Opinion: The dark art of setting board pay
Published by Max Salsbury for 24dash.com in Housing
Yorkshire authority outlines £100m economy boost
By John Cross, director, John Cross Consulting Ltd.
At the NHF Board Member conference the issue of paying housing association board members was on the agenda, a pre-cursor to the long-awaited publication of the federation on non-executive pay, I assume.
Whilst the pay of some boards has hit the headlines recently, there has been a singular lack of a coherent public debate about the subject. What debate there has been appears to be confined to the comment pages of the housing press and possibly in the bars at conferences.
I am not an expert of board pay but I have taken the time to look at this thorny question across a range of business sectors, public, private and not-for-profit. The common factor in all is that there appears to be no real pattern, no rhyme nor reason to how pay is determined or the levels at which it is set.
Take two private property companies; both pay their chairman around £140,000 per annum. One company was making a substantial operating profit; the other a loss. The turnover of one was twice that of the other. I could go on with the comparisons but from an outside perspective the remuneration levels seem incongruous. However, it is for the investors and shareholders of these respective businesses to determine the value added by their non-executives.
In the public sector I see further incoherence. A chairman on an NHS Trust working 2-3 days a week gets the princely sum of around £20,000 per annum, compared to the chairman of the Environment Agency who earns over four times that. Natural England’s chairman earns around £70,000 but if you chair the Met Office your pay will be about half that. Why the difference? Sponsoring departments’ different approaches? History? Who knows? Little is known in the public domain about how pay levels are set but presumably accountability rests with an appropriate secretary of state.
And now back to home territory – the pay in the world of housing. The HCA doesn’t regulate pay as its predecessor the Housing Corporation did. But as the housing sector increasingly diversifies in both activities and outlook we need to create the climate where all approaches to board pay levels are considered and evaluated without fear of moral outrage raising its head in the pages of the housing press.
I hope the new guidance, advice or whatever comes out from the NHF will help to give us the platform for a proper consideration of the subject. In some ways the guidance on the level of payment is less important than helping organisations think about the accountability for the decisions on pay.
We don’t have shareholders, in most cases, to be accountable to or be challenged by for these decisions. I don’t think our accountability should be to the sector’s regulator. We do have an array of interested stakeholders and dare I say it investors. Is that where our accountability lies? Should that be where the challenge raises its head?
Clearly stakeholder engagement and management is vital to our busiesses but each of those stakeholders and investors is likely to have views and opinions, and sometimes their views may be polar opposites. Do we therefore play safe and maintain the status quo to avoid the problem?
I may be a pessimist but the challenges facing the sector are huge and there is not a silver bullet to save us. Determining where each of our companies sit on the spectrum of being socially motivated businesses is part of the culture changing paradigm we face and with it the thorny question of board pay.
There is not a one size fits all answer. We are a diverse sector: charities, exempt charities, industrial and provident societies, but all of us have the common bond of social enterprise and not distributing profits to shareholders.
Each of us will need to determine the right answer for our business within the letter and spirit of our respective governance codes. It is, however, a time for taking the necessary bold decisions on a wide array of business matters and board pay is just one.
The affordable housing sector continues to evolve. Great governance and great boards have to be the driving force of that change. Getting the right skilled and motivated people to join our boards is critical for all of our socially motivated businesses. We can’t afford to just play safe on the levels of board pay because of the spectre of flaming the ire of the the nay-sayers. Be brave, make the bold decisions that are right for your organisation and your business in an open and transparent way. Be proud that you have had the courage but then make sure you deliver!