Does chief executives' pay reflect the market? In the most talked-about survey of the year, Housing Today looks at how salaries compare to responsibilities-and rents
Issue 116 of Housing Today, published on 14 January this year, was one of the most popular issues we have ever produced. From a quick glance at the contents it is easy to see why. As always it was packed full of interesting reading, with the usual sprinkling of exclusives, a nice feature on transfers, and an opinion piece from Age Concern. But this was not what made it one of the most frequently requested back copy by readers.

It was our survey of housing association chief executives' pay that people wanted to pore over again. And we ran out of spare copies a long time ago.

So by popular demand we have updated the survey to cover the last financial year. Since we now have a comparison of two years, this time we have also included details of pay rises.

The salary increases make particularly interesting reading when compared against rent increases for the year. The last financial year was the first in which housing associations were required to keep rent increases below the Retail Price Index (RPI) plus one per cent, which at that time was 4.7 per cent. Around a third failed to keep rents below this limit, but the average rent increase recorded by the Housing Corporation for the year was 3.8 per cent.

However our survey now shows that on average chief executives' pay rose by 7 per cent in that year. This certainly weakens the case of some of those complaining about the strictures of rent control. The level was also above that of increases in average earnings for the year of around 5 per cent.

The survey shows that some associations have followed the lead of cabinet ministers by freezing pay levels, and a few have actually cut pay. In all we recorded 10 associations that either cut chief executives' pay or froze the amount. Significantly more increased levels below the rate of inflation to produce a pay cut in real terms.

The average pay increase of 7 per cent also looks better when compared against an average increase in turnover for the surveyed associations of 14 per cent. Turnover figures increased significantly in many associations, and of course markedly in those where mergers had taken place.

It should also be pointed out that for a handful of associations the year in question was the calender year 1998, because they work to different financial year ends.

This year, where figures were available, we have also listed pension contributions. But in the table over the page it was not always possible to list some of the other perks cited in the accounts. For example Sanctuary HA's accounts reveal that, in addition to David Bennett's £110,000 remuneration package, in 1989 he was given £60,000 by the association for the cost of buying a house. The accounts say he has to pay back an (unspecified) proportion of this when he sells the house.

Once again we have correlated remuneration levels (salary plus benefits, excluding pensions) against turnover. And again the data shows a fairly good statistical correlation of 0.77 - a perfect correlation would be 1.0. We did not include a correlation against stock numbers this year, because the proliferation of group structures now makes this difficult to record accurately.

Since our last survey of chief executives' pay, the Housing Corporation commissioned a guide into the appointment of chief executives' pay, by John Smith of Succession Planning Associates (Housing Today, 4 November) Smith's early recommendation, rejected by the corporation, was to use Housing Today's correlation graph of turnover against salary as a gauge of appropriate pay in the sector. He suggested that associations should be required to explain themselves if their chief executives were paid more than 10 per cent above the correlation line. Suggestions of 20 per cent above were also made.

So following Smith's idea, this year we have plotted additional lines to show how far salaries deviate from the correlation 'line of best fit'. By showing 10 per cent and 20 per cent bands both above and below the main correlation, you can see how many salaries fall inside and outside these band widths. The most notable outliers of course are those that are more than 20 per cent above the line.

One of the main defences of high salary levels in the sector is that pay just reflects the market rate. But what our statistics now show is that many of the highest salaries deviate quite significantly from the market rate.

Last year ten chief executives received more than £100,000 in salaries and benefits excluding pensions. The correlation graph shows that in five of these cases pay level was more than 20 per cent above the sector norm.

These chief executives and their boards would no doubt argue that a correlation against turnover does not tell the whole story. For example Anchor Trust has the highest paid chief executive and the highest turnover. But chief executive John Belcher's 43 per cent pay (also the highest rise in the sector) means that his salary is now more than 20 per cent above the correlation line. Last year it was slightly below the line. However, what the graph does not show is that the trust employs nearly twice the number of staff of any other association.

Smith himself argues that if an association has more diverse and challenging activities, then a salary above the market rate is justified. His guide argues that it is important that there is a transparent rationale for pay. But for some of the highest rewarded chief executives the pay rationale does not seem to be clear, at least on the face of it.

The process of collecting the information for the survey also showed some dubious attitudes to transparency. Where possible we used the same 150 associations that were surveyed last year. There were several substitutions however, because chief executives left midway through the year or different accounting arrangement made comparisons meaningless. But for some associations we could not make the comparison because it was so difficult to get the necessary information.

The vast majority of associations were very helpful and speedily gave out the figures we required. But for some it was like shining a bright light in dark place. It is a requirement that associations publish the pay details of their highest paid director. But we were repeatedly told that the information could not be given out over the phone. The Data Protection Act was even spuriously cited by some.

After persistent efforts we got there eventually. But some still refused. For example we were told by Presentation HA that if we wanted the information about Mohni Gujral's salary "so badly" we would have to look it up in Companies House.

Some associations clearly do not agree with Smith who argues that the more transparency in this area the better. His guide notes that there is a school of thought in the sector that believes press interest is an "irritant." Our experience certainly confirms that impression.

At the launch of Smith's report, corporation deputy chief executive Simon Dow encouraged Housing Today to continue to analyse pay in the sector. He revealed that the agency would be "keeping a close eye" on our surveys and added, "where we see divergence from the norm then it would be a subject of discussion between us and the association."

Irritating or not, this survey is likely to be examined every bit as closely as the last.

  • Graham Farrant director of housing Birmingham city council: 3 per cent increase to £77,800
  • Nick Raynsford housing minister: 4.3 per cent increase to £80,367 (last year: £77, 057)
  • Jim Coulter chief executive National Housing Federation: 6.6 per cent increase to £80,000
  • Anthony Mayer chief executive Housing Corporation: 12.5 per cent reduction to £117,122 (last year Mayer was given a one off bonus)
  • A junior qualified nurse (D Grade): 4.7 per cent increase to between £14,400 and £15,905
  • Average frontline London housing officer: up 3 per cent to between £17,500 and £21,500