Capability-based pay on its own will not solve the civil service’s churn problem

Plans to link pay to capability are an important step to address government's retention and recruitment problems, says Alex Thomas, but they must be properly implemented - and funded
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By Alex Thomas

10 Nov 2021

How can the government recruit the best people, reduce the merry-go-round of civil service job moves, and get better at keeping officials with real subject expertise in the right posts?

An obvious answer is to change the incentives in the civil service pay system. A decade of wage restraint means that median civil service salaries have fallen in real terms by 14-17% since 2009. A civil service director’s base pay is half that of their equivalent in the private sector. While generous civil service pensions bridge around half the gap, the government has recognised that the current system requires reform.

For nearly three years it has been promising to introduce a new set-up called “capability-based” pay for senior civil servants. The system, currently being piloted, would see senior civil servants rated and paid as “developing”, “competent” or “expert”.

The government’s ideas, most recently set out in the Declaration on Government Reform published earlier this year and signed by the prime minister and cabinet secretary, are welcome.

Our new Institute for Government report, Pay reform for the Senior Civil Service, looks at the plans and reviews current levels of senior civil service pay. The government is right to want to do more to keep the best people in the right jobs, reward the most talented civil servants and encourage the development of deeper subject expertise. It is good for ministers and top officials to signal that they value job-related expertise, and the new approach builds on similar systems used by other employers to make career paths clearer and improve motivation and performance.

However, reforming pay is unlikely to do much on its own to reduce job churn within the civil service. Our interviews with private sector experts, professional bodies and civil servants themselves found that changing the criteria for promotion, and more focus from ministers and top officials on keeping people in post, will make a bigger difference.

Senior civil servants are motivated by the work they do, their seniority and their status more than by pay

Senior civil servants are motivated by the work they do, their seniority and their status more than by pay. So changing how civil servants are promoted and the skills that ministers and permanent secretaries value is a more important step towards reducing excessive turnover than tweaking how much government officials are paid.

Nevertheless, introducing the capability-pay system is an important step – if done properly. Failing to fund the initial £45m needed for the change, or the ongoing running costs of reform, would be worse for civil service morale and skills retention than doing nothing at all. Raising expectations about a new pay structure but falling short by not following through with the money to make it work would destroy the credibility of the scheme before it even began. If it is to go ahead the government must commit to ringfencing the money needed to fund the new pay system.

Another risk is the overlap and confusion we found about what is meant by “capability” and what by “performance”. Civil servants we spoke to understand the conceptual distinction – that capability is about the ability of someone to do a job, and performance about how well they actually do it – but this dissolved when we asked about real-world examples. If the government is to introduce capability-based pay, it must say exactly what it means and give HR managers a workable framework to measure “capability”.

And the government should not measure and pay for capability twice over. Another of our recommendations is that when capability-based pay is introduced, end-of-year bonuses should be scrapped. They are not used well anyway, too often turning into more of an annual horse-trading exercise than a genuine assessment of employee performance. This is an opportunity to end what has become an ineffective system and to avoid the duplication that would follow the introduction of capability-based pay.

The government is right to want to reform civil service pay, and right to pilot changes carefully to avoid making needless errors that end up damaging the recruitment prospects and motivation of people with the skills that are needed. The introduction of capability-based pay will be an important milestone in the reform effort, which must not be undermined by a lack of funding from the Treasury. But ministers and senior civil servants should not pile more expectations on this particular reform than it can hope to achieve in reality.

Alex Thomas is a programme director at the Institute for Government, leading work on policy making and the civil service. He tweets as @AlexGAThomas

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