Following the recent publication of the Civil Service Pay Remit Guidance for 2023-24, we would like to offer a view on key considerations for reward and the wider people agenda in organisations covered by the remit.

Allowed average pay awards of up to 4.5% (plus 0.5% for “lower pay bands”)

The headline figure of allowed Increases to Remuneration Costs (IRC) is slightly higher than expectations captured in QCG’s Salary Planning Survey from December 2022, whilst still generally in line with pay increase budgets observed in the market. This will, to a degree, keep the gap between private and public sector pay from widening further.

The cap set on this pay remit will allow organisations to continue efforts to respond to cost of living pressures and extend additional support to more vulnerable employee groups by virtue of the additional 0.5% of the pay bill that can be targeted at employees with lower levels of income.

This cap will also allow organisations to explore meaningful differentiation of pay increases. To that end, it will be critical for organisations to articulate a clear rationale and principles for any differentiation in pay increases in order to ensure fairness in the allocation of the pay budget.

Organisations may need to seek clarification from Cabinet Office or their sponsoring department on the working definition of “lower pay bands” to make sure the additional funds allowed are targeted are the correct employee groups.

The art of the possible

In our interactions with organisations covered by the Civil Service pay remit we have found differing views of what is and isn’t allowed.

Without trying to oversimplify the provisions of the remit, organisations should work off the principle that there is a lot that they can do without the need to submit a business case to HM Treasury as long as IRC stays within the cap set by the remit and arrangements in place do not include automatic time-served progression or create an entitlement for employees to receive automatic increments. This means that, provided that these restrictions are met, employers have discretion to make changes to pay and grading structures, distribution of pay increases and other aspects of managing pay.

Of particular importance, and often overlooked, is the non-consolidated performance pot. The funds from this pot are a great opportunity to boost recognition – through initiatives such as in-year awards – and reinforce the sense of public service and impact that draws individuals to organisations covered by the pay remit, ultimately contributing to employees feeling truly valued.

Named exceptions

In contrast to last year, this year’s Civil Service pay remit describes 3 specific items that can be excluded from IRC calculations namely: selling annual leave schemes, costs associated with employee benefits from cross government benefits framework, and costs from the additional Coronation bank holiday.

Increased costs from selling annual leave schemes need to be offset against additional productivity. What ‘additional productivity’ means can be open to interpretation though, even if pay flexibility provisions in the pay remit point to areas such as reduction in contingent labour, savings from reduced turnover, recyclables, and changes to terms and conditions of employment.

One could argue that other aspects can also be relevant to productivity increases such as improved service delivery or even higher employee engagement.

We believe additional guidance from government will be helpful to provide greater clarity on this point, and potentially other aspects of these exceptions.

Pay flexibility

Provisions for pay flexibility remain largely unchanged, presenting opportunities worth considering – even if the bar for approval of business cases continues to be set at a high level.

Capability-based frameworks have generated particular interest, as they can provide greater clarity on options for pay progression – a sore point following the removal of time-served structures. Organisations wishing to explore this option will need to carefully consider whether they have appropriate standards in place to set expectations of different levels of capability, adequate learning and development processes to allow for the development and application of relevant skills, and adequate processes and governance to ensure fair appraisals.

In addition, affordability may become a pressing issue. Options to manage adequate funding of progression through these frameworks include mechanisms to prioritise capability-based awards, flexibility in the scale of pay adjustments, or offsetting costs through permanent savings elsewhere and other productivity/efficiency measures.

More generally, we find that stringent requirements for supporting evidence and self-funded proposals continue to be applied to the review of business cases for pay flexibility. This means that all the work that goes into the preparation of a sound business case may still not deliver the desired outcome.

We encourage organisations to place greater focus on what is within their gift to do first (as explained earlier in this article), and only consider the submission of a business case for pay flexibility when other avenues have been exhausted, there is robust evidence of material risks to service delivery, and clear opportunities to deliver efficiencies.

In conclusion…

When looking at the pay remit I can’t help to think about a professor from business school who would often say: “When you can’t do what you must do, you must do what you can do”.

There is much to do within the provisions of the pay remit to improve the effectiveness of pay, and reward in general. Contact us if you would like to explore how you can get this done.