Very Senior Manager (VSM) pay

In February NHS Improvement published Guidance on Pay for Very Senior Managers in NHS Trusts and Foundation Trusts (the Guidance). This provides advice to NHS trusts seeking executive VSM salary approval and NHS foundation trusts seeking VSM salary opinion before either confirms VSM salaries at appointment or any individual/group VSM pay increase (outside of any nationally recommended cost of living increase).

A significant new aspect introduced by the Guidance is that trusts making VSM appointments that attract an annual salary of £142,500 or above, or granting a pay rise that takes someone to or further above that level of pay, are required (NHS trusts) or expected, but perhaps not necessarily required, (foundation trusts) to implement a processes of ‘earn-back’ for normally at least 10% of the overall salary.

For the purposes of deciding whether the pay level for a particular appointment meets the threshold, pay includes all elements of salary, fees and allowances plus the cost to the employer of any fringe benefits and pensions in excess of normal levels. For directors who are also on the standard NHS consultant contract, NHS trusts should seek approval and foundation trusts should seek opinion on any discretionary payments proposed as part of a chief executive/director’s salary, where the total exceeds £142,500 per annum. The Guidance is also applicable to part-time appointments at salaries of £142,500 or above pro rata but it does not cover chair and non-executive director pay. (We await publication of the VSM national payment framework by the Department of Health (DH), which is expected to provide more detailed guidance).

The Guidance states, at paragraph 7:

‘Where providers intend to recruit VSMs on salaries of £142,500 or above, wish to increase the pay of current VSMs to £142,500 or above, or wish to increase the salary of current VSMs already paid £142,500 or above they should:

1. Refer to pay ranges in Annex A … Ministers expect:

• pay will not exceed the medium without a strong or exceptional case;

• any pay increases on appointment should be limited to a maximum of 10% unless this is insufficient to raise the pay level to the lower quartile point of the relevant range; and

• an element of earn-back pay will be included, i.e. a requirement to meet agreed performance objectives to earn back an element of base pay (normally at least 10%) placed at risk.’

The earn-back element means that at least 10% of base pay may be withheld, or required to be repaid, if agreed performance targets/objectives set are not met. This is not a provision within current contracts so trusts will need to consider how it is approached contractually to ensure that applying this guidance is effective. (Because this arises at either appointment or a rise in pay, this can be addressed by ensuring that the offer makes this requirement clear).

So long as there is clear contractual basis the process can be applied without ready challenge, but the individual circumstances will vary and challenge or at least problems are likely to materialise if the provision is applied to retain or recover the percentage.  There are difficulties with either approach, but we consider that the issues caused by endeavouring to recover paid sums from which deductions have already been made, e.g. PAYE, NI and pension, and to reverse or account for these later are the more significant. Accordingly we believe it is simplest to provide for the percentage to be retained to be paid out later if performance warrants this. We are developing provisions to put earn-back into operation in the most sustainable way for consideration by remuneration committees.