How do you decide what to pay a CEO in the Education sector?

Over the years I have been asked to lead many salary reviews for CEOs in the Education sector. In every case, this needs to be bespoke work tailored to the needs of that group, school or university – and tailored to the question(s) that the Board wants to answer. Although my executive search work is now focussed on the Middle East and parts of Asia, my salary review work can take place anywhere in the world. Earlier this year, I was commissioned to review a salary for a CEO of a multi-academy trust in the UK. It was fascinating work and I wanted to share some (non-confidential) elements of that process in case others face similar questions in the future.

There is no pay scale for a school group CEO in the UK. That is unusual for a sector that enjoys clear pay structures; however, it is not unusual for a CEO role. CEOs often sit within their own pay scale in an organisation and there are many benchmarks to refer to in arriving at the ‘right’ conclusion about what to pay a CEO. Which ones you use will depend on your Rewards Strategy. These could be a mix of internal benchmarks (e.g. calculating salary as a multiple of the lowest paid person in the organisation) and external benchmarks (such as comparing the salary with other CEOs in the same sector to deduce the ‘market rate’.) Most of my work focusses on external benchmarking but before you can even begin that process, you must first identify the right people against which to benchmark.

Specifically, in this case, why is there no multi-academy trust CEO pay scale? The National Governance Association in the UK decided that for them to suggest a pay structure would be ‘arbitrary and without strong rationale’ given that ‘all trusts face different challenges and circumstances and will have different needs of their executive leader.’ The NGA guidance recommends ‘caution on just focussing on one specific consideration, for example, we need to consider the dangers of suggesting that growth is to be rewarded first and foremost’. 

To identify the important criteria that should be factored into a salary review for a multi-academy trust CEO, consider carefully the relevant guidance provided to the sector, from:

1.     Academies Financial Handbook 2019 (ESFA) – September 2019;

2.    Executive Pay: Issues for Consideration by Governing Boards of Academy Trust (National Governance Association - NGA) – January 2019;

3.    CST Code: Principles for Determining Executive Pay (Confederation of Schools Trusts);

4.    Staffing and Employment Advice for Schools (DfE) – October 2018.

Section 2.30 of the Academies Financial Handbook highlights that:

“The board of trustees must ensure its decisions about levels of executive pay (including salary and any other benefits) follow a robust evidence-based process and are a reasonable and defensible reflection of the individual’s role and responsibilities.”

There is no description of an appropriate evidence-based process although Section 2.31 calls for robust decision-making – [in which] factors in determining pay and benefits are clear, including whether educational and financial performance considerations, and the degree of challenge in the role, have been taken into account.

Wider issues identified in the guidance include:

-      Proportionality: such that pay and benefits represent good value for money and are defensible relative to the public sector market;

-      Complexity of the organisation as a relevant factor. The NGA summary of complexity includes pupils and their characteristics; number of sites; number of staff; number of challenging schools in the trust.

-      Affordability. NGA guidance states that ‘Remuneration packages must be affordable in the medium-long term, not just this year’

-      Plans for growth. NGA guidance states that ‘If your organisation is likely to grow then you also need to ensure that you have allowed for this in your pay range.’

In summary, the supporting guidance provided a useful summary of considerations and an indication of criteria likely to be relevant in deciding upon a suitable pay rage; however, it did not provide explicit criteria that Board members may apply. In the absence of nationally agreed criteria and following the guidance warning of over-reliance on one particular criterion, my recommendation is to consider the following six factors as guidance for reviewing the CEO salary range or as justification in using another CEO as a benchmark. These factors are all drawn from the narrative surrounding executive remuneration in the UK maintained school sector and are summarised as:

Six Critical Factors:

1.     Performance of the trust;

2.    Size of the trust;

3.    Plans for the growth of the trust;

4.    Complexity of the trust;

5.    Complexity of the role;

6.    Affordability of the salary.

Of course, once the critical factors have been identified then the real work begins. But, to make sure you are on the right track, due consideration needs to be given to these criteria.

Deciding on what to pay your leader is a strategic issue. I would be happy to share my thoughts on how your organisation can answer that critical question. Please feel free to email me at [email protected].