The political heat on association executive pay is off – for now

Originally posted as a column for Inside Housing on October 2.

For the first time since I can remember average housing association chief executive pay has fallen in real terms.

After years of spurious justifications for bumper pay rises and bonuses that alone is enough to make this year’s Inside Housing salary survey worthy of note.

Beyond that, though, the arguments for and against high pay and the legacy of past increases remain largely the same as in any other year.

No, it’s impossible to defend one pay package of almost £600,000, four more of over £300,000 and another four of over £250,000 at a time when tenants face austerity, the bedroom tax and universal credit.

And, no, boards should not be pretending that they are only paying what the market demands when that market rate is set mostly by housing associations themselves.

Set against that, are these sums really so great when some people can earn the same in a week for kicking a ball?

As housing associations are forced by lack of subsidy to become more commercial and more complex organisations, why shouldn’t their bosses be paid more than when they simply took the subsidy and built the homes?

L&Q, for example, is now the tenth biggest housebuilder in Britain but its private sector rivals pay their chief executives much, much more.

The six executives of Berkeley Homes shared out £92m this year – or three times more than the combined earnings of the top 180 association chief executives.

And please forget the criticism that gets routinely trotted out every year about earning more than the prime minister.

The last time I looked, the average chief executive did not get a free house while renting out theirs for £10,000 a month.

And after they leave their job they don’t get to make millions from their memoirs, the American lecture circuit and advice to foreign dictators either.

However, there is one comparison that I think is worth making.

Universities also occupy the grey area between the public and private sectors. For rent paid by tenants, read fees paid by students and for housing benefit paid by the state read the taxpayer guarantee on the two thirds of loans that will not be fully repaid.

They have also been forced to become more commercial. For income from market rent and for-sale properties, read fees paid by foreign students.

Where they differ is in their global scale: the biggest universities have campuses around the world and there is much more of a worldwide ‘transfer market’ in senior academics.

And the biggest universities are larger than the biggest associations: Oxford has an annual income of £1.3bn compared to Clarion’s £796m

But most salaries are higher too: the average vice-chancellor across 157 universities received a total pay package of £280,000 in 2015/16, significantly more than the average of £166,000 for the 180 largest housing associations (itself not a reflection of the sector as a whole).

Comparing the highest five salaries across the two sectors, Places for People is still comfortably top with £579,000 but it is an outlier: the top 10 vice-chancellors all paid more than the £376,000 package on offer at the second highest-paying association (Clarion).

If you look at the top five, Imperial College’s income of £968m is higher than any association’s turnover, Birmingham, Bath and Exeter rank would be in the top 10 associations and London Business School is considerably smaller (but arguably the university equivalent of a housebuilder).

If associations emerge relatively well from this comparison, they will be especially grateful to have avoided the political and media scrutiny faced by universities this year.

Vice-chancellors have faced criticism from across the political spectrum for their pay increases, especially those awarded since the trebling of tuition fees.

In true Grant Shapps fashion, the minister responsible is making that spurious comparison with the prime minister but Jo Johnson is set to back up his words with action.

Universities will have to justify all salaries of over £150,000 to the new regulator, the Office for Students, and it looks set to get powers to impose fines if they do not have good reasons.

The parallels only go so far because there is no equivalent regulator for tenants – Shapps abolished it in 2012.

But look at the bigger picture and you can see them. Vice-chancellors have left themselves vulnerable to attack over their pay and the processes for awarding pay increases seem opaque at best.

With the political temperature rising by the day over tuition fees minister need someone to take the blame for them.

Universities can protest in vain that higher fees only replaced central government funding that was withdrawn but that point gets lost in the furore over fat cats.

And what better way to deflect attention from other measures that will hit students, such as the hike in the interest rate on loan repayments, than setting the press loose on the fat cats?

Back with housing associations, the political assault on chief executive pay peaked at exactly the same time that the government was imposing controversial benefit cuts on tenants and again when the government wanted the sector to agree to the extension of the right to buy .

For the moment the political heat is off but that does not mean that what the sector pays itself will escape wider scrutiny.

Is it a coincidence that this unusual year of pay restraint happened in the first 12 months of the rent cut?

Ministers and civil servants considering the new rent formula seem unlikely to think so as they ponder ways to balance landlords’ capacity to build new homes with the need to hold down the housing benefit bill. [Added October 9: Or did they? Within a few days of posting this they had announced a reversion to the CPI+1 rent formula from 2020.]

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