mostly coping with ongoing pay freezes, so surely housing association bosses could too?
Jonathan Magee, head of housing at management consulting firm Hay Group - who is often called upon to help housing association directors, acting on behalf of their boards’ remuneration committees, to assist in benchmarking salaries - says the way pay is set largely depends on the type of association.
‘Organisations are becoming more diverse. Some are taking on more risk and are being more innovative. They’re more complex, so comparisons made within the housing sector and with other non-commercial organisations might not be right - they should be compared with organisations within the private sector,’ he explains.
Setting the right benchmarks
Mr Magee sometimes helps organisations to benchmark salaries against those paid to employees at development companies and other customer-focused organisations, looking at factors including the size of the work force, the financial complexity of the organisation and the diversity of the services it offers.
‘A good performance culture starts with the chief executive,’ he says. Boards must have a reward policy that they communicate within their organisations, that way ‘if a chief executive has delivered a good service, then staff tend to think [a pay reward] is well justified’, Mr Magee explains.
Home Group, which owns and manages 53,000 homes, adopted its rewards strategy ‘performance through people’ three years ago, and its chief executive Mark Henderson, who received a £9,250 bonus in 2011/12, is subject to it in the same way as the housing association’s other 3,800 employees.
Susan Coulson, director of human resources and development at Home Group, says the strategy was introduced ‘to keep everything as transparent as possible’. ‘We wanted an equitable approach,’ she says.
The group’s board decides how much money to set aside to reward staff, and then the pot is divided between employees who have been given a ‘one rating’ - the star performers - who would usually make up to 10 per cent of the total workforce. They then receive a payment that amounts to 5 per cent of their basic salary.
If salaries continue to thaw for chief executives, such performance-related schemes appear to be a good way to ensure that everybody - not just the top bosses - has the chance for their pay to bloom.
£363,498 - highest total pay in 2011/12
£160,869 - average total remuneration package
£4,330 - average bonus received
£150,032 - average basic salary
£76,878 - largest bonus received
Inside Housing and consultancy Altair are running a survey on the skills challenges facing the social housing sector. Let us know your views to be in with a chance of winning £500 of Marks & Spencer vouchers.