Boom at the top

Originally posted on September 14 on Inside Edge 2, my blog for Inside Housing

On current trends the first £1m a year housing association chief executive will appear by 2025.

It could happen even sooner than that. I’ve based that on the trend in the five years since 2010, which include two years during the recession when many bosses’ pay was frozen. And who knows what will happen if (when?) the first ‘free’ housing associations are launched?

I say this not to single out the highest-paid individual or the organisation involved. Nor do I deny that housing associations are complex organisations (and becoming more complex) that require skilled leaders and need to pay well to attract the right people. Places for People is far more than a housing association and currently styles itself ‘one of the largest property and leisure management, development and regeneration companies in the UK’ (to quote its website). It says that £330,00 of the £481,000 total pay package revealed in Inside Housing’s survey was attributable to social housing and £151,000 to ‘non-social housing’ businesses.

But that £330,000, and the current average of £183,000 for chief executives of the top 100 housing associations, are still huge sums and they are escalating year by year. The latter is double what chief executives got paid in the earliest Inside Housing survey that I can find (2001/02). Median pay for full-time employees has increased by around 35% since then and has been falling for most of the period since 2008.

Whatever you think of this, housing associations are only behaving like companies and organisations in the rest of the economy. And they are still on a different planet to professional football clubs and banks. However, three more meaningful comparisons spring to mind:

Housebuilders – In her Inside Housing piece, Jess McCabe quotes the £6m pay package of Barratt chief executive Mark Clare. A more extreme example is the £23m earned by Berkeley Group’s Tony Pidgley, part of a £52m package going to the firm’s top five executives. Yes, housebuilders are risk-taking and private sector but those risks and their profits are underwritten by government schemes like Help to Buy.

Politicians – ‘They get paid more than the prime minister’ is the often-heard complaint. David Cameron gets £142,500 while Cabinet ministers receive £134,565 and both are frozen until the end of the decade. However, this is only basic salary and does not reflect the full perks of the job. The last time I looked housing association chief executives did not get free homes while they rented out their own for thousands of pounds a month. They don’t get to make £400,000 on the sale of their taxpayer-funded second home. They don’t pick up lucrative jobs in the City when they leave. And they don’t make millions from speaking tours, writing their memoirs and dealing with dubious governments around the world.

Universities – This seems a reasonable comparison. Like housing associations, universities are classified as private sector for public spending purposes but rely on public funding of student loans. The switch from government funding to tuition fees is a bit like the switch to private finance for housing associations. A study earlier this year puts the average pay of vice-chancellors at £260,000. The highest paid got £623,000.

Figures like these do put things into perspective but they do not make housing associations any less open to criticism. The justification offered by most boards is that salary increases and bonuses are based on comparisons with ‘the market’. But can you think of any examples of a chief executive being recruited from outside housing – or of a housing association chief executive taking up a job outside housing? ‘The market’ in this case is housing – and housing could do something about it if it wished.

As Jess points out, the lowest paid chief executives in the top 100 are both in Scotland, as is the boss who seems to offer the best value for money per home managed. It may not be a coincidence that the Scottish Housing regulator has a remuneration regulatory standard. Governments and regulators elsewhere could follow suit if they chose

Conservative criticism of chief executive pay dates back to before the 2010 election, when Grant Shapps called it ‘outrageous’, but the party’s words speak louder than its actions in government. That may be down to concern that too much interference could spark debt reclassification but perhaps it also prefers to be able to use top pay as a propaganda weapon to justify other policies than to do something about it? Somewhere in the Treasury a special advisor is surely poring over the Inside Housing survey for ammunition ahead of the spending review.

But governments do have more drastic options. Spurred on by a series of financial scandals in its large housing associations, the Dutch government is gradually imposing legal restrictions on pay in the ‘semi-public’ sector so that chief executives will not be able to earn more than a government minister (£145,000 including pension contributions and expenses). The law seems far from straightforward, and organisations paying more than that have seven years to comply, but it shows what the government here could try if it wanted.

And housing associations and chief executives could also do something if they wished. Poplar Harca cut its chief executive’s total pay package on the basis that it could not justify a salary increase ‘when the staff don’t have one’. In contrast, if everyone adopts Notting Hill’s policy of making sure ‘that we are paying in line with the market’ that looks like a guarantee that top pay will continue to escalate.

Housing association boards could perhaps reflect on the fact that most of their ‘customers’ who are in work are still earning less than in 2008 and that those on benefits will see them frozen until 2020. They might consider whether it’s appropriate year after year to give their chief executive a bigger pay increase than their staff and bonuses on top. They might wonder about the contrast between chief executives with pension pots above their lifetime tax-free allowance and staff facing a possible move to a less generous system.  Above all, they might question the wisdom of giving annual ammunition to their critics at Westminster and in the media.

High pay, and the ever-increasing gap between the top and the bottom, are problems for the whole of society. Housing association chief executive pay is a reflection of that and there are people who earn in a week what they earn in a year for kicking a ball or gambling with other people’s money. But change has to start somewhere.

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