Academy trusts under pressure on executive pay

Chairs of academy trusts in England are facing increasing pressure from the Department for Education (‘DfE’), itself under pressure from the Public Accounts Committee, on the salaries trusts pay to their senior leadership teams.

All Chairs received a letter on this issue from Lord Agnew, the Minister with responsibility for academies and himself a former multi-academy trust Chair, on 21 February 2018. Other letters have been sent in recent months by Eileen Milner, Chief Executive of the Education and Skills Funding Agency (‘ESFA’), to single- and multi- academy trusts paying salaries of over £150,000, or paying two or more salaries between £100,000 and £150,000.

Trusts should already be aware of their obligations to properly use public funds. The recent letters indicate that these obligations, when relating to executive pay, may tighten.

For instance, Lord Agnew wrote that: “CEO and senior pay should reflect the improvements they make to schools’ performance and how efficiently they run their trusts. I would not expect the pay of a CEO or other non-teaching staff to increase faster than the pay award for teachers. […] My view is that we should see a reduction in CEO pay where the educational performance of the schools in the trust declines over several years.”

Meeting Lord Agnew’s expectations could impact on the terms of trusts’ existing employment contracts with their senior leaders.

The context for the ESFA letters is the Public Accounts Committee report on academy finances, published on 30 March 2018. Executive pay in academies was one of six areas of focus of the report, [analysed in more detail in a separate article of this Bulletin]. On publication, Meg Hillier MP, Chair, commented that:

“Excessive trustee salaries deprive the frontline of vital funds and it is alarming that, in two-thirds of cases where Government has challenged individual trusts on pay exceeding £150,000, it has not been satisfied by the response.”

The Committee concluded that some academy trusts appear to be using public money to pay excessive salaries, and therefore recommended that the DfE should extend its work to challenge all academy trusts that are paying excessive salaries and take action where these cannot be justified.

The Committee’s findings on other points contextualise its conclusion on executive pay.

In particular, the Committee addressed ‘related party transactions’ – that is, a business arrangement between an academy trust and an organisation or a person with whom those responsible for the governance of an academy trust have a personal connection. In instances of bad practice, trusts enter into contracts with businesses connected to senior leaders that effectively amount to additional pay to those senior leaders.

The Academies Financial Handbook sets out the existing rules on these transactions, but the Committee considered these too weak to prevent abuse. The Committee recommended that the DfE should tighten the rules in the next version of the Academies Financial Handbook, expected in July 2018, to prevent academies from entering into related party transactions without approval from ESFA. (For more general detail on this issue see Elizabeth Fortin’s article in this issue of the bulletin).